A lot of us wonder whether Bitcoin and the like will succeed. Even some of the strongest crypto advocates I’ve talked to make allowances for doubt, as they should. What I have found is that within the echo chambers of Reddit and Facebook there seems to be religious-like black and white views about whether blockchain technology will “gain global adoption.” There are some seriously good arguments both for and against, for example:
- Negative: governments will not unilaterally give up their power to issue currencies and control monetary policy. If blockchain’s benefits were as great as advertised we’d have already seen more real-world use
- Positive: public, profit-seeking companies are actively looking for less cumbersome and expensive payment processing, and are always looking to reduce costs to boost earnings. Cryptos solve many of these problems and others like them and have a huge number or real-world uses
The road forward will be a mixed bag. Ultimately, crypto has to be weighed against the competition, people have to be convinced by its benefits, dissuaded from fearing its pitfalls, and willing to at least in some form part ways with the government fiat currency to which they’re used to. Either way, it’s not like crypto needs to have such widespread-use that your parents or grandparents need to be transacting in crypto in order for you to realize some fantastic gains on your crypto investments. We’ve already seen what companies, countries, and individuals announcing their adoption of crypto can do prices.
We’re in the digital age, and cryptocurrencies are digital money. We spend an average of 50 days per year looking at our smartphones. E-commerce is expected to account for 50% of retail spending by 2030. As pointed out in this HBR article record-keeping, banking, and transactions have remained stubbornly slow to change despite the digital transformation. This is because so many people- from mortgage brokers to loan underwriters to bank tellers- make their living from these legacy systems. If you buy an item on Amazon, it will still take up to 72 hours for that transaction to ‘clear’ on your bank account. This opens up the possibility for banks to ‘confirm’ which transactions they’d like to first.
The frictions created by middlemen and clearing/settlement periods
Let’s say you have $150 in your account, and spent $160, $30, and $5 on three occasions on the same day. If there is an overdraft situation, the bank will confirm the largest transaction first ($160) to take your account into the negative- and then hit you with overdraft fees for both the $30 and $5 transactions. If the bank had ‘settled’ your $30 and $5 transactions first, you would have only been hit with one overdraft fee instead of three. This is 100% legal, and banks knowingly do this to optimize their fee revenue. This clearing period is also a headache for businesses transacting with each other as well. Wouldn’t it be great if transactions were settled at the time of transaction? With oracle cryptos and blockchain based transactions, crypto holds millions of middlemen, institutions, and government agencies accountable for the services they provide. When smart contract technology is available and ubiquitous, how will these inefficient actors hold up? It’s hard to imagine that there won’t be at least some change.
Both Fortune 500 companies and crypto projects are pushing for adoption
One of the fastest ways crypto could gain adoption is if a major player like Amazon or Walmart or a nation-state either required its suppliers to transact with them in cryptocurrency and/or accepted crypto as payment. In the first scenario, this adoption of crypto would be entirely in the background- customer-facing prices (B2C) and transactions would still be in fiat, while B2B transactions would be in crypto. In just a short while, this won’t be an imaginary scenario- on September 7th, 2021 El Salvador’s bill stating that Bitcoin will be an official legal tender will become law. This means all companies operating within its borders- including the likes of Starbucks, Walmart, Amazon, McDonalds, and [insert Fortune 500 company here] must accept Bitcoin as legal tender. If the El Salvador experiment proves successful, other nation-states will likely take a crack at accepting crypto. Businesses would have to make the capital expenditure to set up their crypto infrastructure. It will then be much less of a reach for a Walmart or an Amazon to start conducting B2B crypto transactions with their suppliers in order to lower costs. Walmart has roughly 2,800 suppliers, and Amazon has a whopping 1.7 million suppliers- and both have unmatched bargaining power against their suppliers. If these companies were to hop on the crypto train, it’s hard to imagine that the network effects wouldn’t reach a critical mass.
In addition to being awesome technologies, many cryptos have leadership spending millions to drive adoption. The most notable is Charles Hoskinson and his promotion of Cardano with nation-states, including having a use case for Ethiopia (population 112 million) to track student information with blockchain technology. This may not necessarily boost the price of Cardano via supply and demand dynamics- but remember, the real thing that will boost the price of all cryptos is real-world adoption. Ripple, although a private enterprise, seeks to implement cross-border payments for a fraction of the current cost and actively works with scores of banks and firms to implement its technology. If you have doubts about such technologies quickly taking hold, look no further than WeChat. WeChat went from very few users to the chosen payment platform of 2.5 billion unbanked worldwide, and remains an extremely popular choice for the movement of funds.
Crises & discomfort breed innovation
In December 2007, Kenya descended into turmoil after a fraudulent election. Citizens boycotted various institutions and businesses, including some banks. This helped give rise to M-Pesa, a mobile payment system now used by over 100 million people. In the couple of years following the 2008 financial crisis, gold tripled in value from ~$900/ounce to ~$2,200/once. When there are crackdowns on crypto and tech in China, investment flees- getting private wealth out of the country is something of a national pastime for its citizens. The theme here is that when times are rough, there’s enough impetus for change. If crypto can come through as a messiah when things are shit, the number of believers will grow. With the world still going through a pandemic, there is plenty of reason to believe a crisis is on the horizon given ballooning government debt levels.
It will be gray, and it will take a while
Much of the reason why we haven’t seen more adoption of crypto is because the institution of centralized finance has taken an unshakeable root within society, and has a cemented relationship with governments everywhere. When attempting to predict the future of crypto, it’s always best to lay out a range of scenarios- most of which are not black and white (crypto either succeeds and is everywhere or fails and is nowhere). The most likely scenario is that crypto will work together with existing businesses and fiat currency- and blockchain technology will find some unexpected use cases along the way where immense economic value can be delivered.