The Evolution of Bitcoin

 

By Adam Wyatt: 07/18/2014

Can You Predict The Future Of Bitcoin?

Like the old adage “through a glass darkly,” predicting the evolution of Bitcoin is much like, in the early 1990s, trying to accurately describe the future of the internet. Too many factors with too much complexity will influence its future position in the currency world, including government regulation, market conditions and general economic growth, and the technology supporting it.

In the late 1980s, Ray Kurzweil wrote “The Age of Intelligent Machines.” He was spot on with his description of the World Wide Web. On the other hand, Paul Krugman, in the late 1990s, was wide of the mark with his prediction that the internet would have little overall impact on the economy. He compared its ramifications to that of the fax machine.

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Simply trying to predict the current economy for the next year is dicey. Trying to look several years or decades ahead at the effect of Bitcoin on the market is just that much more dubious. Among the other factors, like regulation, market conditions and technological advances, one must consider the profound effect of how easy people find it to accept Bitcoins as a natural part of the economy.

So accepting the landmines that come with attempting to predict the future, let us look at four scenarios for the evolution of Bitcoin.

Bitcoin Never Achieves Mainstream Status

This scenario assumes that Bitcoin never manages to lose its fringe aura. Speculation and illegal activity keep dogging it. The price remains volatile, reinforcing people’s skepticism. It never manages to engender trust, with potential users fearing security problems.

In this case, Bitcoin exchanges collapse, which simply reinforces its use for the sale of illegal goods and services. It is a product sought by speculators but not mainstream investors. All this tends to repel and crowd out those who would be the legitimate users of this new currency.

Much like penny stocks, Bitcoin has a fly-by-night feel about it. All of this precludes its advantages from stepping to the fore. Its benefits are never realized.

It will be easy to spot this scenario. For example, look for: an exchange collapse, ongoing security breaches, operational failures, volatility, a major, and sudden crash of the Bitcoin currency. The encouraging news is most of this has already happened with Bitcoin and yet it’s still here.

This doesn’t have to happen. The Bitcoin ecosystem might right itself, dealing successfully with trust and security issues. And the impetus of all the technological advantages might simply overcome consumer temerity.

Back Office Use Only

In this scenario, the mainstream consumer doesn’t use Bitcoin technology. Instead, payment processors use the new application in their proprietary payment systems, relying on advances in cryptography for security issues and transaction validation through the Bitcoin blockchain.

Today many internet protocols are in constant use, but never seen by the everyday consumer. In this scenario, this would be the role played by Bitcoin. The majority of internet users would never actually hold bitcoins.

Those accepting payment would be using the Bitcoin protocol as an integral part of their system. A big plus is that this would reduce fees for payment cards and virtually end exchange risk.

In this scenario, Bitcoin becomes one of the backbones of internet commerce. Mainstream institutions would use its protocol as the technology is perfected.

You can tell if this scenario is happening by looking for these events: Bitcoin offers credit and fraud protection, much like credit cards do today, and Bitcoin payment cards become common.

This won’t be how Bitcoin evolves if the big payment companies match Bittcoin’s lower fees but don’t adopt its protocol. Likewise, if big business continues to avoid open-source technology, this situation won’t come to pass.

 Bitcoin Goes Mainstream

In this scenario, the Bitcoin protocol becomes the basis for all types of transfers involving high-value assets. These might include property transfers, contracts and identity management, in fact all transactions that involve trusted third parties.

This will revolutionize these functions and the services that support them. Professionals like lawyers and market traders will support the new protocol by writing code and doing other tasks that underpin the blockchain.

In this scenario, market participants will be able to get a daily download of the market ledger for commodities such as stocks and bonds.

It will be easy to see if this scenario comes to pass. Look for these situations: Is physical property being transferred over the blockchain? Are options and other instruments of the market economy created and traded using the blockchain? Has a central clearinghouse for all things Bitcoin been started?

Several things might stop this scenario from coming about. If our current dependence on the current system is especially strong, the market might prevent such a momentous disruption. Stakeholders and their interests might be so threatened that they would solidly challenge such a change. It is even possible that technology might not be in place and able to handle the needs of safe, efficient Bitcoin use. The switch would require a huge demand for skilled programmers. If they are not available, the technology for the switchover could not develop.

Bitcoin Takes Over

In this scenario, a new model for work and employment would evolve directly from the Bitcoin protocol. Since micro-payments would be easy to accept using Bitcoin, it would be simpler for individuals to get paid for small tasks. In addition, Bitcoin lets users receive both income and utility by adopting it.

Bitcoin allows for a more decentralized, peer-to-peer driven economy. Free areas of the internet, like social media and email, could potentially provide income for their owners while supplying service and utility for people participating in the network.

 Which Will Happen?

Each of these scenarios is possible. In the near future, it is very feasible for number two to happen. This would lay the groundwork for scenarios three and four.

Skeptics have called Bitcoin the Esperanto of finance. Esperanto was much vaunted at the turn of the last century, a universal language that would make peace inevitable, leading to worldwide prosperity and contentment.

But even skeptics are taking a second look at Bitcoin’s possibilities.

In “New Rules for the New Economy,” Kevin Kelly of Wired magazine writes, “The great benefits reaped by the new economy in the coming decades will be due in large part to exploring and exploiting the power of decentralized and autonomous networks.” That sounds like Bitcoin.



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