As some one who has been involved in cryptocurrency since 2011, I have been able to develop a fairly unique perspective on how the community has developed up to this point. I have been able to watch it grow from the inside, often involved in projects to help it grow. In so many words I have witnessed how “the sausage” is made if you will. From the early days when people were trading pizzas for coins to today when the cryptocurrency market cap is breaking 100 billion dollars, a lot has happened, and yet we still have a long way to go. My goal in this article is to cover what I see the future of the cryptocoin world developing into.
From the very start cryptocurrency has been a disruptive technology, and has done so with intent. In Satoshi’s white paper for Bitcoin he talks about the corruption of the financial system, and the intent of the project to provide a fair method of exchange for people not manipulated by constant inflation like the classic economy suffers from. Furthermore cryptocurrency proves the opportunity for virtually anyone to exchange value internationally without any 3rd party interference. Of course by its very nature, the corporate world, especially the financial system, and well as governments and regulatory agencies are not very enthusiastic about this aspect of cryptocurrency. This system breaks a lot of profit models, and makes regulation difficult. As a result of this governments around the world have been keen to find ways of regulating the cryptocurrency world and forcing it back into the mold of the classic economic system.
For a while the cryptocurrency world was too small for these entities to bother with, but that is quickly changing as blockchain technology becomes the new digital powerhouse for technological development. Additionally it took a while for these companies and regulators to catch up on the technology. People within the system had to learn it, and they had to hire people who were familiar with the system in order to be able to have any effect on it. This period is ending and regulators and corporate entities are stepping into the cryptosphere in a big way. This has become increasingly evident with large corporate backed ICOs as well as big money backing projects such as Ethereum and Ripple. On the regulatory end of the spectrum the US government recently introduced legislation that would not only significantly regulate cryptocurrency, but many of the products used to exchange with it such as gift cards. These developments in my opinion will result in the following.
The corporate side of cryptocurrency will continue to grow and take up a majority of the market cap of cryptocurrency. Even if the current bill in the US is not passed, something like it is inevitable in the future at least on a federal level. Other governments are moving in the same direction as far as regulation of cryptocurrencies. China’s recent lock down of exchanges in order to implement AML and KYC policies is another good example. Places like Korea already have strict policies on such transactions. This covers a large majority of where cryptocurrencies are traded.
The corporate backed coin projects of course will cooperate fully with the new government regulations, along with the exchanges of course, as their economic models are dependent on their connections to the existing banking system. Anyone who is interested in preserving their anonymity and economic freedom will again largely be shut out and be forced to move to more person to person trading, using decentralized exchanges, and using exchanges in jurisdictions less concerned with these regulations. This will cut off access to trade volume for these individuals to a large extent and seriously limit their liquidity.
Of course there will be exchanges and coin systems that will resist their hybridization with the classic banking system, but they will be increasingly isolated and funding will flow mostly into the corporate backed models. This will result in a sort of two tier cryptocurrency economy. There will be the high velocity, high volume, high profit world of the corporate backed regulated system, and the smaller free distributed systems piecing together solutions to work around these control systems. To a large extent the free economic version of cryptocurrency systems will again become a more niche economy like Bitcoin was in its infancy. It will have its place, but it will largely be sidelined by the corporate controlled and government regulated systems. Throw in a few high profile hacks, and people will be begging for cryptocurrency to be regulated.
Old salts in the cryptocurrency world understand this as the cost of doing business and take steps to mitigate these risks. However with the increasing mainstreaming of the cryptocurrency world, the new users will expect these systems to more closely match what they are used to within the classic banking system. In short the large portion of the cryptocurrency world will become a blockchain version of the existing banking system. The real question is, which is more important to you, the ability to have free trade in a currency not constantly devalued by inflation and not subject to seizure, or fast profits eventually resulting in putting you back in the box cryptocurrency just gave you an opportunity to escape?
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