Oct 122013

Future Bitcoin

In 5 years, Bitcoin has gone from proof of concept to over $1 billion in market cap, providing about 25 million transactions to date and proving, once and for all, that a decentralized peer to peer crypto-currency is possible and maybe, just maybe, we are ready for it. That being said, Bitcoin does have a long way to go to become the de-facto currency. It is not just the hashing power that has been seeing an exponential growth – the interest among the common folk is growing every day. Bitcoin is reaching the people all over the world and it is sometimes good to remind ourselves that this is a technological revolution above all and will take time to reach everyone and be widely adopted (not unlike the Internet).

But what are some of the stages that Bitcoin needs to go through to achieve this? I believe there will be several milestones that this nascent currency of the people will hit before reaching mainstream adoption. Here are some of them, in no particular order.

  • A big company/corporation with real paying customers decides to deal exclusively in Bitcoin, removing fiat from the picture and ‘closing the loop’ on Bitcoin, so you can earn and spend in Bitcoin without an intermediate fiat conversion. There are smaller initiatives, e.g. Tealet that are moving towards exclusive Bitcoin trades. However, there are no big serious companies today that deal exclusively in Bitcoin. When this happens, people will be forced to do the opposite – get their fiat and convert that to Bitcoin so they can buy things that they need. This should be a huge step and big boost to Bitcoin and crypto-currencies.
  • A Bitcoin stock exchange gets implemented and a known company goes public, selling shares on this exchange. This isn’t as far-fetched as it might seem. The idea of a stock and bond market in the Bitcoin world is already documented. If I have to make a prediction, I would say within the next 5 years we’ll see a working model of a Bitcoin based stock exchange. The only way common public will have access to equity in these companies is by using Bitcoin.
  • Wall Street gets seriously interested. As much as you might hate the financial sector right now, they do have the means to help with the adoption of Bitcoin, not just through funds like SecondMarket but through real trading, by making the markets for Bitcoin to fiat conversion and providing the necessary price stability and liquidity. Of course we have already seen some interest, e.g. from Bloomberg, but when real traders with real money on the line for their clients start trading Bitcoin, that’s when the financial services industry would have truly adopted the idea.
  • Within a country, the number of Bitcoin transactions exceed fiat. This might take some time, but shouldn’t be too far-fetched depending on the geo-political situation across the globe. If people lose faith in their government’s money, they are bound to adopt something with tangible benefits over fiat currency like Bitcoin. Once trading in Bitcoin overtakes government issued fiat, it would have reached that tipping point where the better currency would survive (pop quiz: Gresham’s Law wouldn’t apply here. Why?) That opens up the Bitcoin market to a huge extent – everyone from ordinary citizens to tourists to officials would need to get on the new, better currency system.
  • Smart property gets implemented by a major hardware vendor. This would be a game changer when it comes to technology because smart property is one of those areas that are not too hard to implement from the software side for Bitcoin developers but is a challenge building hardware designed for it. This is also an area where ordinary fiat money doesn’t even come close to challenging what Bitcoin can do. The marketplace for this can be phenomenal.

Note that nowhere am I looking at the ‘price’ of Bitcoin or the exchange rate BTC/USD because it is immaterial.

What are some major events I am missing?

Photo Credit: Alberto

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