It appears there are many cryptocurrency speculators who are waiting for the moonshot event in the price of their cryptos. Amongst millennials participating in online forums, a common question asked is:
To clarify for the older generation, this question is simply asking:
When are cryptocurrency prices headed so high that they hit the moon?
There are even fun websites such as when-lambo.com which calculates when your cryptocurrency holdings will be able to purchase a Lamborghini. But fun and games aside, the moon question is a legitimate one.
So then, when moon?
To envision how cryptocurrencies will be adopted and used in the future, they must present an important use case needed by society. As stated in previous articles, at present most altcoins offer very little utility or usefulness. However, due to its decentralisation, network power and talented development team, Bitcoin has a shot, albeit an ambitious one, at displacing the US Dollar and even gold as the centre of global commerce.
Bitcoin offers tremendous value to the user, be it an individual, multinational corporation or even an entire country. Bitcoin is a peer to peer network that allows for the transfer of value without the need for a central authority in an immutable, censorship resistant way. The Bitcoin Blockchain is the largest, most powerful, unhackable decentralised network for the transfer and storage of data.
But to answer the moon question in depth, perhaps it’s easier to outline what must happen to Bitcoin, and how it must develop in order for it to be useful to the world.
The Bitcoin experiment
It’s important to acknowledge that Bitcoin is an experiment in monetary science, and as is often the case with science experiments, may not end up working. If this monetary experiment fails, then the $20,000 high in the Bitcoin price seen last December may very well have been the moon.
The $20,000 high was due to pure speculation and hysteria, as there was little usage in Bitcoin as a technology. In fact, today there are hardly any Bitcoin transactions on the network. Bitcoin fees are incredibly cheap and transactions are confirmed in the next block, meaning that usage and demand for transactions is currently very low. If the speculative money completely leaves the cryptocurrency ecosystem, the price of Bitcoin may fall drastically to levels which more accurately represent the supply and demand of the underlying usage. If this results, then the answer to the question “when moon” will have been December 2017.
On the other hand, if this experiment succeeds, then cryptocurrencies, most likely Bitcoin, will potentially one day be utilised at the centre of global commerce in much the same way that the internet today is the backbone of global communications. Therefore in envisioning how the adoption of Bitcoin will play out, perhaps it’s suitable to compare it to the growth of the internet.
For widespread adoption of Bitcoin to occur, it first needs to scale into a fast, cheap and efficient payment network where the coins used within the network can also be used as a store of value. Second layer solutions such as the Lightning Network are currently being developed which should eventually allow Bitcoin to scale on mass.
From there, a general acceptance that Bitcoin as a technology is here to stay needs to be established. Similar to the internet in its early days, Bitcoin needs to prove itself as a useful technology on which companies can transact and build on. In the same way that industries integrated the internet into commerce, household names accepting Bitcoin as a payment method will generate further adoption.
The 1990s saw several companies such as Netscape attempt to build their own internet. Some confused Wall Street firms not fully understanding the internet even tried to buy it! In a similar fashion, companies will unsuccessfully attempt to create their own blockchains and will experience hacks and 51 percent attacks.
Much like the limitations of a company’s internal intranet, closed blockchains will be viewed as restrictive and unsuitable in most circumstances. Over time, the difference between a closed, private blockchain and Bitcoin’s Blockchain will become apparent. Attacks on smaller blockchains will illustrate the importance of decentralisation and network power, of which the Bitcoin Blockchain is the largest, most decentralised and the most powerful. In the same way the world now operates on one internet, Bitcoin’s Blockchain may one day be simply known as ‘The Blockchain’.
The Blockchain will then be used to settle large international trade payments. Pension funds will begin diversifying some of their assets into Bitcoin through SEC approved financial instruments. Countries under heavy financial sanctions such as Yemen, Iran and North Korea will begin to use Bitcoin to circumvent financial blockades. Massive offshore tax haven funds will start to diversify into Bitcoin due to it being the world’s only unconfiscatable asset. Governments and central banks will start to allocate their country’s reserves into Bitcoin the same way they currently do with gold. As a side note, some smaller central banks have already started to do this. At this point, Bitcoin will gravitate towards the centre of global commerce.
So when is this likely to happen, if at all?
Dethroning the US Dollar as the world’s reserve currency is a tall order and a far fetched idea in the minds of most. Just as the internet took a generation to fully build out, scaling Bitcoin will most likely take a generation or two. The expansion and development of the internet into what it is today took nearly thirty years. Along the way, silly dot com IPOs with ridiculous business ideas came and went, companies tried to corner and buy shares of the internet, while others attempted to create their own. All the while, many mainstream economists such as the New York Times’ Paul Krugman declared the internet to be a passing fad.
This process may be relived with Bitcoin and The Blockchain.
If this grand experiment in monetary evolution succeeds, that will mean the legacy banking system will be less relevant in our lives. It will mean that all citizens of the world will be able to trade fairly and extremely cheaply with each other in an uncensorable, uncorruptible way. Larger countries will no longer be able to hold smaller countries at ransom, and the over two billion unbanked individuals throughout the developing world will have access to basic financial services. Elections will be fairer due to votes being cast and recorded on The Blockchain, and individuals will have monetary sovereignty over their own wealth. The success of Bitcoin and the innovation of its miners may also lead to the world adopting cleaner and more efficient methods of energy, perhaps even the discovery of free energy. At this point, we’ll all be on the moon.