Singapore, SINGAPORE – Amidst the popping of Cristal and the revving of Lambos, the “get-rich-quick” ethos of the early, heady days of the cryptocurrency revolution are well and truly behind us. Fortunately (or unfortunately), I was there in the thick of things, on the yachts, sipping MUMM (they ran out of Cristal), watching the newly minted crypto-rich rev their Lambos (there were Ferraris too), watching them talk of buying properties and living lives of carefree excess. Unfortunately (or fortunately), I was also there, as a personal counsel (non-legal) to them as they watched their digital fortunes evaporate into the ether (pun intended). Many became shadows of their former selves, others contemplated going back to their old jobs. Still others persisted, albeit with far less confidence and bravado than before. And for those of us who have and continue to persist, I’d like to write a bit today on why the journey of cryptocurrencies is likely to take about 10 years or more, so buckle up, this could take awhile.
Having seen the first two dotcom cycles — yes, I am that old, I’ve witnessed firsthand and up close the technical, social, economic as well as political factors which laid the groundwork for the completion of the web as we know it today. And while there are many similarities, there are also unknown unknowns and unknowable unknowns. Because of this, a decade is my best guess for the score to be settled on cryptocurrencies.
1. The Technical Reason for a Decade
Any seasoned coder can tell at one glance whether someone learned to code as an adult or as a child. Just like it’s easy to see if someone learned how to swim as an adult or as a child. If someone learned to code as a child, their solutions tend to be more elegant (that is not to say of course that everyone who learned to code as a child falls into this category, I am making generalizations) as compared to someone who learned to code as an adult. While both pieces of code are likely to work, the elegance in someone learning to code stems from a child’s inherent curiosity and ability to view the world in a yet-formed way — a fresh look perhaps. Coders who learned to code as adults on the other hand, have a tendency to be more pedantic and rigid (perhaps we are fearful that we’ll miss out something). I should know, I only learned how to code as an adult — the differences are obvious.
When it comes to the blockchain, everyone up till now has learned the programming languages of the blockchain as an adult. Even though Satoshi Nakamoto’s Bitcoin whitepaper has been out for over a decade now, many of the children who are learning to code using languages such as Go (2009) and Solidity (2014) are only really just beginning to unlock their full potential — being such a new language. And yet other protocol projects have also developed their own programming languages, the popularity of which will only be seen with time.
2. The Social Reason for a Decade
Social change takes time and cryptocurrency adoption or abandonment are no different. Today, the infrastructure which could support greater cryptocurrency adoption as well as acceptance is simply not available — compound that with the extremely high levels of volatility that cryptocurrencies provide to anyone dealing with them and it’s not hard to see why there is a general reluctance to pay them more attention.
Consumers today crave convenience. Amazon Prime sealed that fate for those of us fortunate enough to afford it. We live our lives on our smartphones, with enough power and connectivity to summon all the material goods of the world, we are like modern day kings and queens, able to summon virtually any worldly good through a few gestures on our smartphones — digital genies in a bottle.
Given our propensity for convenience, it’s entirely understandable why the take up for cryptocurrencies has been low. Transactions are slow, but even when they aren’t slow, they’re cumbersome. Keeping our private keys safe is laborious and farming that duty off to someone else can be disastrous. The many protections, fail safes (what happens if you lose your private key?) and convenience which the current state of the web provides us is orders of magnitude beyond what cryptocurrencies and the blockchain are able to provide at this point. But it’s naive to think that consumers will eventually get used to dealing with the cumbersome nature of cryptocurrencies. Just like the flow of a river, people tend to follow the paths of least resistance. So if cryptocurrencies continue to be difficult to handle and administratively bothersome, most people will simply not bother to deal with them. And if customers are not itching to spend them, merchants will not be in a hurry to accept them nor to pay for the processing capabilities that would be required to support cryptocurrency payment ecosystems.
But to build the infrastructure that would allow for the same or greater level of convenience that we currently enjoy on the web for cryptocurrencies will take time. And as mentioned earlier, the people who will be best equipped to build the infrastructure to make cryptocurrencies accessible are just getting started. Again, if the experience of the dotcom era is anything to go by, this process could take up to a decade or more.
3. The Economic Reason for a Decade
For now, with the vast majority of developed world currencies relatively stable (thanks in large part to central bank intervention), there is little developed world demand to ditch the current financial system. The story may be different in countries like Zimbabwe and Venezuela, which have both experienced hyperinflation, but by and large, the rest of the world seems quite content to stick to fiat currencies (government issued currencies). But there are economic winds of change approaching which may have the potential to upend those assumptions — chief among which are the scores of unbanked across the globe who have hitherto been excluded from the global money system and the fruits of globalization.
To gain access to the banking system, you need money. For many of the world’s unbanked, their inability to access the banking system and develop a credit history, hampers their ability to take loans, grow savings or to make investments. As profit-generating entities, banks have no incentive to serve the world’s unbanked populations and the unbanked have limited ability to pull themselves out of the poverty cycle because of their inability to access the banking system — a typical vicious cycle of poverty. But that doesn’t mean that the world’s unbanked are taking the matter sitting down. In some parts of Africa, mobile phone minutes are used as a form of pseudo-currency, traded for other goods and services — a feat which decades ago would have been considered impossible. M-Pesa, which operates in Kenya and Tanzania, provides a mobile phone-based money transfer, financing and microfinancing system — completely cashless. Already, scores of people across the developing world are growing more and more accustomed to the concept of digital payments and abandoning cash money for these more convenient methods of the transfer of value. Just as Africa skipped past expensive copper telephone lines to embrace mobile, the developing world has an opportunity to skip pass dollar dependency (which keeps many of them in poverty) to embrace cryptocurrencies. With a growing comfort with digital forms of money, it won’t take a quantum leap to embrace decentralized digital forms of money — with their patchy track records, African governments have been particularly adept and fiscal mismanagement — if and when cryptocurrencies become a viable alternative, there is every incentive to ditch both local currencies as well as the dollar — the end of servitude to both local and foreign overlords.
But this leap will take time. The level of infrastructural development to support rapid and robust cryptocurrency transactions is still being built out. And for it to realize it’s true potential, could take up to a decade or more.
4. The Political Reason for a Decade
Finally, there are strong political reasons for cryptocurrencies to be undermined and regulated by governments. As a sovereign, one of the key powers of a country is the ability to print and circulate its own currency and coinage, in whatever form a country’s government so chooses. This extremely powerful ability keeps citizenry in a form of debt bondage and despite governments (in most parts of the world) being expected to serve citizens, this one very powerful tool actually keeps citizens in the employ of their governments. Because the electorate has almost no say in monetary and fiscal policy, the value (in terms of purchasing power) of the currency which citizens earn, fluctuates with the ebb and flow of forces far beyond their control. Cryptocurrencies present a direct threat to this powerful stick that governments across the world yield over their citizenry and you can bet your last dollar that they will do everything within their power to keep that stick.
From capital controls to tax evasion, governments have myriad incentives to prevent the rise of cryptocurrencies. But a new globally-conscious, socially and politically liberal rise to counter the rise of populism means that a political change is afoot — who will win is too early to call. Nowhere is this battle for the soul of a nation more apparent than the United States. The rise of globalism has heralded an era of growing populism and tribalism. Where charismatic leaders can make bold promises and play on our innermost fears and prejudices, painting the world as “us” versus “them.” But populism has not delivered the knockout punch its supporters may have been hoping for, as demonstrated by the recent U.S. midterm elections, when Democrats from a diverse range of backgrounds claimed the House of Representatives — the first time in almost a decade. How America settles its direction will serve as a backdrop for other democracies and which worldview ultimately prevails will have a huge impact on the adoption rate of cryptocurrencies.
Cryptocurrencies, thanks to their subversive nature and decentralized origin, are inherently libertarian. Controlled by no one, cryptocurrencies are controlled by everyone. The concept of taking your own, personal, fiscal policy into your own hands can be simultaneously daunting and empowering. But cryptocurrencies undermine the existing power structures and world order upon which democracies such as the United States, Europe and United Kingdom are currently built on — and they won’t go down without a fight.
As the struggle for ideological dominance rages, the war could take a decade at the very minimum to end. Today, Millennials who are entering their peak income-generating years are finding that their salaries are insufficient to gain a foothold onto the property ladder. Increasingly, they are starting to question many of the assumptions which their parents held as forming the basis for a good life. A similar time also existed in recent history — the era of the landed gentry and the monarchy in Europe — the rent-seeking nature of the aristocracy and the blight of the landed peasantry meant that it was only a matter of time before the peasants revolted and rose up against the inherent unfairness of the system. Today, a new class of landed aristocracy has arisen — they tend to be older and in positions of power, both economic and political and control the stock of capital of a country and there’s no assurance that the youth of today and tomorrow will be content to accept that as status quo.
Today, for the first time ever, the youth of America actually believe that they will be worse off than their parents’ generation and one of the key reasons for this is labor’s share of income. Over the past century, the controllers of capital have prospered greatly from globalization and access to the corridors of power, much at the expense of the 99%. Laws have been shaped to favor the rich as well as allowing them to pay the least in taxes. Wages on the other hand have simply not kept up and with inflation, meaning that over time, labor’s share of the economy’s fruits will gradually be whittled down — potentially to unacceptable levels. Cryptocurrencies, would democratize access to capital and decentralize the power brokers who seek to control it. As ideological battle lines are drawn, which worldview will prevail is anyone’s guess, but could take well over a decade to settle.
Progress takes time. My estimate of a decade to settle the score on cryptocurrencies is a best-guess estimate. It may take longer, it may never happen or it may take a shorter period of time. Given the hyper-accelerated boom-bust cycle of ICOs (initial coin offerings) in late 2017, as compared to the boom-bust cycle of the dotcom era, there is reason to believe that whether or not cryptocurrencies will prevail will be settled at an accelerated speed. A decade may seem like a long time, until you live it. As Anthony Robbins famously said.
“People overestimate what they can do in one year and underestimate what they can do in ten.”
As humans, we can’t help but only look into the near future (often no more than five years) because there are so many unknown unknowns and unknowable unknowns — making any plans beyond that period, an exercise in futility. Even the communists at the height of their power stuck to five-year plans and look where that got them. Given the fluidity of the world we live in, a decade is a dalliance, especially when it comes to cryptocurrencies. And while the past provides good reference material, there is no guarantee that cryptocurrencies will develop on the same trajectories that the web developed on, or that they will even develop. The technology behind the blockchain and Bitcoin is sound — as is its economic rationale — as a store of value — but that doesn’t mean that it will persist. Could Bitcoin one day be worth US$1 million? Possibly, but US$1 million may not mean in a decade what it means to us today. The same way a million meant an entirely different thing in the first half of the twentieth century as it does today. As the cryptocurrency markets begins to drain of both capital and con men, it is up to the remaining participants in this space to figure the path forward, but given the sheer human energy, the passion of the people and the conviction of beliefs, a decade will be here and gone in a flash.
The writer is Patrick Tan, Partner and General Counsel for cryptocurrency quant trading firm Compton Hughes.