The following article runs through five possible scenarios in which cryptocurrency use becomes widespread. They aren’t necessarily mutually exclusive, but they range from situations where adoption is more mundane and gradual to situations where it’s more dramatic and sudden.
In most cases, greater cryptocurrency use will be driven by a greater distrust in the legacy financial system, by greater support from institutions and banks, by a growing recognition of the efficiencies of cryptocurrencies (and blockchains), and by a greater desire to use cryptocurrencies as a store value.
Scenario 1: More Of The Same, Crypto As Store Of Value
The first scenario, and arguably the likeliest, is that widespread cryptocurrency adoption occurs in the same way gradual adoption is happening now. It will be a piecemeal and long-term process, as more individuals and institutions realize the benefits of holding cryptocurrencies such as Bitcoin, mostly as a store of value. Shops and other businesses will increasingly accept crypto payments, in the process encouraging more people to hold cryptocurrencies.
In this scenario, the world doesn’t change massively from how it is now, with cryptocurrencies being used alongside fiat currencies. The main difference is that individuals will increasingly recognize that, during low interest-rate and high-inflation periods, deflationary cryptocurrencies such as Bitcoin will help them preserve (and perhaps increase) their wealth. This will happen in conjunction with the rise of yield-bearing decentralized finance, which is currently helping people earn interest on crypto at a time when interest rates are either zero or essentially negative.
Likewise, regulators will gradually introduce new guidelines permitting banks and other businesses to offer crypto-related services, as is happening now, with the US Office of the Comptroller of the Currency recently permitting banks to offer crypto custody services, for instance.
Scenario 2: Centralized ‘Cryptocurrencies’
One plausible – but not necessarily inspiring – scenario involves centralized digital currencies and central bank digital currencies (CBDCs). Digital currencies such as Facebook’s Libra may gain widespread use and adoption in this scenario, particularly when Facebook commands over 2.5 billion users. At the same time, central banks may issue their own CBDCs, which then go on to enjoy mass use due to the pre-existing monopolies of central banks.
This is a likely scenario, not least because most central banks worldwide are planning or trialling their own CBDCs. Many countries – such as France, China and Turkey – have pilots or more concrete launch plans in place, based on the premise that CBDCs will provide faster, cheaper and more efficient payments.
Questions hang over Facebook’s Libra, which in April scaled down its ambitions, announcing that its payments system would support transactions in single fiat currencies, as well as the Libra token (which will be pegged to multiple fiat currencies). Still, it’s likely to launch in at least a handful of jurisdictions, and will likely gain significant adoption.
Of course, neither Libra nor the typical CBDC is a real, decentralized cryptocurrency. That said, the launch of such centralized digital currencies may help foster greater public interest in decentralized cryptocurrencies such as Bitcoin, although the knock-on effect may not be substantial or immediate.
Scenario 3: Crypto Becomes Currency For Internet Of Things
In a scenario where the IoT is as big as its champions say it will be, cryptocurrencies such as IOTA – which enables IoT devices to transact with each other – may end up being similarly massive.
In such a world, IoT-enabling cryptocurrencies will be held by any business or company that uses IoT devices to acquire data from other devices. Such cryptocurrencies will also be paid via microtransactions to consumers, in exchange for the data contained on their IoT devices at home. They may use the IoT crypto they receive either as a store of value, or as a means of payment. They may also use it to access additional IoT-related services.
This scenario is likely distant in time: IOTA’s market cap is only 0.5% of Bitcoin’s market cap, while the penetration of smart devices in the homes worldwide is only around 8%.
Scenario 4: Digitalization, Decentralization, Currency Of Digital Platforms
As a more general extension of the IoT scenario, it’s possible that platforms such as Ethereum, EOS and Tron – which market themselves as universal computers – become the infrastructure for a new digital economy. Within this economy, businesses and organizations make use of, say, the Ethereum blockchain to do virtually everything they do on computers.
As the “world computer,” Ethereum will enable organizations to shift to decentralized operational models, so that databases and systems are shared across multiple partners, and so that actions are powered by smart contracts. Transparency and efficiency will be improved significantly, while the currency that powers the use of the Ethereum blockchain – ETH – will become more widespread as more businesses and organizations shift their operations to Ethereum. The same goes for other comparable blockchains.
Again, this scenario is likely distant. Although it’s due to transition to the more scalable Ethereum 2.0 proof-of-stake system, Ethereum still isn’t capable of handling enough transactions to accommodate much of the world’s business (it was famously clogged by the CryptoKitties game). Its rival blockchains, Tron and EOS, can handle more, with Tron claiming a capacity of 2,000 transactions per second (a bit more than Visa) and EOS handling over 1,000. But these two blockchains aren’t as popular as Ethereum, which currently powers the vast majority of DeFi platforms, for example.
More fatally, it seems that, when they turn to blockchain, most enterprises and organizations are building or using private blockchains, rather than Ethereum. So Ethereum, EOS or Tron (or any genuinely decentralized blockchain) becoming the world’s computer seems remote at the moment.
Scenario 5: Hyperbitcoinization, Fiat Breakdown, Widespread Use
The dream of many a Bitcoiner and crypto enthusiast is hyperbitcoinization. This is a process through which Bitcoin becomes the world’s major currency, and through which fiat currencies become all-but worthless.
What could drive such a process? A period of hyperinflation, driven by a severe economic downturn or depression, could make a cryptocurrency such as Bitcoin seem much more attractive to the general public – and to companies – than any fiat currency. As the value of fiat currencies nosedive, individuals and businesses will increasingly seek to acquire crypto.
It’s not certain what a scenario will look like exactly. Assuming that a fiat currency issued by a nation’s central bank becomes worthless, it’s hard to see how that nation’s government could continue functioning, unless it began operating and collecting taxes in Bitcoin. But using Bitcoin as its only currency would likely be unacceptable to the average government, since Bitcoin would deprive it of control or oversight over its own monetary system. It’s therefore likely that many governments would attempt to prevent such a scenario, perhaps by outlawing, blockchain or even attacking Bitcoin and other cryptocurrencies.