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What will probably happen to Bitcoin is that it will be displaced by a new cryptocurrency launched by a massive company with huge structural network effects.
The promise of Bitcoin, and other cryptocurrencies, is that they offer a solution to security problems introduced in transactions involving trusted third parties (TTPs).
However, Bitcoin has issues as a currency.
Instead, it is mostly speculated on as a store of value, akin to “Gold 2.0”.
As a currency Bitcoin could easily be replaced by an established giant… Bitcoin, which is open source, could fall by the wayside over time if competing with a “FAANG” backed cryptocurrency that people are forced (or encouraged) to use.
An example of this would be Amazon creating its own cryptocurrency and rewarding customers for using it.
Money is Based Purely on Collective Human Beliefs
The only thing that maintains the price of Bitcoin is that more and more people are believing in Bitcoin.
However, what would happen if people stopped believing in it?
Friendster was very popular for awhile. So was MySpace. Then they weren’t hot anymore.
A company such as Amazon, or a new fin-tech company like Stripe, Wealthfront, Acorns or Betterment, or a technology company that has the potential to acquire a large financial services firm, such as Apple, could easily launch its own cryptocurrency.
Such a company could then leverage their massive consumer reach to promote the currency and reward its millions of existing customers for using it.
The Balkanization of Money
Indeed, it’s possible that not just one but all of the “FAANG” companies (Facebook, Apple, Amazon, Netflix and Google — maybe not so much Netflix) could easily create new cryptocurrencies.
I had no idea it was so easy, but it is apparently extremely easy to launch a new cryptocurrency…
Indeed, the cost of creating an ICO (initial coin offering) is as low as $5,000, and by some estimates as much as $60,000.
Do you think Apple, which just launched Apple Pay Cash, a Venmo/PayPal competitor, has not considered adding an “Apple Coin” cryptocurrency to its digital payment system?
What about Amazon? As contemplated before, Amazon could save a lot of money by switching to a lower cost cryptocurrency than Bitcoin. Most people do not know that with its current limitations, Bitcoin would never work for payments on Amazon because it would be prohibitively expensive to use.
However, Amazon could create an “Amazon Coin” payment option that used a scalable, low cost blockchain based cryptocurrency, instead of having to use a payment processor and pay 1-2.5% per transaction. Stripe which is incredible innovative is currently working with Amazon to help process payments for the company.
I think Stripe will eventually go public in one of the largest IPOs in history. When they do they will probably launch their own ICO that e-commerce companies will want to use.
What Will Happen With Bitcoin?
If the government does not step in and try to heavily regulate Bitcoin, it could last as an esoteric form of scarcity investment. Indeed, as an asset it is growing every day.
But as long as the beta/volatility of Bitcoin is so huge, as noted by Shark Tank’s Kevin O’Leary, it makes very little sense to use it as a currency. Bitcoin also has other growth constraints:
- Slow processing speed
- Massive energy consumption
- Extremely high cost per transaction
Indeed, Bitcoin is the most well-known cryptocurrency by far… And there are huge vested interests in Silicon Valley who support and want Bitcoin to succeed.
But Bitcoin has lots of competitors, some of which are just better and more scalable.
And, since Bitcoin has no “marketing team” per se, unless people use it for more than simply a source of “digital gold”, it could ultimately lose value if it goes up against a FAANG competitor with its own crypto that has real and ever increasing uses.