Bitcoin: Long-Term Perspective Shows Boundless Possibilities
As somebody who recently celebrated yet another birthday, I can assure you that age brings certain problems, but in some ways it also has advantages. Conventional wisdom says that old people like me cannot grasp the potential of most technological advances. If you can avoid the tendency towards narrow-mindedness that often comes with getting older, however, a long perspective can make you even more aware of the boundless possibilities of things like Bitcoin and the technology behind it.
That is why, when I read a report such as this, I don’t dismiss it as hyperbole as many probably will. The article references a World Economic Forum report that claims that blockchain technology will reach a tipping point by 2023. I can clearly remember the days when a phone that you could take anywhere and “video call” were thought to be impossible pieces of science fiction, and it hadn’t even occurred to people that linking up a bunch of computers could enable us to communicate, research, shop and play in the way that the internet has made possible. It really wasn’t that long ago either; so the claim that blockchain technology will take over some functions in just eight or 10 years doesn’t seem absurd to me on the surface.
The report itself is about tipping points for technology in general and is very specific what they mean by the phrase in the case of the blockchain. There are two examples of interest. In one 73 percent of those questioned believed that by 2023 a government entity will begin collecting taxes using the blockchain, or at least blockchain technology.
For many, there is a great irony that one of the possible effects of the emergence of Bitcoin is to facilitate the collection of taxes, given that so many supporters of the currency are of a libertarian bent. It does, however, make sense. The blockchain already imposes a small “tax” on transactions that goes to pay miners. If financial transactions in general are stored on a distributed, rather than centralized ledger (which is the principle behind the blockchain), then taxing salaries and other transfers, and/or purchases in the same way would be relatively simple.
What still remains to be seen, however, is to what extent wider use of the technology will enable or encourage wider adoption of the currency that inspired the blockchain, the currency known as Bitcoin. That is where the other tipping point identified in the report becomes interesting. The report concludes that, by 2027, 10 percent of global GDP will be stored on blockchain technology. Over half of those surveyed (58%) predicted that that time would come as early as 2025.
We must be careful not to get too carried away here. That doesn’t necessarily mean, as some comments on articles about the report have implied, that 10 percent of the world’s wealth will be held in Bitcoin. It has yet to be determined to what extent the technology can reasonably and practically be separated from the currency. The implications for the long term value of Bitcoin are huge, however, if a complete separation doesn’t come about.
As one commenter on the above referenced article points out, if all of that 10 percent were actually held in Bitcoin that would represent $8 trillion. When we divide that by the number of Bitcoin that the protocol allows for at that time we reach an implied BTC/USD price of over 400 thousand dollars. Even if only 10 percent of that 10 percent is actually Bitcoin, that still gives an implied value of $40,000 in 10 years.
That is a nice thought for anybody that holds the currency, but the report is referring to distributed ledgers being used for the creation and verification of contracts and the blockchain increasing the number of what can be regarded as tradable assets. That is good news for Bitcoin and could well lead to greater adoption, but it is not the same as the issued coins representing one tenth of the world’s current wealth. It does, however, make me wonder why anybody would pass up the opportunity to save away one or two Bitcoin for the future. $230 risked now for a decent shot at 40 thousand, or even 400 thousand dollars inside 10 years seems like a reasonable bet.
This is all fascinating stuff and makes those that have spent the last few years calling Bitcoin a fad and a flash in the pan look a bit silly. I can assure you though that their lack of vision and comprehension is not solely a product of their age. Some of us old folks get it too.