Cryptocurrency has come a long way since the release of Bitcoin in 2009. What was once a niche market for computer geeks has now become a financial phenomenon that is changing the way we think about money.
Will cryptocurrency become a mainstream form of payment? Will it completely replace traditional fiat currency? Or will it fade into obscurity?
Here are five bold predictions for the future of cryptocurrency that will leave you thinking about the endless possibilities of this revolutionary technology.
Stablecoins vs. CBDCs: The War for Financial Supremacy
The future of finance is here, and it’s shaping up to be a battle between stablecoins and central bank digital currencies (CBDCs).
On one side, we have stablecoins – digital assets that are pegged to the value of a specific asset, such as the US dollar or gold. On the other side, we have CBDCs – digital versions of fiat currencies issued by central banks.
So, which one will come out on top?
Let’s first talk about Stablecoins and their Future.
According to The Block, the total market capitalization of stablecoins is more than $138.2 billion as of January 2023. The most popular stablecoin is Tether, which has a market capitalization of more than $66.26 billion, followed by USDC, BUSD, and DAI.
This data suggests that the stablecoin market is experiencing significant growth. The fact that the total market capitalization of stablecoins has more than doubled in just a few years indicates that there is strong demand for these digital assets.
The increasing adoption of stablecoins by merchants and consumers for online payments and international trade is likely to drive further growth in the market. Additionally, the growth of decentralized finance (DeFi) and the use of stablecoins as collateral asset in DeFi protocols is also likely to contribute to the growth of stablecoins.
Now let’s talk about how the growth of Defi led to increasing the demand for stablecoins.
DeFi protocols use stablecoins as collateral assets. For example, DAI is a stablecoin that is used as collateral in the Maker DAO DeFi protocol. Users can borrow Dai by collateralizing ether, a cryptocurrency, in a smart contract.
This allows users to access credit without the need for a traditional bank or credit agency.
The growth of DeFi has led to an increase in the demand for stablecoins, as they are used as collateral in these protocols. The popularity of DeFi is likely to continue to drive demand for stablecoins in the future.
Now let’s examine CBDCs. These digital currencies are issued by central banks and are designed to be used as a means of payment, just like traditional fiat currencies.
However, unlike traditional fiat currencies, CBDCs are digital and can be accessed through a smartphone or computer.
Lael Brainard, the esteemed Vice Chair of the Federal Reserve, has published a treatise examining the potential benefits and risks of a central bank digital currency (CBDC) in the United States.
While Brainard has acknowledged the utility of stablecoins, recent occurrences in the stablecoin market have tempered her enthusiasm.
“In the treatise, Brainard postulated that under certain circumstances, a CBDC may coexist with stablecoins and commercial bank money, offering a secure central bank liability in the digital financial realm – much like how physical currency currently coexists with traditional bank accounts. It appears that the future of digital currency may involve both stablecoins and CBDCs coexisting and complementing each other in the financial sphere.”
So, what will the future of stablecoins and CBDCs look like? It’s hard to say for sure, but here are a few predictions:
- Stablecoins will become the go-to choice for international trade and online payments. With their fast and cheap transactions and relative price stability, stablecoins will be the preferred choice for merchants and consumers alike.
- CBDCs will be used mainly for domestic payments. Central banks are likely to focus on using CBDCs for domestic payments, rather than international trade.
- The battle between stablecoins and CBDCs will lead to the mainstream adoption of cryptocurrencies. As more people become comfortable using digital currencies for everyday transactions, it will pave the way for the wider adoption of cryptocurrencies.
- Stablecoins and CBDCs could lead to the disruption of traditional banking. With their ability to offer faster and cheaper transactions, both stablecoins and CBDCs have the potential to challenge traditional banks and financial institutions.
The potential for Defi to disrupt traditional financial systems
Defi, or decentralized finance, refers to financial systems and applications that are built on blockchain technology and operate in a decentralized manner, without the need for intermediaries such as banks or other financial institutions.
Defi has the potential to disrupt traditional financial systems in several ways:
- Increased access: Defi platforms can be accessed from anywhere with an internet connection, which means that individuals in underbanked or unbanked areas can potentially access financial services that were previously unavailable to them.
- Greater transparency: Because Defi platforms operate on a blockchain, they can provide greater transparency into financial transactions and reduce the risk of fraud or corruption.
- Lower costs: Defi platforms often have lower fees than traditional financial institutions, which can make financial services more affordable for users.
- Faster transactions: Defi platforms can facilitate faster and more efficient financial transactions than traditional systems, due to the use of smart contracts and automation.
- Increased security: Defi platforms can be more secure than traditional financial systems, as they use advanced cryptography to protect against cyber attacks and fraud.
Defi Growth by 2030: Statistics and Research Reports
According to various research reports, DeFi is expected to experience significant growth in the next decade. The total value locked in DeFi protocols is projected to reach $100 billion by 2030, accounting for 10% of global financial activity. DeFi adoption is increasing rapidly, with the number of unique DeFi addresses increasing by 300% in 2022 alone.
DeFi has the potential to provide financial services to over 70 million unbanked individuals, and could potentially revolutionize traditional financial institutions, with up to 30% of banking and financial services expected to be decentralized by 2030.
Additionally, DeFi could potentially displace traditional banks as the main provider of financial services, handling up to 20% of financial transactions by 2030. Overall, DeFi is set to play a major role in shaping the future of finance.
The increasing importance of sustainability in cryptocurrency mining and development
Data Source: Cambridge center for alternative finance
Above Data shows Bitcoin Devours more electricity than many countries. (Annual Electricity comparison in TWh)
As the demand for cryptocurrency has increased, so has the energy consumption of the mining process. In order to address this issue, there has been a push toward more sustainable approaches to cryptocurrency mining and development.
This includes the use of renewable energy sources, such as solar and wind power, to power mining operations, as well as the development of more energy-efficient cryptocurrencies and mining algorithms.
There is also a growing awareness among cryptocurrency developers and users about the importance of sustainability, and many are taking steps to minimize the environmental impact of their activities.
For example, Ethereum has implemented a “proof of stake” protocol, which requires users to hold a certain amount of cryptocurrency in order to validate transactions and add them to the blockchain.
This approach is more energy-efficient than “proof of work” protocols, which are used by most cryptocurrencies and require miners to solve complex mathematical problems in order to validate transactions. We can see more transition from PoW to PoS in the future (of course not Bitcoin).
Overall, the future of cryptocurrency will likely involve a continued focus on sustainability and the development of more energy-efficient technologies.
As the industry matures, it is likely that sustainable practices will become more common and that the energy consumption of cryptocurrency mining and development will continue to decrease.
Blockchain technology is constantly striving to balance decentralization, scalability, and security, a feat often referred to as the “blockchain trilemma.”
To address this challenge, innovative solutions such as layer 2 protocols, sharding, hybrid consensus algorithms, off-chain transactions, and improved network infrastructure are being explored.
While it remains to be seen which approach will prove most effective in tackling the trilemma, it is clear that a multifaceted approach will be necessary to truly solve this complex issue.
There are a number of approaches that could potentially be used to solve the blockchain trilemma in the future.
Some possibilities include
- Quantum-resistant algorithms: With the potential for quantum computers to break many of today’s cryptographic methods, researchers are looking into developing algorithms that are resistant to quantum attacks. This could lead to increased security for blockchain networks.
- Self-optimizing networks: By leveraging artificial intelligence and machine learning, it may be possible to create blockchain networks that can self-optimize and adapt to changing conditions. This could lead to increased efficiency and scalability.
- Off-chain computation: By moving some of the computational work required to validate transactions off of the main blockchain, it may be possible to increase the overall scalability of the network.
- Pluggable consensus: Another possibility is the development of consensus protocols that are modular and can be easily swapped in and out depending on the needs of the network. This could allow for greater flexibility and customization.
- Interoperability frameworks: As the number of blockchain networks continues to grow, it will become increasingly important to develop frameworks that allow them to communicate and interact with one another. This could lead to the creation of a more seamless and integrated blockchain ecosystem.
By 2030, NFTs (non-fungible tokens) and the metaverse are expected to have a significant impact on the way we interact with digital content and each other in the real world.
According to a recent study, the NFT market is expected to reach a value of $231 billion by 2030, with a compound annual growth rate of 51.2%. This growth is being driven by the increasing adoption of NFTs in a variety of industries, including art, gaming, and collectibles.
One real-world application of NFTs that has garnered a lot of attention is the use of NFTs to represent ownership of the virtual real estate in the metaverse. The metaverse, a virtual world where people can interact with each other and digital content in real-time, is expected to become a major hub of economic activity in the coming years.
In fact, some experts predict that the metaverse could eventually become a parallel economy to the physical world, with its own set of rules and regulations. This could have far-reaching consequences for the way we buy and sell goods and services, as well as the way we interact with each other online.
Another area where NFTs are expected to have a significant impact is in the field of art and collectibles. As more and more artists begin to embrace the use of NFTs, it is likely that we will see a proliferation of unique, one-of-a-kind digital artworks that can be bought and sold using NFTs. This could revolutionize the way we think about art and ownership, as well as the way we value and collect it.
The increasing adoption of cryptocurrency and DeFi by mainstream institutions and individual users alike suggests that the use of cryptocurrency as a legitimate form of payment and the financial instrument is only set to grow.
While there are still many challenges to be addressed, the future of cryptocurrency looks bright.
First, the increasing use of cryptocurrency for legitimate transactions and the growing number of merchants accepting it as a form of payment could help to increase its mainstream acceptance. As more people use cryptocurrency to buy goods and services, it will become more familiar and less intimidating to those who are unfamiliar with it.
Second, the development of more user-friendly and secure cryptocurrency wallets and exchanges could also help to increase the adoption of cryptocurrency. As it becomes easier for people to buy, sell, and store their cryptocurrency, more people may be willing to use it.
Finally, regulatory clarity and support from governments and financial institutions could also help to increase the mainstream acceptance of cryptocurrency. As governments and financial institutions provide clear guidelines and support for the use of cryptocurrency, it will become more trustworthy and accepted by the general public.