Bitcoin is in its second decade of existence, and the crypto space as a whole looks quite different from how things looked in the early days. While Bitcoin was tout as a cheap, instant form of digital payment in the early 2010s, it’s now mostly viewed as a new monetary system at the base layer with payments left for secondary layer protocols. Additionally, Bitcoin itself is no longer the only game in town. Over the past few years, many people who were getting into for the first time were flipping non-fungible tokens (NFTs) or gambling in various decentralized finance (DeFi) apps instead of simply hitting up the local bitcoin ATM.
The short term trends of the crypto market can be difficult to predict. Indeed, who could have guessed there’d be a resurgence of Dogecoin in 2021 thanks to serial entrepreneur Elon Musk? While it will take some time to see if the big talking points of the last bull market can persist through a potentially-extended bear market, the value proposition of bitcoin as an apolitical form of digital money is clearer than ever.
Having said that, there is the potential for governments to adopt various aspects of this technology as well. While Bitcoin was originally intended as a response to the issues with government-issued currencies and traditional banking, the rise of stablecoins and so-called central bank digital currencies (CBDCs) could lead to a more dystopian future for crypto.
If it were not for Satoshi Nakamoto’s invention of Bitcoin, the current and future state of the financial system would look rather bleak. After all, all forms of online financial institutions worked through the use of a centralized, third-party custodian before Bitcoin. This means that those online banks had far too much power over their users.
Assets could be seized at a moment’s notice, payments could be censored for political reasons, and a proper form of digital cash that could move as freely as an email did not exist. This gets at the base, cypherpunk roots of Bitcoin as a revolutionary new monetary and financial system. Bitcoin is a way of preserving personal sovereignty in the digital realm, much like other privacy-preserving encryption technologies that came before it. And for the cryptocurrency to succeed, it will need to stick to these fundamental principles.
Now, there have been many proposals around the world for more centralized types of crypto assets, most notably in the form of stablecoins, that allow users to move around crypto tokens pegged to the value of government-issued currencies (usually the U.S. dollar). Even central banks have put together plans for their own digital currency systems, with China’s digital yuan being the most advanced project up to this point. While these sorts of stablecoin systems often are in comparison and contrast with bitcoin, the reality is these crypto assets couldn’t be more different from each other.
China’s digital yuan is not in the same league as bitcoin. This is because the digital yuan is still a government-controlled, inflationary asset that the Chinese government will not allow to move around anonymously. The privately-issued stable-coins also do not compete with Bitcoin. They come with backdoors that allow regulators to freeze assets when necessary. In other words, these tokens backed by traditional fiat currencies have the same problems. The same problems as the early forms of digital payments on the internet. The only difference is they have the “blockchain technology” hype attached to them.
It’s clear that some sort of digital currency and crypto will become the major form of payments. Also, storing value in the years to come. However, it’s unclear which path the market will take when it comes to bitcoin vs stablecoins. A stable coin issued by a powerful government that offered no privacy would be a worst case scenario. This could create a financial surveillance state the likes of which the world has never seen. That said, Bitcoin itself is also in need of a variety of privacy improvements. The base network layer has proven to be difficult to change. This due to the decentralized nature of the system, layer-2 networks do offer a potential solution for more private payments.
Bitcoin is the clear frontrunner. This is in terms of becoming the major digital money of the future. One that is not in control by a centralized institution. However, it’s no secret that there are tens of thousands of other crypto assets on the market as well. So, what purpose do these crypto assets hold? Well, the value proposition of the alternative native coins is still a bit murky. However, it’s possible that bitcoin will bring over to many of these blockchains. This is in order to increase the functionality of the world’s largest cryptocurrency.
Notably, there is already more than $5 billion worth of Bitcoin issued as an ERC-20 token on the Ethereum blockchain. To put that in perspective, the total market cap of WBTC is already larger than Litecoin, Avalanche, Chainlink, and Stellar. In fact, there is already more than $2 billion worth of bitcoin issued on BNB Chain as well. There are also bitcoin-native sidechains, such as Liquid and RSK, that do not have their own native coins. However, these sidechains have yet to gain as much traction. Of course, there’s also the Lightning Network. This is another method of creating a sort of meta payments protocol on top of the base Bitcoin blockchain. Thank you for tuning into another crypto blog.
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