Yesterday I recapped the in crypto. Today, let’s look ahead to the future and what I think will happen in the 2020s. Of course, no one can predict the future with much accuracy, but one way to predict it more accurately is to invent it!
In short, I think over the next decade we’ll see a blockchain, that is both more scalable and includes privacy features, reach about 1B users by the end of the decade (up from about 50M at the start of the decade). Adoption will happen both in emerging markets, where the financial systems are most broken, and from a crop of new crypto first startups producing products people want. By the end of the decade, most tech startups will have a crypto component, just like most tech startups use the internet and machine learning today. Governments and institutions will move into the cryptocurrency space in a big way as well.
In the 2020s, I believe we’ll see layer two solutions, or new blockchains come out which increase transaction throughput by several orders of magnitude. Just like broadband replacing 56k modems led to many new applications on the internet (YouTube, Uber, etc), I believe scalability is a pre-requisite for the utility phase of crypto to really get going. Once we see blockchains with several orders of magnitude scalability improvements, we will also see new applications start to develop more rapidly (see “the rise of the crypto startup” below).
In addition to scalability, I think we’ll also see privacy integrated into one of the dominant chains in the 2020s. Just like how the internet launched with HTTP, and only later introduced HTTPS as a default on many websites, I believe we’ll eventually see a “privacy coin” or blockchain with built in privacy features get mainstream adoption in the 2020s. It doesn’t make sense in most cases to broadcast every payment you make on a transparent ledger.
There are a number of high quality teams working on next generation protocols today (Dfinity, Cosmos, Polkadot, Ethereum 2, Algorand, etc) and there are great teams working on layer two scaling solutions for existing chains. My prediction is that we will see consolidation of chains (in developer mindshare, user base, and market cap) in the decade to come. The chains that make the most progress on scalability, privacy, developer tools, and other features will see the most gains. We may even see M&A amongst these teams, a reverse-fork if you will, where one chain is deprecated and each token becomes exchangeable at a fixed rate to the acquiring token. There will be as many tokens as there are companies/open source projects/DAOs/charities in the world (so millions) but only a handful of chains will power the underlying infrastructure for these. The winning chains will likely follow a power law distribution on outcomes, just like any other industry.
The 2010’s were largely about speculation and investment in cryptocurrency, with trading driving most of the activity and best business models. This trend will continue to play out in the 2020’s (see market structure, and institutions, below) but I believe the best new companies that get created in the crypto space in the 2020’s will be about driving the utility phase (people using crypto for non-trading purposes). We’ve already started to see the beginnings of this trend, with more customers doing non-trading activity (staking, borrow/lend/margin, debit cards, earn, commerce, etc).
This decade we will see a new type of startup become commonplace: the crypto startup. Just like the dot com craze kicked off the idea of an internet startup (and a decade later, just about every tech startup uses the internet in some way), I believe that by the end of the 2020’s almost every tech startup will have some sort of cryptocurrency component. What defines a crypto startup? Three things. First, it will raise money using crypto (from a much larger pool of global capital, unbundling advice from money in the VC industry). Second, it will utilize cryptocurrency to achieve product market fit by issuing tokens to early adopters of the product (turning them into evangelists), similar to early employees getting equity in the company. Third, they will bring together global communities and marketplaces at a pace we have never seen before in traditional startups (which have to painfully expand country by country, integrating each country’s payment methods and regulations one at a time). There are myriad regulatory questions that this will open up, but the advantages are so strong, I think the market will find a way. These crypto startups will have the challenge that all startups have: making something people want. The next 100M people who get exposure to cryptocurrency will not come from them caring about cryptocurrency, but because they are trying to play some game, use a decentralized social network, or earn a living, and using cryptocurrency is the best/only way to use that particular application.
Other than crypto startups (which will largely start off being a first world phenomenon), the other area of adoption will be in emerging markets where the existing financial systems are a much bigger pain point. In particular, countries with high inflation rates and large remittance markets where crypto can really shine. In 2019, made cryptocurrency payments to 5,000 people in Venezuela, and over 90% of them were able to create at least one transaction with a local store that accepts crypto or a local cash out partner. This indicates that the tools have started to cross a threshold of usability in emerging markets where unreliable internet, older smartphones, and a lack of education can be challenges. In the 2020’s, I think we will see cryptocurrency adoption in emerging markets scale to hundreds of millions of users, with at least one country “tipping” so that the majority of transactions in their economy happen in cryptocurrency.
We’ve already started to see small institutions enter the cryptocurrency space. Hundreds have joined Coinbase Custody in the past 18 months. I would expect this rapid growth to continue in 2020, with larger and larger institutions coming on board. Eventually just about every financial institution will have some sort of cryptocurrency operation, and most funds will keep a portion of their assets in cryptocurrencies, because of the uncorrelated returns and upside potential. Something like 90% of the money in the world is locked up in institutions, so this will likely drive a lot of demand for crypto assets.
While Libra drew the ire of just about everyone in Washington DC, China took the initiative by beginning to digitize the yuan, and making blockchain one of their core technology investments. The U.S. is playing a bit of catch up now, and active discussions are taking place about how the dollar can be digitized. CENTRE, with its USD Coin, may be the solution the U.S. turns to, or the Fed may try to implement their own digitized dollar using blockchain. I think we will then see basket digital currencies come out, either by a consortium like Libra or CENTRE, or possibly the IMF itself.
During the last decade, many of the companies we think of as cryptocurrency exchanges were actually brokerages, exchanges, custodians, and clearing houses bundled into one. During the 2020’s I think we’ll see the cryptocurrency market structure evolve to more closely resemble the traditional financial world, with these functions being separated out from a legal and regulatory point of view. This is already happening to some extent. Coinbase Custody, for instance, is a separate company with its own board, regulated as a NY Trust Company. Coinbase Pro will separate into a brokerage and exchange as well. As in the traditional financial services world, customers of one product will be competitors of another, and there will be a lot of cross pollination. Once this more mature market structure is in place, I predict the SEC will get more comfortable with a cryptocurrency index fund for retail investors.
While the fiat-to-crypto exchanges will largely follow a traditional financial services model, a separate world will evolve in the purely decentralized crypto-to-crypto area. In other words, once you get your fiat currency into crypto, you can then enter a magical place of innovation that is purely crypto-to-crypto. In this world, non-custodial wallets, DEXs, Defi, and Dapps will continue to improve in terms of usability and security, and we’ll see a lot of new applications emerge, from games, to online communities, to virtual worlds with their own economies. Many of the apps and non-custodial wallets in this world, since they never store customer funds, will be regulated like software companies instead of financial service companies. This will dramatically accelerate the pace of innovation and make them inherently global from day one (instead of geographically restricted to certain countries). There will be greater privacy in this world as well, with privacy coins and non-custodial wallets seeing greater adoption. We’ll also see the rise of decentralized identity, and reputation scores associated with those identities, replacing the credit rating agencies with a more modern/global approach. As the decentralized cryptoeconomy grows, more people will earn a living in crypto and feel a sense of empowerment, much like early immigrants coming to America.
As a bonus final item, Olaf Carlson-Wee and Balaji Srinivasan estimate that at a price of $200,000 per Bitcoin, more than half the world’s billionaires will be from cryptocurrency. Whether you think this is a good thing or a bad thing, it means there will be more pro-technology people with access to large amounts of capital in the 2020s. Presumably, this will increase the amount of investment made in science and technology, and I think we’ll see more crypto folks turn to philanthropy (we’ve seen this already with efforts like the Pineapple fund, GiveCrypto.org, and the GivingPledge).
We’ll see how many of these predictions turn out to be true. By shifting cryptocurrency from being primarily about trading and speculation to being about real world utility, the 2020s will see a huge increase in the number of people holding and using cryptocurrency, and start to really move the needle on global .
About Brian Armstrong
Brian Armstrong is the Chief Executive Officer and Co-founder of Coinbase. As CEO, Brian is responsible for Coinbase’s consumer and institutional arms, which offer an entire suite of products that make accessing cryptocurrencies easy and secure, in addition to new products that operate at the frontiers of crypto and blockchain. Before co-founding Coinbase, Brian worked as a Software Engineer at Airbnb. He holds three degrees from Rice University: Bachelor’s of Computer Science, Bachelor’s of Economics, and a Master’s of Computer Science.
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