Why Cryptocurrency is Eating the World
Cryptography is driving a creative disruption in the global economy that promises to dwarf the software revolution of the past ten years.
Note: This article first appeared on NASDAQ on February 23. Since then, there’s been an interesting development, as Citibank said that Bitcoin is at a “tipping point” and could become the preferred currency for international trade.
Just last week, Bitcoin (BTC) reached a new record high, surpassing the $50,000 mark, as billionaire Tesla (TSLA) founder Elon Musk announced that Tesla would invest $1.5 billion in the asset. ETH, the native cryptocurrency of the Ethereum network, also hit an all-time peak on Friday. Even Dogecoin (DOGE), a gag coin, launched in 2013 and based on a meme, hit record highs in early February as celebrities showed their support online. It’s a boom time for cryptocurrencies, with Wall Street investors as well as Silicon Valley tech giants diving in head first.
Last week, Bitcoin hit a market capitalization of $1 trillion, a new record. At its highest price point, over 100,000 Bitcoin addresses were holding $1 million or more, an impressive level of adoption and activity for the cryptocurrency. BNY Mellon, the nation’s oldest bank, announced it would welcome bitcoin to its portfolio. BlackRock Inc., the world’s largest asset manager, now also offers clients exposure to cryptocurrency. Visa and MasterCard are taking steps to allow customers to buy and sell cryptocurrency. Most recently, Uber signaled that it would accept bitcoin as payment. Cryptocurrency has moved out of the fringes and is institutionalizing at a rapid pace.
Today, bitcoin and other cryptocurrencies are mostly seen as a store of value, and due to their volatility are rarely used as a form of payment. Investors view cryptocurrency as a hedge against inflation and currency debasement. But recent indicators point to the growing maturity of the market, and the inevitability of digital currencies supplanting the current fiat model.
The coronavirus pandemic has seen a meteoric rise in currency printing by the world’s largest central banks. The U.S. economy may soon get an infusion of ultra-easy credit and huge government spending in the form of a $1.9 trillion stimulus bill, a recipe for short-term currency inflation. With near-zero yields or negative interest rates, investors are turning to bitcoin as an alternative, non fiat-correlated investment asset. The rise in cryptocurrency is indicative of an undeniable global trend.
In short, cryptocurrency is eating the world.
I’m referencing, of course, venerated venture capitalist Marc Andreessen’s seminal essay “Why Software is Eating the World”, published ten years ago. At that time, Marc posited the idea that all companies must in essence become software companies to compete in the rapidly evolving technological landscape that was to be the 2010’s. Not only did Andreessen accurately categorize the prevailing “creative disruption” at the time, but he also effectively predicted the economic takeover of disruptive, software-first tech giants such as Uber, AirBnB and Salesforce.
Cryptography is driving a creative disruption in the global economy that promises to dwarf the software revolution of the past ten years.
Marc’s article was written after the open-source movement had already won the war against Microsoft and other proprietary platforms, and was beginning to “eat the world” of non-software industries. Today over 80% of the Internet is based on open-source software — including banking. Cryptocurrency is following the same path. What was historically a centralized, consolidated industry is now being eaten by decentralized, open-source technology.
The origin story of bitcoin in the public consciousness starts in 2008 with the publication of a paper by the mysterious and likely pseudonymous “Satoshi Nakamoto.” Nakamoto’s paper outlines the technological underpinnings of a “purely peer-to-peer version of “electronic cash” backed by a cryptographic ledger of all financial transactions — known as a blockchain.
The blockchain is cryptocurrency’s secret weapon. It establishes a method by which cryptocurrencies can be created (or “mined” in cryptospeak) and hold their own inherent value without the need for an underwriting third party (such as a central bank.) Since 2008, we’ve seen an explosion of competing cryptocurrencies. Bitcoin, the progenitor cryptocurrency, only accounts for about 68% of market capitalization today.
We’re just at the dawn of the digital currency revolution. Facebook’s Diem project is expected to launch this year, and will likely introduce a huge chunk of Facebook’s 2.7 billion global users to the market. At a state level, the Chinese government is taking steps to become the first country to implement its own unlimited-supply digital currency, a move that would send shockwaves across global trade. The EU has also announced plans for a digital Euro.
The outlook for a digital dollar is less certain. Recently appointed Treasury Secretary Janet Yellen is a vocal skeptic, whereas Fed Chief Jerome Powell is optimistic. Meanwhile, Yellen and Powell are known to be chummy, and economists have warned that “the combined firepower of the two institutions might overdo stimulus to the economy” with even more fiat currency printed in the months ahead, increasing the risk of inflation, uncontrollable debt, and financial bubbles.
The U.S. Dollar holds a seemingly unimpeachable position as the global reserve currency, with over 80% of world trade denominated in dollars. But the history of fiat currencies has always followed the exact same downward path: Currency debasement, inflation, and societies’ lack of faith in institutions leads to a point where they become valueless.
The United States would become leaders in a new world economy by embracing cryptocurrency and issuing a digital dollar. Blockchain-based currency represents a more efficient open network, on which value can be created, transported, exchanged and consumed. The opportunity here is to create a unified global financial highway that incorporates all nations and people, and provides universal access and equal financial opportunity to everyone across the globe. I believe we’ll see a digital dollar in the next three to five years.
Blockchain-based, decentralized currency is poised to tear down the monolithic foundations of global finance that have existed for centuries, fundamentally reconfigure the methods by which currency is created and distributed, and create a more equitable monetary system than the current fiat model. The ramifications of this are hard to understate: we are talking about a complete restructuring of all the money in the world. The question for today’s leaders is whether they want to be part of tomorrow’s open, transparent global economy, or if they’re prepared to be swallowed whole when crypto eats the world.
