According to a study published recently by Technology Strategies International, Inc. (TSI), virtual currencies are likely to be a major disruptive force within the next decade.
The report, entitled “The Future of Virtual Currencies 2014,” speculates that virtual currencies such as Bitcoin have grown to the point that there is literally no stopping these new innovative technologies that are cropping up every day. Finally, the report advises organizations that want to avoid being pulled under by this wave to begin preparing themselves now.
The focus of the report was not Bitcoin itself. Instead it studied blockchain technology. Bitcoin, the first use of this technology, appeared in 2009, and since that launch, there have been more than 1,700 new virtual currencies. Not all of these currencies have survived. Many have been recognized as “scam coins” by a vigilant community. These coins were introduced by criminals as a way to generate Bitcoins, and while there are still about 700 coins still operating, only 35 have reached market valuations of more than US$1 million, according to the report.
Christie Christelis, president of TSI said:
“There was a strong surge in the number of virtual currency announcements shortly after Bitcoin’s market capitalization hit $1 billion and the number of virtual currencies on the market has accelerated since then, exceeding the number of fiat currencies by June 2013.”
The difference in flexibility between fiat currencies and those generated by a blockchain is a major factor in the report’s conclusion. New currencies are developed to improve the Bitcoin protocol, and others are developed to extend functionality, or improve speed and security of transactions. Companies also that develop a coin and use their particular product as a base for the currency itself. This type of currency flexibility is what makes the idea so strong, according to Christelis:
“The idea of decentralized trustless systems is revolutionary, but the real potential for disruption comes about through the ability to implement them and find compelling business models. The open protocols on which these virtual currencies are based, together with the highly collaborative innovation processes at work amongst the different [development] communities, has created such a stimulating environment for innovation that it is impossible to halt it. And these innovations aren’t only focused on financial applications of virtual currencies.”
But the report also notes that the direction and speed of these new currencies will depend in part on government regulation. The venture capitalists have already invested nearly US$500 million in hopes of getting out in front before the rest of their particular industry. But currencies are not the only way that the blockchain can be used, as many so-called Bitcoin 2.0 ventures are demonstrating. The development of smart contracts, colored coins and entire decentralized autonomous organizations—including governments, as suggested by Bitnation—presents a whole new aspect to the blockchain that extends far beyond simple finance.
The report states that while about 50% of online adult consumers are aware of virtual currencies, actual use of the currencies is still very limited. Despite the bad media attention usually focused on Bitcoin, the report says that about one in five consumers plans to make use of virtual currencies soon, which would produce an extremely rapid growth. The currencies themselves have not yet been regulated in any country, and most nations are concentrating on regulating “gateways,” more to keep them in compliance with money laundering regulations than to protect consumers from fraud.