Ten years after Bitcoin whitepaper release, cryptocurrencies have advanced. But its progress is slow. All cryptocurrencies, including Bitcoin, are just niche speculative assets. We have Bitcoin, Litecoin, Dogecoin, Ethereum, Ripple, Stellar, and many others. Why has a single crypto made into everyday transactions? We still can’t purchase coffee with cryptocurrency. The world of finance remains disconnected from crypto.
I believe the problem is the lack of experimentation with crypto monetary policy. Crypto builders have focused a lot of attention on the technology. Monetary policy changes are hacks to fix temporary issues. For example, Dogecoin and Grin have tail emission. This kind of supply increase is intended to keep miners around. It does little to change long-term supply and monetary policy. Eventually, tail emission will behave like zero new supply.
I have advocated for more experimentation with crypto monetary policy. Facebook recently introduced Libra. I think it is an interesting improvement. Forward to the future, I develop a framework to understand emerging markets of cryptocurrencies.
Between centralization and decentralization, we have a range of currencies. Each of them will behave differently. Centralization will enable control of currency supply and price. With decentralization, we rely on computers to handle crypto operation. We will not be able to control supply and price. In exchange, rules are fixed. People cannot manipulate rules for their advantage. The game is fair for everyone who understands its rules.
Store of Value & Digital Gold Cryptocurrency
Bitcoin is the pioneer and leader in Store of Value (SoV). Limited supply feature makes Bitcoin a Store of Value. Bitcoiners understand the software and its rules. It is extremely difficult to change them. Other altcoins with limited supply will fall into this category. They are competing with Bitcoin for market share. For example, Litecoin positions as Digital Silver. Ethereum is Programmable Store of Value.
I see the following emerging markets of cryptocurrencies.
Centralized and Semi-Centralized Cryptocurrency
On centralization side, we will have improved centralized currencies and cryptocurrencies. Central banks will eventually integrate more technologies. They may record and publish their currency operation on a public digital ledger. Private companies have made strides in providing stablecoin connection between crypto and fiat. Tether is an example of stablecoin connecting crypto and fiat. Ripple and Stellar are trying to adapt crypto software for traditional financial system.
Libra departs away from centralization. Facebook introduced the Libra Association which includes reputable members. Libra software is open source. Libra governance can be more transparent than other centralized currencies.
Interesting development in this category will involve experimentation with software system and monetary policy.
I think this will be an emerging type of cryptocurrency. Crypto market has overlooked inflation. Being dogmatic about limited supply creates a blind spot. Crypto builder historically dismissed inflation. I think this hinders crypto adoption. Inflation can stabilize price. It discourages HODL behavior. It makes the currency more suitable for transactions. Inflating cryptocurrency can be decentralized and governed by fixed rules. As people becomes more comfortable with using inflating cryptocurrency, they will understand the role of SoV like Bitcoin.
Bitflate is a cryptocurrency with constant inflation of 7% per year.