The World Economic Forum’s recent report that the Bitcoin block chain would be worth 10% of the world’s GDP by 2027 did not give solid figures, for starters. But as noted in the report, and elsewhere, the WEF is referring to the overall value stored on the block chain – not to bitcoins themselves, necessarily. The report specifically says, on page 24:
Smartcontracts.com provides programmable contracts that do payouts between two parties once certain criteria have been met, without involving a middleman. These contracts are secured in the blockchain as “self-executing contractual states”, which eliminate the risk of relying on others to follow through on their commitments.
The estimated $20 billion value of the block chain is also not referring solely to the worth of bitcoins, but rather to all value currently secured by it via things like smart contracts, Factom, and so forth. It is quite feasible that far more than 10% of the world’s GDP could be on “block chain technology,” which doesn’t even necessarily have to refer to the Bitcoin block chain.
As the report says, “disintermediation of financial institutions, as new services and value exchanges are created directly on the blockchain.” This means that people will around the globe will most likely be using services like M-pesa and others which more aptly cater to their needs than can traditional financial institutions, banks included. By such a metric, 10% of the global GDP could even be a low figure.
Nevertheless, a Reddit user did what Reddit does best and attempted to stir up some hyperbole, using primitive mathematics to estimate that by 2027 bitcoins would be worth “$300,000 or more.” How’d he reach this conclusion? Like so:
They predict that roughly 10% of the world’s GDP will reside on the bitcoin blockchain by 2027. 10% of today’s gdp is 7.5 trillion. So if you divide 7.5 trillion by 21 million, that would make each bitcoin worth over $300,000 per bitcoin by 2027.
Numerous other Redditors pointed out the obvious folly here, with one being less crude than standard Reddit faire:
I don’t think it’s that 10% of the world’s GDP will be invested in bitcoin. I think it’s that assets will be on the blockchain — smart contracts, cryptobonds and the like. Notice that the article says the blockchain is currently worth $20bn. That’s quite a bit more than the market cap of bitcoin.
Certainly any investor in Bitcoin would love to believe that it will one day hit $300,000, but there are several factors which make this unlikely. A notable thing left out of the estimation, for instance, is that Bitcoin mining will actually still be in progress in twelve years hence. That is to say, there won’t be 21 million coins yet, although mining will be yielding far less inflation than it does today. Secondly, there are a lot of competing efforts in the cryptocurrency industry, some of which have long since solved certain “fundamental problems” with Bitcoin.
A more realistic vision of the future might involve a variety of “viable” cryptocurrencies, all serving various specific purposes and interchangeable with each other. But predicting the future is the domain of prediction markets or mystics, not the World Economic Forum or Internet forums.
The Government and the Block Chain
The potential value of “blockchain technology” was not all that was covered in the WEF’s report, however. The WEF expects that by 2023, a government somewhere in the world will collect taxes via block chain technology. The report notes that governments have struggled to understand or reconcile cryptocurrencies, but that they could in the end be beneficial.
On the one hand, it is unregulated and not overseen by any central bank, meaning less control over monetary policy. On the other hand, it creates the ability for new taxing mechanisms to be built into the blockchain itself (e.g. a small transaction tax).
The report cites a 2016 London mayoral candidate’s suggestion that block chain technology be used to augment existing record-keeping in the city’s government. It neglects to note an ongoing campaign by Bitcoiners in New Hampshire to get the state to accept bitcoins in lieu of fees and taxes.
It seems that, according to the World Economic Forum and almost any financial expert you speak to these days, Bitcoin and its various cousins have a very bright future. Whether the actual value of a single bitcoin ever rises to its height of $1200 again remains to be seen, but one thing is for sure: in six years Bitcoin and block chain technology have gone from a discussion on an out-of-the-way cryptography mailing list to something eagerly acknowledged by the highest priests of finance.
Image from Gil C / Shutterstock.