Note: The following article was submitted as part of the Ziftr contest and chosen as the winner on the topic of ‘What will it take for Bitcoin to gain mass acceptance?’
Although nobody knows for certain what the future holds for the cryptocurrency industry as a whole, it is almost unanimous among pundits and prognosticators that the Blockchain technology is here to stay.
There is little doubt that cryptocurrency will play a significant role in our lives within the next 5 to 10 years; in a recent Wall Street Journal poll “83% of those surveyed believe, “there is a future for cryptocurrencies such as bitcoin.”
But what will that digital landscape look like? Which coins will succeed and which coins will fade away into cyber obscurity? While it would be impossible to predict the destiny of the more than 500 cryptocurrencies currently on the market, the top three, bitcoin, litecoin and dogecoin are traveling along a path where their roles are coming into focus.
Bitcoin: digital gold
Most cryptocurrency experts will tell you that Bitcoin is destined to be the dominant digital currency used in internet commerce for the foreseeable future; but I see a different future for Bitcoin. The vast majority of people currently purchasing it are holding it as a speculative investment instead of spending it like a currency. According to a 2014 Forbes article by Samantha Sharf, “over 90% of bitcoins are hoarded.”
When Satoshi Nakamoto created the currency, he designed it to mimic the scarcity of gold. Only 21 million bitcoins will ever exist and since the block reward will dwindle to just 0.78 BTC by 2032, it will inevitably lead to even more hoarding.
Because bitcoin has a fixed supply it is deflationary by design, therefore the longer coins are held the greater the buying power they should have. How many times have we all heard stories of people who mined or purchased a large number of bitcoins when they were almost worthless that now own hard drives that are literally worth many times their weight in gold?
Because of this most people primarily view bitcoin as an investment vehicle to drive them down the road to wealth and prosperity rather than an instrument for facilitating retail transactions.
Bitcoin is becoming exactly what it was created to be – the digital version of gold. It is mined like gold, it is scarce like gold, and it can’t be counterfeited like gold only easier to store and transfer.
So does this mean litecoin will become the dominant currency for e-commerce with conformation times that are four times faster than Bitcoin? Like bitcoin, litecoin is also a deflationary currency and even though it has a larger supply limit of 84 million compared to Bitcoin‘s 21 million, it also mimics gold and is still mainly held as an investment rather than spent like a currency.
With a per coin value that is roughly 1/15 the price of bitcoin, litecoin is a poor man’s bitcoin and the equivalent of digital silver to bitcoin’s digital gold. Just as silver attracts many investors so does litecoin, but investors are not consumers and if a currency is going to be a currency it needs to be spent by consumers.
This is where I believe Dogecoin comes in. At the moment most people who purchase significant amounts of dogecoin are also buying it as an investment, but after cryptocurrencies achieve mass acceptance and their prices go up, dogecoin holders will spend it freely instead of hoarding it.
This is because, unlike bitcoin and litecoin, dogecoin is not deflationary since its supply is uncapped; therefore after its price peaks the declining yearly inflation rate currently 5.256% (4% in 2019, 3.4% in 2025 and 2.5% by 2035 etc.) will keep pace with economic growth and cause the coin’s value to remain stable.
A stable price will encourage people to spend dogecoin instead of hoarding it in hopes that the coin will keep going up in value forever. Having an uncapped supply also keeps transaction fees low since miners will always be rewarded and have an incentive to process transactions and keep the network secure.
These features are all conducive for dogecoin to emerge as the frontrunner in facilitating retail transactions. In the future, I believe that both bitcoin and litecoin will continue to be held mainly as a digital gold and digital silver investment while dogecoin will become the new digital dollar.
By Dwain Findlay
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