What will happen to cryptocurrency in the 2020s?

No one can predict the future with much accuracy, but the crypto community is very busy inventing it.

Over the next decade I believe we’ll see a scalable and private blockchain reach about one billion users by the end of the decade, up from about 50 million at the start of the decade. I think adoption will follow a barbell distribution, driven both by the power users of the developed world (investors, engineers, crypto-first startups) and by the people in emerging markets where financial systems are most broken. By the end of the decade, I anticipate that most tech startups will have a crypto component, just like most tech startups use the internet and machine learning today. And I see governments and institutions moving into the cryptocurrency space in a big way as well, even more than they already have.

In more detail:

  1. Scalability. In the 2020s, I believe we’ll see layer two solutions, or new blockchains come out which increase transaction throughput by several orders of magnitude. There are a number of scaling approaches currently on the table, and many of them stack upon each other. Just like broadband’s replacement of 56k modems led to new applications on the internet like YouTube and Netflix, I believe scalability will remove constraints and enable a whole new class of applications (see “the rise of the crypto startup” below).
  2. Privacy. In addition to scalability, I think we’ll also see privacy integrated into one of the dominant chains in the 2020s. Just like how the internet launched with HTTP, and only later introduced HTTPS as a default on many websites, I believe we’ll eventually see a “privacy coin” or blockchain with built in privacy features get mainstream adoption in the 2020s. It doesn’t make sense in most cases to broadcast every payment you make on a transparent ledger.
  3. Consolidation. There are a number of high quality teams working on next generation protocols today (Dfinity, Cosmos, Polkadot, Ethereum 2, Algorand, etc) and there are great teams working on layer two scaling solutions for existing chains. My prediction is that we may see some consolidation of chains (in developer mindshare, user base, and market cap) in the decade to come. The chains that make the most progress on scalability, privacy, developer tools, and other features will see the most gains. We may even see M&A amongst these teams,  a reverse-fork if you will where one chain is deprecated and each token becomes exchangeable at a fixed rate to the acquiring token. There will be as many tokens as there are companies/open source projects/DAOs/charities in the world (so millions) but there may be only a handful of chains that  power the underlying infrastructure for these assets. The winning chains could follow a power law distribution in outcomes, just like any other industry.
  4. From trading to utility. The 2010s were largely about speculation and investment in cryptocurrency, with trading driving most of the activity and best business models. This trend will continue to play out in the 2020s (see market structure, and institutions, below) but I believe the best new companies that get created in the crypto space in the 2020s will be about driving the utility phase (people using crypto for non-trading purposes). We’ve already started to see the beginnings of this trend, with more customers doing non-trading activity (staking, borrow/lend/margin, debit cards, earn, commerce, etc).
  5. The rise of the crypto startup. This decade we will see a new type of startup become commonplace: the crypto startup. Just like the dot com craze kicked off the idea of an internet startup (and a decade later, just about every tech startup uses the internet in some way), I believe that by the end of the 2020’s almost every tech startup will have some sort of cryptocurrency component. What defines a crypto startup? Three things. First, it will raise money using crypto (from a much larger pool of global capital, unbundling advice from money in the VC industry). Second, it will utilize cryptocurrency to achieve product market fit by issuing tokens to early adopters of the product (turning them into evangelists), similar to early employees getting equity in the company. Third, it will bring together global communities and marketplaces at a pace we have never seen before in traditional startups (which have to painfully expand country by country, integrating each country’s payment methods and regulations one at a time). There are myriad regulatory questions this open up, but the advantages are so strong, I think the market will find a way. These crypto startups will have the challenge that all startups have: making something people want. The next 100M people who get exposure to cryptocurrency will not come from them caring about cryptocurrency, but because they are trying to play some game, use a decentralized social network, or earn a living, and using cryptocurrency is the only way to use that particular application.
  6. Emerging markets. Other than crypto startups (which will largely start off being a first world phenomenon), the other area of adoption will be in emerging markets where the existing financial systems are a much bigger pain point. In particular, countries with high inflation rates and large remittance markets where crypto can really shine. In 2019, GiveCrypto.org made cryptocurrency payments to 5,000 people in Venezuela, and over 90% of them were able to create at least one transaction with a local store that accepts crypto or a local cash out partner. This indicates that the tools have started to cross a threshold of usability in emerging markets (where unreliable internet, older smartphones, and a lack of education can be challenges). In the 2020’s, I think we will see cryptocurrency adoption in emerging markets scale to hundreds of millions of users, with at least one country “tipping” so that the majority of transactions in their economy happen in cryptocurrency.
  7. Institutions. We’ve already started to see small institutions enter the cryptocurrency space. Hundreds have joined Coinbase Custody in the past 18 months. I would expect this rapid growth to continue in 2020, with larger and larger institutions coming on board. Eventually just about every financial institution will have some sort of cryptocurrency operation, and most funds will keep a portion of their assets in cryptocurrencies, partially due to the uncorrelated returns. Something like 90% of the money in the world is locked up in institutions, so this will likely drive a lot of demand for crypto assets.
  8. Central Bank Digital Currencies (CBDCs). While Libra drew the ire of just about everyone in Washington DC, China took the initiative by beginning to digitize the yuan, and making blockchain one of their core technology investments. The U.S. is playing a bit of catch up now, and active discussions are taking place about how the dollar can be digitized. CENTRE, with its USD Coin, may be the solution that U.S. turns to, or the Fed may try to implement their own digitized dollar using blockchain. I think we will then see basket digital currencies come out, either by a consortium like Libra or CENTRE, or possibly the IMF itself.
  9. Maturing market structure. During the last decade, many of the companies we think of as cryptocurrency exchanges were actually brokerages, exchanges, custodians, and clearing houses bundled into one. During the 2020’s I think we’ll see the cryptocurrency market structure evolve to more closely resemble the traditional financial world, with these functions being separated out from a legal and regulatory point of view. This is already happening to some extent. Coinbase Custody, for instance, is a separate company with its own board, regulated as a NY Trust Company. Coinbase Pro will separate into a brokerage and exchange as well. As in the traditional financial services world, customers of one product will be competitors of another, and there will be a lot of cross pollination. With these separate components in place, I predict the SEC and others will get more comfortable creating a cryptocurrency index fund for retail investors.
  10. Decentralization will grow. While the fiat-to-crypto exchanges will largely follow a traditional financial services model, a separate world will evolve in the purely decentralized crypto-to-crypto area. In other words, once you get your fiat currency into crypto, you can then enter a magical place of innovation that is purely crypto-to-crypto. In this world, non-custodial wallets, DEXs, Defi, and Dapps will continue to improve in terms of usability and security, and we’ll see a lot of new applications emerge, from games, to online communities, to virtual worlds with their own economies. Many of the apps and non-custodial wallets in this world, since they never store customer funds, will be regulated like software companies instead of financial service companies. This will dramatically accelerate the pace of innovation. There will be greater privacy in this world as well, with privacy coins and non-custodial wallets seeing greater adoption. We’ll also see the rise of decentralized identity, and reputation scores associated with those identies. As the decentralized cryptoeconomy grows, more people will earn a living in crypto and find opportunities, moving the needle on global economic freedom.
  11. The billionaire flippening. As a bonus final item, my friends Olaf Carlson-Wee and Balaji Srinivasan estimate that at some point between $100,000-$1M per Bitcoin, an increasing share of the world’s billionaires could be from cryptocurrency.

    This is a very rough calculation based on the fact that there are 2600 billionaires and that $100k-$1M/BTC with 21 million coins would mean a total market cap of $2.1-21T. So to get another 2600 billionaires from cryptocurrency, we’d need at least $2.6T in wealth in the hands of 2600 individuals. That’s about 12% of the total market cap at $1M per coin, or 1000 coins at $1M to be worth $1B. We don’t know the exact distribution of wealth among holders vs institutions, but it does seem that a significant fraction of the world’s wealthiest individuals will soon be from crypto.

    Whether you think this is a good thing or a bad thing, it would mean that more pro-technology people will have access to large amounts of capital in the 2020s. Presumably, this will increase the amount of investment made in science and technology, and I think we’ll also see more crypto folks turn to philanthropy. We’ve seen this already with efforts like the Pineapple fund, GiveCrypto.org, and the GivingPledge.

We’ll see how many of these predictions turn out to be true! By shifting cryptocurrency from being primarily about trading and speculation to being about real world utility, the 2020s will see a huge increase in the number of people holding and using cryptocurrency, and start to really move the needle on global economic freedom.

Brian Armstrong

Brian Armstrong

Cofounder and CEO of Coinbase. Cofounder of Givecrypto.org.