Article Contributed by Anderson Mccutcheon
The bull run of 2021 saw over 15 billion USD invested in blockchain technology startups by the end of Q3. What that means is billions of dollars were placed as bets on blockchain-enabled products, at valuations that, in many cases, price in exponential x100 growth. That’s what the funds, angel investors and institutions are expecting from their money in a sense, when they invest in projects with little traction and big ideas.
VC funding is one of the best ways of tracking who is betting on what. For comparison, here is a distribution by industry: by September, life sciences had raised 103 billion USD; FinTech raised nearly twice the previous year’s amount with 91.5 billion USD; almost 18 billion USD has been bet on startups that support the electric vehicle transition and food-related startups saw funding of more than 16 billion USD by June. It’s easy to see that VC funds are basically placing bets on the technologies they envision to be an important part of our collective future.
Cryptocurrencies are as strong as ever, but it will still take time before they see mainstream adoption. Here’s what the endgame may look like.
There are four main vectors of progress when it comes to cryptocurrencies:
The endgame scenarios for all 4 look quite different from one another, and may or may not co-exist, depending on the regulation that is to come.
Stablecoins may be perceived as a threat to government monopolies on money supply: USDT is a blockchain-based replacement for the USD, a product that up until now has only been minted by the Federal Reserve.
When Central Bank Digital Currencies (CBDC for short) are introduced, things are bound to change for stablecoins. CDBCs, being (unpegged) digital currencies on the blockchain, significantly reduce the need for tokens such as USDC, USDT, DAI and other currencies that rely on a variety of mechanisms for injecting tokens with consistent (stable) value. The market cap for CBDCs is also going to be in the tens of trillions of dollars and the “tokens” will serve as a legal tender by design. What real use cases remain for non-governmental stablecoins?
When it comes to the best-case scenario for 2031, there are a few suppositions I hold as the most realistic outcomes. A rough divide of 20% government coins, 30% corporate coins and the rest fully decentralized coins. With many countries introducing restrictions on cash and non-digital payments, it’s not unlikely that 2031 will see many jurisdictions ban cash transactions over $100 entirely and transition to blockchain-powered cryptocurrencies.
CBDCs have already been launched in several Caribbean countries as well as Nigeria. Meanwhile, 78 countries have started initiatives and projects with India among the most high profile aiming to introduce a digital rupee by 2023. What these all have in common is the value of the CBDC is tied to fiat currency but glean the advantages of a cryptocurrency in removing intermediaries and creating a seamless way to access and use money.
With every single currency unit becoming non-fungible, there will be a perfect history alongside a series of owners who have been taxed or subsidized in accordance with current laws. This provides governments with perfect knowledge of every person’s balances and helps them retain full control over how these assets are to be moved.
The IMF identifies this ongoing process as “cryptoization” which is most notable in emerging markets and developing economies: “when these [crypto] assets replace domestic currency, and circumvent exchange restrictions and capital account management measures [this is cryptoization].” They further warn the ability of crypto to ‘operate across borders’ poses a risk to destabilizing capital flows and this will be high on the list of issues for central banks to tackle before releasing a nationally-backed cryptocurrency.
Research is ongoing in major players such as the United States and UK and it’s unclear just how these governments intend to issue a CBDC when lack of control is an issue: there is likely to be a level of intrusion which makes many crypto adopters uneasy. To combat money laundering, other financial crimes and the funding of terrorism, privacy will have to be done away with.
Like it or not, this is a reasonable outcome of progress in the space and may shape how we interact with our government for many years to come. Governments change while control mechanisms will stay forever, so there is reason to hold healthy skepticism. An alternative outcome would be state-backed digital currencies that compete with non-governmental currencies, where holding the government’s currency would be less speculative than corporate or decentralized coins.
Plenty of use cases emerge that could simplify a population’s interactions with government and progressive tax reforms, that are currently implausible, could be implemented. For example, you could issue a tax on purchases based on the total amount of assets held and it will be automatically collected as personal VAT.
Non-fungible tokens found themselves at the forefront of multiple developing paradigm shifts, with both mega-conglomerates and venture capitalists placing billion dollar bets. Their gamble? NFTs are going to be a key integral part of future gaming, metaverse and digital right marketplaces.
For the past 20 years, ever since the introduction of massive multiplayer games with elaborate economies, the holy grail was creating a properly working bridge between in-game economies and the real world. Accomplishing such a bridge is incredibly difficult however.
In-game economies are fragile, player behaviors and incentives are not entirely predictable, and real currency can be a huge problem. Pay-to-win, fraud, gambling, regulation, all come into play when one can make money playing a game online.
NFTs will form a core part of any hypothetical gaming economy as they are a vehicle of tangible value. Players can deal directly with one another and exchange NFTs, with a view to either invest in their future or enhance gameplay. But the acquisition of NFTs is not limited to the marketplace: they can be a reward for completing quests, defeating others in pvp and reaching milestones.
What can be achieved through the proliferation of NFTs is an element of predictability in the economy. While the in-game currency itself may fluctuate in value, the real-life monetary value of an NFT should in theory remain more stable due to their intrinsic value and function.
Assuming the game has a core of players who regularly participate in the game economy, we may see players hedging via NFTs as a way to store value while using in-game currencies as liquid assets to achieve their aims on the platform more instantaneously. This sort of behavior would be consistent with real-world behavior of people accumulating cash and then deploying it into various value-storing assets, such as IP, equities and real estate.
Should these dynamics begin to take place, we can expect developers to integrate NFTs as a cornerstone of their gaming economies and create a supply and demand dynamic whereupon NFTs are scarce and desirable for gameplay or aesthetic reasons. Whether it’s a weapon, luxury car or even virtual land, there will be new incentives in-game with a view to more closely control player behavior and make an economy that will grow predictably and sustainably.
There may be good reason to expect multiple currencies per game, too. One can be used for in-game mechanics, another for marketplace transactions and others for use in participating in reward systems such as staking. Not only does this make the economy more predictable (fluctuations are less likely when a single currency has less exposure to risk) but it clears a path to speculation according to the role of the coin.
A new wave of NFT drops can either devalue a marketplace token or create hype and intensify the sense of scarcity around earlier editions of NFTs. A new game mode may be announced, leading players to create higher demand for the main in-game currency as they respond to the potential increase in utility. What is possible here is a versatile, robust and profitable economy for participants to engage with.
Be sure to check out Part 2 of this series next week for a look at how gaming can facilitate an environment where digital rights can be perfectly enforced.
Talk about hype. Every digital powerhouse on Earth is betting big on virtual multidimensional environments to be the next iteration of the Internet. It’s hard to predict exactly what will come out of the current cycle, but massive bets have been placed by both companies and investors, which means we will get to see this hand play out in the coming years.
How are NFTs and the Metaverse related to one another? Simply put, NFTs solve a problem similar to the one solved by Bitcoin – digital objects, by the nature of their design, are infinitely replicable. If you have one 3D model of a Lamborghini, you can make a billion Lamborghinis at close to 0 cost.
Non Fungible Tokens on the other hand, issued by the single true virtual Lamborghini entity, verifiably associated with a single instance of a Lamborghini, provide the owner of the NFT with the same level of exclusivity, albeit not functionality, of a physical Lamborghini. The functionality of the NFT is injected into it by the Metaverse – the environment that accepts the Lamborghini NFT and generates a virtual object with certain properties that the owner and others can interact with.
A metaverse provides a literally infinite environment where NFTs can both be generated and deployed. Entire galaxies, stars, continents and megacorporations, can have their rights assigned to non-fungible tokens and offered to the highest bidder. In the very likely scenario of multiple competing AAA metaverses, NFTs representing digital rights to media and objects recognised by multiple universes can carry a lot of value. Owning the rights to movies and songs in a digital environment where billions of users interact and generate royalties can be a very lucrative business. Which brings us to the next big paradigm shift to be triggered by NFTs: digital rights – which I will discuss in part two of this series.
Author: Anderson Mccutcheon, CEO of Chains.com
Bio: Anderson Mccutcheonis founder and CEO of Chains.com, an operating system for the cryptocurrency-enabled economy. Anderson is building a full-stack crypto-economy consisting of a marketplace, freelance platform, and cryptocurrency exchange. He is also an investor and entrepreneur with an interdisciplinary technological and marketing background and a long history in the crypto space. A blockchain industry pioneer and an 8200 alumnus, he has founded Unicoin, Synereo (later HyperSpace), and is currently leading Chains.com.