As the end of the year draws closer, discussing what the future holds for the crypto industry becomes increasingly relevant. In particular, how global financial and technological trends will affect the adoption of cryptocurrencies in the coming year.
Despite the critics, the number of industry experts and crypto enthusiasts who foresee a promising future for cryptocurrencies has been on the rise. Institutional investors are now paying more attention to crypto-related projects and products, and universities have even started to offer courses on cryptocurrency and blockchain technology.
Now, talks of how emerging technologies like artificial intelligence and the Internet of Things can influence crypto have emerged, with possibilities for new applications coming to the fore. Furthermore, a global trend toward a cashless society is set to have a real impact on how privacy and freedom are perceived. Could cryptocurrencies provide a much-needed solution as early as 2020?
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Increased use of AI and the IoT
No matter the industry, experts are more than willing to proclaim that artificial intelligence is the next big thing in their industry. The ubiquity of datasets, not to mention machine learning and high-performance scalable computing, are truly propelling the world into an age of AI. Many even consider the technology to be a sure sign of the incoming fourth Industrial Revolution.
However, despite the fast rise of AI technology, few practical applications are being discovered at present. A report called “The State of AI 2019” shows that projects associating themselves with the AI buzzword receive up to 50% more funding. This overwhelming hype around AI has led to a scenario where real applications are outnumbered by projects that only claim to be AI-related.
The good news is that the crypto industry has various applications where AI can be used to make cryptocurrencies attractive to the mainstream public. For instance, efficiently optimizing energy consumption during the mining process. For the most part, the energy it takes to mine Bitcoin has been a concern, and certain programs can reduce the energy costs. This provides increased profit margins to miners, who reduce transaction fees as a result.
Once implemented, AI can potentially compute the probability of a particular node’s performance and recommend methods that can be used to enable faster and cheaper transactions on the blockchain. Furthermore, when combined with IoT tech, different nodes will be able to communicate autonomously, achieving an increase in efficiency in terms of consensus protocols on the blockchain.
Al, IoT and blockchain can be used to make electronic devices completely autonomous, so that instead of using credit cards, these devices can be programmed to use cryptocurrencies to transact with one another.
On the subject, CryptoX reached out to Dominik Shiener, the founder of Iota — a cryptocurrency project that seeks to integrate cryptocurrencies to IoT. Shiener said that he believes autonomy should be the ultimate technological goal:
“The ultimate vision of all these technological advances is it to move from automation towards autonomy, and turn machines into autonomous economic agents. By simply giving a machine a wallet and way to verify, receive and send payments, we are creating an entire new Machine Economy where machines provide services and data to each other.”
Shiener also added that by combining IoT, AI and DLT, new and groundbreaking applications will become available, and as such, “we move away from today’s centralized networks with single points of failure, towards ‘Smart Decentralization’ where our networks are decentralized, resilient, secure, and smart.”
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Institutional investors’ increased interest in crypto
Another trend that will likely take cryptocurrencies to the mainstream in 2020 is the increased interest in crypto-related projects from institutional investors.
A survey by Fidelity investment reveals that out of 441 United States-based institutional investors, 47% “appreciate that digital assets are an innovative technology play.”
The survey also showed that more than 70% of respondents view digital assets favorably, and four in 10 respondents said that they are open to future investments in digital assets.
What’s even more interesting is the fact that 22% of institutional investors already own digital assets. Basically, interest in cryptocurrencies or digital assets has matured from a reserve group of early adopters to financial advisors, traditional hedge funds, and family offices taking a keen interest in the industry.
For instance, JP Morgan issued its customers the JPM Coin as a newly released cryptocurrency aimed at facilitating international money transfers among its institutional clients.
Furthermore, Morgan Creek Digital Assets (an asset management firm) partnered with two pension funds that have a combined $5.1 billion in assets under management. Through the partnership, Morgan Creek Digital Assets reportedly raised $40 million that will go into a venture fund that invests in Bitcoin and other blockchain-related companies.
Another study conducted in the last quarter of 2018 by the Global Custodian and BitGo states that 94% of financial endowments have been making investments in crypto-related projects.
The report further showed that only 7% of the endowments “anticipate a decrease in their allocation in the next 12 months” and that the rest were optimistic about increasing their allocation. What’s most fascinating is that despite the heavy regulatory pressure and volatility that the cryptocurrency industry has been facing, these institutional investors and endowment fund managers are hardly showing any signs of stepping away.
Because a crypto-asset fund needs to exhibit sufficient capital flow, not to mention liquidity, the increased interest from financial endowments is a clear indicator that the crypto industry is growing. The University of Michigan, for instance, has planned this year to increase its stake in the crypto fund managed by Andreessen Horowitz.
Other top-ranking universities whose endowments have shown interest in cryptocurrencies include Havard and Yale. In 2019, Harvard, together with two pension plans in Virginia have bought about 95.8 million tokens of Blockstack, a digital rights protection platform, valued at about $11.5 million at the time. Furthermore, Blockstack’s token sale managed to make history by being the first token sale to get qualified by the SEC.
For Yale, in particular, the move to invest in crypto seems to have been inspired by a study conducted by Yale economists (Aleh Tsyvinski and Yukun Liu). In their study, the Yale economists reported that although cryptocurrencies demonstrate a lot of volatility, they also show a return that is higher than the risk implied by volatility.
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Increased microchipping and use of cashless systems globally
All over the world, the movement toward a global cashless society is picking up speed. From Africa to Europe to Asia and America, there is no shortage of countries that are replacing banknotes for the convenience of electronic or plastic money.
In places such as Sweden, the move toward a cashless society has been so efficient that cash in circulation in the country has dropped to just 1% of GDP. Furthermore, Swedish legislation has made it possible for various retailers to refuse cash payments altogether.
Related: Crypto Vs. Cash: Which Countries Expect to Go Digital Soon?
To keep up with the changes, the Swedish central bank has set up plans to issue a digital version of its national fiat currency dubbed ‘e-krona.’ Add that to the increased popularity for microchipping among the Swedes and, in a few years, experts predict that the country could be among the first in the world to go completely cashless, bringing about several major advantages.
Swedes who make cashless payments with microchip implants report that they can pay for train tickets, eat at restaurants, and even open office doors without the inconvenience of pulling out their wallets, phones or keys. However, the price for this level of convenience is the threat of surveillance and safety of personal information.
Although electronic payment methods might offer convenience, a detailed record of the user’s purchases, location and time are recorded. This data can be sold and marketed by a user’s payment provider, retailers, and payment processors.
In China, the ubiquity of digital payments has become so instrumental that the country’s social credit system has been built around it. So far, cash payments in China have been reduced from 96% in 2012 to 15% as of 2019.
As countries further embrace the cashless movement, people will gradually lose the ability to transact value without the involvement of third parties or government entities. A cashless society might enable governments to better protect their people from crime, but it comes at the cost of each citizen’s data privacy and autonomy. On the subject, CryptoX spoke with Ray Wang, founder, chairman and analyst at Constellation Research, who said:
“This is the paradox. The companies contending to win our trust to manage our digital identities all seem to have complementary (or competing) business models that breach that trust by selling our data.”
Cryptocurrencies like Bitcoin could provide a hedge against the cashless movement, allowing people to transact value without the involvement of third parties or the government. Although not as private as cash payments in terms of user data, Bitcoin payments — much like cash payments — are decentralized and do not require a third party, thanks to the blockchain. Therefore, as societies go cashless, the demand for alternative payment methods such as what Bitcoin and other cryptocurrencies offer will be in demand.
Furthermore, with increased global economic uncertainty (keeping in mind that fiat currencies are affected by government policies), cryptocurrencies will likely provide a hedge against negative interest rates.
2020 and ahead
Even though global trends can highlight significant changes that are yet to come, the future remains highly unpredictable, and what happens in 2020 and beyond is anyone’s guess.
The rise of key Industry 4.0 technologies like AI, IoT and blockchain can shift the scales of power quickly and in directions previously unexpected. As much as the increased interest in blockchain technology is worth considering as a telltale sign of what the future has to offer, one still has to take multiple other factors into account before concluding with a definitive answer on whether crypto will go mainstream.
Hopefully, with the increasing flow of institutional capital, not to mention the influence of the trends mentioned above, the industry will be legitimized in the eyes of the mainstream public.
