Genesis
Response
Penultimate
Finale
September 23rd, 2020
In the aftermath of the financial crisis of 2008, Bitcoin emerged, like a Phoenix rising from from the ashes of a shattered financial system. Those who adopted it early saw it as the inevitable replacement for the system of banks and central banks that had dominated the world for so long. People would take control of their own money and handle their own transactions without having to rely on governments or middlemen. The community would, through incentives and consensus, ensure the new system was honest, unlike the old one.
Over a decade later, Bitcoin still remains, but it is very far from replacing a damaged and discredited financial system. Instead, it, and even more, its talented younger sister Ethereum, has become the foundation of a complex and fast-evolving ecosystem. Sadly, far from the community keeping the system honest, the cryptocurrency ecosystem has become heavily infested with sharks, scammers and fraudsters. The bad actors who have been regulated out of the legacy system seem to have migrated to the new one. Bitcoin itself may be honest, but the ecosystem it has spawned is anything but.
And yet, cryptocurrencies have become an obsession of the mainstream finance sector. Investors now include cryptocurrencies in their portfolios, because let's face it, in this era of zero and negative interest rates and collapsing corporate returns, there isn't much yield to be had from anything else. Regulators are attempting to clamp down on the frauds and scams in the cryptocurrency ecosystem, though it is developing so fast it is hard for them to keep up. Banks and central banks are considering issuing their own cryptocurrencies. Why would they do this, if they thought cryptocurrency had no future?
A large part of the reason why cryptocurrencies are now popular with the mainstream is that the cryptocurrency ecosystem has firmly Tethered itself to the legacy system. Cryptocurrency investors mostly measure their wealth in US dollars, not in Bitcoin. Getting rich in US dollars is what they want to do. Replacing the US dollar with cryptocurrency would seriously damage their wealth. It is not what they want to do.
Cryptocurrencies have become part of the high-yield, high-risk part of the existing financial system. And "safer" cryptocurrencies are already being created by legacy financial institutions and even by large corporations. Soon, there will be a full range of digital assets from "safe" to "highly risky", running in parallel with and partially replacing existing financial assets. Cryptocurrencies have a bright future within the existing financial system.
The original vision of the early Bitcoin adopters was that cryptocurrency would replace the legacy financial system. But instead, the cryptocurrency ecosystem is being absorbed into it. A decade from now, cryptocurrencies will be a normal part of the investment landscape. And when central banks start issuing cryptocurrencies, they'll become a normal part of the payments infrastructure too.
But replacing the US dollar, and the banks & central banks that depend on it? No, that will still be a pipe dream.
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