This article is based on the recent post on MIT Technology Review.
Based on an MIT Technology review, Morgen Peck, an American author describes how Bitcoin could be made redundant. He details how blockchain technology can be utilized by governments, corporations or ordinary people to usurp Bitcoin as the dominant cryptocurrency.
The first methods explained by Peck involves the creation of a new government-issued cryptocurrency called Fedcoins. Fedcoin is an idea envisioned by David Andolfatto, a researcher at the Federal Reserve Bank of St. Louis and later refined by undergraduate student Sahil Gupta. Fedcoins are cryptocurrencies that run on a modified Bitcoin blockchain.
The major difference between Fedcoin and Bitcoin is that this ledger is managed by institutions who are certified by the Federal Reserve, instead of unaffiliated peers. This leads to faster transactions and reduced taxes and transaction fees. Fedcoins can be exchanged with dollars at a one-to-one ratio.
A shift from cash-based systems could result in the government finding it more easy to collect taxes and enact monetary policy such as disbursing stimulus payments without risk of fraud or theft.
The second scenario involves the takeover of previously established cryptocurrencies, Bitcoin in this case, by a company such as Facebook. Facebook was chosen for this as it has a huge user base of 2.2 billion users. There are three ways for it to achieve this.
The first method is through launching its own cryptocurrency through an ICO. Telegram launched its own cryptocurrency known as Grams, which raised $850 million in its first ICO in February. Another $850 million in its second round in March as well. Facebook can make its personal cryptocurrency similar to what was done by Telegram. According to the review, it would then gain popularity through ICOs and would eventually be used widely.
Secondly, it could convince any one of the triads of people who manage the network [users/miners/validators] to shift to a better blockchain. This would result in a fork like the one with Bitcoin Cash.
Thirdly, Facebook could introduce a Bitcoin wallet service with integration for all 2.2 billion users. The service has to be seamless and fix existing issues with Bitcoin wallets. This will then cause a mass migration to Facebook’s services. Facebook can then reward users with small amounts of cryptocurrencies for watching advertisements, writing posts or through mining.
After this method for earning Bitcoin tokens becomes popular enough, Facebook can then take control of the blockchain. This will subsequently give Facebook similar powers as the Fedcoin.
The third scenario for the fall of Bitcoin is the most naturally occurring option. With the way the market is progressing, multiplication of specific-use scenario cryptocurrencies may as well become the norm. Peck mentions coins such as AppleCash, ToyotaCash or even a coin that can be redeemed for babysitting services.
“These tokens are not unlike the points systems and gift cards that companies have used to hem in their customers for decades. What changes when you record these assets on a blockchain is that they become easily and securely transferable.”
Another requirement for this market to take off requires reliable ways to transfer these specific-use tokens across chains, which would, in turn, require a system of brokers for various tokens. So that it becomes an efficient barter system based on blockchain.
While these systems seem superior to Bitcoin, the writer points out that they do not have the censorship resistance and privacy that Bitcoin offers. In the first two scenarios, the privacy of the blockchain is rendered completely moot, as they mark a shift to centralized trust-based institutions.
However, the writer also mentions the various forays of the United States National Security Association into violations of citizens’ privacy. The travel bans by the Chinese government are also mentioned. If in any case, a potential blacklist is to form, it would be difficult to maintain the same degree of anonymity and privacy that blockchain offers today.
Peck goes on to say:
“Bitcoin’s early adopters have held fast to the dream of a single world currency that is private, free for all to use, and under the control of the masses. But the seven billion people not yet using Bitcoin might not care about any of that. With networks, convenience wins, and convenience is based on size. It’s the reason you’re on Facebook rather than some other social-media site—because everyone else is.”
He concludes by saying that the future of Bitcoin may not be the same as envisioned by its early adopters, or even Satoshi Nakamoto himself.
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