Virtual currencies are likely to be a major disruptive force within five years, according to a new study published by Technology Strategies International. The report titled, The Future of Virtual Currencies, recommends that organizations that are in the path of this disruptive wave starting preparing themselves now.
Since the genesis block of Bitcoin appeared in January 2009, more than 1,700 virtual
Virtual currencies set to disrupt major markets within 5 years
currencies have been launched. Of these, more than 700 are considered active, but only 35 have market valuations of more than $1 million, the report says.
“There was a strong surge in the number of virtual currency announcements shortly after Bitcoin’s market capitalization hit $1 billion,” says Christie Christelis, President of Technology Strategies International Inc., “and the number of virtual currencies on the market has accelerated since then, exceeding the number of fiat currencies by June 2013”.
The report notes that while there have been numerous scamcoin launches mostly aimed at trying to get bitcoins, these have been identified fairly quickly by the highly critical, active and vocal developer community. Many of the new virtual currencies have been developed as side projects aimed at improving the Bitcoin protocol, or coming up with alternative concepts that extend the functionality, and improve the speed and security of virtual currency transactions.
“The idea of decentralized trustless systems is revolutionary,” Christelis says, “but the real potential for disruption comes about through the ability to implement them and find compelling business models.”
“The open protocols on which these virtual currencies are based, together with the highly collaborative innovation processes at work amongst the different develop communities, has created such a stimulating environment for innovation that it is impossible to halt it. And these innovations aren’t only focused on financial applications of virtual currencies.”
The report notes that venture capitalists have invested more than $400 million in companies aimed at getting in early on the next multi-billion dollar industry. New generation virtual currencies, so-called Bitcoin 2.0 companies, are extending the application of virtual currency technology into areas such as smart contracts, colored coins and decentralized autonomous organizations.
Awareness of virtual currencies exceeds 50% amongst online adult consumers in the USA, the UK and Canada, but uptake is currently low. Most consumers are skeptical of virtual currencies for a variety of reasons, but there are many functional benefits that they consider appealing. About one in five consumers intend to make use of virtual currencies in the future, which given the current low base of usage, suggests very high growth in adoption over the next few years, the report predicts.
Regulatory response around the world has been varied but is still in the early stages of development. Most regulatory initiatives are aiming to regulate the gateways to virtual currencies so that they are in compliance with anti-money laundering (AML) and countering the financing of terrorism (CFT) laws and regulations. The extent to which regulations around the world will stifle innovation in this area or be supportive remains a key uncertainty in assessing future directions for virtual currencies.
“We identified three alternative futures for virtual currencies,” says Christelis “namely, ’A Trustless World’, ‘Symbiosis’ and ‘Fractured Horizons’. If either of the first two materialize, we will see major disruption across a broad range of industries, mostly, but not exclusively, in the financial services sector,” he says.
The report suggests that incumbents are ill-prepared for the disruptive wave that is starting to build and recommends that immediate action be taken to mitigate the effects of moving to a decentralized trustless world.
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