What's Next: An Outlook
Robert Riva / August 16 2022
What’s Next: An Outlook
Jefferson Capital has always kept an eye to the future—not only in the near-term, but several years ahead. Years ago, critics insisted that Bitcoin and Ethereum would never see any use in the “real world.” Today, Bitcoin and Ethereum boast a combined market cap of over $600 billion, with the entire digital asset economy valued at over $1t. That may be only 7% of the entire US GDP ten years ago, but it’s a start.
But where is all this headed, really?
As much as we speak of the market as having grown, even we must acknowledge the fundamental fact that Bitcoin and Ethereum’s real value must come from an as-yet undeveloped use case. Critics continue to point to the absence of any such project as evidence for these assets’ inevitable decline. We have always felt such criticism not only warranted, but necessary. Even though we, as speculators, would benefit in the short term from “dumb money” flowing into the digital asset market—and it has, and we did—we would much rather this market be composed of individuals who understand for themselves what this all means, and who may thus actively help realize the technology’s long-term potential.
To that end, we wish to share our outlook regarding the future of digital assets—the true application of decentralized smart contract technology.
(It’s important to bear in mind that the following examples are purely hypothetical; to our knowledge, no dApps such as those we propose in this outlook yet exist)
1. Decentralized Public Services
This refers to any of a number of problems with centralized/bureaucratic systems that blockchain smart-contracts can easily solve. For example:
- Problem A: A school in a poor neighbor hood receives no funding due to kids receiving bad grades, and vice versa; the community is locked in a vicious cycle, where kids drop out & turn to crime, and the rare few who are able to “succeed” in life simply leave the community.
- Solution: The community pays directly into a smart contract that pays the teachers & staff of the school. The payments are considered charity and a tax write-off, bypassing the school district bureaucracy entirely. There is no profit motive or promise of RoI, and no one directly benefits except for the teachers; the community is simply donating to the cause of healing an impoverished neighborhood in their city.
- Problem B: Public transportation is unreliable. Buses run behind schedule because there are not enough drivers. Residents are losing money either via car payments or rideshare apps.
- Solution: A smart contract for bus drivers, into which anyone in the city may pay. Bus drivers make more and thus more people become drivers. The protocol may even include governance for voting on new routes or approving the acquisition of more buses.
- Problem C: A local police force has no trust within its precinct. The officers all commute several miles from where they live and have no personal connection with the people they are meant to protect& serve; as a result, neither group trusts the other and misunderstandings result in tragedy.
- Solution: The community creates a smart contract to pay a few widely-trusted members to act as keepers of the peace& social workers. Community members can trigger an emergency call to alert the nearest of these individuals to come to their location via an app on their phone. This provides a structure for community members to resolve most issues themselves, without involving the police. The police are not called unless there is a need to use force, such a shooting or a home invasion.
2. Crowdsourced Venture Capital Loans(But Not ICOs):
Currently, banks and venture capital firms take on all of the risk when deciding to issue loans for a business.
Smart contracts are already in a position to allow anyone with an ETH wallet to issue such loans. However, rather than simply letting everyone send money to whichever projects they think will get them a return, a smart contract could be designed to act as an institutional investor by collecting donations from individuals & letting them vote on projects to support & how much to give. The contract would then collect returns over time and periodically issue them back to the original donors as athank-you. (Crucially, for such a contract to be legal, it would be necessary that initial donors cannot buy or sell shares in the contract.)
3. Virtual Reality
~2-3 Years from now, virtual-reality will emerge as a new space for social connectivity, with Meta (formerly called Facebook) leading the charge.
In a future where groups of friends, family, and business associates regularly meet online, one’s virtual identity will become a natural extension of themselves.
--People with a skill in 3D design will create unique representations for themselves or their virtual spaces, sparking interest for their work and thus business opportunities;
--Especially skilled 3D digital artists &animators will become famous, doubling as (or teaming up with) fashion designers, interior designers, architects and urban planners for large virtual spaces. Originals of popular designs will be bought and sold by collectors as priceless luxury commodities.
--new business models such as virtual bars, clubs, lounges etc., will emerge based on the promise of meeting a particular sort of person, in the same manner as bars and clubs do now. Proprietors of these virtual spaces will charge entry or membership fees, creating investment opportunity.
(In this future virtual economy, many of the digital assets being bought and sold in the NFT marketplace today will come to be remembered as “classics”. It was on this line of thinking that Jefferson Capital’s previous PM assigned a large portion of the portfolio to early-stage digital asset projects. As stated in a prior article, we still feel strongly that these assets will be valuable in the future.)
Digital assets, enormous though the total market may be, are still only getting started. Whatever critics may say, it’s by no means unreasonable that 1BTC will reach a price of $100,000 in the very near future, as people begin to finally appreciate what distributed ledger technology can do—not for their wallets, but for their communities. While the massive booms and busts have up till now been driven by cynical cash-grabs and pseudo-intellectual jargon (and we have no doubt these will persist), there is nothing in these that inherently diminishes the ability of digital assets, smart contracts, and blockchains to drastically change the way we interact with everything, all the way from the most fundamental societal contracts to how we choose to spend our free time.
Whatever the future holds, we at Jefferson Capital continue to believe that BTC, ETH, and many of the assets aligned in their functioning, will be indispensable to it. There will be pitfalls along the way, whether caused by reckless borrowers, bad-faith actors, false promises of stability, or simply poor management. In the past weeks, hundreds of hedge funds, many of them orders of magnitude larger than Genesys, have gone under.
But not us. This ship is steady, and our compass points North.
A few notes on the above:
-For all of the example use-cases outlined above, payments would be denominated in BTC or ETH. The smart contracts would be built upon those distributed ledgers, and it would be those distributed ledgers’ continued operation that would guarantee the execution of the contract.
-Every time users pay in BTC or ETH, the recipient can either a) hold on to their payment, b) immediately liquidate into the secondary market for their national currency, or c) a combination of a and b. Most will likely choose b, at which point they may put brief downward pressure on the price of BTC/ETH, but this is counterbalanced by the fact that i. most of these individuals are in fact new adopters and ii. for every user who chooses a or c, there is some supply of BTC/ETH being kept out of circulation.
-The greater the volume of services rendered via smart contract, the more new users opt-in to accept payment in BTC/ETH, and the greater the amount kept out of circulation over time, leading to an increase in the value of circulating BTC/ETH in the long term—all purely as aside effect of the technology’s applicability to the above situations.
Why haven’t any of these use-cases been established yet? Example 1: there is no clear short-term profit motive here for investors, who thus far view cryptocurrency purely as a get-rich-quick scheme and would instead be required to view it as a way of investing in livelihood; Example 2: this represents a major disruption to the financial sector, who likely have an interest in making sure the average crypto investor isn’t aware of this use-case; Example 3: because virtual reality technology still needs time to reach this point.