Reflect on the journey of Bitcoin throughout its existence. I assure you that a few specific events likely surfaced in your thoughts first, akin to notable milestones. If you continued pondering, your mind probably began to fill in more experiences connected to those pivotal moments.
Do not interpret these as definitive forecasts; disregard the embellishments that I find unavoidable, and bear in mind that these do not include specific dates. I intend to elaborate on a collection of “defining moments” or large-scale changes that I believe are almost certain to occur or commence within the next ten years.
— An Engagement With The US Supreme Court —
Bitcoin engenders a fundamental contradiction within the present regulatory and legal structure, at least in the US and in regions where the US effectively exerts influence, concerning how Bitcoin inherently operates along with two significant regulatory themes.
- KYC/AML Regulations: These regulations are implemented to ensure that financial entities are aware of the identities of the individuals they engage with to prevent criminal enterprises, money laundering, or terrorism financing from using their services. This necessitates deeply intrusive data gathering, monitoring, and sharing of such data among various institutions. It demands sacrificing privacy. Or does it?
- Financial Privacy Legislation: The existence of laws such as KYC/AML in a nation like the United States, which is safeguarded by the 4th Amendment of our Constitution, is attributable to regulations like the Right to Financial Privacy Act. There are statutes that limit the circumstances under which the government can access the financial records of its citizens. These laws emerged after a Supreme Court ruling that scrutinized KYC/AML regulations (ironically named the Bank Secrecy Act), which determined that financial records belong to the institution rather than the customer.
Do you perceive the contradiction? All of this is predicated on the belief that financial activity records are maintained privately in secure silos, not visible to the general populace. That government access does not imply public access. This is not compatible with how Bitcoin operates. Everything is transparently recorded on the blockchain for anyone to view. Therefore, while financial institutions must enforce KYC/AML regulations and verify their customers’ identities, are they not also obliged to safeguard the privacy of their customers’ financial activities except when compelled by a legal directive to disclose them?
We’ve reached a juncture where privacy tools are beginning to show substantial progress in the Bitcoin environment, and we are already noticing behaviors that suggest a trend of labeling this as “misconduct” by Bitcoin exchanges, leading to increased scrutiny of accounts (and potential suspension and/or freezing later on) in response to the utilization of privacy tools. Although I do not foresee a near-term scenario in the United States that dismantles all KYC/AML laws, I do recognize a compelling argument against the type of reactions exhibited by exchanges and institutions towards their customers employing privacy tools.
The argument is straightforward: customers possess a right to safeguard their privacy from the vantage point of the broader public. This system does not keep all records confidential by default, revealing them only selectively to authorities. Everything is in plain sight and publicly verifiable by design. So, if I have a Constitutional right to privacy in the old paradigm, do I not retain that right in this new paradigm?
Again, let me clarify: this is in no manner a solid enough foundation to abolish all KYC/AML laws and requirements necessitating customer identification. However, I believe it provides a robust enough basis for a potential Supreme Court ruling that businesses are not permitted to censor or discriminate against customers solely based on their use of privacy-preserving tools in activities unrelated to those businesses. If the trends continue in their current direction, I perceive this type of legal challenge to be unavoidable. What will be the outcome if I’m correct? I suppose we’ll discover whether I am right.
— Unavoidable Evolution of the Mining Landscape —
Mining is likely the most straightforward aspect to highlight, aside from price, to illustrate how significantly Bitcoin has progressed over the past decade. Transitioning from consumer desktops to data centers in just ten years. This transformation will persist at a brisk pace, and part of the upcoming shift is already in motion. Vertical integration. The progression from desktop CPUs, to GPUs, to specialized ASICs has occurred. However, those ASICs remained relatively accessible to retail consumers, small group buyers, and smaller professional operations. It remained feasible to acquire efficient and modern hardware across various scales (albeit at varying prices depending on scale).
That is set to change, and the initial indicators of that change are already apparent. Mining will progressively become less and less profitably accessible to retail and smaller market participants (excluding professional hosting agreements) as companies start tightening their operations. This market remains exceedingly volatile, and miners, from producers to equipment operators, have substantial capital investments that can be highly precarious during market downturns. The environment often becomes frenetic when the market rises, and can go awfully wrong for unprepared individuals during downturns. This time, the focus will be on serious risk mitigation and management.
Bitmain’s financial disclosures during their IPO attempt in Hong Kong revealed how they garnered immense profits only to subsequently lose them through taking considerable risks that fortuitously paid off during a bullish market. This has impacted them profoundly, and the HKEX’s assessment of that general trend due to overall market volatility led to the rejection of all manufacturers trying to IPO under those circumstances. The market these firms operate in was deemed too risky for a listing on the HKEX. This inhibits their access to the necessary capital for further expansion as Bitcoin experiences exponential growth. That is a significant setback.
In response, Bitmain has commenced efforts to adapt (disregarding the recent internal “coup” attempt) by reshaping their business model to navigate these harsh lessons. They operate a multitude of mining farms in China, both for instigating mining operations and hosting others’. These types of operations have expanded to international locations such as Texas and Washington state in the US and Quebec in Canada. The strategic advantage of running these farms lies in establishing predictable power expenses and having the option to deploy hardware they manufacture to mine themselves or sell capacity to other miners. Now, if you consider these factors… they’ve prepared themselves to 1) produce and sell the proverbial shovel, 2) utilize it themselves, and 3) offer the shovel to others while also attempting to provide them a place to dig. This is precisely what Bitmain is undertaking with a new service.
Jihan has also implemented new financial services and tools that Bitmain offers to assist customers in hedging some of their risks by absorbing them, as well as additional more detailed arrangements favorable to Bitmain. It remains uncertain whether this particular strategy will be effective, given the drama resulting from the internal conflict between Micree Zhan and Jihan Wu, but it indicates an acknowledgment of and a strategy to address the risks associated with this level of market volatility. This is absolutely essential for survival in the long run.
term in this domain of the ecosystem.
This is the trajectory this is heading, with significant propulsion behind it. Participants fulfilling various roles in the mining domain will gradually start to attempt to expand and manage every tier of the stack they can internally: Production | Research & Design | Hosting | Operation | Electricity Acquisition | Financial Risk Mitigation | Lobbying. As economies of scale persist in exerting pressure on participants in the mining domain and streamlining them to the slimmest and most efficient form, they will begin trying to internally consolidate as much of the complete stack to gain control and mitigate the financial risks.
An additional consequence will stem from this economy of scale phenomenon unfolding in a Darwinian manner amongst all miners. Governments will start to encroach at a foundational level and begin realizing they possess influence to wield. To truly communicate my thoughts here, I want to regress to the past for a moment and examine some mining dynamics in China based on both “official” reporting and my personal sources. Mining surged in China due to two elements: 1) there is excess power in numerous regions, 2) the finances of local governments being quite distressed and many local authorities being entirely agreeable to mining as they can take a cut and generate revenue. This dynamic may even explain why we haven’t observed the Communist Party clamp down on mining despite all the proclamations and suggestions to that effect, except in instances of criminal behavior such as power theft.
That dynamic is already unfolding wherever mining operations are scaling up. Step one: satisfy the local government. We’ve observed how situations can develop with the circumstances in Quebec where Hydro-Quebec attempted to restrict and auction power after witnessing a substantial surge in electricity demand for Bitcoin mining. Numerous projects across the United States have been initiated in conjunction with the local government, in Texas, Washington, Georgia, etc. This is merely how it functions; you establish a presence on the ground, and that most immediate local government at the very least is sinking their hooks in. Then the higher authority can sink their hooks in. Then the next one above that. The hierarchy of leverage.
We must be extremely, EXTREMELY aware of this dynamic. Unless you discover Harry Potter’s wand and the enchanting spell that instantly dispels every government in the entire world, they are present and we must contend with them. There are only two genuinely viable strategies to manage this, and one is hardly tenable.
The unfeasible strategy is to attempt to move things entirely off the grid and into the underground economy. That isn’t achievable. You are discussing concealing data centers, with the cumulative network energy consumption being on the scale of entire nations. Non-starter, and if you want to try resolving this with a POW change fork, good luck. You know where the exit is.
The viable strategy is to concurrently: 1) advocate at the most localized levels for non-restrictive and non-draconian policies where these operations are situated (and Bitcoin in general in your vicinity) if possible while 2) supporting at the non-local levels broadly for policies that keep sovereignty and power as localized as practical. If Bitcoin advocates and other concerned groups do not remain vigilant and proactive in this domain, then those initial local hooks will evolve into State hooks followed by Federal hooks from the national government of your nation at the root of the mining domain: power accessibility. These hooks are undeniably already present in certain areas. If action at the societal layer is ineffective in addressing this issue, we will descend down a very slippery slope:
- Eventually sliding into national level regulation and direct interference in how mining operations are conducted.
- If Bitcoin continues to grow and expand in value and market importance exponentially, the scenario unfolds whereby whichever nation possesses the cheapest energy reserves to exploit dominates mining.
- This could readily devolve into a superpower-like dynamic regarding mining distribution, which if a stable (or “stable enough”) equilibrium, could culminate in a base layer being much more centralized and restricted, which is detrimental to Bitcoin’s full potential.
This aspect of the Bitcoin network/system is the most vulnerable in terms of defensibility against genuine “meatspace” threats. Ultimately if the populace of a nation empowers its government to do so, they can arrive and confiscate your mining equipment. It would have to be an incredibly resource-deprived government or a exceptionally unique geographic region for that to be impractical. The sole way to tackle this is socially.
And coercion is not the only mechanism for interference at this tier of Bitcoin. Distorting incentives is another method. Chain Anchor was a protocol proposal out of MIT aimed at effectively bribing miners into initially preferentially, and then exclusively mining KYCed transactions. The ultimate goal was to create orphan non-compliant blocks. (This out of all sources, READ YOURSELF when you finish this). These concerns surrounding economic incentive distortions can ultimately be rectified only through economic incentive corrections.
This is the “shift” I am most confident about in this piece. I wouldn’t categorize it as a short-term “OMG we’re doomed!” urgent, but this is not an issue Bitcoin advocates can afford to be indifferent about.
— Neo-Switzerland —
I mentioned earlier about Binks, and the technology capable of “porting” subsets of Bitcoin’s properties to them, alongside the incentives to do so. It’s a jurisdictional arbitrage maneuver with enormous potential profits. However, there is one intriguing potential twist regarding how that could unfold, given it is the 21st century: cyberspace could arguably constitute a jurisdiction. Does anyone recall Darknet Markets? Thus, there are two pathways “Neo-Switzerland” could develop: an actual physical jurisdiction legalizing KYC-less or KYC-lite financial enterprises and providing sanctuary for such operations, or an “extra-jurisdictional” (quotation marks because servers need hosting) dark net business.
Meatspace Neo-Switzerland
Let’s explore the possibility of a real-world nation-state deciding to become a sanctuary jurisdiction for KYC-less or KYC-lite binks. For starters, Bitcoin is a borderless global currency/settlement network that anyone with internet access can engage with. Therefore, the potential customer base that can deposit and withdraw Bitcoin at one of these binks is anyone in the world with an internet connection able to acquire Bitcoin. That’s the potential capital influx that could be drawn in the most excessively optimistic scenario. That’s what you can levy taxes upon. Additionally, given a host jurisdiction, these binks can be legally incorporated and accountable entities. Even without KYC, cryptography provides a foundation for both assertions of fraud, and rebuttals to those assertions, at least regarding a basis or initial filter from which to commence legal disputes. These binks can provide anonymous accounts denominated in BTC, untraceable cybercash denominated in BTC, loans, escrow services, oracle services for complex smart contracts enforced by the Bink. All financial services of the traditional world become accessible via a smartphone with either no KYC or so little it feels reminiscent of 2013 again, and then some with a cherry on top.
This represents a substantial mound of potential profit for a jurisdiction to capitalize on. And being a jurisdiction, an actual nation-state with a legal framework, there exists the potential to foster enough trust to genuinely make this functional for international clients.Okay, so from a consumer’s perspective, how do you manage situations when issues arise with your bink? If you are a national citizen, it’s straightforward: you pursue legal avenues. If you are not a citizen? Well…initiating legal actions across various countries can be intricate to say the least. And costly. However, if we reach the stage where this bink is functioning, we presume that the government of this nation desires this to be successful and to draw in commerce, correct? Thus, the government could address this disparity between citizens’ bink patrons and non-citizens’ bink patrons, formulating laws to simplify the complexities non-citizens face when resolving disputes with their bink. More importantly, the government has the ability to actually enforce these laws uniformly for both citizens and non-citizens.
The other side of the coin is how other countries respond. The US, in particular, enjoys dictating to the world how to manage their affairs, especially regarding finance. How far can you truly push the limits before the US decides to drone-strike your nation into oblivion? No one will know unless someone takes that risk.
This is not to suggest that such a situation is likely to occur within a relatively short timeframe, like the next decade, but I’m saying it’s entirely reasonable to consider that it could happen.
Cyberspace Neo-Switzerland
Let’s examine the “darknet, no recognized jurisdiction, entirely pseudonymous” scenario. The situation is identical to the previous one regarding deposits and consumers; they can facilitate BTC withdrawals and deposits for individuals worldwide. But a bink that operates outside of the law cannot legally register in any jurisdiction or create any legally responsible entity. This presents a significant shift in terms of trade-offs compared to a bink hosted by a compliant jurisdiction. It’s far more challenging to initiate a network effect as a bink in this environment, regarding the acceptance of cybercash and deposits instead of direct BTC settlements. A bink’s network effect relies entirely on trust in its operator(s). Establishing this trust is far more attainable with a legally recognized and accountable entity within a known jurisdiction. The framework of your relationship with that bink is established clearly. This contrasts sharply with how a darknet bink would function.
A darknet bink would lack any legal accountability, no government bodies to approach, no legal avenues to follow, nothing. You receive guarantees enforced solely through cryptography, and everything else hinges on blind trust with zero recourse. That’s the reality. This poses a substantial challenge for such a bink’s inception. How do you gain the trust of clients with their deposits when they have no way to seek compensation if you defraud them? In my view, this dilemma ensures that this type of bink could never reach the scale of one with legal recognition in a safe haven jurisdiction.
A darknet bink is unlikely to become a platform for mainstream users; it would serve clientele engaged in very limited circumstances. Individuals involved in hazardous illegal activities. Scammers. Those who have faced censorship and been entirely barred from the traditional financial system. I simply don’t envision average individuals willing to risk depositing BTC with a bink from which they have no legal protections and that is solely linked with pseudonyms. The possibility exists for creating stronger guarantees through advanced cryptography, but that leads into a peculiar realm. As I mentioned earlier concerning the potential technical advancements in the next decade, there is the opportunity for systems that significantly blur the boundaries between services and protocols. If everything aligns favorably, perhaps a darknet bink could compensate for the challenges in trust-building by implementing more robust cryptographic safeguards.
I am fairly optimistic that developments of this nature might emerge within the next decade (particularly a straightforward trust-based darknet bink), with the only uncertainty being how prevalent exit scams will be.
— Birth Of A New Market —
Bitcoin is transforming into a form of currency; that is what we are all observing and participating in. From speculation, to value transfer, to a unit of account. A fundamental and absolutely necessary element for this transformation to succeed is a vast and liquid arbitrage among Bitcoin, fiat, and goods & services. This arbitrage will enable businesses to actually accept and utilize Bitcoin. Once Bitcoin attains a size and relative stability, businesses can safely accept it and pay suppliers without enduring the volatility risks that exist today. The closer Bitcoin’s stability approaches that of a respective fiat currency, the safer it becomes to accept and utilize Bitcoin directly rather than immediately exchanging it for fiat. Arbitrage traders will exploit these discrepancies, and it’s likely that businesses will also engage in arbitraging these pairs themselves! Would it yield a better return for you to accept Bitcoin or fiat for a product? Offer discounts as incentives. Would it be more beneficial for you to pay your supplier in Bitcoin or fiat? That’s how you will base your decision. This dynamic is what will genuinely propel Bitcoin into the sphere of currency.
Currently, global geopolitical dynamics are shifting rapidly. The US has spent the last two decades acting as an Empire in the aftermath of 9/11, disrupting numerous nations and encouraging others to isolate themselves. Clearly, we are witnessing the reactions to this—as other countries begin establishing alternative settlement systems and reducing reliance on the USD. China and Russia are developing their own SWIFT alternatives to process payments. They are also trading oil in non-USD currencies. Venezuela is attempting to promote an oil trade within its centralized “cryptocurrency,” the Petro. The globe is weary of American overreach and is taking steps to create platforms and systems that are not subject to American supervision and censorship.
This trend will undoubtedly persist and will eventually have implications for Bitcoin itself. There is no reason the arbitrage dynamics among Bitcoin, fiat, and goods & services need to begin in the retail market. In fact, I believe it’s highly probable that it won’t. Within the next decade, I am quite confident that a coalition of nations united against the United States will commence trading and settling oil in Bitcoin. If Bitcoin’s market capitalization, liquidity, and price continue ascending at historical rates, it’s inevitable. The protocol and network can accommodate it, the products and services available for mitigating volatility risk are increasingly abundant each year, and the overall liquidity would provide more utility than individual non-USD fiat currencies and nation-state “crypto” money.
An event of this magnitude would trigger substantial capital inflows and price swings that are difficult to fathom, and I believe the odds of this not occurring within the next decade are exceedingly low. Prepare yourself.
In Conclusion
The upcoming decade will bring transformations and developments on such a monumental scale that it will astound you. I genuinely don’t believe many individuals in this ecosystem fully grasp that. Clearly, those building solutions, the company executives, and those actively participating in these shifts and changes are aware. It’s also fair to assert that the observant and discerning watchers know as well. However, most individuals holding Bitcoin, or who casually engage or observe this space…I don’t believe they possess any comprehension.
The prior decade marked the transition from cypherpunk fantasies to participating in minor leagues. This next decade will symbolize the leap to major leagues. Do we all stumble? Do we hit home runs? Will someone end up injured in the stands when we hit a homer?
Who knows. I believe perceptive individuals can discern inevitable outcomes from significant trends and identify the trends themselves while contemplating various potential trajectories they could take.
Things are serious now, and that necessitates acting and thinking with gravity.