The future of Cryptocurrencies

Are cryptocurrencies more than just hype? And will they have a long-term effect on the banking and financial system? The crypto market is booming. On the one hand, a lot of attention is being focused on the underlying technologies, and on the other hand, common cryptocurrencies are becoming established with more and more financial providers. On the other hand, the high volatility and pricing issues as well as high uncertainty of the legal development of cryptocurrencies hinder general and meaningful exploration of substantial use cases.

We describe six potential futures of cryptocurrencies and their relationship to the traditional financial system. Offering a general framework for potential paths of development, this working paper aims at providing a simple but effective orientation guideline for the future of cryptocurrencies.

The scenarios include the overall environment of cryptocurrencies, covering the value chain as well as external forces such as regulatory authorities. Resulting from ten key factors, we have generated six different pictures of the future concerning the development of cryptocurrencies:

• In scenario 1 (»National currencies 2.0«), crypto characteristics are taken over by national currencies. An effective regulation as well as societal acceptance support the existing financial system. Private cryptocurrencies thus do not play a significant role.
• Scenario 2 (»Unconsolidated growth«) describes a future in which both national as well as private cryptocurrencies coexist. In an unconsolidated market, there are plenty of options for private parties to execute their own payments.
• In Scenario 3 (»Crypto monopoly«), a single private cryptocurrency is gaining in importance and is used as the go-to tool for personal payments. Regulatory authorities try to intervene, but fail at doing so due to the decentralized and global transaction architecture.
• Scenario 4 (»Private competition«) describes a future in which a diverse number of private cryptocurrencies are used for different purposes. While some are suitable for external transactions, others are used as investment options. Due to the high degree of competition, innovation is driven forward.
• In scenario 5 (»Investment and speculation«), cryptocurrencies are mainly seen as investment options. High degrees of volatility offer opportunities and, on the other hand, hinder effective transaction.
• In scenario 6 (»Crypto prohibition«), regulatory authorities strive for a ban of cryptocurrencies. With market places being shut down and earnings from crypto businesses being massively taxed, the usage of cryptocurrencies becomes unattractive.

We are highly interested in your opinion concerning the presented scenarios. Therefore, we would like to give you the opportunity to participate in our survey concerning the expected and desired future developments in the cryptocurrency market. Clicking on the link, you will be forwarded to the questionnaire on QuestionPro. You will get the chance to be updated concerning the results and further activities: Link to questionnaire