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Top 10 predictions for Bitcoin in 2014 - source

(Credit: Reuters) These are Bitcoins created by enthusiast Mike Caldwell.Bitcoins
January 13
7:11 PM 2014
by VCPOST Staff Reporter

The value of the Bitcoin has soared in recent months, but can the technology also help make predictions? A research team from a venture capital firm lists top 10 predictions for the digital currency in 2014.

1. More than $100M of venture capital will flow into Bitcoin start-ups.

This pool of capital will be distributed across local/global exchange start-ups (e.g. BTC China*), merchant related services (e.g. Bitpay), wallet services (e.g.Coinbase) and a host of other innovative start-ups. A large chunk of the capital is likely to flow into start-ups which have emerged as winners in their respective segment with a majority of the market share. Building exchange liquidity and merchant network is tough. Hence, these businesses are likely to command high valuations as well. That being said, there would be plenty of money available for start-ups trying to solve a plethora of other challenges (e.g. private insurance, security), that exist with Bitcoin growth and its adoption today.

2. Mining 'will not' be dead

A lot of press notes and individual viewpoints state that [bitcoin] mining is dead as we are already in the petahash domain and are restricted by Moore's law from a technological stand point. I believed this until I heard Butterfly Labs and HighBitcoin talk about how enterprises can potential adopt mining. With transactions and transaction fees rising, it would be highly profitable for large enterprises to have data centers with mining equipments to process daily transactions. The medium[-sized] enterprises, who cannot invest [with limited] capital expenditure, would resort to cloud based mining. The small enterprises would have to pay the transaction fees, to the network. This fees would still be [cheaper] in comparison to Visa and Mastercard. In conclusion, we can potentially witness [growing] investments from large and medium-sized enterprises in mining farms by the end of 2014.

3. There will be less than 5 alt-coins (out of the 50+ in existence) that will survive 2014

The open source nature of the Bitcoin protocol led to the advent of 50+ alternative coins (alt-coins), most of which are blatant rip-offs with a tweak or two here and there. These can be divided into three categories:

  1. Coins which are Ponzi schemes, where the sole purpose of the inventor is to drive the price of the alt-coin up and then dump
  2. Coins which can be mined easily and can have potentially more liquidity than Bitcoin
  3. Coins, which are based on innovation at a fundamental level and can result in specific adoption or security-led use cases.

In my opinion, only the category 3 [types] would survive. PPC coin, which has introduced a proof-of-stake system in addition to proof-of-work is one such coin. It is in my list of survivors. It is also important to note that presently, other than Bitcoin, no other alt-coin has shown the potential for a growth in its acceptance network among merchants or companies. This is likely to remain true for 2014 as well.

4. Bitcoin community will solve problems including that of 'anonymity'

One of the key roadblocks for governments and financial institutions to start participating in Bitcoins is the anonymous nature of its transactions. This has led regulators to believe that Bitcoin can potentially be used for money laundering, terrorist support etc. The good news [is] that we have a very active Bitcoin community globally, which is constantly evolving the protocol. Hence, my prediction, in an effort to make Bitcoin more accepted, is that this community will come out with a solution to 'anonymity' that regulators can live with. One of the ways [it can be achieved] today is by forcing exchanges, wallet services and other Bitcoin companies to have KYC practices similar to those of financial institutions. As a side thought - Internet was and is still used for porn. That does not make it 'not useful'!

5. US, China and other global forces will not be at the forefront of Bitcoin adoption

Fincen, PBOC and RBI's reactions to Bitcoin in US, China and India points to one single conclusion - we are not going to let a 'controlled' and 'vast' financial system adopt a decentralized crypto-currency, which can used for illegal activities [anonymously]...as yet. Countries which have had a history of currency issues and does not have an effective monetary policies are the ones who will be at the forefront of Bitcoin adoption. With China out of the picture, one can look at Argentina, Cyprus and others to lead. These may be a small percentage of the global base, but they are likely to have much more local penetration and most importantly, more governmental support or less government intervention - whichever way you want to look at it. That being said, successful internet and mobile companies in the US/Europe are the ones, who are most likely to offer digital goods in Bitcoins. Zynga just announced their experiment. I would not be surprised if Spotify, Netflix etc become next [to embrace Bitcoin].

6. Indian ecosystem will be slow to evolve; limited to speculators and mining pools

The Indian Bitcoin start-up ecosystem today has ess than 10 start-ups across exchanges such as Unocoin, wallet services such as Zuckup, mining pools such as Coinmonk and some other ideas - compared to 100s in each US and China. There is little evidence today to ascertain whether any of these start-ups are going to create a home market or serve an international market. In fact, on the contrary, the Indian market is likely to be served by global Bitcoin companies. For instance, Itbit, a Singapore based exchange has already started targeting Indian consumers. Global services have demonstrated its capability to be credible especially when it comes to convenience and security by solving complex algorithmic problems. This also makes them more defensible in the long run (e.g. Coinbase's splitting of private keys to prevent theft) and poses a big challenge for Indian Bitcoin start-ups. There is an active Bitcoin community in India (about 15-20 people), which is trying hard to create awareness among consumers and regulators. I sincerely hope to see at-least 1 world-class Bitcoin start-up to come out of India.

7. The use of Bitcoin will evolve beyond 'store of value' or 'transactions'

The underlying Bitcoin protocol makes itself applicable beyond the use cases of 'store of value' and 'payments'. The Bitcoin foundation took a huge step in allowing meta data to be included in the blockchain. This will unlock a lot of innovation and may even prompt regulators to acknowledge the potential of Bitcoin, making it all the more difficult for them to shut it down or suppress it. As one can see from the current Bitcoin ecosystem map, (http://bit.ly/1krEd0Z) there are almost no start-ups, which solely use the protocol without using the 'coin' or the 'currency' as a function. 2014 will be the first year to see some of these [start-ups]..

8. The 'browser' of Bitcoin will come this year

Netscape browser made Internet happen. 'Something' will make Bitcoin happen. It is still very difficult for the average 'Joe' to understand, acquire, store and use Bitcoins. Though Coinbase and several others are working on innovative security algorithms and making it easy to store Bitcoins digitally, it is still not enough to make Bitcoin into the mainstream currency. Hence, what a 'browser' did to the Internet, a product or technology innovation will do it to 'Bitcoin' in 2014. This will make the transition to Bitcoins frictionless. Kryptokit and Eric Voorhees' Coinapult are promising start-ups in this direction. Encouragingly, all the building blocks for that to happen - like mobile penetration, cryptography algos etc, are already in place.

9. The price of Bitcoin is likely to range between $4000-5000 by the end of 2014

Well, though some people will argue otherwise, price is not the most important thing about Bitcoin. But given the interest and its volatility, it does deserve a place in this blog post. Speculators have predicted Bitcoin will go up to $100, 000; some say the maximum it can reach is $1,300. Although I am sure that there is some underlying basis for these predictions; here is one for mine. Bitcoin's price is a function of supply and demand. While the supply is predictive, the demand is less so. However, the increase in the demand of Bitcoin can be compared to networks such as Facebook and Twitter, which have followed a 'S' curve of adoption. All such networks typically take 6-8 years to plateau out with year 4-5 being the steepest. Though Bitcoin was invented 4 years ago, I would say that 2013 was its 2nd real year. Given the nature of the 'S' curve, the price increase in 2014 is likely to be 3-4 times more than [last year]. Hence, the $4000-$5000 range is where the Bitcoin price is likely to settle in 2014.

10. Last but not least - Satoshi nakamoto will be Time's Person of the Year 2014.

Please read about him here.

Source: Lightspeed Venture Partners India

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