Bitcoin’s potential to revolutionise the world for the better is greater than originally envisaged when bitcoin was born ten years ago, believes Juan Villaverde, an economist and cryptocurrency analyst at Weiss Ratings.
The bitcoin expert believes DLTs will have a massive part to play in the future of money.
In its basic form, a distributed ledger is a database held and updated independently by each member, or node, of an enormous network.
The distribution is unique – records are not communicated to various nodes by a central authority but are instead independently constructed and held by every node.
Each node in the network processes every transaction, comes to its own conclusions and then votes on those conclusions to make certain the majority agree with the conclusions.
The architecture and qualities of distributed ledgers bypass the cost of trust accrued by banks, lawyers, banks and governments.
Mr Villaverde predicts one of two future scenarios for DLT, a type of decentralised database for cryptocurrencies like bitcoin.
The first, and most likely, is the evolution of decentralised DLT will eventually replace most fiat currencies.
The second could see governments adapt DLT to create a digital version of today’s fiat monetary system.
Scenario One: Decentralised DLT
Public open ledgers and their native cryptocurrencies like bitcoin begin to replace the fiat currency system, and a growing share of the public transitions from government-issued currency to public cryptocurrencies.
Although initially resisted by governments, they eventually they accept the new reality and recognise these new forms of money as legal tender.
A select group of cryptocurrencies becomes dominant, thanks to superior technology, the most practical applications and the broadest mainstream acceptance.
Scenario Two: A Centralised DLT
The world’s largest economies lead the way toward adopting DLT and realise bitcoin represents the future and see that the single, most-efficient form of digital money is based on DLT.
But they focus on digital money systems that mimic the fiat system already in place, meaning this new kind of money remains under the direct control of central banks.
Governments gain the ability to directly monitor every single transaction in the system.
The technology is still distributed ledger, but instead of opening the network to everyone those who wish to join must first request the governments’ permission
And instead of relying on the rules embedded in the code to ensure fairness –a trustless system – participants must accept the authority of the rulers (a trusted system).
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As to which scenario is the more likely, Mr Villaverde said: “My guess is that, for now at least, we could wind up with an unholy mix of both. But in the longer term, decentralised DLT will always have two major advantages:
“First, DLT derives its greatest power from voluntary mass participation. But centralised DLT represses that mass participation.
“It’s contrary to the essence of what DLT does best.
“Second, even if governments can create their own form of bitcoin that’s fully under their control, it will be almost impossible for them to ban decentralised DLT networks.
“In the end, the same dynamic that ultimately makes democracies stronger than dictatorships will also make decentralised DLT stronger than the centralised alternative.”