Jon Danielsson of the London School of Economics (LSE) expressed his take on the future of Bitcoin in a piece featured on VoxEU on Friday. Danielsson opines that there will be a ‘Bitcoin aristocrat’ class that will feature the first people to join the Bitcoin bandwagon and not those that have significantly contributed to the Bitcoin ecosystem.
This, he says, is the outcome of Bitcoin’s success. Danielsson, who serves as the director of the Systemic Risk Centre at the institution, foresees the Bitcoin community struggling with the imbalance that will result from the system. In his opinion, the Bitcoin aristocrats will likely harm the cryptocurrency space when they start spending their wealth.
He argues that getting to this point [where the early adopters start spending] is only a matter of course.
“We do know that such extreme levels of inequality fuel social division and populism,” he said. “The bitcoin aristocrats will come under increasing threat, and the government will have to respond. It will protect or attack […]. Either way, political and social instabilities get worse.”
The economics guru outlined various reasons for the current Bitcoin premium. He went on to explain that the majority of people getting in on Bitcoin have expectations that the asset is going to rally even higher. Danielsson cites this as the reason for the crypto’s high valuation.
He also asked questions about what the success of the crypto looked like.
“The bitcoin enthusiasts are quite vague on what success means beyond rising prices […]. The most important criterion for success is that cryptocurrencies end up being used in commercial transactions, like Tesla accepting bitcoin.”
Danielsson weighed up several value propositions that have been previously advanced by other crypto assets. Some of the propositions he evaluated are the application of payment systems and use of these assets as safe-havens. The economics professor believes the real value of the crypto assets is based on these propositions.
He claimed that most crypto users don’t acknowledge this fact, which poses a serious problem.
“To the vast majority of bitcoin investors, success means its price continues to rise. But if that is all there is to it, someday a little boy will yell, ‘the Emperor has no clothes’, and the price will come crashing down.”
Even though his remarks sound cynical, it is not hard to see his logic and stance. The economist appears to be asking crypto users to set their sights on building upon Bitcoin, instead of just future gains.