By Biser Dimtrov, Tata Consultancy Services
By all measures, 2019 was a remarkable year for the blockchain and crypto space. We saw the birth of new alliances, new cryptocurrency trading products, Bitcoin and Ethereum survived the bear market, and a plethora of blockchain protocols matured and expanded in growth. Finally, the U.S. Congress and foreign central banks are paying close attention to the benefits of blockchain and digital assets. Even China has entered the blockchain race in full force by spending billions on innovation. The largest financial companies in the world are building on blockchain and this trend is not slowing down.
We have a lot to look forward to in the next year. So, let’s review the most expected events that will shape the blockchain ecosystem in 2020.
1. China will launch it’s Central Bank Digital Currency (CBDC)
China has always been active in the blockchain and crypto space, as some of the largest cryptocurrency exchanges are based in China as well as the largest mining power. Still, when President Xi Jinping announced in his speech that blockchain is the future and it is the technology that China will be the leaders in, it led to massive investments and blockchain research work. The scale on which China is operating is enormous: just recently the Bank of China (BoC) completed an issuance equivalent to $2.8 billion worth of financial bonds for small enterprises.
One of the key developments that China is pursuing is the Digital Currency/Electronic Payment (DC/EP) initiative and by the looks of it, this will be rolled out in 2020, even in limited scope.
2. Facebook’s Libra will launch with very limited functionality
Facebook’s payment network initiative that received a mountain of resistance from regulators both in the U.S. and in Europe has been slowly developed, shying away from media attention. Their GitHub repository has regular development commits and activity. The expectation is that Libra will launch in one jurisdiction and with very limited scope, partners and functionality. It will not be the payment rails and onboarding vehicle that it promised originally but still will show signs of progress.
3. Bitcoin ETF still won’t be approved in 2020
There was a lot of buzz in the bitcoin space in anticipation of whether the U.S. Securities and Exchange Commission (SEC) will approve any of the several Bitcoin ETF filings. So far SEC has rejected all of them on the same grounds of not enough financial surveillance and manipulation in underlying markets. In that sense, companies like Elliptic, Chainalysis and CipherTrace provide vital and important tooling. Another reason for Bitcoin ETF not happening might be the recent appointment of Brad Sherman as chair of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, which practically oversees the SEC and its self-regulatory bodies like FINRA, and he is no friend to bitcoin and cryptocurrencies in general.
4. Stablecoins paradise
The trend we saw from the last few years that issuers are tokenizing fiat currencies and using them as easier exchange mechanisms on cryptocurrency exchanges will continue. We will see increased adoption of stablecoins, mostly fiat-backed, and driven from trading on exchanges. Projects like Fnality and J.P. Morgan’s stablecoin will become live. Even now the dollar-backed Tether $USDT is the most volatile cryptocurrency asset.
5. Growth of DeFi and Open Finance ecosystem
Currently, we have a little over $290 million locked in the various applications living on the DeFi ecosystem. This number is mostly due to the growth of Maker DAO and Dai stablecoin, but nonetheless, there is an expansion of decentralized exchanges, prediction markets, and lending/borrowing applications. The Open Finance narrative was hot also in the venture capital (VC) space and this trend will continue.
6. Ethereum 2.0 will continue to progress
The teams responsible for the development of clients and components for the new Ethereum 2.0 blockchain listened to the ecosystem feedback and started to become more vocal in sharing updates and progress. This brought more confidence that the new and improved Ethereum blockchain is still happening. The progress so far has been good and there is huge optimism for a 2020 partial deliverable as per their roadmap.
7. Lightning network adoption will grow
The lightning network is a layer 2 implementation on top of the bitcoin network that provides instant bitcoin transactions and payments. It dramatically improves the current bitcoin transaction speed by leveraging off-chain data and enabling low fees. In 2020, we will see an increased number of applications, nodes and channels created on this layer 2 network. Overall we will see a growing trend in the bitcoin development ecosystem due to companies and tools like RSK and Exonum which use the bitcoin network as a base.
8. Expansion of privacy tools and oracles
Companies like Ernst & Young are investing heavily into the development of privacy tooling for the public Ethereum ecosystem and their product called Nightfall is a great example of how one day all the enterprises will be using the public mainnet for transactions with enough privacy comfort. In 2020, we will see more zero-knowledge (ZK) and multi-party computations (MPC) projects maturing and entering the blockchain space. If VC funding of startups is considered a metric, then MPC should be the number-one hot area. As for the oracle’s projects, expect Chainlink to continue with strong partnerships and integration with new services.
9. More interoperability between blockchains protocols
With the move of Hyperledger Besu, a native Ethereum client developed by PegaSys, to the Linux Foundation’s Hyperledger initiative we saw a significant sign that the permissioned blockchains will continue to converge. The differences between the major blockchain protocols like Quorum, Besu, Fabric and Corda remain still significant but there is an open dialog for collaboration and research into how assets on different chains can co-exist. In 2019 we saw the multi-cloud blockchain deployments so won’t be surprised to see successful cross-blockchains pilots in 2020.
10. More regulators will follow Wyoming’s example
Wyoming has laid out the groundwork for digital assets and a digital-banking-friendly regulatory regime. With the separation of digital assets into three distinctive categories, Wyoming is explaining the differences between virtual currencies and digital securities, all deemed intangible personal property. But Wyoming’s blockchain work didn’t go unnoticed as Colorado, New Mexico and Arizona are also looking into similar legislative work.
Overall, the next year is shaping up to be crucial for the blockchain technology and digital assets ecosystems. We have several main threads to watch out for and 2020 is already promising to be the year when the major blockchain protocols and digital assets continue to grow in usage, metrics and adoption rates.
The author is an enterprise blockchain architect for Tata Consultancy Services (TCS) based in New York. Previously, he co-founded BlockEx which developed several financial services products including an innovative Digital Asset Exchange Platform with bonds issuance capabilities. The article has previously appeared on Forbes and published here with the author’s permission.