Movers and shakers, winners and losers — the blockchain and cryptocurrency arenas were as dynamic as ever this year. However, 2020 has also been an historically tough year for many. Given that everyone is just about done with 2020, and the year is drawing to a close, we thought it would be appropriate to identify some of the top trends that we expect to shape the crypto and blockchain landscapes in 2021 and beyond. With that in mind, here are the top five trends we noticed this year, and how they signal the future of crypto and blockchain.
1. Non-Traditional Financial Institutions Are Sprouting Up Everywhere.
From non-bank lenders to crypto-based banks to fully decentralized financial (DeFi) services alternatives, consumers have more non-bank options than ever for anything having to do with money. Helping them along has been crypto-friendly legislation like Wyoming’s Special Purpose Depository Institution (SPDI) law.
An SPDI charter allows a non-bank entities to conduct certain activities usually restricted to banks, such as (limited) deposit taking and fiduciary asset management. Since SPDIs are not required to be insured by the Federal Deposit Insurance Corporation, or FDIC (the federal agency created in the wake of the Great Depression to avoid any future panicked runs on banks), they are also not allowed to lend out customer deposits, like traditional banks do. That is, they must be able to return 100% of their deposits at any time. Also unlike banks, SPDI charters do not enable SPDIs to operate in other states without applying for and receiving approval from a given state’s regulators. Nearly a year after the law passed, Kraken Financial, the crypto-exchange provider, in October became the first cryptocurrency firm to receive an SPDI charter.
The first state in the U.S. to enact any legislation like this, Wyoming is banking that a crypto-friendly regulatory environment will attract more crypto entities like Kraken to the state.. If Kraken’s experiment proves successful, we can expect more states to follow Wyoming. That move in turn should accelerate the creation of more financial institution-type crypto banks or lenders.
2. The U.S. Continues to Lag in Cryptocurrency Adoption.
Earlier this year, China announced its plans to launch a national blockchain platform, signaling unprecedented confidence among world governments — who have traditional been hostile to the cryptocurrencies and the like, seeing them as undermining their power and authority — in the technology. Meanwhile, European Union legislators are pursuing an EU-wide regulatory system for crypto assets markets.
If blockchain truly represents the next major technological innovation that many of us believe it does, then these crypto-friendly territories are going to have a major leg up in coming years on the United States, where as a general rule hostility and lack of acceptance continue to reign regarding crypto. The U.S.’s current problem is something of a double-edged sword: The country lacks regulation covering many aspects of cryptocurrency trading, leading to uncertainty among crypto businesses and consumers. And where there is regulation, that regulation is usually detrimental to the crypto industry (certain exceptions like SPDI notwithstanding).
With such strong statements of confidence in blockchain from competing global powers, however, the U.S. will have no choice but to start be more accepting of the technology if it wants to compete in the world economy of the future.
3. The Size of the DeFi Ecosystem Will Now Be Measured in Billions.
Earlier this year, the total value of cryptocurrencies committed to bets using Etherium smart contracts as measured by DeFi Pulse surpassed $1 billion. The figure has since surpassed $10 billion.
To be clear, this number does not represent the amount people are making from their DeFi bets, but rather how much they are committing to those bets.
This trend serves as further evidence that interest in DeFi is not only increasing, but accelerating. As more and more transactions outside of traditional mediums and mechanisms, we will soon approach an inflection point where it will no longer be tenable for regulators, businesses, political leaders — for anyone — to ignore DeFi.
4. Researchers Are Exploring Applications of Blockchain Technology for Social and Political Purposes.
The applications of blockchain technology are not limited just to financial or monetary use cases. From the beginning, technologists, as well as business and legal minds, have recognized its potential to revolutionize everything from digital rights management to supply chain management to stopping identity theft. At the heart of all these use cases lie trust and transparency, two issues that blockchain is uniquely capable of addressing.
Along those lines, one of the more interesting proposals that have come out this year was recruiting blockchain technology to fight misinformation, a problem that many have identified in this year’s election cycle. Back in July, The New York Times’ Research and Development team published the results of a prototype program that would record everything that happens to a photograph in the form of metadata, and then display that information to users in social media feeds. To do that, they leveraged a blockchain ledger to provide a secure and transparent record of each change the photo has undergone.
The significance of this experiment is clear: Widespread use of a blockchain-based app like this could help establish provenance over photos and claims in an era where trust in, well, everything seems to be eroding. As blockchain use becomes increasingly widespread and leaders recognize its potential, we can expect more money and brainpower to go into applying blockchain to solving whatever the social problems of the day are.
5. Reloadable Cards Are Making Crypto Transactions Smoother than Ever.
One major barrier to more widespread adoption of cryptocurrencies has always been the user experience. Buying, trading and exchanging cryptocurrencies requires a high degree of technical literacy and ability that most citizens simply do not possess.
Enter: Reloadable cards. Already being trialed in countries around the world, reloadable cards reduce the unfamiliarity of cryptocurrency transactions by integrating them into a format that people can understand. These crypto cards in essence work just like a debit card, the only difference is that instead of being linked to a bank account, the card is tied to a crypto wallet. The card instantly converts your Bitcoins or other cryptocurrency into the relevant fiat currency, e.g., U.S. Dollars, at the time of the spend transaction. In this way, it affords users an easy and convenient alternative for spending their cryptocurrency earnings or winnings around the world.