Last year was one for the history books for all sorts of reasons – but not all of them bad. For the realm of blockchain, 2020 turned out to be a banner year.
And as we delve deeper into 2021, it’s important to note that there are a few trends that started in 2020 that you should keep your eye on. After all, it's not like everything stopped on Dec. 31.
Without further ado, here are the top 15 blockchain trends to look after in 2021.
Top Blockchain Trends in 2021
1. DeFi gains (more) momentum
If there is one major takeaway from 2020, it is that Decentralized Finance (aka DeFi) is – as David Johansen would say – “Hot! Hot! Hot! Hot!” The space as a whole stuck to an upward trend throughout 2020, and this trajectory is expected to last the rest of 2021.
On January 1, 2020, the Total Value Locked (TVL) on DeFi was a little over $675 million. It took a little less than twelve months for that figure to move past $13 billion.
“DeFi will only continue to grow as new features are added, such as trading NFTs and other financial instruments that may not have high liquidity in traditional finance,” suggested James Wo, Founder of Digital Finance Group (DFG) in an interview with Finance Magnates.
“We will also see the incorporation of more features from traditional finance, like fixed-rate lending, in addition to the development of new features not possible in existing centralized financial systems.”
With exciting improvements for the Ethereum network ahead, combined with a renewed institutional and retail interest in digital assets, the nascent DeFi sector has all chips to expand in the months ahead.
2. Ethereum and a year to remember
The Ethereum network has played a major role in supporting the DeFi industry, and the consequences have been evident. A noticeable increase in transaction fees and slower execution times. Yet, the prospect for 2021 looks a lot more promising, according to experts.
In 2020, the whole world understood Bitcoin’s intrinsic value as “digital gold”. In 2021, market analysts predict that we will witness a similar understanding of Ether as “digital oil.”
That further implies that the Ethereum network could start underwriting the world’s contracts and solidify its position as the imminent substrate of the international web economy. You can think of contracts as the connective tissues of the world: they include ISDA agreements, NDAs, medical prescriptions, insurance policies, employment offers, college acceptances, sales contracts, etc. Yes, the world runs on contracts, and Ethereum could allow them to go truly digital in 2021.
What’s more? On December 1, 2020, Ethereum’s community successfully introduced phase zero of Ethereum 2.0. The network’s upgrade to Proof-of-Stake is expected to help Ethereum run and scale faster – but with less computing power. Phase 1 of Ethereum 2.0 will go live by the end of 2021 and is expected to drastically improve scalability.
3. Polkadot unleashes interoperability
One of the biggest burdens of the DeFi sector is the limited interoperability between blockchains. With that in mind, cross-chain technology is likely to take off in the months ahead as promising projects are creating independent networks of interoperable blockchains.
Without a doubt, Polkadot — a project started by Ethereum co-founder Gavin Wood — is among the names that stand out in this sphere. Bloomberg referred to this project as “the Ethereum blockchain killer”. Compared to Vitalik Buterin’s network, where operations are regulated by smart contracts coded on their native blockchain, Polkadot enables app developers to create their own blockchains (described as “parachains”) while still being able to connect to other ledgers. To date, over 250 projects are being built on this network.
Polkadot has recently flipped Ripple’s XRP to make DOT the world’s fourth cryptocurrency with a market capitalization above $13 billion as of this writing.
Is Polkadot the only cross-chain out there? Certainly not. And that’s exactly why cross-chain is more of a trend and not an isolated event. Matic and Cosmos are also some well-known projects experimenting in the field of blockchain interoperability.
4. NFTs become more than kitties
While the summer of DeFi and Bitcoin's bull run in 2020 grabbed the headlines all around the world, a quiet revolution was brewing in another corner of the crypto industry: the realm of Non-Fungible Tokens (NFTs). True, NFTs have been in existence for a couple of years now, powering different crypto-collectibles like CryptoKitties.
That said, it wasn’t until 2020’s wake of the decentralized finance boom that NFTs came of age and hit a market cap of more than $550 million.
In case you’re not familiar with NFTs, you need to know that these tokens leverage blockchain technology to register ownership of unique, digital items. While they gained popularity because of game-related collectibles, these tokens can be equally used for other applications like digital art, event tickets, domain names, etc.
As museums and art galleries were forced to shut down due to COVID-related lockdown measures, sales of physical art dropped significantly. On the contrary, NTF-based art sales showed a very promising dynamic reaching an all-time high as of December 2020. Data from CryptoArt.io showed that token-based art sales rose to $8.2 million in December, outlining a 3X growth in just a month.
With a growing digital environment and new platforms like Sensorium Galaxy incentivizing the development of all-digital professional and user-generated content, NFTs could be a perfect solution to safeguard the rights of content creators.
5. PayPal will support the industry
PayPal has already received a first of its kind Bit license from the NYSDFS (New York State Department of Financial Services) and is expected to allow its 305 million active users to sell, hold, and buy cryptocurrencies directly through their PayPal accounts from 2021.
PayPal users will be able to use Bitcoin, Litecoin, Bitcoin Cash, and Ethereum to transact with 22 million merchants all around the world. Another point worth noting: users will have the ability to instantaneously convert their cryptocurrency balance to fiat currencies, with the certainty of value and no incremental fees. Additional costs won’t be imposed on merchants either.
Not only this step is a step forward when it comes to transaction volumes, but it could also lower entry barriers for retail users and promote mass adoption.
6. Crypto companies go public
With cryptocurrency a trending topic in 2021 and Bitcoin prices hitting all-time highs, Coinbase finally announced its 2021 IPO plans. The last company valuation was estimated at $8 billion.
Coinbase isn’t the only blockchain-related company planning to go public in the months ahead. Bakkt — a company owned by the Intercontinental Exchange (ICE) — has recently announced its plan to go public through a merger with VPC Impact Acquisition Holdings. The estimated value of Bakkt stands at $2.1 billion, and executing the deal could provide the company with additional cash to fund its expansion.
If things go as planned and these companies do go public, they’ll mark a landmark victory that encourages other crypto companies to follow suit.
7. Stablecoins keep advancing
Cryptocurrencies such as Ethereum and Bitcoin have a lot of benefits, but also have one major drawback. Since their value isn’t directly tied to any obvious real-world phenomenon (such as monetary or fiscal policy), their prices are unpredictable and boast a tendency to fluctuate – sometimes wildly.
That explains why Stablecoins may just be the Blockchain industry's best hope going into 2021. Unlike Ethereum and Bitcoin, Stablecoins are a type of cryptocurrency whose value has been tied to fiat currencies so they can act as hedging mechanisms.
With a growing number of DeFi applications coming out, it’s only natural to see the use of stable cryptocurrencies increase in the next year.
A recent researchconducted by The Block on the stablecoin market and its 2020 dynamics identified five key reasons behind the stablecoin explosion:
- Miners who borrowed USDT against BTC needed to repay debt due to the March price crash
- The popularity of stablecoin-collateralized derivatives grew dramatically
- Explosion of DeFi and the yield farming food token craze
- Bitcoin losing its lead as a base currency in spot trading; stablecoins becoming the base
- A flight to liquidity as investors exited risk-on investments in March
8. Central Banks get serious about CBDCs
Despite a relatively complex regulatory environment for blockchain-based currencies, governments do understand the benefits of going digital. According to the Bank for International Settlements (BIS), more than 80 percent of the world’s central banks, including the U.S. Federal Reserve, are now working on CBDCs, with most of the actors already taking their experiments to a pilot development phase.
As recently suggested by the U.S. Federal Reserve Chair Jerome Powell in a recent IMF conference: “For many of the world’s central banks, discussion of CBDCs has shifted from “if” they will be developed to “when” they will be introduced and widely used.”
China seems to be ahead of the game with the development of a so-called digital Yuan. In 2020, the People’s Bank of China (PBoC) announced a pilot test targeting the country’s capital — Beijing. Before, the organization also tested the currency in China’s largest city Shanghai, the tech city of Shenzhen, and the southern city of Guangzhou.
9. Corporations embrace blockchain applications
Digital transformation isn’t a choice for institutions anymore. It’s proven essential to every business’ survival. Many corporates finally have the dire need to accelerate their digital transformation journey as much as they can, mainly due to the increased strain Covid-19 placed on day-to-day business operations – and that’s where Blockchain comes into play.
Since Blockchain technology has made the most dramatic and transformative changes since its inception in 2009, most industries have started looking at it intensively as the key to modernizing their business functions.
Deloitte’s 2020 Global Blockchain Survey, which polls nearly 1,500 senior executives on enterprise blockchain applications within their organizations, exposed a growing interest from the business sector to use this decentralized ledger technology. Last year, a whopping 55 percent of responders stated that blockchain is among the companies’ top strategic priorities.
10. Ripple’s rocky road ahead
On 22 December 2020, the Securities and Exchange Commission (SEC) announced that it had sued Ripple Labs Inc. as well as its co-founder Chris Larsen and CEO Brad Garlinghouse, for carrying out an unregistered securities offering. Ripple is the company that created XRP.
The company tried to front-run the information and made an announcement themselves through an article on Fortune, but their efforts didn’t do a lot to prevent the onslaught on XRP that followed. Since December 23, several OTC desks and digital currency exchanges including Genesis, Bittrex, and Coinbase have announced that they are going to terminate and suspend support for XRP pairs on their platforms.
What does all this mean for XRP in 2021? Well, you can expect to see more OTC desks and currency exchanges halting their XRP related offerings until some clarity has been attained around Ripple’s court battle. If Ripple doesn’t settle with the SEC, then you can rest assured that the outcome won't be in Ripple’s favor. Reportedly, the SEC has had more than 7 years to build the case against Ripple and now has sufficient evidence.
11. Many predictions will be wrong
According to a survey executed by Finder.com, there are a lot of disagreements surrounding whether we are going to see a cryptocurrency market crash in 2021. The survey’s respondents were split right through the middle, with approx. 52 percent warning that we could witness Bitcoin lose more than 50 percent of its value in a short span of time.
Jimmy Song, Bitcoin advocate, developer, and author who has been contributing to open-source bitcoin projects since 2013 was quoted as saying: “This has happened before in 2011, 2013 (twice), and 2017. I do not see why it would be different this time around.”
That said, regardless of the historical precedence, Bitcoin's progress has been surrounded by a lot of optimism, with a staggering 58 percent of those Finder.com polled believing that the currency will keep surging until the second half of 2021 at the very earliest. With these varying expectations in mind, it’s only natural to expect that many predictions will be wrong in 2021.
12. More mainstream adoption of crypto
Thanks to the explosion in popularity that Blockchain technology has had last year, businesses from a wide array of industries have started showing growing interest to embrace this technology and see how it can help enhance their business processes.
As expected, the Covid-19 pandemic resulted in an acceleration in the digital transformation process in different sectors, particularly through the use of distributed ledger and blockchain technology. Chris Naprawa, President of TAAL Distributed Information Technologies estimated that at least 20 percent of the Forbes Global 2000 will start using blockchain in one way, shape, or form by the end of 2021.
13. Making place for Big Tech
The four horsemen of technology (Google, Facebook, Apple, and Amazon) have long been regarded as main drivers of technological innovations, and have perhaps done more to encourage the adoption of digital currencies and blockchain technology than any other industry.
Over the years, these companies have tried to bridge the gap between the crypto sphere and the realm of traditional finance with their respective payment services.
We’ve also seen an increasing number of crypto merchants, service providers, and exchanges now accepting payments through services like Google Pay and Apple Pay. Facebook is even expected to release a permissioned Blockchain-based payment system known as Diem in 2021.
14. Volatility in focus
After rising in value nearly 11 fold since March 2020, Bitcoin’s current price rally's parallels with similar bull runs in 2017 and 2013 are undeniable. What is even more interesting is that predictions from May 2020 suggested that the coin is still a long way from its peak, with positive estimates ranging from $100,000 to $1 million.
That said, as we noted earlier, these positive sentiments do not echo across the entire cryptocurrency realm. Some notable individuals believe that major market movements like these are likely to attract more scrutiny from regulators, which might, in turn, prove a huge test for the Bull Run.
“While most people expect the bitcoin rally to continue in 2021, I am more concerned with what Biden’s administration could mean for cryptos,” said Jesse Cohen, a senior analyst at Investing.com.
“I expect bitcoin to remain highly volatile to the downside in the New Year, thanks to the potential for more scrutiny and tighter regulation. That should see the prices fall back from their record highs, with the prospect of increased regulation being the most essential factor affecting bitcoin in 2021.”
15. Blockchain use cases expand beyond finance
The decades-old Blockchain technology has garnered a lot of popularity over the last couple of years. The tech was initially created to keep a record of digital currencies such as Bitcoin, but thanks to its revolutionary nature, it has grown to serve as a decentralized system for multiple institutions beyond finance.
With COVID-19 exposing deep inefficiencies of healthcare systems worldwide, this sector is one of the most prominent candidates to adopt blockchain technology in the months and years to come. With healthcare being among a key fast-growing sector of the global economy, looking at an estimated Compound Annual Growth Rate (CAGR) of 8.9% to nearly $11.9 trillion by 2022, adding blockchain to its core can only be good news.
“Healthcare is plagued by inefficiencies and cost overruns but blockchain technology holds the solution and could lead to a better patient experience in the process, wrote Solve.Care Founder & CEO, Pradeep Goel.
The bottom line
So there you have them, top 15 blockchain trends to watch out for in 2021. Last year was arguably one of the most exciting years for the realm of blockchain and digital assets, and it looks like 2021 is shaping up to turn out even better.
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