As the crypto sector matures, we move further and further away from the once volatile nature of the industry—highlighted by the boom and bust of the Initial Coin Offering (ICO) market, when in 2017, following a massive rally, cryptocurrency markets experienced a sudden downturn. Increased pressure on ICOs and regulatory crackdowns brought on general anxiety within the market, which in turn drove trading volumes and token valuations down. What followed was a year of uncertainty and dashed expectations of both investors and builders in the crypto space. Faced with heavy losses, hundreds of crypto startups were forced to cease operations. Despite the harsh market climate, several prominent projects weathered the storm and emerged with better funding, technical excellence, and expert connections.
Last year, in 2019, we saw the industry rebound dramatically, and institutional interest in crypto reach new heights with the launch of Intercontinental Exchange-based crypto trading platform Bakkt in September, as well as the introduction of Libra by Facebook. As we embark on a new decade, I believe the following trends will be the driving forces that shape the growth of the crypto space in 2020, having profound effects on every aspect of the industry, from decentralised applications (dApps) and decentralised finance (DeFi) to gaming, institutional grade products and more.
Promoting Product Adoption: Putting UI/UX first
From dApps to decentralised exchanges (DEXs), applications and products from within the blockchain sector have brought us innovative solutions to real-world problems across a range of industries. However, blockchain applications have been known for their lack of user friendliness and often innavigable user interfaces. As the industry matures, this is changing. In the early days, storing bitcoin required users to input a command line, but this changed when we got introduced to paper and hardware wallets—offering us greater usability while retaining the same level of security.
As it stands, less than 1% of the global population is integrated into the crypto market. If, as an industry, we aspire towards mass adoption, it will be important to work towards improving the overall experience and customer journey by creating more human-centric UI/UX for blockchain applications. This year, I believe that we can expect to see a decentralised wallet product with the potential to onboard at least a million users as the result of much greater user friendliness and an easily navigable UI/UX.
Recognition for CBDCs
Throughout 2019, Central Bank Digital Currencies (CBDCs) found themselves increasingly in the spotlight in 2019, as we witnessed a number of countries adopting a more CBDC-friendly stance. China was the first major country to announce plans to launch a state-backed CBDC—slated for launch in 2020. Russia followed closely, announcing that it had begun sandbox trials of its own digital ruble soon after. SImilarly, we saw France announce similar trial runs for a CBDC in December. Even smaller nations like The Bahamas have been reportedly considering the benefits which a CBDC may accrue. In 2020, we will likely see more countries jump on the bandwagon, while the launch of active CBDCs by at least a few countries seem almost on the horizon. It will be an interesting year as we observe how these currencies function with respect to countries’ national policies, and their impact on local and regional economies.
The rise of DEX
Though decentralised exchanges have existed for a number of years, they have yet to gain traction with a substantial number of users. There are several barriers that will need to be addressed in 2020 before we are likely to see wide adoption—on both a technological and product front. In order to increase the popularity of DEXs amongst the public, issues pertaining to liquidity aggregation, offering of high latency with zero compromises on security, as well as offering well-packaged and comprehensive products for diverse audiences will need to be overcome. I believe that in 2020 we will witness further developments in the DEX sector, and I am truly excited to see how decentralised exchanges can make a big impact in the financial world.
Riding the institutional wave
We have seen progress in the area of institutional cryptocurrency and blockchain investments in the past year as the result of increased efforts by institutional-grade service providers such as Grayscale, Bakkt, Fidelity, and Stack. Though this has moved the needle, organic demand from institutions remains scarce as traditional financial actors continue to view digital assets with skepticism. As a result, the crypto space—and the majority of services available to investors—are largely catered towards retail investors and not larger institutional actors. For institutions to come onboard, comprehensive offerings need to be developed such as risk management and custodial solutions, insurance for asset management services, and traditionally structured digital assets services. Creating a product-market fit will be of fundamental importance to bridging the current gap between traditional finance and the cryptocurrency sector. This gap is already narrowing—closing it will definitely be achievable this year.
Better regulatory clarity
Across the globe, countries have adopted various approaches when it comes to regulating crypto assets. Some have adopted a favourable approach in terms of adopting crypto-assets and regulating crypto-related businesses, while others have shown themselves to be more hostile. As the crypto market matures, we are likely to see the emergence of far greater regulatory clarity in the classification of crypto assets and the regulation applied to them on a global scale. This year, we can expect to see more countries proactively regulating crypto assets than before, as failure to do so will result in missed economic opportunities and potential a brain drain of qualified individuals who may be enticed to move to countries with more open regulations in search of better job opportunities and career prospects within the cryptocurrency realm. This year, policymakers will quickly realise that only by actively embracing the cryptocurrency industry can they avoid technological stagnation which has the potential to negatively impact the overall health of their respective economies.
The halving effect
Since its creation, bitcoin has undergone two halvings, and each one was followed by an exponential rise in its valuation. Similarly, the next halving is expected to make a substantial impact on the crypto market in the upcoming years. I expect the next halving will trigger a rise in crypto market price which, coupled with significant developments in the crypto space, will lead to positive effects on the health and valuation of the overall market in the long run.
Success in Scalability
Bitcoin and Ethereum have both achieved almost absolute dominance in the cryptocurrency market. This can be attributed to factors such as their overall development, community strength, and network effects within the space. But in order to scale their protocols to eventually support billions of users, they’ll need to succeed in their scalability solutions to enable high-speed transactions to be performed at a larger capacity. In this, Bitcoin’s Lightning Network for micropayment is currently the frontrunner, reaching a record high of over 10,000 nodes, while micropayment solutions like Breez are working towards building an effective and easy-to-use product for the masses. Meanwhile, Ethereum’s sharding is still being tested and is likely to be rolled out in several phases throughout this coming year.
The DeFi Revolution
Leading the pack in the decentralised finance (DeFi) sector, applications like Maker, Uniswap, and Synthetix on the Ethereum blockchain have been making real progress to date. The demand for DeFi is constantly growing—with more than $400 million USD worth of Ethereum already invested in DeFi application development internationally. While early innovators within the space were expected to justify the need for decentralised financial services—today we are beyond questioning whether or not demand for such products exist, having moved onto how we can successfully scale DeFi platforms to cater to a constantly growing user base. I believe we will see steady developments in DeFi products this year, as we become closer to realising our vision of having a more inclusive and equitable global financial system.