January will mark 12 years for the reason that Bitcoin genesis block. In that point, blockchain expertise has made many important strides ahead. The launch of Ethereum in 2015 launched good contracts and token minting. Subsequent years noticed developments in areas, resembling transaction privateness with the launch of Zcash (ZEC), platforms resembling EOS and Tezos trying to compete with Ethereum on scalability, and dozens of use instances being explored.
Particularly, 2018 and 2019 have been tough years. Following Bitcoin’s fall from its all-time excessive in December 2017, it’s truthful to say that the overall urge for food for blockchain and cryptocurrencies waned considerably throughout the lengthy crypto winter. Nevertheless, there was nonetheless loads of innovation occurring, which has began to change into evident and repay in 2020.
This 12 months, a number of key themes have emerged which are poised to form the blockchain panorama for 2021 and past. Right here, Cointelegraph tracks 2020’s most important developments in blockchain.
Platform and infrastructure improvement
Scalability, interoperability and privateness have been core themes in infrastructure improvement throughout 2020. In fact, scalability has already change into an age-old matter in blockchain conversations. Nevertheless, in earlier years, the main target was on new platforms claiming to be extra scalable than Ethereum. In 2020, the scalability focus shifted to Ethereum itself — partially as a result of the primary section of the Ethereum 2.0 improve finally launched on the finish of the 12 months, but additionally as a result of 2020 noticed a number of crucial milestones for Ethereum’s second-layer platforms.
With the Eth2 mission nonetheless a minimum of two years away from full implementation, it appears probably that second-layer platforms are set to thrive nicely into 2021.
A number of platforms have put interoperability on the entrance of their improvement efforts this 12 months. Early in 2020, Syscoin and RSK have been two of the first platforms to launch a bridge permitting builders to send tokens back and forth to the Ethereum blockchain. Others have been fast to observe swimsuit, with Solana, NEAR Protocol, and Ontology additionally launching their very own interoperability options utilizing bridge applied sciences.
In different interoperability information, Polkadot launched its mainnet in Might after a number of years in improvement. Very like how Eth2 is aiming to be, Polkadot is a sharded network that enables high throughput. Nevertheless, the mission locations specific emphasis on its “heterogeneous sharding” mechanism for interoperability.
Whereas Eth2 will solely permit its personal shards to hook up with the central beacon chain, Polkadot’s heterogeneous sharding helps any type of blockchain, permitting different platforms resembling Bitcoin or Ethereum to attach utilizing bridges. Polkadot is already making its mark, sitting comfortably within the top-10 ranked cryptocurrencies and attracting significant interest from the DeFi developer group.
On the infrastructural degree, interoperability has been maybe probably the most important focus space throughout the board in 2020. Due to this fact, we are able to absolutely count on to see extra purposes making the most of this expertise in 2021 and past.
Blockchain privateness will get a lift
The flexibility to transact in personal by way of blockchains acquired a lift this 12 months, with the launch of two privacy-protecting mechanisms. In January, Monero announced Triptych, a brand new ring signatures development that gives a higher diploma of privateness safety by making it tougher to detect real transactions amongst decoys. Triptych went stay in September.
Elsewhere, Aztec Protocol, a layer-two, privacy-preserving community for Ethereum, launched its mainnet in February. In its first iteration, Aztec was utilizing Zcash expertise to allow “confidential tokens” that conceal transaction values. Nevertheless, in October, Aztec launched its 2.0 version, which makes use of zero-knowledge rollups in personal good contracts that additionally enhance Ethereum’s scalability.
The Electrical Coin Firm, the operator of Zcash, announced in September that it was working with the Ethereum Basis to develop the open-source “Halo 2.” It makes use of a variation of superior zero-knowledge proofs utilized by Aztec. The shared analysis amongst Ethereum, Aztec and Zcash is proving to speed up developments in blockchain privateness for the advantage of customers throughout all platforms.
Smoothing the consumer expertise
Poor consumer expertise has lengthy plagued the cryptocurrency and blockchain business. There have been lastly some indicators in 2020 that confirmed promise for the advantage of crypto newcomers in retail and establishments.
Essentially the most important improvement in UX for retail crypto newcomers was undoubtedly the information that PayPal is integrating cryptocurrency. The funds large opened its crypto buy-and-sell services to U.S. customers in November. The subsequent massive improvement can be a service provider integration in early 2021, permitting customers to spend their crypto holdings on items and providers, with 26 million retailers on the PayPal community. PayPal says it is going to deal with all of the fiat conversions on behalf of the purchasers, that means retailers can keep away from cryptocurrency’s volatility if they want.
Nevertheless, as a result of poor UX has been an ongoing problem for blockchain-based purposes and crypto wallets for a few years now, the excellent news is that we’re seeing developments amongst extra decentralized options, too. Argent, a brand new kind of pockets that reached important reputation in 2020, makes use of good contracts to allow non-custodial wallets with out requiring personal keys. Along with its safety features, the pockets additionally options direct integrations with decentralized finance, together with an integration with flagship DeFi yield app Yearn.finance.
One other instance is Authereum, a pockets that builds on the primary layer of non-custodial wallets resembling MetaMask. Authereum affords all the safety advantages of a decentralized pockets whereas offering customers with a straightforward and acquainted onboarding expertise, utilizing a easy username and password entry, backed up by apps resembling Google Authenticator. It additionally eliminates gasoline funds.
Count on to see additional developments in UX in 2021 as builders search to take away obstacles to entry for brand spanking new customers within the face of competitors from giants resembling PayPal.
DeFi leads the best way on utility improvement
DeFi was the undisputed chief of the appliance pack in 2020, reaching meteoric development from $675 million to over $15 billion in complete worth locked.
The expansion was fueled by a number of developments. Early within the 12 months, a number of platforms, resembling Aave and Uniswap, joined dYdX in providing flash loans, enabling limitless uncollateralized lending in DeFi for the primary time. A consumer can borrow funds, stake them in different protocols to earn a revenue, and repay the mortgage, all in a single Ethereum transaction. In the event that they fail to repay, all the transaction turns into null and void. Regardless of a number of high-profile attacks, flash loans have remained extremely popular amongst arbitrageurs searching for to make a revenue from variations in worth amongst decentralized exchanges.
The launch of Uniswap V2 was additionally a landmark occasion, with enhancements to its oracle performance, the introduction of flash swaps, and subsequently, an $11-million funding from Andreessen Horowitz. By August, volumes on Uniswap had exceeded these on Coinbase Professional.
Whereas Uniswap’s automated market makers, or AMMs, have been round a number of years now, 2020 additionally noticed a slew of newer entrants, together with Balancer and Curve Finance. Each launched with the goal of iterating on the AMM idea. As an example, Curve affords multi-token steady swimming pools, whereas Balancer additional iterated on the idea by permitting customized token ratios — versus Uniswap’s inflexible 50-50 liquidity swimming pools. Others, resembling 1inch and Bancor, made strides in dealing with issues like impermanent loss, the phenomenon the place liquidity suppliers make fewer good points than a comparable portfolio.
Composability — DeFi’s secret sauce
The true driver of DeFi’s worth in 2020 emerged from the truth that, mixed, DeFi decentralized purposes are higher than the sum of their particular person elements. DeFi purposes developed on Ethereum are composable, that means that customers are discovering new methods to stack up these “cash Legos” to supply new prospects. Even on the only degree, customers can stake their ETH into Maker to take out a mortgage in Dai, which may earn them curiosity by lending on Compound. Nevertheless, if customers have the urge for food for riskier methods, resembling margin buying and selling, the potential configurations are countless.
DeFi developer Andre Cronje was one of many first to establish the necessity to make this function extra accessible, so he created Yearn.finance because the “gateway to DeFi.” Because of his efforts, Yearn has confirmed to be one of many most popular DeFi projects this 12 months because of its options, which make DeFi’s composability each automated and accessible.
Decentralized governance additionally emerged as a key development in 2020, after Compound unleashed its COMP token in the marketplace in June. It immediately flew to the top of DeFi rankings.
Whereas governance tokens are seeing a good bit of hypothesis, it appears probably that decentralized governance will proceed to rise in prominence over the following 12 months. Nonetheless, some technological and economical issues have to be resolved in 2021, together with the focus of wealth, scalability and the right technique to implement governance proposals.
Digital Identification — A foundational problem
Digital identification has lengthy been recognized as a robust potential use case for blockchain to rein in a few of the excesses of non-public knowledge utilization in the present day. It’s also changing into an ever extra urgent problem for validating blockchain use instances. As member of Congress Invoice Foster pointed out in October, cryptographic ensures are nugatory in the actual world if the particular person behind them is a fraud.
Digital identification is already taking middle stage as a test use case within the EU-sponsored European Blockchain Providers Infrastructure. In Japan, Layer X is engaged on a blockchain-based voting system underpinned by digital identities.
This 12 months, enterprise-focused Concordium burst onto the market, promising a platform that manages the trade-off between transaction privateness and the necessity for an identification resolution. It makes use of off-chain identification verification mixed with on-chain zero-knowledge proofs and an “anonymity revocation” course of. The latter kicks in at any time when there’s a legit authorized order to establish a celebration to a transaction.
Different digital identification tasks are additionally making important headway. Oasis Labs introduced in December that it was collaborating with BMW on a project targeted on the privateness of consumer knowledge. It permits inner and exterior events to question consumer knowledge with out compromising privateness.
Decentralized identification platform Ontology has additionally targeted on the motoring use case. In September, the group at Ontology showcased how its “ONT-ID” may very well be used to access vehicles and securely record driver data. Nevertheless, Ontology’s ID additionally has purposes in different areas, together with a partnership with Waves on an e-voting resolution.
Central Financial institution Digital Currencies gaining speedy traction post-Libra
With seeds sown in 2019, this 12 months noticed the recognition of CBDCs amongst central bankers worldwide explode maybe in response to the 2019 occasions surrounding Fb’s controversial plans for a proposed stablecoin initially known as Libra however that has since been rebranded to Diem.
China has been trailblazing, though it’s nonetheless removed from a blockchain-based resolution. The Individuals’s Financial institution of China launched a pilot version of the digital yuan in April and, by November, had processed over 4 million transactions totaling near $300 million.
Regardless of European Central Financial institution head Christina Lagarde stating that the European Union received’t be “racing to be first” to problem a digital euro, the bloc appears more likely to move ahead with its own CBDC following the result of a session in January 2021. Nevertheless, based mostly on an ECB govt’s feedback, it may very well be a very long implementation period. Elsewhere, Sweden, the United Kingdom, Canada and Switzerland have all not too long ago issued highly effective indicators that they are going to transfer towards their very own model of a central financial institution digital foreign money over the approaching months and years.
Utilizing blockchain tech in opposition to COVID-19
The worldwide COVID-19 pandemic has forged a darkish shadow over 2020. The emergence of a number of vaccines towards the tip of the 12 months has supplied a glimmer of hope that “the brand new regular” might not be as everlasting because it first appeared. Nevertheless, blockchain expertise appears set to play a job in managing the continued combat in opposition to COVID-19 and some other international pandemic that will come up within the close to or distant future.
As an example, the aforementioned digital identification options might prolong to “well being passports” that convey a citizen’s immunity standing, permitting a sooner transition again to the pre-pandemic society. Privateness campaigners have understandably expressed issues, however nations resembling China and Singapore are already utilizing blockchain expertise to assist generate verifiable well being data.
The World Financial Discussion board has pointed to the effectiveness of utilizing a blockchain within the international provide chain to distribute COVID-19 vaccines. IBM can be lending a serving to hand and has expressed an analogous viewpoint.
This 12 months has seen a resurgence in blockchain improvement, together with the overall urge for food for cryptocurrencies and the benefits that the expertise can convey. Whereas the final massive growth of 2017 resulted in a bust section and the lengthy crypto winter of 2018 and 2019, there’s no motive to consider that this may occur once more in 2021. Blockchain expertise has progressed considerably for the reason that final bull market, and the upcoming 12 months is poised to proceed delivering usable options for scalability, privateness and identification that will energy the following main cycle of cryptocurrency adoption.