Trends, challenges, and predictions for the blockchain industry
The year 2020 made waves in the world of blockchain and digital currencies. While Bitcoin took phenomenal leaps in price, blockchain kept economies moving by facilitating cash-flow management (World Economic Forum).
According to Statista, global blockchain technology revenues are expected to reach US$39 billion by 2025. With its enhanced security and heightened transparency features, the technology is growing in popularity, and companies across industries are climbing on the bandwagon.
Impact of COVID-19 on blockchain
COVID-19 accelerated digitization in nearly every sector including blockchain and crypto. The past year saw several institutions using blockchain technology for enterprise applications.
“Financial institutions are trying to use the technology to transform their existing business from human-heavy to more operationally efficient businesses, particularly in the banking sector,” says, Adrian Lai, Co-Founder and CEO of Liquefy, a Hong Kong-based security token issuance and compliance platform.
According to Lai, two other major sectors making the transition to blockchain technology are supply chain management and ecommerce. The characteristics of blockchain, particularly its immutability, make it perfect for supply chain management.
Meanwhile, the impending integration of CBDCs into ecommerce will allow companies to onboard consumers who are using digital currencies.
China leads the way with CBDCs
According to the Bank for International Settlements (BIS), 80% of the world’s central banks have already started to investigate the potential of the Central Bank Digital Currency (CBDC), and China is on the fast-track to becoming the first major economy to launch one.
In 2020, China’s sovereign digital currency program, Digital Currency Electronic Payment (DCEP), was pilot-tested across several cities. Early last year, the country began rolling out tests for a digital Yuan.
“People underestimate how impactful CBDCs are and are always confused that they are separated from the rest of the crypto ecosystem,” says Lai. However, once CBDCs are launched, “they will be the head of the supply chain and control the interaction of other cryptocurrencies such as Bitcoin.”
Lai also suggests that China’s CBDC launch is likely to impact regional neighbors, prompting them to explore their own digital currencies.
Increasing crypto frauds
Along with increasing investments in cryptocurrency, the past year also witnessed a steady rise in crypto fraud and hacking. Global crypto exchanges, including KuCoin and Eterbase, suffered high-profile hacks.
Lai says the industry itself has to move from centralized to decentralized trading venues. Additionally, instead of having regulators impose controls, it is important for the industry to regulate itself. As Lai explains, third-party regulation contradicts the original concepts behind Bitcoin and blockchain.
“As we remember, the birth of Bitcoin was actually to get rid of government regulators,” Lai says. “So, regulators coming in to regulate the trading or transaction of Bitcoin proves the failure of the technology itself.”
Challenges and the future of the industry
While on the one end of the spectrum are people who believe in a completely centralized world without government, on the other end are people who think Bitcoin is a scam. A technology with such an extreme spectrum, Lai says, is dangerous.
Referencing how the second-largest donation to U.S. President Joe Biden’s presidential campaign came from the CEO of cryptocurrency derivatives platform FTX, Lai says, “People don’t realize that crypto is changing the world so dramatically, even politically.”
He adds that this is a huge challenge for the industry. The second challenge, he says, is people using cryptocurrency for illegal activities.
In the short term, Lai says that many institutions will be rolling out proof of concepts for enterprise blockchain solutions. In the medium term, development in blockchain technology will be led by ecommerce and tech companies.
Meanwhile, in the long term, Lai predicts that blockchain will drive the next Internet–owned by the community, and completely decentralized.
After a decade of being touted as the most disruptive technology, 2021 may finally offer blockchain the opportunity to prove skeptics wrong and be the driving force behind real, powerful change across industries.