Afterward, usually knows better: 2020 is coming to an end, and we’re recapping what the year’s crypto trends were — and what didn’t make it to movement. Our mega year in review includes 11 trends and seven flops.
Exactly what dominated 2020 is not easy to say, and of course, it depends on the observer’s perspective. What is a trend for one person was a flop for another — and vice versa.
Banks, institutions, and companies are investing in Bitcoin as a hedge against inflation.
The result: Bitcoin dominance is on the rise again. The significant trends in Ethereum, on the other hand, are Decentralized Finance (DeFi) and
Non-Fungible Tokens (NFTs). This is accompanied by a rise in Stablecoins, which is also gaining the attention of regulators and the first wave of security tokens, starting mainly in Germany. More and more, the so-called “rogue states” are recognizing the value of Bitcoins, while the darknet is relying more and more on Monero, and the ransomware hackers are increasing their ransom by threatening leaks. Technically, on the other hand, not much is happening, although there is a trend toward Blockchain 2.0 or 3.0.
In addition to these trends, we also have a list of topics that, contrary to some assumptions, did not become trends:
For example, neither Lightning nor Liquid nor other second layer solutions managed to reach critical mass.
Despite the hype, Facebook’s Libra also failed to go live in 2020, and darknet markets, once a pillar of bitcoin adoption, have largely stagnated. Retail was also unable to see significant bitcoin adoption, despite notable advances, as has been the case in micropayments, a predestined application of cryptocurrencies.
And although the first Bitcoin ATMs made it to Germany, demand remained pretty slim. Much-hyped blockchain applications, such as in identity or supply chain, are also waiting for their breakthrough.
Now in detail to the trends and untrends:
Banks, institutions, and businesses
Bitcoin’s rally is ending the year with is coming less from private investors and more from corporations and asset managers.
More than ever before, in 2020, banks, corporations, funds, and institutions have begun investing in Bitcoin and other cryptocurrencies or enabling their clients to do so. Examples include investments by MicroStrategy, Square, and MassMutual — while the likes of PayPal and Swiss bank Sygnum are bringing cryptos to their clients. Specialized service providers and custodians, such as NYDIG of New York, provide the regulatory and technical foundation.
Bitcoin as inflation protection
During the Corona crisis, many countries expanded the money supply to finance aid measures, such as the EU or the US. So far, consumer prices are rising moderately, if at all. However, as has been the case for well over a decade, significant inflation occurs in asset prices — such as gold, real estate, stocks, or cryptocurrencies. The result is an extreme widening of the gap between rich and poor.
Bitcoin established itself as an asset in 2020. The price reacted simultaneously with other assets: first, it collapsed in the Corona crisis, then it skyrocketed to finally even reach a new all-time high on Dec. 16 — by now already at $22,000 incredibly!
At the same time, more and more investors are discovering cryptocurrency as a “haven.”
Bitcoin dominance rises again
The 2020 rally started from the interest of big investors in Bitcoin. It pulled most altcoins along, but overall, hardly any cryptocurrency maintained its value against Bitcoin. In 2020, markets were less interested in technically impressive blockchains with potential use cases — and more interested in stable stores of value like Bitcoin.
2020 also became a lesson in network effects: All coins leading their league extended their value to their competitors: Ethereum as a platform for smart contracts, Monero as a privacy coin, and Bitcoin as a store of value means of payment. If you’re not yet in the crypto market and think about getting in, I recommend the exchange OKEx. Here you will get a good introduction. OKEX offers you the OKEX Academy as a Kickstarter — so you can even earn Bitcoin for free!
Decentralized Finance (DeFi)
Decentralized Finance, or DeFi for short, was perhaps THE trend of the year: financial applications that run decentrally on the blockchain as a “dapp,” usually as a smart contract on Ethereum. DeFi existed before, but for a long time consisted only of the Maker DAO issuing DAI dollars and some experimental niche applications. In 2020, several DeFis made a breakthrough, such as the exchange DAO UniSwap or lending DAOs like Compound, increasing the market capitalization of all DeFis from $600 million to $15 billion.
“The emergence of DeFi has largely narrowed the infrastructure gap between crypto finance and traditional finance. However, due to the high transaction costs and complex product systems, many users, especially retail traders, have been kept at bay. That’s why OKEx decided to upgrade our intuitive Earn product to support many DeFi projects and act as a massive passive income gateway,” commented OKEx CEO Jay Hao, adding:
“Participating in DeFi projects through OKEx Earn will not only appeal to more users and draw more traffic to the exchange, but it will also help investors identify high-quality assets.”
A vital element of the DeFi hype has been DeFi tokens. These are usually so-called “governance tokens” that smart contracts distribute to users, for example, when one provides liquidity to Compound. These tokens were able to increase the return on DeFis enormously — in some cases to more than 100 percent a year — but not sustainably. As a rule, you could watch their price — and thus the return — collapse in a short time.
The DeFis have also introduced a new kind of hack: one that exploits not () code flaws but (also) hidden economic skews in the smart contract, packaging the entire hack into a single transaction that plays on the keyboard of the DeFi as a whole system. These hacks are even more complicated than the classic hacks — making them almost impossible for mere mortals to comprehend.
Another trend on Ethereum is non-fungible tokens or NFTs. These are tokens associated with a specific smart contract — you could say a family — but each has its characteristics.
NFTs can represent digital assets such as artwork, trading cards, or in-game items. They may have made their debut with Crypto-Kitties back in 2017 — but something happened in the space in 2020: Several platforms for digital artworks as NFTs have opened (OpenSea and Rarible, for example), and developers have managed to get notable institutions to jump on the bandwagon: Soare, for example, is convincing one soccer club after another to tokenize their players (including FC Bayern Munich), while the BBC is giving away its Doctor Who brand for an NFT-based trading card game. Simultaneously, there also seem to be first network effects on the DeFi trend, such as when someone uses a crypto kitty token as collateral for a loan.
It is hard to say whether we can already speak of a foregone trend. But something interesting is happening in any case. In October, the OKEx exchange took a vote on which NFT token would be listed on Okex. The users chose (MEME) and (GHST). The CEO commented on that event like this:
“We’re also pleased to see our users’ active response to voting on which tokens to list. It’s very important for OKEx to listen to their feedback — and letting them be a part of the listing process makes perfect sense. It’s also a great opportunity for crypto projects to have the chance to use our platform to showcase their work and appeal to our global user base.”
Blockchain tokens whose value is tied to fiat currencies are commonly called “stablecoins” (which is somewhat misleading given the inflation of fiat currencies).
Stablecoins caught on in 2020: they became the most traded currency on crypto exchanges — ahead of bitcoin, early of dollars in bank accounts. Stablecoins also appeared in hacks with increasing frequency. One reason for the rise of stablecoins could also be the DeFi trend: Thanks to smart contracts, you can do exciting things with dollars that are a token on the Ethereum blockchain that you can’t do with dollars in the bank.
So far, stablecoins are a pure child of the crypto scene. They are issued either by struggling-regulation-shy companies like Tether (USDT), by tamer crypto startups like Coinbase and Circle (USDC), or by decentralized-regulation-blind smart contracts like Maker-DAO (DAI). But the first “non-specialist” institutions are already issuing stablecoins, such as Facebook with its Libra, now called Diem, or Von der Haydt Bank, soon to release EURB.
This trend is not bypassing governments and regulators. On the one hand, governments are determined to put as many obstacles as possible in the way of a private currency from Facebook; on the other hand, stablecoins are increasingly coming to the fore in discussing the regulation of cryptocurrencies — and for the first time also on blacklists.
Security Token Offerings (STO) are more or less the serious continuation of Initial Coin Offerings (ICO), which have become the plague of 2017 / 2018.
Security tokens are regulated securities that are stored and traded as tokens on a blockchain. Unlike ICOs, which created a new, access-free, and unregulated financial product, security tokens replicate established financial instruments such as stocks or bonds on the blockchain. Technical modernization is intended to increase speed, lower costs, and, in some circumstances, eliminate intermediaries.
In 2020, security tokens became a trend — and especially so in Germany. Here, BitBond started sharing its experience with its own STO in finance. This struck a nerve. ClickOwn is issuing tokenized bonds backed by real estate, and Kapilendo is tokenizing SME bonds — to name just a few examples. All of the STOs emerging around BitBond use the Stellar blockchain.
Another example would be the Cologne-based startup ClassicCarCoin, which uses a Security Token on the Ethereum blockchain to enable investment in classic cars (an article on this will follow soon).
Security tokens promise to make trading and custody of securities cheaper and more efficient. Germany is leading the way in this trend, mainly due to the actions of a single startup — BitBond.
“Rogue states” are betting on bitcoin
One of the most intriguing trends in 2020 is the increasing use of Bitcoin as a shadow currency by so-called “rogue states.”
After all, the Trump administration has not been stingy with financial sanctions and has also been eager to enforce them. For countries like Venezuela and Iran in particular, this has led to a growing problem in recent years with obtaining foreign currency — foreign currency, usually dollars, to pay for imports from abroad.
Bitcoin has gained enough trust and acceptance to offer itself more and more as a shadow currency to these countries: Iran encourages mining in the country but wants the Bitcoins mined to be used to import goods. Simultaneously, the Venezuelan state already operates an exchange and mining center and reportedly already pays for imports from Iran and Turkey with Bitcoins.
This year has shown that Bitcoin can indeed influence the geopolitical situation and undermine financial sanctions.
Monero as the gold standard of privacy
Bitcoin continues to be the standard on the darknet, but it is increasingly getting competition from the anonymous cryptocurrency Monero.
This is another trend that could be observed very clearly in 2020. For example, Monero is now the second most accepted cryptocurrency on darknet markets, while some ransomware groups exclusively demand Monero for the ransom. However, the trend is most evident in the fact that hardly any law enforcement report is without a reference to Monero, and even the U.S., Internal Revenue Service, has offered a prize for breaking Monero’s anonymity.
Ransomware threatens leaks
Ransomware has been a plague of the Internet since 2013 and one of the “killer apps” that Bitcoin fans are not quite proud of.
According to Europol, the “industry” is considered one of the fastest-growing branches of cybercrime. This could also be because Ransomware 2020 has opened up a new business model: Instead of simply encrypting victims’ data and demanding bitcoins to decrypt it, the virus steals the data, threatens to leak it — and demands even more bitcoins to refrain from doing so.
In 2020, several well-known companies fell victim to this trend, such as a celebrity law firm from New York, while the number of ransoms set new records.
As a side note, ransomware is now traded as “cyberterrorism” in the US, and there was a first fatality related to the malware in Germany.
Technically, relatively little happened in 2020: Bitcoin stayed as it is with (Taproot and Schnorr), Ethereum 2.0 started but is not yet ready for us to talk about a trend, while IOTA is also celebrating the New Year 2021 with the central coordinator. Instead of reinventing the wheel, this year, they are trying to invite passengers.
Still, there are some tech trends to spot. You could call them “Blockchain 2.0 or 3.0.” New architectural concepts for a blockchain replace energy-hungry proof-of-work with either a modern form of proof-of-stake or more election-based consensus methods. These new blockchains promise to scale much better than Bitcoin and Ethereum, and in some cases, are expected to become the center of a mesh of multiple blockchains.
Examples include Cardano, Polkadot, IOTA (2.0), Ethereum (2.0), Cosmos, VeChain, Avalanche, and others. They are replacing an older generation of innovative blockchains such as Lisk, Steem, and others.
Some things don’t want to become a trend, no matter how much you try, or stop being a trend. We think this deserves mention as well.
Lightning, Liquid, and Layer 2
For certainly five years, so-called “second-layer solutions” have been considered the future of blockchains. However, the trend failed to materialize in 2020 as well. The Lightning Network continues to lead a niche existence with stagnating liquidity despite the unbroken enthusiasm of the community as well as some remarkable developments (such as multi-path payments); the sidechain Liquid was supposed to make Bitcoin more scalable, private, and tokenizable, but did not manage to attract a significant number of users.
Nothing illustrates the flopping of second-layer solutions for Bitcoin so far more than Ethereum: instead of Bitcoins flowing “off chain” in Lightning or “sidechain” on Liquid, they are tokenized on Ethereum with WBTC — and merely end up on a different blockchain. One exchange that released a token on the Liquid sidechain (and then touted it as the future of tokens) has since re-tokenized its token on Ethereum to bring it to DeFi; even Bitcoin hardliners around Liquid operator Blockstream are releasing their tokens on Ethereum.
But the grass is not all green on the Ethereum side either. The hype around tokens and DeFis pushed the blockchain to its breaking point, causing fees to reach surreal high levels. Accordingly, they also announce “second-layer” as an alternative on Ethereum, which mainly means “rollups” in different variations. But here, too, it is not yet apparent that this scaling solution will prevail.
So much station, so much pomp, and then … — Facebook’s Libra was announced so loudly in mid-2019, scared so many governments and states, gathered so many companies in the Libra Association, but then — nothing happened at all. Month after month passed in 2020, but Libra wouldn’t take off, while Facebook grappled with regulators worldwide and one Association member after another dropped out. By the end of 2020, the project isn’t dead, but it’s planned to be a dinky stablecoin with an experimental, non-public blockchain. So what remains of a revolutionary idea is not much more than a new PayPal that sits on top of Facebook and needs a blockchain for some reason.
Back in the wild years of Bitcoin, darknet markets drove proliferation. Today, they play a niche existence, even in cybercrime. Darknet marketplaces have survived many law enforcement attacks, to be sure. But they remain far from taking over the global drug trade. By and large, they have tended to stagnate in 2020.
The dream of bringing bitcoin and other cryptocurrencies to retail is old — and remains unfulfilled. True, there has been a very notable attempt from Austria to bring crypto payments into widespread terminals. But real success has so far been elusive. Today, if you can pay with your wallet in retail stores, it’s because a Visa or Mastercard debit card is linked to the wallet.
Finally, we want to mention the so-called “blockchain tech” that has been touted everywhere since 2015. It has long been said that blockchain is becoming the future of supply chains (supply chains) or digital identities. The federal government even adopted a “blockchain strategy” to support this new technology. But what came of it? You guessed it — nothing.
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