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Crypto Review: What happened in 2020 | by Lukas Wiesflecker | The Capital | Jan, 2021

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.

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

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

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

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)

“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.

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.”

Stablecoins

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

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

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

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

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.

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.

Lightning, Liquid, and Layer 2

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.

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