The year 2020 will not be boring for crypto and blockchain.
In all fairness, 2019 was not one to be quickly forgotten either. Despite the so-called “crypto winter,” the past year saw a host of extremely interesting developments: the public announcement of Facebook-backed Libra and the ensuing, heated regulatory discussion around it, increased exploration of central bank digital currencies, the launch of physical delivery BTC futures — and yes, a price increase for Bitcoin of over 90%.
None of this, however, compares to what lies ahead. The Bitcoin Suisse Crypto Outlook Report covers the most important topics coming up this year (Read it here).
Below is a short summary…
The Two Big Events of 2020
The coming twelve months will see two major changes for the networks supporting the two largest cryptocurrencies — Bitcoin and Ethereum. The effects of these two events will likely form the basis of any major market movements.
The halving of the Bitcoin block reward in May of 2020 will reduce the issuance rate of new Bitcoin from 12.5 to 6.25 Bitcoin per block.
The decrease in the block reward is seen by many a strong bullish signal — and with good reason, since previous halvings were followed by strong price rallies of approximately 9 000% and 3 000% in 2012 and 2016 respectively.
With a lower issuance rate, the cost of mining is set to increase significantly — nearly double to be exact. This is largely due to the fact that block rewards accounts for 98% of a miner’s income — with transaction fees currently only accounting for the remaining, negligible portion.
Overall the issuance of new Bitcoin will drop from 3.7% to approximately 1.8%.
Meanwhile, Ethereum looks forward to an even bigger shakeup. The transition from Ethereum 1 with its proof-of-work based mining to proof-of-stake will have similar implications for the supply and demand balance of Ether, the native currency of the Ethereum network.
As part of the new system, validators will be tasked with securing the Ethereum network and confirming transactions and will be rewarded for doing so based on the 32 ETH which each validator must stake in order to operate. These staking rewards are expected to reach between 5–10% with the upper limit of this range likely to be seen in the first phase of staking on Ethereum 2.
The move to a new Ethereum will also have other significant effects. Firstly, the throughput of the Ethereum blockchain (measured in transactions per second) will increase dramatically. Currently, the chain supports around 15 tx/s. With the full implementation of the Ethereum 2 roadmap, this will jump to over 10 000 tx/s. In addition, the adoption of proof-of-stake will make the Ethereum blockchain much more environmentally friendly by massively reducing the amount of energy needed to secure the network.
While the full roadmap of Ethereum 2 — with Phase 1 ushering in shards and Phase 2 bringing a full, new blockchain including the old Ethereum 1 chain — may take up to 5 years (by conservative estimates) to implement, efforts are being made to significantly reduce this time frame.
As in the case of Bitcoin, Ethereum 2 will change the token economics of the Ethereum ecosystem. Issuance may initially go up, due to the two chains which are operating, but will then fall to less than 1%.
The Next Wave of Decentralized Finance
According to Joseph Lubin, Co-Founder of Ethereum and one of the main contributors to the Bitcoin Suisse Crypto Outlook 2020 Report, the next wave of decentralized finance is coming up. It has already started to take off in 2019 and this year will be no different.
In fact, the combined value locked in DeFi applications is set to cross the $1 billion mark this year. This will bring the potential of the decentralized finance world into greater focus, both for individuals looking for greater returns and easier access to financing in a negative-interest-rate world, and for institutions.
One area to watch out for is the slowly emerging “composability” of DeFi applications — in other words, the possibility to connect different protocols to form more holistic solutions for financial services in a decentralized manner.
Stablecoins, a topic which gained most fame in 2019 thanks to Libra, also have an important role to play in the growth of DeFi. In particular, their ability to detach decentralized finance from the frequent volatility of cryptocurrencies will help make DeFi more attractive to institutions.
And finally, 2020 may be the year when new, better decentralized payment structures emerge for things such as pay-as-you-go parametric insurance.
Legal Questions and Legal Clarity
Legal topics are never far behind the developments in the crypto world. In some cases, 2019 brought more questions — in others, more clarity.
Liechtenstein, a small, but very forward-thinking country, has emerged as a leader in developing supportive regulation for crypto assets and token-based business. The Liechtenstein Blockchain Act (also known as the TVTG) came into effect in the January of this year. Its main features include a technology-neutral approach and a so-called “token-container” model which helps create a bridge between the physical and digital world, with rights and powers being legally ascribable to tokens.
On the more uncertain side of things, the Financial Action Task Force (FATF), an international body tasked with helping enforce global regulation, recently issued Recommendation 16 (known as the “travel rule”) which indicates that regulation applicable to wire transfers will also apply to transfers of cryptocurrencies between Virtual Asset Services Providers (VASPs).
The challenge of complying with this directive of the FATF means that industry players, such as exchanges, brokers, and crypto banks — in order to operate legally — will need to agree upon standards for transferring sender and beneficiary information between themselves.
One proposal for a solution is the OpenVASP initiative, which aims to outline an open-source, fully-decentralized approach to FATF travel rule compliance. Already, four Swiss-based VASPs (Bitcoin Suisse, Lykke, SEBA and Sygnum) have joined forces to start building a first implementation of the OpenVASP protocol.
Peering into the Future
And looking even further — what can we expect? More connection, for one thing. Interoperability between blockchains will get a big boost with the launch (hopefully) of Polkadot, the work of Ethereum Co-Founder Dr. Gavin Wood. Together with Cosmos, another interoperability chain, the two projects, along with others, will tackle the “walled garden” problem of the blockchain world. Their progress will be critical for the future of the decentralized world.
Tokenization, a much-loved buzzword in 2019, may FINALLY reach a point of wider recognition and acceptance. With new legal structures such as the Liechtenstein Blockchain Act and a growing acceptance of the possibilities behind tokens and tokenization. One sign of this the recent corporate utility token issued by Emaar, the Middle East’s largest property developer, for use in its loyalty program.
For all the details on the topics above — and more, you can now download the full Bitcoin Suisse Crypto Outlook 2020 Report here.
Authors include: Joseph Lubin (ConsenSys), Dr. Raffael Huber (Bitcoin Suisse), Mona El Isa (Avantgarde Finance), Marco Schurtenberger (Tezos), Demelza Hays (Incrementum) and David Riegelnig, Stefano Frick and Ian Simpson (Bitcoin Suisse).
Breaking Down the Future — Bitcoin Suisse Crypto Outlook 2020 Report was originally published in CV VC on Medium, where people are continuing the conversation by highlighting and responding to this story.