As capacity and liquidity of the market structure continue to improve, the crypto industry continues to make significant progress. Fundamental advancements in blockchain technology and cryptography have lead to the first true product-market fit for public blockchains: Decentralized Finance (DeFi). Web3, which was once just an idea that seemed far-fetched, now seems imminent with an entire ecosystem of exchanges, ICOs, IDOs, NFTs, the Metaverse, and now Central Banks are even introducing of CBDCs (Central Banks Digital Currencies).
This graph from Gartner’s study demonstrates how many businesses expect to be impacted by blockchain. According to Gartner, key industries include:
- Banking and investment services industries – The banking and investment services sectors continue to attract a lot of attention from entrepreneurs looking to modernize operations and procedures that have been in place for a long time.
- Blockchain in Gaming – Blockchain natives are introducing solutions that let users design their tokens to enhance competition design and to enable the exchange of virtual goods in the quickly expanding e-sport industry. As a result of the tokens’ increased influence over in-game items, they are more portable between gaming platforms.
- Retail – Blockchain technology is being looked at for “track and trace” services, counterfeit prevention, inventory management, and auditing; all of which might be used to improve products. These are useful examples, but to have a real impact on the retail industry, blockchain must be used to support innovative concepts, like revamping or enhancing loyalty programs. Blockchain can completely alter retail business models once it has been merged with the Internet of Things (IoT) and artificial intelligence (AI), affecting both cash and data flows and preventing market power from becoming centralized.
Blockchain technologies have the potential to transform almost all business models, but to take advantage of these prospects, businesses must implement whole blockchain ecosystems. The full commercial benefits of blockchain won’t be seen in most industries without tokenization and decentralization.
What will drive the crypto markets in the future? This post aims to identify and describe the next key trends in the blockchain.
Central Bank Digital Currencies
Central Bank Digital Currencies (CBDCs) have been gaining popularity for some time. The world has embraced cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) since their introduction and rise to prominence in the late 2000s in a variety of ways, paving the way for the acceptance of decentralized finance (DeFi). However, many nations are increasingly expressing interest in launching their own digital currency ventures due to their decentralized character.
In general, the USA has taken its time making this transition. The US, along with the UK, is in the Group of Seven (G7) economies that have lagged the most in CBDC development. The notion has long been under consideration. The implementation of a “digital dollar” might also have a seismic impact on the cryptocurrency landscape and expose a larger population to the experience of conducting financial transactions using automated monetary standards.
While proponents of CBDCs have asserted that Fed-supported computerized money will help to ensure the dollar’s dominance, similar to China’s drive forward with their versions, there have also been certain organizations that have advocated against them. These groups have also included Wall Street trade associations, who have outlined the potential repercussions of such a move.
Smart Contracts in CBDCs
One of the most significant components of blockchain is the smart contract. When certain criteria are met, a smart contract can be automatically executed, which can facilitate more cost-effective, easy, and efficient transactions. Many novels and fascinating situations, such as the implementation of an entire business utilizing the Decentralized Autonomous Organization, are anticipated to be made possible by smart contracts (DAO).
In the case of CBDCs, a transaction entered into the ledger, or another contract may start the execution of a smart contract. A ledger that supports smart contracts can also store program data, known as contract state; for future executions of the contract in addition to transactions for transferring assets and starting smart contract executions. Importantly, programmers might incorporate smart contracts within the system to impose rules or governance.
Although it is still in the experimental stages (CBDCs and the use of smart contracts in it), one of the examples is Sweden, where researchers are developing experiments to evaluate the usefulness and compatibility of a fictitious E-Krona in connection with such smart contracts CBDC. One possible advantage of central bank digital currency (CBDC) is the capacity to program or control transactions, such as triggering a payment when a contract is met or offering pocket money that cannot be used for sweets; however, Swedish officials want to look into that further. Many believe that the future of payments lies in ideas like programmable money, smart money, and smart payments.
Institutional Adoption of Crypto
“Slowly at first, then all at once”
There isn’t a term that better captures the sudden change of heart that many notable investors experienced in 2020 about cryptocurrencies. Bitcoin has evolved into an investable asset, and it is now impossible to dismiss cryptocurrencies as an asset class that has consistently outperformed other asset classes. Portfolio managers appear to be asking “Why shouldn’t I invest in Bitcoin?” instead of, “Why should I invest in Bitcoin?”
Traditional banking and insurance business models are being disrupted, in part by the institutional and retail use of digital assets, new central finance (CeFi) solutions, and decentralized finance (DeFi) applications.
The acceptance of digital assets is growing exponentially, with more and more institutional crypto investors adding them to their balance sheets, major banks issuing reports specifically on investing in cryptocurrencies, several Crypto ETFs being released, businesses accepting cryptocurrencies, and even nations beginning to recognize cryptocurrencies as legal tender.
DeFi: The financial and insurance sectors are experiencing their “Uber moment.” Over USD 250 billion is currently committed to a number of DeFi applications, including lending, insurance, crowdsourcing, decentralized exchanges, and liquidity pools. These applications not only cut out the middlemen but also outperform traditional banking by paying liquidity providers north of 5% APY, further boosting adoption.
CeFi: Centralized cryptocurrency-based financial (CeFi) ecosystems include custodian services, cryptocurrency-backed credit and debit cards, and user-friendly interfaces that combine the fiat and cryptocurrency worlds and make it simpler for the non-crypto audience to engage.
Blockchain presents both an opportunity and a risk for financial institutions (FIs). In today’s macroeconomic environment, consumers have expressed a need for novel and creative ideas to earn profits. Consumers are increasingly looking for goods and services that can contribute to outsized profits as a result of the high rate of inflation. Consumers are shifting their money to brokers and service providers outside of the traditional financial institutions (FIs). Hundreds of millions of dollars were transferred out of one top 20 banks, and into to cryptocurrency exchanges just last year.
However, FIs are regarded as reliable service providers, and surveys of customers show that many of them would rather have their FIs offer these extra services, such as the ability to purchase and sell Bitcoin, than handle everything with new, unproven cypto exchanges. By incorporating crypto capabilities into their offerings, FIs can meet consumer demand, quickly expand creative products, and share in the prospect of new revenue streams.
Moreover, FIs must choose which aspects of the cryptocurrency business activity they wish to handle internally, such as partnering vs building, buying, selling, and holding, versus DeFi lending and staking. Many FIs would rather work with credible and existing cryptocurrency providers and rely on their regulatory, licensing, and reporting processes than develop their own platforms, since cryptocurrency is still relatively new to most FIs and is not their primary business.
Regarding crypto offers, every region and demography of consumers want access to the fast-expanding bitcoin ecosystem. Since cryptocurrency is here to stay, the choice for a FI is more about whether it wants to lead the space or follow.
In the last few years, blockchain has experienced tremendous popularity, which has sped up the creation more blockchain platforms. The current ecosystem consists of various blockchain apps that currently operate independently.
Blockchain interoperability – the capacity to link these isolated blockchain networks is currently one of the biggest trends in the industry.
In the future, it will be crucial for these blockchains to be able to freely exchange data without the use of middlemen. These bridge “middlemen” have proven to be a weak point of security that often get explioted by nefarious thieves and hackers. Blockchain interoperability through cross-chain platforms allows for easy communication between multiple blockchains, even if they were created to different standards.
Building scalable, interoperable, and secure network protocols that permit token and data sharing across private, public, permissioned, and permissionless blockchain networks is just one of the many ways the industry is attempting to address interoperability problems. Furthermore, when separate blockchains join an interoperable network that is now known as the “Internet of Blockchains,” we see the enormous possibilities of this interoperability.
BAAS (Blockchain as a Service)
The blockchain-based applications’ architecture can be overly complex, and it frequently calls for a thorough understanding of the many infrastructure protocols involved in their development and hosting.
Here, Blockchain-as-a-Service (BaaS) fills the gap by offering a third-party cloud-based solution to organizations who wish to use blockchain technology but lack the funds to do so.
Businesses wishing to develop, administer, and host their blockchain-based products and smart contracts have access to BaaS. The Azure Blockchain products, IBM Blockchain Platform, Amazon Managed Blockchain, Oracle Blockchain Cloud Service, and Corda are some of the most well-known BaaS platforms.
As Blockchain/Web3/Crypto continues its unprecedented rate of adoption, there is little doubt that it is here to stay. Software solution providers building blockchain products and APIs, Banks are integrating crypto services in their digital applications, Governments having debates over crypto legislations, State Banks devising a method to introduce CBDCs, Gaming companies are understanding the value of incentivization through the Blockchain, and artists seeing new paths to in the form of NFTs. The promise of Web3, sending data packets loaded with value that creates incentives at each step is outpacing the old models of Internet “dumb data”. Tokenomics is driving innovation and could be the mother of all incentivization techniques, and it will not only impact the world, but it will be seamlessly part of our daily lives.