Cryptocurrencies have evolved significantly since 2009 when Satoshi Nakamoto introduced the world to Bitcoin. Every week in 2020 has seemed to come with the announcement of some new revolutionary idea that will change blockchain forever. So, in a world where trends change more often than some people change their socks, what can we expect from crypto throughout 2021?
Further adoption of cryptocurrency
2021 will see a further injection of cryptocurrency and blockchain technology into the mainstream. Individual people and big corporations alike are no longer viewing crypto as a novelty but as a healthy venture and want to make use of its potential.
More people than ever now know the term “cryptocurrency”. If you approach the average person on the street and ask them about it, they’ll at least know the word – something that was not the case even just a few years ago.
On 7/01/2021 the overall crypto market cap hit the USD 1 tln mark for the first time in history. In the first half of 2020, there were over 3.5M crypto wallet downloads (80 percent more than the same period last year) and an increase of over 110 percent in active users – a trend that is on target to continue throughout 2021.
People are beginning to take advantage of the many benefits digital currencies provide. They are no longer thinking of cryptocurrency as a trend but as a tool they can use to improve many aspects of their life.
In developing countries such as Columbia and Venezuela, people are starting to use crypto to avoid sanctions and build a hedge against inflation. These two countries alone make up 23 percent of the P2P trading volume on LocalBitcoins. Places such as Nigeria – one of the most expensive nations in the world to send money in and out of – are beginning to emerge as full-blown crypto nations. As the younger, more tech-savvy generations in less developed places seek to break free from the norm of financial corruption, crypto adoption is beginning to flourish.
In the wealthier, more developed countries such as Japan, Switzerland, and Singapore, people are beginning to implement blockchain technology and cryptocurrencies into their everyday routine. “Smart cities” are emerging where everyone and everything is connected. As these cities grow, so do things such as cybercrime and data breaches. Blockchain offers an optimal solution to such issues as well as presents people with alternative income and business streams.
Big corporations have taken big steps in 2020 towards incorporating blockchain and crypto into their business models. Companies like Facebook (Diem) and JP Morgan (JPM coin) are planning to launch their coins in 2021.
More significantly, PayPal has announced plans to support digital currencies on its platform in 2021. Due to PayPal’s wide availability and ease of use, it was thought of as a kind of competitor to digital currencies. In 2014 they introduced a clause banning people from using their platform to buy and sell crypto – as people were exploiting a loophole in their system to do OTC (Over the Counter) trades. Their new announcement is a complete turnaround and will incorporate crypto swaps directly into the platform.
The people running these big corporations aren’t looking to lose money. When they begin to incorporate crypto into their structures, people take note. As these announcements materialize, a domino effect may occur as other large businesses begin to follow suit.
Cryptocurrency regulations are an ever-evolving space. As the use cases and adoption of digital assets progress throughout 2021, so will the regulations. You can read more about your jurisdiction’s approach to cryptocurrency regulation here.
The protection of retail investors from fraud and falling prey to the complex and volatile crypto market is a focus of regulators worldwide. The FCA recently announced that they will be banning the sale of crypto derivatives to retail investors.
Anti-money laundering measures (KYC, AML) will also likely be ramped up throughout the year. Exchanges will probably face the biggest scrutiny in this area, with regulators looking to stamp out all unregistered exchanges and requiring compliance with tighter transaction reporting standards. Regulatory bodies such as FATF, UNODC, FINMA, and FINCEN are leading the way in setting the anti-money laundering regulatory framework for crypto.
Further tax regulation frameworks will likely be introduced worldwide throughout 2021. Digital assets are now considered a major area of taxation. For example, in the US, the IRS (Internal Revenue Service) will be introducing the question: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” to the very top of the individual income tax return form.
A big trend for the next year will be the introduction of Central Bank Digital Currencies (CBDCs). CBDCs are fiat money expressed on the blockchain and issued by a country’s central bank. Cryptocurrencies, despite the name, do not legally meet the criteria to be recognized as a currency anywhere in the world. CBDCs, on the other hand, do meet the criteria.
The world’s first CBDC (the Sand Dollar) has already been issued by the central bank in the Bahamas. The central banks of China, Thailand, and other countries worldwide have released statements outlining their plans and intentions in issuing their own CBDCs. In January 2020, approximately 80 percent of the world’s central banks were already engaged in some type of CBDC work. At cbdctracker it’s possible to track the current development of CDBC in every country around the world.
The introduction of CBDCs will not only affect the future of global monetary policies but will also transform the current crypto ecosystem. Trying to use crypto is something that is still difficult for many people. The introduction of CBDCs will help to familiarize them with how digital currencies and blockchain work.
Decentralized finance (DeFi)
The biggest hype in the crypto world during 2020 revolved around DeFi. Decentralized finance is not a product, but a movement revolutionizing the way people participate in the financial system. It allows everyday people to lend and invest their money (or crypto) in the same way banks do without the need for a central jurisdiction.
Over the year, DeFi has evolved from a hard to use alien notion into a user-friendly, organic experience. Lending and borrowing using DeFi is now as simple as creating an email account. Platforms like Aave and Uniswap have led the way in incorporating an easy-to-use user interface on their websites.
DeFi looks set to continue its momentum throughout 2021, but many hurdles still need to be overcome. The reputation of DeFi has taken hits along the way. With many scams and unregulated websites raising concerns for the safety of customers. Smart contract audits and stricter regulation guidelines will need to be established going forward – which will be expensive.
Sites such as Defipulse give real-time valuations and track the growth of all DeFi applications.
Non-fungible tokens (NFTs) have taken off in 2020. NFTs are an authentic representation of a unique item or digital content on the blockchain. Through platforms such as Opensea and Audius, art, music, trading cards, and more can be purchased in the form of NFTs.
NFTs offer new opportunities for content creators, event organizers, collectors, gamers, and almost everyone. They allow for the complete protection of intellectual property and give an indisputable claim of ownership – over anything. Do you have a gamer alias or Instagram handle that is uniquely yours? Now you can own it. No centralized entity, like Instagram, can remove your handle at the flick of a switch.
NFTs are still not easily understood by many people. The idea of ownership over digital art, for example, seems paradoxical when anyone could just take a screenshot or download the same content whenever they want. But in the same way going to the Louvre and taking a photo of the Mona Lisa doesn’t mean you own the Mona Lisa, taking a screenshot of digital content also does not give you ownership.
The NFT market is now bigger than ever, but it may still take time for people to be fully accepting of its legitimacy. NFTs draw the same skepticism Bitcoin did all those years ago because it is not possible to “hold it in your hand”. But unlike Bitcoin, which took almost ten years before people fully recognized its application, NFTs may need a far shorter acceptance period. 2021 could end up being known as the year of the NFT!
You can track the popularity and trends of all NFTs using the OpenSea Non-Fungible Token tracker.
Cross-chain cryptocurrency (interoperability)
A problem that the crypto ecosystem has faced for many years is the lack of interoperability between blockchains. If you only have Ethereum and a vendor only accepts Bitcoin (or vice versa), it’s impossible to purchase anything from them. The solving of this problem will significantly assist in the mass adoption of cryptocurrencies.
Multiple solutions to this problem already exist but have never managed to be fully integrated. The most noteworthy being Atomic Swaps, which works using a time-locked contract in which parties agree to “swap” their coins for the native coin of the desired blockchain. However, this was only possible when both chains were operating using the same hashing algorithm – which became less and less common as the crypto space evolved.
2020 has seen a wave of new solutions to this issue. Platforms such as Cosmos and Polkadot have developed protocols which present users with the opportunity to make cross-blockchain transfers of any data or asset. Their solutions not only give you the opportunity to use your preferred cryptocurrency wherever you go but also allow for permissioned data taken from a private blockchain to be used on a public blockchain.
A major trend we may see throughout 2021 is the harmonious use of all cryptocurrencies together. Only your personal preference decides which cryptocurrency you use.
It’s hard to identify just one trend that will take the crypto world by storm over the course of the year. With cryptocurrencies and blockchain being used more and more in every aspect of our lives, we will likely see many sub-trends emerge, each serving a unique and innovative purpose.