These blockchain technology developments for 2020 have set the stage for 2021

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January marks the 12th anniversary of the Bitcoin Genesis block. During this time, blockchain technology has made many significant advances. With the introduction of Ethereum in 2015, smart contracts and token minting were introduced. In the years that followed, developments in areas like data protection of transactions with the introduction of Zcash (ZEC), platforms like EOS and Tezos trying to compete with Ethereum for scalability, and dozens of use cases have been explored.

2018 and 2019 in particular were difficult years. After Bitcoin’s decline from its all-time high in December 2017, the general appetite for blockchain and cryptocurrencies fell significantly during the long crypto winter. However, there were still many innovations that made themselves felt from 2020 and are paying off.

Several key issues emerged this year that will shape the blockchain landscape for 2021 and beyond. Here, Cointelegraph is following the most important developments in the blockchain in 2020.

Platform and infrastructure development

Scalability, interoperability and data protection were key issues in infrastructure development in 2020. Of course, scalability has already become an age-old topic in blockchain conversations. In recent years, however, the focus has been on new platforms that are supposedly more scalable than Ethereum. In 2020, the focus on scalability shifted to Ethereum itself – partly because the first phase of the Ethereum 2.0 upgrade finally started at the end of the year, but also because of several key milestones for the second-layer platforms of Ethereum were.

With the Eth2 project still at least two years away from full implementation, it is likely that second-layer platforms will thrive well into 2021.

Several platforms have placed interoperability at the fore in their development efforts this year. In early 2020, Syscoin and RSK were two of the first platforms to launch a bridge that would allow developers to send tokens to the Ethereum blockchain. Others quickly followed, and Solana, NEAR Protocol and Ontology also introduced their own interoperability solutions using bridging technologies.

In other interoperability news, Polkadot launched its mainnet in May after several years in development. Much like Eth2’s goal, Polkadot is a sharded network that enables high throughput. However, the project places particular emphasis on its “heterogeneous sharding” mechanism for interoperability.

While Eth2 only allows its own shards to connect to the central beacon chain, Polkadot’s heterogeneous sharding supports any type of blockchain so that other platforms such as Bitcoin or Ethereum can connect via bridges. Polkadot is already making its mark, sits comfortably in the top 10 cryptocurrencies and is attracting great interest from the DeFi developer community.

At the infrastructural level, interoperability was possibly the most important focus across the board in 2020. Therefore, we can safely expect more applications to use this technology in 2021 and beyond.

Blockchain privacy is getting a boost

The ability to trade privately via blockchains has been improved this year with the introduction of two mechanisms to protect privacy. In January, Monero announced Triptych, a new construction for ring signature that offers a higher level of privacy by making it harder to detect real transactions between lures. Triptych went live in September.

Elsewhere, the Aztec Protocol, a network protecting the privacy of Ethereum, launched its main network in February. In its first iteration, Aztec used Zcash technology to activate “confidential tokens” that hide transaction values. However, in October, Aztec released its version 2.0, which uses knowledge-free rollups in private smart contracts that also improve Ethereum’s scalability.

The Electric Coin Company, the operator of Zcash, announced in September that it was working with the Ethereum Foundation to develop the open source program “Halo 2”. It uses a variation of advanced no-knowledge evidence used by Aztec. Joint research by Ethereum, Aztec and Zcash has shown that the evolution of blockchain data protection is accelerating for the benefit of users on all platforms.

Smoothing the user experience

Poor user experience has long plagued the cryptocurrency and blockchain industries. In 2020 there were finally some signs showing promise for crypto newbies in retail and institutional.

Without a doubt, the most significant development in UX for crypto newbies in retail was the news that PayPal is integrating cryptocurrency. The payment giant opened its crypto buy and sell services to US users in November. The next big development will be merchant integration in early 2021 that will allow users to spend their crypto holdings on goods and services with 26 million merchants on the PayPal network. PayPal says it will handle all fiat conversions on behalf of customers, meaning merchants can avoid the volatility of the cryptocurrency if they so choose.

Since bad UX has been an ongoing problem for blockchain-based applications and crypto wallets for many years, the good news is that we are also seeing developments in more decentralized solutions. Argent, a new type of wallet that gained significant popularity in 2020, uses smart contracts to enable no-custody wallets with no need for private keys. In addition to the security features, the wallet also offers direct integrations with decentralized financing, including an integration with the flagship DeFi income app Yearn.finance.

Another example is Authereum, a wallet that builds on the first layer of non-custody wallets like MetaMask. Authereum has all of the security benefits of a decentralized wallet, giving users an easy and familiar onboarding experience with easy username and password access supported by apps like Google Authenticator. It also eliminates gas payments.

Expect further developments in UX in 2021 as developers seek to remove barriers to entry for new users in the face of competition from giants like PayPal.

DeFi is a leader in application development

DeFi was the undisputed leader in the application suite in 2020, growing rapidly from $ 675 million to over $ 15 billion.

The growth was driven by several developments. At the beginning of the year, several platforms such as Aave and Uniswap offered flash loans together with dYdX, making it possible for the first time to have unlimited unsecured loans in DeFi. A user can borrow money, put it in other protocols for a profit, and repay the loan in a single Ethereum transaction. If they don’t repay, the entire transaction will be null and void. Despite several high profile attacks, flash loans remain hugely popular with arbitrageurs looking to take advantage of price fluctuations between decentralized exchanges.

The introduction of Uniswap V2 was also a milestone with improvements in oracle functionality, the introduction of flash swaps and an investment of $ 11 million from Andreessen Horowitz. By August, Uniswap’s volume had exceeded that of Coinbase Pro.

While Uniswap’s automated market makers (AMMs) have been around for several years, there were also a number of new entrants in 2020, including balancers and curve finance. Both were started with the aim of repeating the AMM concept. For example, Curve offers stable pools of multiple tokens, while Balancer continued to repeat the concept by allowing custom token ratios – as opposed to Uniswap’s rigid 50-50 liquidity pools. Others, like 1inch and Bancor, made strides in addressing issues like volatile loss, the phenomenon where liquidity providers make less profit than a comparable portfolio.

Composability – DeFi’s secret sauce

The real driver of DeFi value in 2020 was the fact that decentralized DeFi applications together are more than the sum of their parts. DeFi applications developed on Ethereum are composable, meaning users are finding new ways to stack these “money legos” to provide new opportunities. Even at the most basic level, users can put their ETH in Maker to take out a loan in Dai that will earn them interest by lending compound. However, if users have an appetite for riskier strategies like margin trading, the possible configurations are endless.

DeFi developer Andre Cronje was one of the first to recognize the need to make this feature more accessible. That is why he created Yearn.finance as a “gateway to DeFi”. Thanks to his efforts, Yearn has proven to be one of the most popular DeFi projects this year due to its features that make DeFi’s composition ability both automated and accessible.

Decentralized governance also emerged as a central trend in 2020 after Compound launched its COMP token in June. It immediately flew to the top of the DeFi rankings.

While governance tokens are a little bit speculated, it’s likely that decentralized governance will continue to grow in importance over the next year. Still, there are some technological and economic issues to be resolved in 2021, including the concentration of wealth, scalability, and the proper implementation of governance proposals.

Digital identity – a fundamental challenge

Digital identity has long been identified as a potential use case for blockchain to contain some of the excesses of personal data usage today. It is also becoming an increasingly pressing issue when it comes to validating blockchain use cases. As member of Congress Bill Foster pointed out in October, cryptographic guarantees are worthless in the real world if the person behind them is a scam.

The digital identity is already in focus as a test use case in the EU-sponsored European blockchain services infrastructure. In Japan, Layer X is working on a blockchain-based voting system based on digital identities.

That year, the enterprise-centric Concordium hit the market, promising a platform that manages the trade-off between transaction protection and the need for an identity solution. It uses off-chain identity verification combined with on-chain zero-knowledge proofs and an anonymity revocation process. The latter always occurs when there is a legitimate legal system to identify a party to a transaction.

Other digital identity projects are also making significant progress. Oasis Labs announced in December that it was working with BMW on a project to protect the privacy of user data. It enables internal and external parties to query user data without compromising privacy.

The decentralized identity platform Ontology has also focused on the use case driving a car. In September, the Ontology team showed how vehicles can be accessed with their “ONT-ID” and driver data can be safely recorded. However, Ontology’s ID has uses in other areas as well, including partnering with Waves for an e-voting solution.

Central bank digital currencies are rapidly gaining importance after the scales

With the sowing of seeds in 2019, the popularity of CBDCs exploded with central bankers around the world that year, possibly in response to events of 2019 related to Facebook’s controversial plans for a proposed stablecoin, originally called Libra, but since then in Diem was renamed.

China was pioneering, although it is still a long way from a blockchain-based solution. People’s Bank of China launched a pilot version of the digital yuan in April and had processed over 4 million transactions totaling nearly $ 300 million by November.

Although the head of the European Central Bank, Christina Lagarde, stated that the European Union will not “be the first to run for the introduction of a digital euro”, following the outcome of a consultation in January 2021, the bloc is likely to push its own CBDC based on comments from an ECB -Executive this could be a very long implementation phase. Elsewhere, Sweden, the United Kingdom, Canada and Switzerland have recently released meaningful indicators that suggest they will switch to their own version of a central bank digital currency in the months and years ahead.

Use of blockchain technology against COVID-19

The global COVID-19 pandemic cast a dark shadow in 2020. The advent of multiple vaccines towards the end of the year gave a glimmer of hope that “the new normal” may not be as permanent as it first seemed. However, blockchain technology appears to have a role to play in managing the ongoing battle against COVID-19 and any other global pandemic that may arise in the near or distant future.

For example, the above digital identity solutions could extend to “health passports” that convey a citizen’s immunity status and allow for a faster transition back to prepandemic society. Privacy activists have understandably raised concerns, but countries like China and Singapore are already using blockchain technology to create verifiable health records.

The World Economic Forum has highlighted the effectiveness of using a blockchain in the global supply chain to distribute COVID-19 vaccines. IBM is helping too, and has taken a similar point of view.

This year, blockchain development has picked up again, along with the general appetite for cryptocurrencies and the benefits that technology can bring. While the last big boom in 2017 led to a bust phase and the long crypto winter of 2018 and 2019, there is no reason to believe that this will happen again in 2021. Blockchain technology has come a long way since the last bull market and the year ahead stands ready to continue to provide viable scalability, privacy, and identity solutions that can drive the next major cycle of cryptocurrency adoption.