2020 was certainly not the year anyone expected. In the financial services sector in particular, 2020 did not meet the early expectations for a stronger introduction of blockchain and cryptocurrency.
However, the pandemic has revealed new and broader use cases for the cryptocurrency. Ultimately, the past 12 months have been steady advancement that has helped strengthen the foundation for the technology. But obviously, regulation in the US and around the world is still of paramount importance not just for Ripple but for the entire industry.
Looking ahead, Ripple’s leadership anticipates a year of continuous acceleration in blockchain and cryptocurrency innovation and shares their insights on what could bring in 2021.
A crypto acceleration
According to Asheesh Birla, general manager of RippleNet, the line between crypto and banking is blurring. This gives nimble fintech firms the opportunity to leverage crypto to undermine the market share of larger, slower established banks.
This changed acceptance of crypto is already being demonstrated by fintechs with customer contact such as Square, Robinhood and PayPal. These companies originally made mobile and digital banking services more accessible to a larger number of customers. The introduction of crypto is now helping to familiarize more people with digital assets and blockchain-enabled financial services.
Birla assumes that the use of crypto and optimized fintech regulations will help ensure that even more fintechs can compete with banks on an equal footing in 2021.
At the same time, crypto companies are looking at more traditional banking options, as evidenced by the number of crypto and blockchain companies that applied for bank charter in 2020.
“The tide is turning,” said Birla. “It is possible that a fintech or cryptocurrency company could even acquire a traditional financial institution in the coming year.”
Dawn by DeFi
Last year DeFis was the coming-out party. DeFi caused quite a stir and some interesting applications in the course of 2020. This was largely limited to the crypto room, but it was an important preview of DeFi’s potential.
Looking ahead, Ripple’s DeFi boss Michael Zochowski says DeFi will gain even more traction in 2021 as it matures. “I expect many of the early DeFi projects to stall, consolidate, or be acquired in the coming months,” said Zochowski. “But the really useful ones – most likely the simpler ones that replicate financial services like packaged assets or decentralized exchanges – should continue to gain momentum with users.”
Zochowski also predicts that new DeFi platforms will solidify their base as performance and cost requirements increase. In particular, he expects more sidechain projects, bridges between networks and intelligent contract applications to emerge as interoperability and efficiency become more important.
With Eth2 still far from reality, he also warns that Ethereum could continue to lose ground and could decline further through 2021 if development times slow down: “I believe that by the end of 2021 at least 25% of what is used in DeFi Networks other than Ethereum will generate value. “
Zochowski also believes the XRPL ecosystem is poised to build on significant achievements in 2020 with several new major initiatives that will expand his leadership role at DeFi. This includes a variety of projects – such as flare and XRPL transaction hooks – that provide XRP users and developers with advanced features for smart contracts. He also says the XRP community is going back to its roots by investigating fungible tokens and a decentralized exchange via XRPL.
“We expect the asset tokenization trend in XRPL, especially stable coin issuance, to accelerate as multiple production deployments in corporate products are based on new and improved tools,” said Zochowski.
A new administration is expected to re-focus on White House regulation and enforcement. As cryptocurrencies move further into the mainstream, G20 countries have no choice but to include these technologies on a short list of financial regulation priorities. As we’ve seen, the lack of a clear legal framework in the U.S. over the past four years has left fintech and blockchain players in particular in a state of limbo. Other countries like the UK, Switzerland, Singapore and Japan are miles ahead.
Ripple General Counsel Stu Alderoty predicts that crypto regulation will be a top priority for a Biden team that understands the implications for innovation in the public and private sectors. This could lead to a unified framework and an optimized application process for fintechs looking for crypto licenses.
“Smart, well-designed regulations that are effectively communicated and applied consistently can help create a level playing field and enable innovation and wider adoption here in the US,” said Alderoty.
The year of the CBDCs
This relationship between government regulation and innovation also plays a role in the red-hot arena of central bank digital currencies (CBDCs).
Driven by pandemic realities such as the move away from cash and the need for improved ways to distribute government aid, as well as the fact that China has pushed its own CBDC, many countries have accelerated their emerging projects. In particular, a number of European countries are actively examining the feasibility of a digital euro, while the US Federal Reserve is working with MIT’s Digital Currency Initiative on research.
“Activity and progress in CBDCs are the clearest indicators that digital currencies are the future,” said James Wallis, vice president of central bank engagements at Ripple. “Over the course of 2021, I expect more development in cryptocurrencies, stablecoins and CBDCs, with each company defining its place in finance and payments through clearer use cases.”
In the coming year, the focus of the CBDCs will expand from finding domestic solutions to cross-border interoperability. As in China, some central banks will focus on retail CBDCs tied to e-commerce platforms while others will experiment to replace cash like in Sweden or the Bahamas. These new projects require collaboration between central banking networks and private blockchains, and potentially can use neutral bridge currencies that provide liquidity and instant settlement for cross-border payments.
Beyond the proof of work
Ethereum’s launch of the Beacon Chain was a major turning point in 2020 for David Schwartz, CTO of Ripple. He sees a clear move away from Proof-of-Work (PoW) towards more scalable, more sustainable systems in 2021.
“The fact is that PoW systems use a lot of resources and energy,” said Schwartz. “They also show an inevitable tendency towards centralization over time as the miners with the cheapest energy become major stakeholders. In 2021, technical innovations will further improve blockchains like XRPL that use newer technologies. ”
To mitigate this consolidation of energy and improve energy consumption, he expects more blockchains to reflect the migration of Ethereum and to drive the construction of climate-neutral blockchains like XRPL.
For those who achieve climate neutral status, the positive environmental impact is enormous. This comparison of energy consumption by XRP transactions in relation to Bitcoin, credit cards, and even cash shows the potential for the industry.
As part of this growing emphasis on sustainability, Ripple also set an important benchmark for 2020 when it became the first blockchain company to commit to being carbon neutral. Ripple has unveiled a number of initiatives that will help achieve this milestone by 2030.
Impact in focus
Monica Long, general manager of RippleX, expects this commitment will have different implications in the coming year.
“In 2021, Crypto will keep its original promise to reshape funding as more accessible and equitable for the world’s underserved people,” Long said.
To make this vision a reality, Crypto will first help improve the playing field and open the door to fintechs who emphasize empowering consumers. Companies that offer user-friendly and understandable services; are safe, secure and private; have global interoperability; and helping people build wealth and achieve socio-economic mobility will be the eventual winners.
Long expects the biggest changes to come at the expense of established financial services companies and in developing countries in the Middle East, North Africa, and Sub-Saharan Africa that have already embarked on a digital path. For countries that have skipped traditional bank and credit card networks in favor of mobile services, crypto is a logical next step.
Ultimately, the coming year will be general growth for blockchain and digital assets. As the pandemic slowed progress around the world, it also shed light on the functional uses and opportunities for digital currencies. This will result in continuous innovation for the sector in 2021.