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Blockchain, DLT and Crypto Assets: Trends and Predictions for the New Year 2020

After 2019, where Bitcoin showed enormous volatility, where companies started to gain more interest in blockchain, where capital markets were envisioned to run on DLT systems, where the Ethereum-centered Decentralized Finance (DeFi) ecosystem grew, we wondered about trends for 2020. From the perspective of Germany, what can we expect from blockchain, DLT and crypto assets in 2020? What are the trends for 2020 in the crypto and DLT space? — Authors: Philipp Sandner, Jonas Gross, Marcel Kaiser, Simon Seiter

Setting the scene

Outside Germany, we can observe similar developments in other countries: Switzerland installs progressive regulations; China seeks to become a leader in blockchain; startups from the UK are strongly funded; investors — both interested in crypto assets and also venture capital — build infrastructure and vehicles to invest.

After the successful year 2019: What can we expect from blockchain, DLT and crypto assets in 2020? What are the trends for 2020 in the crypto and DLT space?

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Predictions and trends for 2020

1. Bitcoin: Will remain important

2. Security tokens: Securities will be tokenized and tokens will be securitized

3. Digital Euro: Euro-on-blockchain will be a hot topic in 2020

The German Government, the Association of German Banks (Bundesverband Deutscher Banken) and players from the German industry have publicly demanded such a digital Euro, which will drive the automation of the German industry by using Euro-based smart contracts.

This makes it possible to leverage the functionalities of the new distributed technology while keeping the stability of central bank money. The European Central Bank (ECB) has announced to set up a taskforce for analyzing the potential issuance of a digital Euro. The recent paper by the ECB about such a digital Euro suggests that a digital Euro could be issued on a blockchain system. If we refer to the digital Euro, we also mean related digital fiat currencies such as the digital US dollar, the digital Yuan, the digital Swiss Franc etc.

In 2020, we will see more companies privately issuing the digital Euro and we will see plenty of companies starting to use the digital Euro in process automation, leasing, factoring, Industrie 4.0, supply chain processes etc.

4. Decentralized Finance (DeFi): Strong growth to be expected in 2020

DeFi is an entire system of interconnected smart contracts. Products such as lending and borrowing, insurance, liquidity provision, exchanges and trading, leveraging and shorting, synthetic financial instruments and more can already be realized with the perks of the blockchain technology. In 2020, we will see more such products. We expect up to USD 2B being locked into DeFi smart contracts — and we will see regulators starting to scrutinize DeFi since they will see that a full-fledged capital market can potentially arise. This could replace a wide array of traditional financial organizations but also exhibit regulatory issues (e.g. AML/KYC not met; prospectus requirements not met).

To really hit off in 2020, experts like Brendan Forster (Dharma) state that it is required to have easier conversion between any crypto asset and fiat money to make DeFi more accessible, insurance in case of failing smart contracts in order to reduce systemic risk, better software oracles to transmit information from external markets and improved management of private keys. If all these criteria are fulfilled, finance can become what it was meant to be.

5. DLT: Financial institutions will drive enterprise solutions

The ultimate goal of full-fledged DLT-based capital markets will though not be reached in 2020 but rather in 2022 or later. Then, the local currency would run on-chain as well as securities. This would allow delivery-vs-payment (DvP) to be moved from central clearing houses to smart contracts executing atomic swaps in seconds.

6. Libra: No prediction possible

On the other hand side, the codebase of the Libra project is one of the most active ones we currently see. Also, experts speculate whether Libra could simply use standard licenses (e.g. E-Money license) to tokenized existing currencies in a straightforward way. No basket, no mix between currencies and bonds. Rather, straight forward tokenized money similar to the digital Euro.

If Libra takes this route there would be enough room to comply with regulatory requirements and go live for dozens of millions’ users. Maybe not hundreds due to the difficulties of KYC procedures. The idea of a basket mixing currencies and bonds could then in the long run easily being done as a “passive investment smart contract” on the higher layer when individual currencies are tokenized on the lower layer. Think LEGO bricks that together form a house; but first you need to have the single bricks.

7. HR: Blockchain will be a career booster for employees dealing with this technology

This way, the risk of losing a job (e.g. in the financial sector) as a result of increasing digitization and automation can be minimized due to outside options that start to appear in the entire economy due to companies searching for blockchain experts. Blockchain technology will not disappear but rather grow. It will drive the automatization of business processes and the German industry and the digitization of a wide variety of products (e.g., cars, machines, trucks — just to name a few).

8. Machines: Blockchain will become the operating system for the machine economy

Once all kinds of machines, all kinds of mobility devices (e.g. cars, trucks, trains), all kinds of sensors are connected to blockchain networks, these IoT devices can participate in financial transactions directly. This will allow a broad set of new automated business models once these IoT devices start to interact with financial markets through pay-per-use, leasing, factoring, securitization or new ways of financial instruments we do not even know yet. So far, we mainly talked about industries such as automotive or machinery but of course other industries will also discover blockchain: utilities, medical technology, etc.

In 2020, we will see industrial companies that offer such machines, cars, sensors etc. connecting their devices to blockchain networks. They will also discover the broad variety of process automations and automated business models that might be possible.

9. Interfaces: Smart contracts in combination with oracles will receive great attention

10. Convergence: Blockchain will converge with AI, analytics and cloud computing

11. Tokenization: Bringing all kinds of IoT devices such as sensors, machines on-chain

For example, tokenizing a street lamp leads to the situation that payments can be made directly to the lamp, triggering the lamp to turn on. The city council would pay for the evenings by default; a resident, that demands high security could pay for the lamp to shine throughout the entire night. Double payments by multiple interested persons would be avoided. The lamp could also carry a camera and weather sensors for which the same on-demand-logic would apply.

Such tokenized assets can also be made available for investors. Consequently, investors could be willing to build and maintain these lamps on a full scale. In return, investors would receive their share on the lamp’s profits. This application is a potential game changer for infrastructure and capital investments and will be further developed in 2020.

Conclusion

Why do organisations not fully embrace blockchain yet, as it seems? In our opinion, this is due to the high regulatory burden for financial corporations. But here, governments are changing laws to remove frictions between decades-old law frameworks and dematerialized assets and rights based on blockchain, crypto assets and DLT. Also, executives and decision-makers have often not understood the potential of blockchain to a sufficiently required degree. One reason for this is that understanding blockchain takes time. In the heavy-loaded calendar of executives there is maybe room for a 30-minute blockchain presentation by an external expert but not enough room to really understand the technology and its potential.

Yet, this will not prevent the uprise of this technology. We believe that organizations should intensively deal with blockchain technology in order to leverage this brilliant technology. The reason is simple: In 10 years, there will hardly any finance, transactions, assets without DLT.

Given the huge opportunities ahead, it is worth it to dig into this technology.

Remarks

Do you want to learn more about how blockchain will change our world?

  • Blockchain knowledge: We wrote a Medium article on how to acquire the necessary blockchain knowledge within a workload of 10 working days.
  • Our two blockchain books: We have edited two books on how blockchain will change our society (Amazon link) in general and the everything related to finance (Amazon link) in particular. Both books are available in print and for Kindle — currently in German and soon in English. The authors have been more than 20 well-known blockchain experts in startups, corporations and the government from Germany, Austria, Switzerland and Liechtenstein — all contributing their expertise to these two books.
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Our two books: the first one on blockchain and the society and the second one on blockchain and finance

Authors

Jonas Gross is a project manager and research assistant at the Frankfurt School Blockchain Center (FSBC). His fields of interest are primarily cryptocurrencies. Besides, in the context of his Ph.D., he analyzes the impact of blockchain technology on monetary policy of worldwide central banks. He mainly studies innovations as central bank digital currencies (CBDC) and other crypto currency projects as “Libra”. You can contact him via mail (jonas.gross@fs-blockchain.de), LinkedIn (https://www.linkedin.com/in/jonasgross94/), Xing (https://www.xing.com/profile/Jonas_Gross4) or follow him on (Twitter Jonas__Gross).

Marcel Kaiser is a project manager and research assistant at the Frankfurt School Blockchain Center (FSBC). His expertise is primarily decentralized finance (DeFi) and industrial blockchain applications. He analyzes the impact of blockchain technology on the economy in his master thesis. He speaks at public events about topics like Libra, quantum cryptography and blockchain in general. Feel free to contact him via mail (marcel.kaiser@fs-blockchain.de), LinkedIn or Xing.

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Professor | Lecturer | Author | Investor | Frankfurt School Blockchain Center

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