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During 2020 the popularity of Blockchain market has grown unexpectedly. We have witnessed businesses from a multitude of industries adopting Blockchain technology for enhancing their business processes. The COVID-19 pandemic accelerated the digital transformation drive in many areas, especially via the use of blockchain or distributed ledger technology.
If finally, the Digital currencies will be adopted from Central banks this may result the global blockchain market size to expand from USD 3.0 billion in 2020 to USD 40 billion by 2025, at an effective Compound Annual Growth Rate (CAGR) of 67.3% during 2020–2025.The combination of technology and payment innovative developments like Instant payment and the impact of Covid-19 will further accelerate blockchain transition.
We expect to see a reorientation of the various blockchain projects. Experts predict that 90% of blockchain projects will require replacement within a year.
That is because most are ignoring key features such as tokenization, smart contracts, and decentralised consensus. In addition ,Covid has put new challenges towards more realistic and pragmatic approaches to blockchain initiatives specifically focused on the day-to-day business “to continue their growth path”.
New Blockchain projects with clear benefits are expected to achieve thatduring 2021 at an even faster pace. There has also been an uptick in the number of companies interested in participating in networks that specifically help to address some of the supply chain issues that the pandemic has put forward.
Due to marketuncertainty sparked by COVID-19 many corporates had to pull back from some of their more long-term DLT-related projects for the time beingMoreover long-term strategic projects, requiring changes to market structure or regulatory changes, are prolonging their time schedules . Additionally funding forexperimental and R&D projects have been cut this year. And this will cause an even larger number of these projects will be put on hold.
Still Digital transformation is no longer a choice for businesses - it is essential to survival. Blockchain technology is Expected ely to make the most transformative and dramatic changes in the way businesses function, during the coming years. Many industries are therefore intensively looking at blockchain as a helpful tool to achieve the benefits of digital transformation
Another interesting trend in 2021 will be DEFI or DecentralisedFinancial services. If we look at DEFI it shows how blockchain could be used for financial use cases which up till now has been “the missing point” for enterprise blockchain offerings. DEFI illustrates successful process of smart contracts for financial services. This alternative form of financing perfectly fits into a Fintech driven economy.The total value of fulltime decentralised financial services (based on cryptocurrencies) witnessed an impressive growth and even surpassed USD 10 billion.
Zero Knowledge Proof (ZKP). ZKPs are urgently needed to meet challenges ensuring confidentiality that are currently holding blockchain projects back.
Blockchain-based ZKPs allow companies with different record-keeping systems to be verifiably “in sync” on a record-by-record basis without sharing sensitive information. Much progress has been made recently around ZKPs. There are increasingly coming all sorts of solutions on the market to deploy ZKPs in a broad way.
Financial Sector is changing
The banking and financial sector further dominates the market. Amongst all the industries affected by the COVID-19 pandemic, the financial sector is one area that has been hit particularly hard.
Reduced profitability and tightening margins have forced banks to adapt and increasingly meet their customers needs. The adoption of fintech and blockchain technology, enables them to streamline their operations and reduce costs. This will probably lead to a firm growth in contactless transactions and redesigned financial services.
The banking and financial sector is expected to show exponential growth in blockchain adoption in the coming years. As a result this sector is going to hold the largest market size in the global blockchain market during the coming years.
Additionally, itis expected a considerable increase in the number of non-traditional financial institutions. ranging from non-bank lenders, to crypto-currency based banks to fully decentralised financial (DEFI) services alternatives.
The biggest trend however is the adoption of Cryptocurrency by central banks (CBDC)
There is a proliferation of central banks worldwide that are exploring the possible launch of their own central bank digital currency (CBDC). According to a recent BIS report 80% of central banks worldwide are researching the pros and cons of such a currency.
This process is expected to intensify in 2021, driven by the diminishing use of cash, the digitalisation of the economy, the upcoming of private digital currencies like Libra etc. The Chinese government is well in advance and are almost ready for a worldwide roll-out. The ECB will take a clear decision on their Digital euro project mid-2021.
ECB and Crypto assets
The ECB welcomes the initiative of the European Commission to establish a harmonized framework at European Union level for crypto-assets and related activities and services, and the aim of a proposed regulation addressing the different levels of riskposed by each type of crypto-asset, balanced with the need to support innovation. Furthermore, theECB believes that a Union harmonised framework is critical to prevent fragmentation within thesingle market. I believe that Europe is on the cusp of making major steps forward in harmonizing the legal, regulatory and policy frameworks of the European Union member states on crypto assets.
On September 24, 2020, the European Commission published a proposal for a “Regulation of the European Parliament and of the Council on Markets in Crypto-Assets”, commonly referred to as the MiCA proposal.
This proposal is part of the Digital Finance package, which is a holistic package of measures to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks. In addition to the MiCA proposal, the Digital Finance package also includes a proposal for a pilot regime on distributed ledger technology (DLT) market infrastructures, a proposal for digital operational resilience and a proposal to clarify or amend certain related EU financial services rules. Europe’s strategy prioritizes ensuring that the EU financial services regulatory framework is innovation-friendly and does not pose obstacles to the application of new technologies.
The MiCA proposal, together with the proposal on a DLT pilot regime, represents the first concrete action within this area.
The years to come will be very interesting not to say exciting let’s see.