5 Blockchain Trends That You Should Know
The outbreak of Covid-19 pandemic has brought down economic activities and is expected to take some time until full recovery. In the meantime, businesses are securing liquidity and cutting back on unnecessary investments in preparation for the next market rally. With the rise of digital transformation along with “contactless services” becoming the new norm in many industries, there are efforts to find new business opportunities with unique vision and mission.
2020 was a year of radical innovation for blockchain industry. Decentralized finance (DeFi), PayPal’s support in cryptocurrency trading platform, and the central bank digital currency (CBDC) was introduced, showing potentials make revolution in various industries. However, limited scalability and high transaction costs of public blockchain still remained challenges that need to be addressed. According to CB Insights, venture capitals’ investment in blockchain startups dropped by 35% (with total of $2.79 billion) in 2020, compared to 2019.
Regardless, 2021 is going to be a year of opportunity for the blockchain industry. There are currently more than 1,600 customers using Lambda256 products and more than 150 commercial services operate as BaaS (Blockchain as a Service). More than 300 companies have signed up for Luniverse Point and Trace service, and more than 150 companies have actually put these services into their business. Until now, Lambda256 has been connecting with global clients, making efforts to solve various real-world problems with blockchain technology. Via these insights, we’ll take a look at five 2021 blockchain trends worth looking at.
1. The Sidechain Innovation
Public blockchain such as the Ethereum blockchain is struggling with its high transaction fee and poor performance. Dapper Labs, creator of Cryptokitties, built its own mainnet to create a whole new ecosystem particularly designed for blockchain games. Companies including Q&A platform AHA, contents IP platform Braincolla, Defi project Gluwa, and language learning platform Ziktalk are currently using the Luniverse sidechain after experiencing difficulties with Ethereum mainnet.
Ethereum announced that it will release Ethereum 2.0, an enhanced version of Ethereum blockchain with increased speed and scalability of the network. Key differences between Ethereum and Ethereum 2.0 involve the use of Proof of Stake (POS) consensus mechanism and using Sharding technology to upgrade overall network performance. Since the launch of phase-0 Ethereum 2.0 back in December 2020, it has allowed deposit of ETH in preparation for transition to PoS. For now, it is expected to take at least 2 years before the full-scale introduction of Ethereum 2.0 takes place.
Sidechain allows one blockchain to be interconnected with another, resembling characteristics of shading chain of Ethereum 2.0. In particular, transparency of transactions is guaranteed and transaction fees can be reduced by transferring assets through an interconnected public chain or through anchoring.
If the public chain is the internet, sidechain can be interpreted as an intranet. Note that public blockchain and sidechain are not substitutes to each other. Rather, interworking of these two chains complements issues of the public blockchain, which are lack of scalability and high transaction costs. While it is likely to take some time for the public chain to address existing problems, it is expected that more widespread sidechain projects will be launched in 2021.
2. Enterprise Blockchain and Blockchain Cloud (BaaS) Market
Forrester research report stated that “30% of the enterprise blockchain projects will make it into actual production by end of 2021” and added “Covid-19 pandemic has gave businesses burden on supply chain management and has raised awareness of accelerating digital transformation by expanding blockchain projects”. The report also emphasized that enterprise blockchain would operate on top of cloud-based blockchain platform (BaaS). According to Fortune Business Insight, the global BaaS market will rise annually by 39.5% from $1.9 billion to $24.9 billion by 2027, and Mordor Intelligence expects that BaaS market will hit CAGR (Compound Annual Growth Rate) of 15.2% over the forecast period 2019-2025.
From a business point of view, blockchain is a very complex and abstract technology along with artificial intelligence. In order to materialize blockchain project ideas, outstanding development team with sizeable initial investment costs is required. Businesses feel the barriers of implementing blockchain in their business and eventually give up. Acknowledging these issues, cloud-based blockchain service BaaS comes into play which is offered by Amazon, IBM, Alibaba, Huawei, Oracle, and Microsoft, and more. However, BaaS is still considered costly that companies are not willing to adopt BaaS unless it is an open source blockchain. Unlike existing cloud infrastructure businesses, professional BaaS companies such as Lambda 256 Luniverse, Kaleido and Alchemy provide various blockchain services are growing in.
Jeonbuk National University and Redwit, together carrying out study note recording projects for clinical trial data management projects, switched to Luniverse Hyperledger to address the difficulties of running their own Hyperledger and IBM’s Hyperledger BaaS. Luniverse also provides point system integrating platform, making it possible to convert points from one company to another, and allowing liquidation of granted points into cash. In addition, Luniverse offers blockchain service that enables unlisted stocks to be traded securely and transparently on a platform called Onboard, which is run by Samsung Securities along with one of the leading fintech companies in Dunamu. As such, the application of blockchain to different internal and external services within different industries is expanding, and therefore we expect that use of BaaS will increase dramatically over a short period of time.
3. New Business Opportunities following the Legalization of Crypto Exchanges
Large number of companies are issuing cryptoassets in Singapore and Switzerland where there are laws governing initial coin offering (ICO), whereas ICO is prohibited in South Korea. Currently, there are disparate license and regulation surrounding asset-backed tokens (ABT) and many new blockchain-related businesses have been launched in Singapore or the UK.
The National Assembly of Korea passed the Amendment to the AML Act, which will come into effect on March 25th, 2021. According to the act, virtual asset service providers (VASPs) must comply with Financial Action Task Force (FATF) requirements and Travel Rules, as well as pass the Information Security Management System (ISMS) verification process.
In particular, the Travel Rule states that the ordering institution involved in cryptoasset transfer is responsible for providing personal informations (name, birth date, country, address, etc.) of the originator and the beneficiary to the beneficiary’s institution. The main purpose of this act is to track down illegal money laundaring/terrorism financing activities. However, the question arises as to whether the ordering institution will realistically be able to comply fully with the rules. First, retention of personal information may be in conflict with the Privacy Act. Second, it is difficult to track crypto-asset wallet address in the event that the wallet address is not linked to the ordering institution or the beneficiary institution. Finally, separate interconnection between providers of virtual assets is necessary for the exchange of personal information.
This change of scenery presents both a crisis and an opportunity for the crypto asset market. If the ISMS verification fails to comply with new regulations, then the current crypto projects could naturally fall apart. On the other hand, regulations create new business opportunities for crypto payment and transfer services within the governing law.
In the meanwhile, Lambda256 participated the VerifyVASP project and launched a decentralized protocol service in Singapore, and has developed a service that provides DROPS so that Upbit users can make payments directly from their cryptocurrency account. As such, the year 2021 is expected to be the year of new blockchain business opportunities following the legalization of crypto exchanges.
4. Asset-Backed Token (ABT) Market
Decentralized Finance (DeFi) is a term for a group of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries. Decentralized finance has grown into one of the most active sectors of blockchain with hundreds of ongoing projects. These include *Compound* and *Aave* which provides crypto loan services, *Synthetics* which allow to create and trade financial derivatives, lossless Lottery service *PoolTegether*, various stabelcoin projects, and many more. In particular, DeFi services are gaining attention at the current near-zero interest rate. In fact, Compound gave 6.75% interest per annum on the funds deposited with the stablecoin Tether.
The reason why DeFi gained so much popularity in 2020 is not only because of its high interest in return, but also because there are no governing regulation surrounding DeFi at this point. Decentralized finance protocols took 2020 by storm, and this epidemic growth caught the attention of the authorities and it will soon take action on regulating these projects, creating a virtuous cycle. In fact, the SEC approved Arca’s Ethereum-based investment fund back in 2020, and more than 195 banks around the world have joined JP Morgan’s Interbank Information Network (INN) to develop and test out blockchain payment-related network.
In particular, Asset Backed Token (ABT), a class of digital token that provides safe trading of traditional assets via blockchain technology, is actively used in the issuance of Central Bank Digital Currency (CBDC) and fiat-backed stablecoins. ABTs are used from tokenizing ownership of paintings to tokenizing employee’s working hours.
Many attempts will be made in 2021 to introduce ABTs. Some countries including Singapore and England have already legalized tokenization of real assets, and DeFi is expected to take up everyday finance in the near future. For example, one can contract mortgage loans, or issue/sell bonds on the ABT platform. The ownership certificate, which is the collateralized real estate in this case, is transparently recorded in the blockchain and is automatically transferred to the lending facility in case of non-payment. Transaction costs can be drastically reduced as the middlemen such as banks and real estate intermediaries becomes unnecessary. In particular, the role of development/audit/tracking techniques of NFT (Non Fungible Token) smart contracts such as ERC721 and securities token contracts such as ERC1400 will also be highlighted in this process. Following up with this trend, Lambda256 has partnered with Indonesia IDRT and has been in charge of issuing and managing Rupiah-backed stablecoin. In addition, Lambda256 is pushing a project with FinTech firm Gluwa to issue stablecoin in Nigeria and aims to promote a new asset-backed token venture in 2021.
5. Popularization of DID technology
Decentralized Identifier (DID) is a technology that allows the user to claim sovereignty over personal data by submitting authentication token. DID is designed so that the service is independent from any centralized registry, identity provider, or certificate authority. Since DID is entirely under the control of the user and doesn’t require a third party, DID services are becoming very popular since the outbreak of the Covid-19 pandemic. From a business point of view, personal information does not need to be stored in such a way that it can be free from personal information leakage issues. From a user’s point of view, once the user’s personal information is stored in the local, the user can provide its personal information to multiple services/institution without having to provide the information individually.
Other than the using DID as a physical identifier, its usecase is very broad. One can store its Covid-19 test results with DID authentication, or efficiently store and manage certificates. In particular, when using smart contract such as the ERC721, DID is able to tokenize and claim the ownership of coupons, vouchers, and many more. Lambda256 together with online accommodation bookings platform Yanolja, has found various DID cases which includes DID-based contactless check-in service, voucher, pass ID, and more.
Blockchain is the end result of proven technologies that have been studied in various fields of computer science since the 1980s. Since its emergence with Bitcoin, blockchain has constantly undergone new changes in existing regime. Although we cannot argue with the fact that human greed has created a massive bubble on cryptocurrencies, it is also true that the greed is what has essentially driven shifts in paradigm in the blockchain market. In the year 2021, there will be change and development for the blockchain market within the current regulatory framework.