After a stormy year 2018, we are in for exciting developments in 2019. Corporations will continue to look for the best use cases and regulators will try to catch up with the industry. There will be an uptick in STOs and asset tokenization, developers will work on scalability and performance issues and we might see the launch of the first-ever crypto ETF.
2018 was a roller coaster ride for the blockchain industry.
On the one hand, almost all major cryptocurrencies have crashed, which has certainly encouraged the naysayers to predict the end of digital currencies in an “I told you so.” fashion.
On the other hand, major international companies like Samsung or Apple have started to look into blockchain-based business applications, and even launched their own ventures. This gives upwind to blockchain enthusiasts, who are betting on the technology slowly moving into the mainstream.
What can we expect for 2019? More roller coaster, free-fall or a catapult ride? In the following we will discuss five major trends which we expect to manifest in 2019.
1. More corporations will look for business use cases
No doubt, blockchain is one of the most promising technologies out there. Corporations have started to realize that, a trend that will continue in 2019.
“There is increasing interest in corporations understanding what types of business problems are best suited to blockchain,” says Ajit Prabhu, innovation expert at Deloitte Consulting.
In 2019, the general interest of the corporate sector in blockchain use cases will increase. More enterprises will come up with their own blockchain-based solutions.
Nikao Yang, COO of Lucidity, says, “For a long time, blockchain has been inextricably tied to cryptocurrencies, but that’s simply one application of the technology. Now, a variety of industries – from manufacturing to retail – will start to explore the improvements blockchain can bring to supply chain transparency, ownership tracking, and others.”
That said, blockchain is still far away from becoming a mainstream technology widely adopted by the corporate sector. It’s still early in the growth cycle. Instead of a major adoption, we will see more testing and pilot projects in 2019. Corporations will remain careful as there are many technological and legal constraints.
However, the corporate sector will put more money and more human resources behind blockchain projects in 2019, and early adopters will learn from their initial mistakes.
2. Governments will push for more regulations
As blockchain technology is evolving and the private sector is coming up with innovative applications at a rapid pace, regulators are under pressure to catch up. Governments around the world, especially in blockchain-friendly countries, are working on improved industry regulations.
In 2019, Liechtenstein will introduce the Blockchain Act. This is the first attempt to create a comprehensive legal framework for the blockchain industry, regulating everything from crypto trading to ICOs.
Japan has established a think tank to work out an approach to regulating blockchain businesses, and in the US the SEC is tightening controls of crypto trading.
Regulators will especially look at the intersection with financial institutions and adaption of AML and KYC rules. Regulation of crypto exchanges, crypto taxation rules, and ICO fundraising regulations will be looked at as well.
However, it takes time for governments to introduce new regulations. Apart from Liechtenstein’s Blockchain Act, there probably won’t be any major breakthroughs in 2019. But we will certainly see more movement in the regulatory space, with governments getting more and more involved. That could be a good thing, or not, we shall see.
3. 2019 will see an uptick in STOs
Security tokens are the new talk of the town. Stocks, gold, art, real estate, automobiles, the tokenization of high-value assets has already started.
Broadly speaking, asset tokenization is the process of converting an asset into a token that is stored on a blockchain. This comes with a variety of benefits such a reduced administrative costs and documentation, increased liquidity, and the alleviation of local boundaries.
Some even say asset tokenization is the future of investment banking.
And they could be right. The improved cost-efficiency will make assets more accessible to retail traders. And wall street has already taken notice. Banks have started to invest in blockchain startups; and 20% of all hedge funds launched in 2018 were crypto-focused.
The new model of STOs (Security Token Offerings) will bring asset tokenization to a new level. Security tokens are considered investments and therefore subject to financial market regulations. The increased legal certainty will attract more capital and we will likely see more STOs in 2019.
Firms like OpenFinance and Polymath are working on standardized processes to trade tokenized securities in a legally compliant way. In 2019, the primary and secondary market for tokenized assets will develop and will overtake the traditional crypto-token market in size in the coming years.
4. Scalability and performance issues need to be addressed
Blockchain technology is still in its infancy and there are many technological hurdles to overcome. Especially scalability and performance are major constraints.
Currently, most blockchains can only process 15-20 transactions per second (TPS). Bitcoin can handle about 7 TPS, Ethereum 20 TPS. That’s not enough for most corporate applications. In comparison, payment systems such as Visa can process thousands of TPS.
Developers who build real-world apps have been working on solutions for scalability and performance issues. The dilemma hereby is to solve scalability issues while still keep the blockchain decentralized.
Sidechains are one way to tackle the problem. Another option discussed is so-called “sharding,” which means each node on the network is storing a fraction of the entire network. This could enhance the network’s scalability while keeping it decentralized.
As we move into 2019, these solutions will become more effective and technologically sophisticated.
5. Enhanced crypto market accessibility for retail traders
So far, most retail investors have shied away from the crypto space. Cryptocurrencies have a reputation problem and the volatility of the market can be discouraging. Thus, investing in cryptocurrencies is still a niche area, largely occupied by more sophisticated and institutional investors.
Actively managed crypto hedge funds are for the most part not interesting for retail investors either, because minimum investments and performance fees are too high.
In 2018, there have been attempts for the launch of crypto ETFs. Many companies have lobbied the financial market authorities on behalf of their crypto ETFs, but so far, all of these attempts have been rejected. Analysts anticipate, that it is likely that the first crypto ETF will be approved in Q1 2019.
Once that happens, the door will be open for more ETFs to come. This will contribute to the adoption of crypto trading. ETFs will increase the accessibility of the asset class for retail investors and create a more liquid and diversified market place.
Altogether, we are in for an exciting year 2019. The technology has enormous potential, and we are just at the beginning.
Watch these five trends. Blockchain is fast and furious, things are happening, and they are happening at a rapid pace.