What’s Ahead for Blockchain in 2020?
A technology overview, future glimpse and business impacts
Blockchain technology has the potential to smooth out barriers to global trade—the strongest vehicle to create wealth in the world. Technology has improved how we traditionally conduct business, but we still have many bumps in the road because of market friction.
Blockchain technology is able to increase business efficiency while reducing costs, with the added benefits of transparency and security. This is opening up a whole new world of participants, an accelerated flow of capital and unprecedented opportunities that businesses are keen to explore.
Before we jump in to where experts anticipate blockchain will take us in the next year, we’ll look at those market detractors and how blockchain might resolve them. If you would like a more thorough primer on blockchain, IBM has made available a free copy of Blockchain for Dummies. Don’t let the Dummies name fool you—it is a thorough text for people not yet directly involved in the technology.
Driving business with blockchain
Market friction is anything that obstructs, delays, endangers or adds cost to transactions. Industries can be impacted by market friction in various ways and to different degrees. One thing, however, is common—market friction can be a drag on all types of business progress, and is something blockchain looks to solve by addressing these three areas:
+ Information frictions such as imperfect or inaccessible information and information risks ranging from cybercrime and privacy issues to identity theft.
+ Interaction frictions arising when either the cost of transaction is too high or the degree of separation (physical or otherwise) between parties is too great.
+ Innovation frictions such as any conditions, internal or external, that compromise an organization’s ability to respond to market changes. These include lack of institutional inertia, restrictive regulations and invisible threats, including those unforeseen in new technology business models.
While some market frictions have subsided as solutions emerge, others have gotten worse.
Block chain addresses all of these areas of market friction.
Core to this is the shared ledger—a lifetime history of an asset or transaction that is visible and validated by all participants. Each participant is also validated, having met certain criteria for conducting transactions. Asset ownership can be efficiently transferred between two participants in the network and recorded in the shared ledger.
Validated blocks of transactions are linked sequentially (hence the name blockchain), which is easier for regulators to review when necessary, reducing time and costs.
Cryptography, encompassing advanced encryption and authorized permissions helps prevent fraud. Plus, all participants validate each transaction before it is added to the blockchain, which itself is also secured.
Transactions become more efficient, moving tasks along to the next state of its lifecycle. Contract terms are already built into the transaction, eliminating many steps of a traditional process. Transactions are less complex, reducing costs.
How does cryptocurrency relate to blockchain?
People not already working with the technology often think blockchain and cryptocurrency are interchangeable. They are not. Cryptocurrencies such as Bitcoin were the first use cases for blockchain, and are therefore just one application of blockchain technology.
People that are working on a blockchain project are often, but not always, incentivized to work on the project because they are rewarded with cryptocurrency. As more people begin using the platform, the coins become more valuable. And as their value increases, there’s more incentive for the creator to add features, and for developers to join or continue working on the platform.
Looking ahead for blockchain
Media hype was high over blockchain the last couple of years, in part because cryptocurrency was touted a lot as an investment option, appealing to a nontechnical section of the public. While things have simmered down a bit, organizations that understand blockchain potential continue to push forward in research, development and launch of the technology.
Here are some primary areas of development we will see in regards to blockchain in 2020.
1. More diverse businesses will jump on board
Bitcoin brought a lot of global attention to blockchain, including from financial institutions. Banks were some of the early adopters of the technology, building fraud-resistant transaction clearing and settlement systems and speedier digital transactions, including smart contracts.
Gartner predicts that this year banks will achieve $1 billion of value from the use of blockchain-based technology.
Financial institutions are not the only industry to watch. Any business that involves a high degree of tracking is prime to benefit from blockchain technology. Some hot examples include tracking agricultural products from farm to table, or tracking the provenance of diamonds and other precious gems.
2. Facebook digital currency will be a disruptor
Though industry experts can’t agree on a predicted timeline, Facebook definitely has its own cryptocurrency in the works. If the project can pass regulatory hoops, expect to see the launch of Libra later in 2020 or in 2021.
Cryptocurrencies have come and gone, and only a few survived. One reason for massive excitement over this new prospect is that no other cryptocurrencies have been launched with the financial backing the size of Facebook’s $550 billion coffers.
Users of Facebook’s Messenger service, WhatsApp, or a stand-alone app, will be able to access Libra through a digital wallet managed by new Facebook subsidiary, Calibra.
Facebook is rewriting the playbook a bit, with the cryptocurrency operating differently than other digital currencies. The value of Libra will be linked to the value of other currencies, and backed with some actual fiat currency, making it a “stablecoin.” Calibra will be a founding member of the nonprofit Libra Association, which will manage the coin alongside other financial services firms in a centralized system. This is much different than the distributed system other cryptocurrencies have been modeled after.
In the likelihood that Libra takes off, it could be a major disruptor to the global currency-based monetary system in place. This has caused scrutiny and concern from lawmakers and analysts across the globe.
3. Blockchain and AI integration will continue converging
Artificial intelligence requires a massive amount of quality data to be effective. AI can also be multifaceted and hard to comprehend. Blockchain is being looked at as a possible solution because of its ability to verify that decision making is based on verifiable and proven data, and the decision-making process is traceable.
As AI improves, it could in turn increase the security of blockchains and make tools more accessible and user-friendly. In 2020, we may see cloud service providers come out with the first combined AI and blockchain platforms.
4. Blockchain will make IoT more secure
As we connect to more and more devices, data privacy issues grow exponentially. The distributed ledger of blockchain is superior in security by design, providing a solution to the Internet of Things. Because of the way transactions are recorded and are visible to all parties, members can transparently see where a problem may have occurred, or isolate a breach by a third party.
Current research shows that 75% of organizations using IoT technology have incorporated blockchain technology or will do so in the coming year.
5. Wyoming will stand out as a model of blockchain friendliness
Maybe Wyoming should just go ahead and change its slogan now from “Forever West” to “We Love e-Currency.” The state recently became the first in the U.S. to put in place a legal framework supporting blockchain innovation, and also protections against downfalls with appropriate regulatory oversight.
Cryptocurrency, as the misunderstood flagship of blockchain to mainstream America, was quick to draw fire for its potential for money laundering and other illegal activity. It is why cryptocurrency is still not accepted as publicly traded financial instruments by the U.S. Securities and Exchange Commission.
What Wyoming put in place doesn’t change the federal restriction, but through its framework, sends a clear signal that regulation can foster the development of blockchain rather than hinder it. In 2020, lawmakers in other states and globally will be looking at the example set by Wyoming, and we could see others follow suit.
Some experts are predicting we are at a historic turning point in global monetary decentralization and automation. To dive into more in-depth predictions, check out this article on money.com. Whether blockchain, and technologies it collaborates with, will lead to more opportunity and prosperity, or an epic ride of huge innovation and crashing failures is yet to be seen.