I realize that it is early February 2020, and this post comes a little late after New Years. However, I think that seeing the first month of the year helps to set the stage to know what to expect coming over the next 11 months.
In January 2020 we had a turbulent ride, with the early conflict between America and Iran, followed by the aeroplane full of Canadian-Iranians shot down by Iran, Bitcoin behaved as expected as an off-risk asset like gold. Investors put their money into bitcoin and it appreciated from ~$6,900 up to ~$8,300 USD.
News of the novel deadly coronavirus that spread exponentially out of Wuhan, China from late December until now has many people worried as it spreads across the globe. However, most of the news surrounding it broke out into western media mid-January, following the price of bitcoin jumping to ~$9,300 at the end of January 2020.
Given the upcoming halving event bitcoin is expected to rise regardless of news, however, the short-term bullish action of bitcoin surrounding these news events supports its role as a risk-off asset that is now responding to global events.
Major themes for the year that I expect in the cryptocurrency industry
- Bitcoin Halving 2020
- Bitcoin Upgrades: Schnorr Signatures, Taproot, Tapscript
- Lightning Network Development
- Stablecoins: Nation-State Fiat Stablecoins
- Cryptocurrency Act 2020
- DeFi: Decentralized Finance
- Ethereum Upgrades
- Markshire Crypto Conclusion
Bitcoin Halving 2020
The Bitcoin halving event has been all the rage so far in 2020, and rightly so. Part of the Bitcoin protocol states that every 210,000 blocks (~4 years) the bitcoin mining reward is cut in half, reducing new supply, and thus increasing stock-to-flow ratio. Earlier estimates set the bitcoin halving to mid-May 2020, however, with recent increases in hashrate (miner bullish-ness), blocks have been mined at a faster rate than the difficulty parameters could be adjusted (every two weeks). The most recent estimates for the bitcoin halving put it in late April 2020. Although we really won’t know until we are much closer to the date.
Bitcoin Upgrades: Schnorr Signatures, Taproot, Tapscript
Bitcoin is slow to upgrade. That is one of its benefits. Being like digital gold and truly being adopted as a worldwide store of value and eventual medium of exchange means that it cannot drastically change. Change must come slow and steady and carefully. That being said, the following upgrades have been in the works for years and may finally be implemented. All of the upgrades below are proposed as soft forks, thus not damaging the Bitcoin name with multiple hard fork splits.
Schnorr signatures – this is a protocol upgrade that allows multiple signatures to be aggregated into a single block, which would enhance privacy. Schnorr signatures are easy/quick to verify as well.
Taproot – taproot is a project upgrade that has been under development for a while now. Taproot essentially allows users to program different conditions for bitcoin transactions, while only publishing the condition that was used to settle the transaction, keeping the alternative conditions private. Moreover, it allows users to override the conditions if all parties in the transaction unanimously agree and sign off on a settlement transaction together.
Tapscript – is simply an updated version of Bitcoin’s programming language that makes it easier to add new features (“OP codes”) to Bitcoin’s programming language later on.
With these developments, it simply further’s Bitcoin’s usability and robustness. Looking forward to these soft fork upgrades in 2020.
Lightning Network Development
We all know about the Bitcoin Lightning Network second layer solution that would allow virtually unlimited, lightning-fast transactions, that can later have final settlement on the main Bitcoin blockchain. However, using the Lightning Network is not simple… yet. You need a special Lightning Network wallet that doesn’t necessarily integrate with your regular cold-wallet (or hot wallet). You would need to send bitcoin from your cold wallet to your Lightning Network wallet, and learn a new wallet and way for sending bitcoin.
Do not fear, Jack Dorsey is here! Jack Dorsey, the CEO of Twitter and Square, has not been shy about his Bitcoin bullishness and avid interest in the Bitcoin technology, social and financial impact on the world. In fact, he has been quoted as claiming that Bitcoin will become the world’s dominant currency/store of value and be the native currency of the internet. I do not disagree.
Dorsey has embarked on a mission to improve the bitcoin ecosystem. As I mentioned above, there are many areas of Bitcoin that need improvement for user interface, background technology and smooth ability to use both the bitcoin main blockchain as well as second layer solutions such as Lightning Network.
His company Square has announced the hiring of 5 new developers for an open-source team project with a mission to target Lightning Network wallets for improved integration with existing bitcoin wallets (both cold and hot) as well as improving UI (user interface) and UX (user experience).
As it currently works, as I explained above – you would need a completely separate wallet for lightning network applications and it would be, by its nature, a hot wallet where you need to actually send your bitcoin from your cold storage. There is no seamless integration of cold storage and lightning network. There isn’t a “lightning network tab” in your cold storage wallet you can easily transfer BTC to.
Moreover, there is not a standard protocol or approach used by lightning network wallet developers. Dorsey’s developer team at Square is also trying to standardize or create a most useful/popular protocol/technical design so that different wallets can work seamlessly together to send and receive BTC either via the lightning network or the standard bitcoin blockchain.
All said and done, I do not anticipate significant lightning network usage in 2020, however, I do anticipate a significant improvement in the usability and integration of the lightning network.
Find out more from Stephan Livera’s Bitcoin Podcast Episode 144 with Steve Lee – “Square Crypto and Supporting Bitcoin Development”
Stablecoins: Nation-State Fiat Stablecoins
Stablecoins were the unlikely recipients of a lot of attention in 2018 and 2019 during the bear market. All the craze going into 2018 were STOs or Security Token Offerings since the SEC was out to apprehend all of the illegal ICOs in 2017/2018. The community thought for sure that legal security tokens issued in place of stocks would take off. However, it turns out that there is a lot more technical background work as well as laws to pass and community adoption before we have STOs.
Enter stablecoins. Stablecoins are cryptographic digital token representations of fiat currency, most commonly the USD. In retrospect, I can see why stablecoins became so popular. As the bitcoin price was dropping over the course of 2018 into early 2019 cryptocurrency investors wanted somewhere “stable” to cash out, without having to leave the cryptocurrency ecosystem. Altcoins were out of the question as their valuations were/are wildly volatile. So the majority of professional and/or savvy investors sold their bitcoin or altcoins during the market hype or during the downturn and bought into stablecoins like Tether (TUSD) or Gemini Dollar (GUSD).
While the first stablecoin came into existence in 2014 (BitUSD) they were not widely used or popular until the 2017-2019 timeframe, when they gained huge traction, volume/liquidity and market capitalization. In fact, Tether (TUSD) has consistently been in the top 10 cryptocurrencies by market cap on coinmarketcap.com, sitting at 6th place at $4.6 billion market cap at the time of writing.
Moving forward into 2020 I believe that stablecoins will continue to grow in market cap as well as in reach, liquidity and usage. Many nation-states are aiming to deploy their own state-backed fiat stablecoins in their own countries, namely China, Eurozone, the USA, Venezuela, Singapore, Iran, The Republic of the Marshall Islands, Senegal, Tunisia, United Arab Emirates/Saudi Arabia, Peru, Canada, Thailand, Israel, Uruguay, The Bahamas, Norway, The Netherlands, Sweden, Russia, and more.
Stablecoins are low cost, have global reach and incredible speed for transactions. Moreover, they allow seamless payments of blockchain-backed assets and can be embedded into digital applications thanks to their open architecture in contrast to the proprietary legacy systems of banks. Not to mention much more trackable, unless serious privacy measures are taken.
With the attention that stablecoins have been receiving, I think that it is safe to say they will certainly be developed in 2020.
Cryptocurrency Act 2020
Big news hit the media in December 2019 that US Congress has proposed the “Cryptocurrency Act 2020“. In this Act they do two major things:
- Describe the different classification of cryptocurrencies/digital assets
- Outlining the different governing bodies responsible for developing and enforcing regulation around each type of cryptocurrency/digital asset.
This is a huge move to provide regulatory clarity for America and Americans so that further development in this industry can proceed with ease, allowing investors to feel safer and the ecosystem of stablecoins, bitcoin, ethereum, XRP to develop, as well as second-layer technologies such as Security Tokens (STOs) etc.
Let’s just hope that the Act/Bill gets passed this year and that regulations are not too strict.
DeFi: Decentralized Finance
Another big theme of the last two years has been the development of the Decentralized Finance, or DeFi, space. Typically financial products are accessible via banks, investment firms, brokers etc. You often need a relatively large to medium amount of money to invest AND live in a country with financial services in order to even access these services.
However, with the dawn of DeFi you can access financial products online, from a data connection in the middle of a forest while camping. There is no need to meet a banker or investment advisor. You make your own investments on open source (or closed) digital investment products.
While there was a significant increase in DeFi development and investor interest, it is still an extremely small market when compared to the investment market of the legacy system. With increasing regulatory clarity and public awareness, I believe that DeFi will continue to make great strides in 2020.
The Ethereum development community has been planning Ethereum 2.0 for some time now… We are all waiting patiently. There are very few cryptocurrencies with valid use cases, and Ethereum’s DeFi is certainly one of the most valuable use cases out there. However, if Ethereum cannot scale and create flexibility in its development for DeFi and other non-fungible tokens (like property deeds, driver’s licenses etc) then I believe that it will fail.
The upgrades expected include the capabilities for SNARK zero-knowledge technology as well as Sharding for scaleability and Plasma for specific use side-chains.
We are expecting Phase 0 of Ethereum 2.0 by mid-2020 and some early sharding capabilities by late 2020 (Phase 1). Ethereum development is an ongoing theme and certainly something to keep an eye on in 2020. If the Ethereum development team and community is successful with the upgrades, Ethereum will certainly be a cryptocurrency worth HODLing.
Markshire Crypto Conclusion
Overall, 2020 is shaping up to be a very interesting year in cryptocurrency. With so many different areas of development happening at the apparent end of a bear market, early bull market, I’m sure that 2020 will have many enthusiasts, investors and the general public on the edge of their seats.
I am most notably looking forward to the Bitcoin halving, or rather 6 months after the halving, as well as Ethereum development and the passing of the Cryptocurrency Act 2020, as I think that these will have the greatest short-medium term impact on the markets and ecosystems.
Please feel free to add your thoughts, comments and ideas below!!