If 2020 taught us one thing, it is that making predictions is a tricky business. The COVID-19 pandemic ushered in a profound shift in how businesses operate, testing their ability to adapt to new technologies, trends and expectations.
Indeed, while 2021 brings with it an array of uncertainty, the one thing that remains certain is the necessity for organizations to continue to adapt, transform and pivot in a post-COVID landscape.
The financial and technology sectors are no exception. Facing continued disruption and challenges from COVID and beyond, the need to remain flexible, agile and transparent has never been more imperative.
With that in mind, we’re putting forth several predictions and trends to watch for in 2021.
1. Traditional Finance Enters the Digital Currency Space
Traditional financial institutions will continue embracing and integrating digital currencies into their portfolio and service offerings. While some investors, fintechs and venture capital funds have already begun incorporating cryptocurrencies, their adoption will likely become more prominent and widespread.
This is hardly surprising, as the momentum toward cryptocurrencies has been building for the past several years. Indeed, JPMorgan Chase introduced its own cryptocurrency, JPM Coin, in 2019, and used it commercially for the first time in October 2020 to send payments around the world. Similarly, Morgan Stanley has offered blockchain-based investment products since 2019. And 38 of the largest banks worldwide use the cryptocurrency Ripple, with more than 250 banks in over 50 countries adopting its cross-border payment technology.
Accordingly, as cryptocurrencies continue to prove their value – offering increased transparency, greater efficiency and less bureaucracy – 2021 will likely see an increase in the number of traditional institutions embracing them.
2. Decentralized Finance (DeFi) Will Gain More Momentum
2020 was a strong year for Decentralized Finance (DeFi) – a term encompassing a variety of financial applications in cryptocurrency and blockchain geared toward removing central financial intermediaries, such as brokerages, exchanges or banks.
The idea with DiFi is to usher in a shift away from the “middleman” to peer-to-peer finance enabled by decentralized technologies built on blockchains, the most common being Ethereum. In other words, DeFi allows users from around the world to directly engage in traditional financial services – such as borrowing, lending, trading and investing – in a decentralized and transparent manner, without the use of a third party financial intermediary.
For instance, Nexo, founded in 2018, is the world’s largest lending platform in the DeFi space, having processed more than $3 billion for 1,000,000+ clients in 200+ jurisdictions.
Similarly, Yearn.Finance, which just launched in July of last year, has $650 million worth of crypto assets, after experiencing a rapid ascent in August of 2020. In December, it was described as the “Amazon of DeFi”, offering a portal to various DeFi products after acquiring or partnering with various DeFi projects, such as Pickle Finance, Hegic, CREAM Finance and Akropolis.
Having increased in both activity and popularity through 2020 – it now has over $17 billion worth of value locked in Ethereum smart contracts – DeFi is poised to gain more momentum in 2021.
3. Decentralized Storage: The Rise of Filecoin
As decentralized storage will become one of the main pillars of web 3.0 (more on that below), 2021 will witness the rise of Filecoin – a system offering a storage network that allows users to buy and sell unused storage on an open market. In short, Filecoin is designed to be both a decentralized file storage and content distribution network in one.
To understand its significance, we first have to go back to the blockchain. Over the past several years, there have been a handful of blockchain projects attempting to solve the problem of storing data in a decentralized manner. Filecoin, however, presents a unique set of challenges when compared to other blockchains.
Blockchains are a distributed ledger (i.e. record of accounts) stored on every node of the network. Because each node stores an identical copy of the blockchain, the idea of storing files on the chain does not hold much weight. Accordingly, a mechanism needed to be created that allowed data to be stored off the chain, but verifiable on the chain.
Filecoin is the first storage blockchain to implement what is known as Proof-Of-Replication and Proof-Of-Spacetime. Essentially, a storage miner needs to be able to prove to the rest of the network that a) they are able to replicate the data they claim to be storing, and b) they are continuing to store that data for the length of the contract.
The developers of Filecoin – Protocol Labs – are also the same developers of InterPlanetary File System (IPFS), which is a peer-to-peer file sharing protocol that works hand in hand with Filecoin. This acts as the foundation upon which actual applications and systems will be developed.
Filecoin initially garnered attention in 2017 after raising $206 million in its ICO – one of the largest ever – in addition to $52 million in venture funding. After officially launching in October 2020, its network storage power surpassed 1 EiB (exibyte), or over 1.1 million TB (terabyte) in less than a month – that is, enough storage to store 290 million HD movies.
Needless to say, expect to hear a lot more about Filecoin in 2021.
4. Decentralized and distributed systems enabling a free market
When it comes to storing data, three companies typically come to mind: Google, Amazon Web Services (AWS), and Microsoft Azure. Indeed, as of Q3 2020, AWS dominates 32 percent of the world’s cloud storage market and generated more revenue than the next three largest providers combined. Azure came in at roughly 19 percent.
Over the last decade, individuals and businesses have become more and more comfortable with storing their most important data on the cloud. This has led to extreme centralization, which presents a multitude of risks and disadvantages.
For one, the costs associated with centralized cloud storage are high, particularly since only a few major players dominate the market. The costs – including everything from employee wages, accounting costs, legal fees, management burdens, data rents, etc. – continue increasing, ultimately driving up the prices of centralized cloud services. Furthermore, security has proven to be of concern in centralized cloud storage systems. For example, in 2012 Dropbox disclosed that a data breach had compromised over 68 million of its user accounts, collecting stolen passwords and information that were put on the Dark Web for sale. In another instance, media analytics company “Deep Roots Analytics” used AWS to store information of roughly 61 percent of the U.S. population without password protection for nearly two weeks.
Given that the cloud storage market is estimated to reach $107 billion by 2024 – up from $33 billion in 2019 – the demand for faster and more secure, private and low-cost data storage options is only going to increase.
Decentralized storage offers just that. In fact, it is estimated that blockchain storage costs can reduce the price of cloud computing between 50-100 percent. Since no third party controls user data or has access to user files, decentralized storage provides total privacy. Furthermore, decentralized systems are less vulnerable to attack, since files are broken apart and spread across multiple nodes with encryption.
Ultimately, such decentralized and distributed systems enable free market competition, something we’ve already since with the launch of Filecoin and competitors Sia, Storj and Swarm – all of which use blockchain technology to create decentralized data storage markets.
5. The rise of Web 3.0
If you ask five people what Web 3.0 means to them, it is likely that you will receive five similar, but different definitions. This is because the transition from Web 2.0 to Web 3.0 can be compared to going from traveling by horse and buggy to traveling by automobile. In other words, it signals a monumental shift from what we now refer to as “the internet.”
Web 2.0 refers to websites and applications that utilize user-generated content for end users. It is used in many websites today, chiefly focusing on user interactivity and collaboration. It also focused on providing more universal network connectivity and communication channels.
Web 3.0, however, is more focused on the use of technologies, such as machine learning and artificial intelligence (AI), to provide relevant content for each user instead of just the content other end users have provided. While Web 2.0 essentially allows users to contribute and sometimes collaborate on site content, Web 3.0 will most likely turn these jobs over to the semantic web and AI technologies.
Blockchain technology serves as the foundation of Web 3.0, ensuring the decentralization and privacy of content and data. For instance, rather than relying on third-party intermediaries to manage users, Web 3.0 uses decentralized protocols and blockchain technologies to guarantee promised outcomes to users.
Accordingly, given that these technologies rely on collective user participation, Web 3.0 aims to protect users and their privacy, rather than exploit them. Ultimately, Web 3.0 shifts power away from the “tech giants” toward everyday individuals – creating a “global network” of connectivity and ownership.
A lot remains uncertain in 2021, but if we can count on one thing being consistent it is the power of technology. Consider this: during COVID last year, internet services saw a rise in usage from 40 percent to 100 percent compared to pre-lockdown levels. There are 7.77 billion people in the world, and 4.54 of them are active internet users – nearly 60 percent of the global population. This number is bound to increase in the years to come, making the rise of blockchain technologies – and the opportunity it creates for decentralization, security and privacy – a likely reality in 2021 and beyond.