Looking back on the Crypto Year 2020
This blog post will cover:
- DeFi coins
- DeFi Platforms
- Ethereum 2.0
The year is coming to its end. In 2020 cryptocurrencies received more attention than ever before. A lot of new investors and services joined the Crypto World. Let’s take a look at the most significant crypto events of 2020.
Indeed 2020 can be called a year of DeFi. The name “DeFi” stands for “Decentralized Finance”. It is an attempt to create an alternative financial system, which would be more decentralized. As it turned out a lot of operations that happen on the traditional market, such as lending, buying and selling of securities, investing, exchanging, and others can be done without the third party. An open-source decentralized network is absolutely suitable for these operations. Right now the main network that works as a basis of DeFi is Ethereum. However, in theory there can be some more. The one necessary thing for it to work is smart contracts.
The crucial thing to understand is that DeFi is linked to fiat currency through stablecoins. Some of the financial operations are impossible on a highly volatile market, which the crypto market is. On the other hand, the value of stablecoins is pegged to other assets, for example USD or gold. DeFi technologies can significantly simplify some operations, for example it can become much easier to take a loan. Moreover, in that case the customer does not even have to keep a bank account.
DeFi platforms also issue their own coins. Mostly they are governance tokens, their holders are managing the platform by voting or offering some changes. During 2020 we could witness that some of these DeFi tokens became very valuable, thus their prices were growing.
There are several examples of DeFi Platforms that became popular this year:
- UMA Platform
Decentralized financial contracts platform started in 2018. In 2020 announced the launch of a new token.
Platform that allows users to borrow assets. It is based on the Ethereum blockchain, which was released in 2018.
Resource that gives an opportunity to open customizable liquidity pools. In 2020 proposed a new BAL token.
It is a services’ aggregator, that provides users with a number of opportunities, such as investing or trading.
Bitcoin showed spectacular development this year. We saw it surpassing all previous peaks and reaching an amazingly high price. Now it is trading for over $20,000.
This year we are witnessing a major increase in institutional investments, which stimulates other investors interest as well.
In 2020 Bitcoin showed an ability to resist the economic crisis. The fact that BTC not only survived but also grew in price during the economic turbulence, showed that it can actually separate itself from the macroeconomy.
This year more people see Bitcoin as a safe haven. The geography of countries that used it to protect their savings from inflation during the crisis became wider. As a result, Bitcoin takes the first place in ratings of the best cryptocurrency 2020.
In May 2020 Bitcoin went through the third halving. The reward for miners went from 12.5 BTC to 6.25 BTC per block. Undoubtedly, halving has the most serious impact on the mining industry. In 2012 and 2016 this process was followed by slightly higher price volatility. This year it was preceded by the so-called Black Thursday, the crypto market collapse. According to Blockchain.com Bitcoin hash rate had shown stable growth right until the collapse. Insiders link hash rate drop to some technology changes before having. Now we can say that March was a rough month for Bitcoin, but it surprised us later with several peak prices.
In 2020 the crypto community was waiting for one of the major updates, Ethereum new version 2.0. This change signifies a transition from the Proof-of-Work to the Proof-of-Stake algorithm. PoS should improve scalability, security, and availability. It should bring more possibilities for those who want to participate in the maintenance of the network.
Ethereum 2.0 roadmap has 4 stages of implementing a new system. Pёhase 0 was launched on December 1, 2020. This was followed by price changes. The release of the next stage is planned for 2021.
The other phenomenon of 2020 that deserves attention is Central Bank Digital Currency (CBDC). CBDC is a digital representation of fiat money.
The idea of cashless money appeared years ago. Cryptocurrency added a new understanding of technology that can make it happen. Of course, the global pandemic with its fear that banknotes are able to pass the virus and all the attempts to reduce physical contacts speeded up the process of creating a decent system.
A successful result was shown by China’s central bank and the People’s bank of China. Last fall digital Yuan was tested in Shenzhen and then in April in Xiong’an. It showed what kind of difficulties may appear. Nonetheless, the pilot city list is expanding. The Chinese experience is just a beginning. More and more countries announce the development of their own CBDC. Probably quite soon the whole world will be able to test new types of money.
With the obvious growth of cryptocurrency popularity and the necessity to create CBDC it turned out that there must be a law to regulate new spheres. Thus during 2020 we saw different government visions on a possible crypto legislation.
The U.S. government issued a “Crypto-Currency Act”, which clarified basic terms of the Crypto World. It also mentioned what agencies should regulate different types of crypto. The Act was announced in March 2020, right amidst the pandemic. Government representatives emphasized that the regulation of crypto is crucial to make it easier for investors to participate.
Also starting from July 2020 U.S. banks were allowed to custody cryptocurrency. This idea was met with some skepticism because custody means that customers have to share their private keys.
China also has amendments in its crypto legislation. Let’s take a quick look at the history of crypto rights. Since 2017 crypto trading has been banned, in 2019 cryptocurrencies were recognized as private property for the first time. In 2020 it was decided that crypto assets can be passed to the heirs. The new civil code that would protect this right will be implemented starting from January 1, 2021.
Countries included into the European Union decided on common basic regulation rules. However, each country can add some of its own. The European Commission recognized the importance of new technology development, thus they provide support for applications built on the blockchain.
In 2020 the European Commission presented the EC’s Digital Finance Package. The main purpose of this document is to ensure that the financial sphere in the EU is still competitive and provides its citizens with the newest technologies and at the same it is able to keep security on the highest level.
The European Commission’s Regulation of Markets in Crypto-assets (MICA) has been under development since 2018. This document is supposed to provide regulations for crypto assets across all members of the European Union. It is to be implemented by 2024.
Basically the EU divided crypto assets into three groups:
- e-money tokens — crypto based on one fiat currency and used to replace fiat to buy things
- utility tokens — non-financial assets
- asset-referenced tokens — crypto that maintains stability by referencing several non-digital assets.
Anyone who would like to issue a crypto asset has to publish a whitepaper first, then prove that they have a high level of security in cyberspace and that the new project does not contradict the existing financial law.
November 15, 2020 Bitcoin Cash had a hard fork. It has split into two networks: BCH ABC (Bitcoin Cash ABC) and BCHN (Bitcoin Cash Node). This hard fork happened because of the idea to redistribute 8% of mined coins as support for the financial development of the network. Since it did not get a total understanding the network was divided into two.
In July Cardano went through the necessary upgrade, which is known as Shelley hard fork. Shelley brought new architecture, and features, it was a step in the Cardano platform’s software evolution. Now stake pools can register on-chain and are visible for delegators, and delegators can delegate to registered stake pools.
The year will be finished with another Cardano fork. This hard fork was initiated in order to introduce the token locking mechanism. This change will prepare the network for smart contracts and the possible creation of new assets. The hard fork will happen with the help of a mechanism called a ‘hard fork combinator’ that allows it to go through this procedure smoothly without any interrogations into the network.
You can also read more about other forks 2020 here.
Even though the year is coming to an end, it is still full of surprises. The database of Ledger users was stolen and shared online. This database has more than 1 million e-mail addresses. Ledger representatives suggest that this is the exact database that was stolen in June. This unfortunate situation became a rough reminder that users should be very responsible with their information.
According to Bitcoin.com about $100 million was stolen from DeFi projects in 2020. Thus, DeFi hacks take 21% from crypto hacks this year. The amount of attacks shows the growing interest towards new technologies.
2020 was a very intense year for the Crypto World. The pandemic situation speeded up processes that could take a much longer time. Facing the global economic crisis all types of investors were attracted by cryptocurrencies. That definitely helped adoption and awareness. One of the most frequently asked questions in social networks is “what is the best crypto to invest in?”.
However, at the same time it raised questions about the value of digital assets and the possibility to include them into the existing financial system. It is impossible to say that all the problems have been solved, but they were obviously recognized.