Todd McDonald is the co-founder and Chief Product Officer of R3, an enterprise blockchain technology company.
Last year can certainly be described as one in which blockchain technology came into its own. Regulators and policymakers entered the learning curve significantly and understood the differences between cryptocurrencies and blockchain and between allowed and permissive ledgers.
They continued with global coordination together with the private sector through various groups, including the International Association of Trusted Blockchain Applications (INATBA), the OECDThe Blockchain Expert Policy Advisory Board (BEPAB) and of course Worldwide digital financing.
On the technology side, as the adoption and development of blockchain solutions continued at a rapid pace, 2019 once saw ambitious use cases become a reality.
In the field of digital assets, both traditional institutions and newcomers to space were making big waves. The industry has long sought clarification of regulations and last year’s progress in digital assets – particularly the Libra project debate – brought regulators into the conversation.
Seemingly surprised by the speed of development and the potential impact on monetary policy of stablecoins, these policymakers saw action in the last half of the year to increase their understanding and consider potential benefits and consequences of digital assets, including the creation of a G7 working group.
The Libra effect
The result of the immense control applied to the Libra project prompted many central banks to seriously consider launching their own digital currencies. In the midst of this, six of the world’s central banks gathered to assess digital currency (CBDC) with the central bank Bank of International Settlements. While no one is ready for a large-scale public launch, we expect central banks worldwide to keep CBDCs on their priority list.
We also expect regulators to remain focused on their work to understand the impact of digital assets. With the EU launching an extensive consultation on the many aspects of digital finance and taking many other similar measures, we hope that the joint efforts of industry and government will lead to greater clarity on regulation.
The emergence of digital assets as legitimate in the eyes of regulators has accelerated the ability of government agencies to look beyond the highly fluctuating Cryptoasset markets and evaluate how they themselves can benefit from the adoption of blockchain technology. In 2019, many witnessed a transition from mere consideration of blockchain adoption to identifying specific use cases that best fit their needs.
In the future, we expect more formalized strategies for adoption, especially in the area of decentralized identity and procurement processes. An example of this is the German government, which has announced its evaluation of blockchain for digital identity. This will be a highly followed project this year which, if successful, will encourage others to follow suit.
In the industry itself, we expect interoperability between platforms to remain a prominent theme as digital assets and other token forms continue to evolve. Standards are dropped into the space to allow interoperability, for example data standardization via GS1, ISO or ACCORD, as well as industry-specific standards, for example in trade finance where the International Chamber of Commerce (ICC) Digital Trade Standards Initiative is making progress.
While connectivity between interchain is gaining attention, organizations are actively considering the extent to which their platform can integrate with new and existing payment and settlement networks to deliver on the promise of atomic digital asset switching. Additional benefits can also be unlocked when two or more blockchain applications using the same underlying technology can communicate with each other. The fact that two applications operate on the same protocol does not mean that they work seamlessly by default, or that digital assets are transferred between these networks. Organizations are actively considering the intrachain scenarios and whether underlying platforms are designed to enable them.
All things considered, it seems certain that industry and government will continue to progress in digital assets in 2020. We expect regulators and central banks to form more concrete opinions about stablecoin’s policies, as well as the usefulness of their own digital currencies, and will fuel the desire of other government agencies to request solutions using blockchain technology. In the coming years, blockchain and digital assets will catalyze on the basis of regular recognition, moving towards critical mass adoption.
This article first appeared in the annual report from Global Digital Finance.