The topic of cryptocurrency adoption is always making its way into discussions on every facet of the industry. So, let’s talk about it. BeInCrypto breaks down all the biggest adoption stories and trends in this special in-depth article.
Since its humble beginning, the cryptocurrency industry has been focused on adoption. Whether it be for peer-to-peer payments or decentralized finance (DeFi), adoption is widely believed to be the ultimate push for the blockchain sector into the mainstream. On this front, progress has been slow because existing financial systems are so entrenched. However, slowly but surely, times are changing.
After a difficult 2018 and a sluggish 2019, this year has shown some promise. Many sectors within the larger cryptocurrency industry are booming with potential—and adoption is once again the main agenda. The COVID-19 pandemic has also accelerated the adoption of digital technologies in general which should further boost decentralization across the board.
BeInCrypto has decided to compile some of the most promising adoption stories of 2020 to gauge where we are at as an industry. Here are the top adoption stories of 2020 thus far.
Spend Your Cryptocurrencies
Bitcoin’s whitepaper first spelled out the main driving force behind cryptocurrency adoption: spending it.
Historically, however, the public has viewed Bitcoin and cryptocurrencies with skepticism. They have long been associated with the black market instead of a true peer-to-peer currency for everyday consumers. The New York Times even reported as late as January 2020 that black market dealings in BTC are at an all-time high. However, slowly but surely, this perception is changing with new developments on the adoption front.
Cryptocurrencies have often tried to position themselves as an alternative to fiat currency with mixed success. Today, in 2020, we are getting closer. A vast array of services are currently trying to tap into spending cryptocurrencies like regular money. Usually, this happens on the backend by allowing consumers to spend Bitcoin and other cryptocurrencies at places like convenience stores, just as they would cash.
Implementing such an idea has proven difficult, however. Not only is the HODL mentality strong, but the extreme volatility in the cryptocurrency market often discourages users from spending.
Still, the number of users spending cryptocurrencies has grown significantly since 2013. As reported by CNBC, Chainalysis found that consumers spent $190M monthly on average in 2017 up from just $9.8M monthly in 2013. More users today also have more Bitcoin to spend, as well.
BeInCrypto has reported that the last three years have seen cryptocurrency wallet adoption triple. The environment seems primed for cryptocurrency-related payments.
As of 2020, two major areas may propel the cryptocurrency payment sector forward and push adoption. One area is prepaid cryptocurrency cards. Although they have been around for some time, the first such card was approved in the United States only in June 2020. MasterCard teamed up with BitPay to release the first prepaid card for cryptocurrency users in the United States. It’s intended to be intuitive and users can spend their cryptocurrencies anywhere MasterCard is accepted.
However, other startups are taking adoption a step further with a new concept: cryptocurrency rewards for purchases. The idea is simple: purchasing items with your debit card allows you to receive BTC as a reward.
BeInCrypto reported in April 2020 that the San Francisco-based startup Fold is working with Visa to make this a reality. As part of Visa’s Fintech Fast Track Program, Fold will be launching a Visa debit card which will offer up to 10% in BTC rewards for every purchase. As Fold’s Chief Executive Will Reeves told Forbes,
If people don’t understand Bitcoin as money yet, they certainly will understand it as a better reward.
A rewards-based system solves two major problems. Firstly, it’s not taxed because cryptocurrency is not being spent. Secondly, it sidesteps the issue with transaction fees and slow confirmation times with Bitcoin by accumulating the leading cryptocurrency as a reward.
In effect, it has the potential to introduce an entirely new group of consumers to Bitcoin and other cryptocurrencies. Other startups now plan to issue similar rewards-based cards that would integrate cryptocurrencies with everyday payments.
As promising as payments are for the cryptocurrency space, they’re not the driving force for adoption nowadays. Instead, another sector of the cryptocurrency world is gaining prominence—decentralized finance.
Ethereum and DeFi
There’s been a lot of buzz about decentralized finance (DeFi) on Ethereum as of late. Compound’s (COMP) explosive rise to a market capitalization of over $500M over the course of just two weeks has forced everyone to take DeFi seriously.
Although the sector still faces issues valuing itself, there is no denying that the sector has breathed new life into the cryptocurrency market. DeFi has everything to do with adoption. It essentially cuts out the middleman of traditional finance and also decentralizes the entire financial world. Although it’s an innovation that will take time to catch on, its potential is clear.
So, how does DeFi specifically help with cryptocurrency adoption? In more ways than you might expect.
DeFi’s ultimate goal is to replace the ‘legacy’ financial system which is currently monopolized by a few leading entities. It also provides for a trust-less environment to conduct financial dealings. Rather than trusting in people and centralized companies, individuals just need to trust code and the mathematics behind it. This saves users both money and time, plus individuals can have full control over their financial assets. Adoption in the DeFi space can, therefore, come in many forms because the sector is so broad—it can rework the entire definition of finance as we know it today.
Banks are often thought to be the sole gatekeepers of credit. They lend out money to businesses and individuals, sometimes at exorbitant rates. In some cases, competition is sorely lacking. Decentralized finance promises to democratize this process by cutting out the banks entirely, thus lowering fees for borrowers.
Compound (COMP) and others have been leading the push to provide decentralized lending platforms where users can earn interest on deposits and borrow assets. Maker DAO (MKR), for example, is another decentralized credit platform where users can take out DAI (a stablecoin pegged to USD). Oftentimes, Bitcoin wrapped on Ethereum (wBTC) is used as collateral for these loans.
Thus far, decentralized lending projects make up a large portion of the DeFi landscape. COMP alone accounts for some 36% or so of the entire market. There is a clearly growing demand, and adoption has really taken off in May and June of 2020.
Portfolio Management & Trading
One of the main components of finance is undoubtedly trading and portfolio management. Today, a whole industry exists which manages portfolios for everyday people. These middlemen take a cut, of course, and dictate the financial market through their decisions. Sometimes this process can be less than transparent. However, decentralized finance offers alternatives.
Balancer (BAL), for example, is a non-custodial portfolio manager that automates this process through price sensors and providing liquidity. Other projects, like Melon (MELON), allow users to create their own investment funds which other users can put their money into. This democratizes the investment community in a radical way.
Although both of these projects have been in development for years now, their user bases have only begun to grow drastically this year.
Other Innovative Products
2020 has also brought to light new use-cases for the DeFi space which are still being developed.
Insurance, for example. is one sector which is still in its infancy but is being worked on by various projects. This would allow users to pool money together to provide insurance to individuals through smart contracts. Prediction markets are another subset of DeFi that is gaining traction, with projects like Augur leading the way in 2020. Other use-cases like synthetic assets, decentralized leverage trading, and derivatives, have all accelerated their development in 2020.
For now, the basics of DeFi are being adopted by users with lending and investment portfolios. However, over time, we can expect DeFi to continue to innovate as more and more startups emerge on the scene.
How Do We Measure Adoption in DeFi?
Adoption in the DeFi can most concretely be measured by looking at the total value of assets locked in DeFi-related platforms. As of July 12. 2020, there’s some $2.29B in assets currently locked up in the DeFi space—an all-time high for the industry.
Another way to measure DeFi is to look at the growth of certain platforms. For example, at the time of writing, Synthetix has seen a 9.97% increase in locked assets. The platform, specializing in derivatives on Ethereum, is the top gainer for locked-up assets in the DeFi space as of July 1.
However, there’s yet another, simpler way to gauge how the DeFi space is growing. Because almost all of DeFi is currently on Ethereum, one can assess growth by looking at Ethereum’s on-chain metrics, such as wallet growth, gas fees paid, and the number of daily transactions.
On this front, Ethereum is looking exceptionally strong. Recently, Ethereum broke all records for daily active addresses with over 466,000 daily active addresses on June 29. Although the sheer amount of daily transactions still hasn’t broken all-time high, the growth has been much more organic than what we saw in late 2017 and early 2018.
Altogether, the growth of Ethereum’s userbase, the rise in assets locked in DeFi, and the many projects currently being built are a clear indication that we are amid a new wave of adoption. Legacy finance will soon have to contend with this decentralized competitor.
As many have come to realize, the gaming world will likely serve as a gateway for cryptocurrency adoption. Not only are blockchain-based games growing in popularity, but NFTs can easily replace in-game items and provide a safe means of transacting.
Blockchain brings many new features to the gaming world which is why this sector is so exciting:
- True digital ownership of virtual goods: Users can own in-game items without needing a third-party. This is done by issuing non-fungible tokens (NFTs).
- Safety: Users can rest assured knowing their data and account information is safe. Stored in a decentralized database, it’s a safer alternative to current gaming platforms.
- A record of account: In blockchain-based games, most of the players’ actions are recorded on-chain. This means that data can be looked up and accessed with no room for mistakes.
- Interoperability: Because they are on the blockchain, the potential for different games to communicate with one another is easy. Virtual economies can be set up which encompass many different games all on one blockchain-based platform.
- Creates a player-driven economy: By allowing players to own in-game items, it becomes easier to create player-driven markets. Users can trade their items in decentralized asset exchanges for in-game currencies.
Addictively-fun games will provide the blockchain space with a steady stream of dedicated users. That’s why some developers, particularly on Ethereum, have been focusing on gaming as a way to boost adoption.
The year opened with Ubisoft partnering with Ultra (UOS), a gaming platform that’s been described as ‘Steam on the blockchain.’ Ubisoft has been responsible for famous gaming franchises like Assassin’s Creed, Far Cry, and many others.
This year, many blockchain-based games are slated for release. One high-anticipated game is called ‘Sandbox.’ This Minecraft-style blockchain metaverse is driven by users and will be launched in late 2020. So far, the project has held two presales for LAND. Its last presale, on Feb 16, sold some 6,192 pieces for around $206,000. It is rumored that the project may hold another round due to its success.
Sandbox remains the most promising blockchain game because it already has a large user base, with nearly 40 million downloads since the game first launched in 2012. In 2020, it’s being ported over to a blockchain-based system after being purchased by Animoca Brands.
This year has also seen the involvement of major gaming companies jumping into the blockchain space. Gaming giant Atari has also been trying to resurrect its brand by expanding into the blockchain space. As per an announcement on June 12, 2020, Atari will be issuing a token that will be unique to its gaming ecosystem.
The old gaming company, formed in 1972, will be issuing its own token as a result. The iconic gaming firm will be working closely with Sandbox to create 3D voxel versions of popular Atari games like Pong and RollerCoaster Tycoon.
Other blockchain-based games anticipated for a 2020 release include Age of Rust, CryptoWars, Hash Rush, Neon District, and more.
Stablecoins and CBDCs
Recently, BeInCrypto published a long read on the race among governments to issue their own stablecoins. Called central bank digital currencies (CBDCs), the first issuers of this exciting new sector will undoubtedly have an advantage on the world stage.
CBDCs promise ease-of-use, extremely low costs, and an alternative to the USD-dominated world economy. So, it’s unsurprising that countries like China have stepped up efforts to issue its own ‘digital yuan,’ expected to come out sometime this year.
However, it’s not just CBDCs—all stablecoins have experienced high growth in 2020. That’s because stablecoins are ultimately the bridge between the decentralized, blockchain world and the traditional economy. The bridge is tokenizing fiat currency and will likely be a major catalyst for adoption during the 2020s.
2020 was an especially explosive year for Tether (USDT), the leading stablecoin. Ever since the summer of 2019, Tether has had the highest daily trading volume in the entire cryptocurrency market, even eclipsing Bitcoin (BTC) itself. Today, Tether is much, much larger than it was then.
At the time of writing, the amount of assets tokenized in USDT stands at almost $9.8B according to Tether’s transparency report. It was only a few months ago that Tether passed a market capitalization of just $6 billion, as BeInCrypto reported then.
The Coinbase-backed stablecoin USD Coin (USDC) is also approaching a market capitalization of $1 billion. In short, stablecoins are growing—but for anyone following the developments in this sector, it was not surprising. Even in January 2020, there were reports that were some $6 billion were sitting on the sidelines ready to enter the cryptocurrency market. By all estimates, it seems that this money (and more) has indeed entered the cryptocurrency market.
The explosive growth of stablecoins in 2020 is yet another indicator that we are amid a new adoption wave that is still in its infancy. USDC, USDT, BUSD, and so many other stablecoins have seen their market capitalizations grow this year. This indicates there is profound institutional demand.
Recently, the CEO of Paxos testified at the US Senate Banking Committee hearing on “Digitization of Money and Payments”. The company, responsible for issuing Binance USD (BUSD), participated in a discussion on digital money. Anxieties were high as government officials voiced their concerns that the U.S. dollar could fall behind if China and other nations moved quickly to digitize their own currency. Today, governments around the world are thinking the same: the arms race for stablecoins is beginning and will likely define the decade. In other words, the mass adoption of stablecoins is no longer a question of if in 2020. It’s rather a question of when.
China will likely be the first government to issue its own CBDC, but the U.S. government may find it useful to encourage private USD-backed stablecoins to further the dollar’s profile in the blockchain industry. Stablecoins will also undoubtedly play a role in DeFi’s own adoption push. In other words, it all comes together. The 2020s is shaping up to see the unprecedented adoption of fiat-backed digital assets by both state actors and the private sector.
ETFs and Investment Funds
In early June, Fidelity Digital Assets released a promising report after surveying many of the top financial institutions. It found that 80% of institutional investors perceive cryptocurrencies as an ‘appealing’ asset class. 91% said that they expect at least 0.5% of their portfolios to include cryptocurrencies in the next five years. Whereas just 9% of U.S. respondents in 2019 said that they were invested in digital assets. That number has since jumped to 22%.
The leap in interest is impressive and it likely indicates that the financial world is growing more accustomed to cryptocurrencies. By most estimates, it seems that Bitcoin’s growing price in 2019 was a leading catalyst. The 2020 Crypto Hedge Fund Report by PWC and Elwood Asset Management Services found that 63% of cryptocurrency-related hedge funds were launched in either 2018 or 2019:
We estimate that the total AUM of crypto hedge funds globally increased in 2019 to over US$2 billion from US$1 billion the previous year … The average AUM increased from US$21.9 million to US$44 million.
One of the biggest success stories of the year has been Grayscale Investments. Since Bitcoin’s last halving in mid-May, the entity has purchased almost half a billion dollars worth of BTC. That’s three times more than miners produced since then. As of June 25, the investment firm has $4.1 billion in assets under management, up from $2.1 billion in May of last year. Readers should keep in mind that hedge funds globally hold close to $3 trillion in assets.
As the global crypto leader of PriceWatersCoopers, Henri Arslanian, told Bloomberg recently:
I expect the crypto hedge fund industry to grow significantly over the coming years as investing in a crypto fund may be the easiest and most familiar entry point for many institutional investors looking at entering this space.
Although often talked about, a regulated exchange-traded fund (ETF) still seems a long way away. The Securities & Exchange Commission (SEC) has repeatedly denied requests for a Bitcoin-backed ETF due to concerns over ‘market manipulation.’
The latest rejection came in late February 2020 when an ETF application by New York-based Wilshire Phoenix was rejected. However, SEC commissioner Heather Pierce published a dissent on the decision arguing that the SEC was unfairly applying a ‘heightened standard’ to Bitcoin ETFs that it does not apply elsewhere.
In other for a proper Bitcoin ETF, the market will not only have to mature but also expand in size. Many advocates of a Bitcoin ETF point to gold’s ETF as evidence that the potential is high. ETFs would also allow accredited individuals to invest in Bitcoin without having to go through the trouble of actually owning the crypto-asset. The thought is that this would make it easier for institutional money to enter the market.
As of now, the possibility of a Bitcoin ETF in the near-future remains slim. As DataTrek Research co-founder Nick Colas told CNBC in March, “You’ll see a central bank cryptocurrency before you’ll see a Bitcoin ETF.”
In the world of hedge funds, cryptocurrencies are showing promise. However, the market remains exceptionally small. Regardless, the enthusiasm for institutional investors is a positive sign that the cryptocurrency world is slowly but surely becoming a staple of the financial world.
These are just a few of the fronts where adoption is gaining momentum, but the blockchain space is moving quickly. The 2020s will likely prove to be the most important decade for decentralized applications.
Here’s what we might expect:
- Increased usage of web3 applications once scaling issues are resolved.
- Data services will rely more and more on blockchain technology to record and transmit private information.
- Public transit will be linked to decentralized platforms to share locations. Sony is already experimenting with this via its Blockchain Common Database (BCDB), announced in April 2020.
- Global supply chains will find that authenticating their products and tracking them is more cost-effective with blockchain technology.
- The creation of new urban spaces and ‘smart cities,’ powered by decentralized networks, like Dubai’s efforts to become the world’s first ‘blockchain city.’
The developing use-cases for decentralized networks are today as vast as the internet is. Anything that relies on internet infrastructure, be it data sharing, finance, supply chains, or applications, will inevitably feel the pull of blockchain technology.
Herein lies the potential, so thinking about ‘adoption’ may be thinking too small. The truth is, everything is up for drastic changes if blockchain technology is proven to scale and power the next industrial revolution. The 2020s will be the decade for these seismic changes and 2020 has already shown significant promise of what’s to come.