Todd McDonald is the Co-Founder & Chief Product Officer of R3, an enterprise blockchain technology company.
Last year could certainly be described as one where blockchain technology came into its own. Regulators and policymakers came up the learning curve substantially, understanding the differences between cryptocurrencies and blockchain and between permissioned and permissionless ledgers.
They moved forward with global coordination along with the private sector through various groups, including the International Association of Trusted Blockchain Applications (INATBA), the OECD’s Blockchain Expert Policy Advisory Board (BEPAB) and of course Global Digital Finance.
On the technology side, as adoption and development of blockchain solutions continued at a clipping pace, 2019 saw once ambitious use cases becoming a reality.
In the area of digital assets, both traditional institutions and newcomers to the space made significant waves. The industry has long sought additional regulatory clarity, and last year’s advancements in digital assets – particularly the debate surrounding the Libra project – jolted regulators into the conversation.
Seemingly caught off-guard by the speed of development and potential impact to monetary policy posed by stablecoins, the last half of the year saw these policymakers take action to expand 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 scrutiny applied to the Libra project propelled many central banks into giving serious consideration to launching their own digital currencies. Amidst this, six of the world’s central banks convened to assess central bank digital currency (CBDC) together alongside the Bank of International Settlements. Although none are ready for a public launch at scale, we expect central banks worldwide to keep CBDCs on their list of priorities.
Further, we anticipate regulators will keep focused on their work to comprehend the impact of digital assets. With the EU releasing an extensive consultation on the many aspects of digital finance, and many others taking similar action, we are hopeful the joint efforts of industry and government will result in increased regulatory clarity.
The emergence of digital assets as legitimate in the eyes of regulators has hastened the ability of government agencies to see beyond wildly fluctuating Cryptoasset markets and evaluate how they themselves could benefit from the adoption of blockchain technology. In 2019, we witnessed a transition in many from merely the consideration of blockchain adoption toward the identification of specific use cases best suited to their needs.
Moving forward, we expect to see more formalized strategies for adoption, especially in the fields of decentralized identity and procurement processes. One such example is the German government, who announced their evaluation of blockchain for digital identity. This will be a highly tracked project this year, which if successful, will encourage others to follow suit.
In the industry itself, as digital assets and other token forms continue their development, we expect interoperability between platforms will remain a prominent theme. Standards are maturing in the space to enable interoperability, for example, data standardization through 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 ‘interchain’ connectivity is garnering 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 exchange. Also, additional benefits can be unlocked when two or more blockchain applications using the same underlying technology can interact. Just because two applications run on the same protocol, it doesn’t mean they will work seamlessly together by default, or that digital assets will transfer between these networks. Organizations are actively considering intrachain scenarios and whether underlying platforms were designed to facilitate them.
Taken together, it seems certain that industry and government will continue their progress on digital assets throughout 2020. We anticipate regulators and central banks will form more concrete opinions on stablecoin policies, as well as the usefulness of their own digital currencies, and that this will fuel the desire of other public agencies to request solutions that use blockchain technology. In the years to come, blockchain and digital assets will catalyse on mainstream recognition, gaining momentum toward a critical mass of adoption.
This article first appeared in the annual report of Global Digital Finance.