4 Key Financial Service Blockchain Trends You Can Expect to See in 2021
By Frankie Elmquist, Eternic
The blockchain technology trend has increasingly caught the attention of companies involved in the transfer of data, goods, and assets. Since 2012, what started as a hot topic in the finance industry because of its association with cryptocurrency has now gained serious recognition as a stand-alone technology because of its ability to create a secure and immutable record of transactions with lots of practical, real-world applications. In fact, Deloitte’s 2020 Global Blockchain Survey found that the majority of C-suite executives surveyed said that blockchain technology is a strategic priority for their organizations.
Not only has blockchain created a new technology industry, but according to the Global Blockchain Business Council (GBBC), 40% of investors say blockchain could be the most transformative tech since the internet, and that blockchain could increase the global GDP by $1.76 trillion over the next decade — Whoa! With projections like that, it’s clear that blockchain technology has become more than just a trend, but an industry that’s here to stay.
So, what trends in the financial services blockchain industry can we expect to see in the coming year? We attended over ten blockchain events this year and polled our own followers on LinkedIn to find out. Here’s what we learned:
- Central Bank Digital Currency — 44%
- EU Blockchain Standards Adoption — 20%
- Compliant Digital Asset Banks and Exchanges — 24%
- Blockchain Interoperability — 12%
According to our poll, it looks like central bank digital currency will clearly trend in 2021. Read on to learn more about these four key financial service blockchain technology trends and what you can expect to see in 2021:
Live Central Bank Digital Currency
Central bank digital currency (CBDC) is the digital form of fiat money. Unlike cryptocurrency which is a privately-issued and decentralized form of currency, CBDC is government-issued, backed, and centralized. 2020 was a huge year for digital currency. COVID-19 resulted in an explosion of digital payments including cryptocurrencies being accepted as payment. According to Forbes, 80% of central banks around the world are now planning on implementing CBDC including the United States, Europe, England, Japan, Switzerland, Canada, and Sweden. China began public trials of its digital yuan issuing the currency via lottery to residents in October. We expect to see more pilot projects and live trials of retail CBDC domestically and cross-border in 2021. While wholesale CBDC may take longer, the initial wholesale CBDC trials by SIX Digital Exchange (SDX) and SNB, as well as the UAE and Saudi Central Bank cross-border CBDC trials are promising.
Adoption of EU Blockchain Standards
Across the board at global blockchain events, webinars focused on the technology, and in presentations of emerging use-cases, we heard a universal call to establish technical, regulatory, and terminology standards to support growth and interoperability. To meet the need, the Global Blockchain Business Council and World Economic Forum joined forces on the Global Standards Mapping Initiative (GSMI) to survey and document the efforts of over 30 technical standard-setting entities, 185 jurisdictions, and almost 400 industry groups working with blockchain.
Similar efforts are underway via the European Commission blockchain strategy. 28 Member States, Liechtenstein, and Norway have formed the European Blockchain Partnership (EBP) to establish a European Blockchain Services Infrastructure (EBSI) to support the EU goal of creating a Digital Single Market. FINMA is primed to finalize the regulatory framework for blockchain technology in Switzerland in 2021. As a result of these efforts, we anticipate that we’ll see the adoption of pan-European blockchain standards which will form a basis for global standards.
A Rise in Compliant Digital Asset Banks and Exchanges
2020 was a game-changer for digital assets and cryptocurrency. Switzerland’s pro-innovation regulatory framework has allowed fintechs to lead the way in normalizing digital asset adoption. At the beginning of the year, we saw Sygnum and SEBA be the first digital asset banking platforms using distributed ledger technology (DLT) to receive banking and securities licenses from FINMA, which will allow customers to invest, store, trade, and borrow against digital assets. Through their partnerships and successful funding rounds, these digital asset banks are likely to expand internationally in 2021 and lead the way for others to follow. We also anticipate the launch of SDX, the first compliant digital asset exchange in Switzerland using blockchain.
Progress on Blockchain Interoperability
Both our poll and a report by Deloitte suggests that blockchain interoperability has a way to go. Most blockchain solutions thus far are relatively small in scale, however, they provide a great opportunity for improving global supply chain systems, international trade, and cross-border payments. The need to address interoperability was a big discussion point at blockchain events and we’re seeing a number of projects and initiatives to address it, from cross-chain network platforms that enable the transfer of any type of data or asset such as Polkadot, common functional programming languages for smart contracts such as DAML, the GMSI standards project mentioned above, and central bank CBDC collaborations to establish foundational principles and core features.
Collaboration Will Be Key in 2021
We saw a clear shift toward tackling real-world issues to support blockchain technology implementation in 2020. Action plans emerged from the G20 with the support of the Bank of International Settlement (BIS), as well as industry initiatives such as GGBC with support of WEF, consortia building within industries such as Spunta, the Italian banking blockchain, and regions such as the LACChain Alliance in Latin America, as well as via blockchain software providers like R3 and IBM Hyperledger Fabric. While big tech’s push into payments and cryptocurrency adoption will continue to keep the pressure on, what’s clear is that in 2021 progress will come down to collaboration between regulators, institutions, technology providers, and business beneficiaries to adopt standards that will support global blockchain technology adoption. Because, after all, the benefits of a more efficient, accessible, sustainable, and secure global economy are universal.
To learn more about blockchain technology for financial services, see our Distributed Ledger Technology in International Banking Report
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