Blockchain Technology: A Year in Review
2020 has been a year of advancements in the blockchain sector with key events including Bitcoin’s new all-time high price, DeFi’s rise to becoming a multi-billion dollar industry and Wall Street investing in blockchain assets. Unlike the bull run of 2017, which was fueled by rampant speculation, retail investors and a little bit of market manipulation, this current bull run seems to be based in something more tangible: technology advancements. Let’s take a look at some of the most notable blockchain technologies that have been introduced in 2020.
Decentralized exchange Uniswap, one of the catalysts for the DeFi craze, released their Version 2 in May 2020. It allows for anyone to send and receive any ERC20 token on Ethereum and has technical efficiencies over its predecessor, Uniswap V1. Decentralized exchanges existed long before Uniswap, but Uniswap’s simple interface has allowed the project to support over $50 billion in volume since its release.
Eth 2.0 Phase 0
The long-delayed upgrade to ETH 2.0 began this December with the release of Phase 0. This phase activated the beacon chain, which will coordinate the network. Its concensus mechanism is proof of stake, unlike Ethereum’s current proof of work concensus, and the Phase 0 upgrade allowed users to begin staking Ether to secure the new network. Even though this has no benefits to the network congestion or transaction times on Ethereum, it signals the network’s move to a proof-of-stake consensus mechanism which developers say will enable Etheruem to act as the “World Computer.” With the following phases of development, Ethereum will introduce sharding, a technology that promises scaling to over one hundred thousand transactions per second at a fraction of the cost of today’s transactions.
Zk-Rollups and Other Layer 2 Scaling Technologies
With massive transaction volume on Ethereum came lots of congestion, which led to slow transaction times and high network fees. Unfortunately, ETH 2.0 is still a work in progress, so Ethereum needed a solution as soon as possible in order to ensure that their network was still usable. Fortunately, Zk-Rollups became a viable solution for fast and cheap transactions. This protocol “rolls up” hundreds, or thousands, of transfers into one transaction. This method means less data is used to create the transaction, leading to lower costs. Then, using zero knowledge proofs, the transactions can be published to the Ethereum blockchain without requiring data about the transaction, hence the “zero knowledge” aspect.
The leader in Zk-Rollup technology is Loopring, a decentralized exchange platform that also created a wallet allowing for person-to-person transactions on Ethereum with near-instant finality and a cost of a thousandth of a penny. Even though this solution is not widely used at the moment, Ethereum now has a viable solution to the current problem of network congestion.
Polkadot Mainnet Launch
Polkadot, one of the largest blockchain interoperability protocols, had its initial whitepaper release in 2016. It wasn’t until late 2020 that the mainnet was released. Even though this release date is almost half a decade after the idea for Polkadot came about, no one can deny the technical significance of this event. Now, there is a way for blockchains, like Bitcoin and Etheruem, to communicate with one another. This means that DeFi-like applications can be available on Bitcoin and many other blockchains, instead of being exclusive to Ethereum. Just months after release, Polkadot is already a top 10 project with a market capitalization around $5.5 billion, and nobody knows how high it will go.
Filecoin had their mainnet launch in late 2020 after a $200 million ICO in 2017. The purpose of Filecoin is to act as a distributed and decentralized cloud storage option. It uses the Interplanetary File System, IPFS, protocol to create an efficient and secure peer-to-peer network. This technology could be the future of storage as we know it and represents a significant step in the direction of decentralization for the internet.
Cardano Shelley Upgrade
After being criticized as “vaporware” in the 2017 bull run, Cardano has been able to prove that they stand a chance at being a true Ethereum killer with their Shelley upgrade. This mainnet launch allows for holders of the ADA token to begin staking with pools and delegators. This update, much like Phase 0 for Ethereum 2.0, is a stepping stone on the path to full smart contract functionality on Cardano. Future updates are slated to occur in early 2021, and Cardano will finally be a standalone smart contract blockchain.
Synthetic Assets and Indices
Thanks to projects like Synthetix, anyone, anywhere in the world, can hold assets like gold or the NIKKEI 225 Japanese index in their Ethereum wallet. Synthetix’s mainnet launch allows users to collateralize the SNX token and receive a synthetic asset in return. If the price of SNX locked up and the price of the asset somehow become imbalanced, there are mechanisms in place to ensure that the synthetic asset does not experience a price shock or lose significant value. These types of applications are finally making the dream of global financial freedom a reality for the billions of people without a bank account.
Yearn Finance and Yield Farming
With the proliferation of decentralized borrowing and loaning services, such as Compound and Aave, and decentralized exchange liquidity pools, like Uniswap, it was only a matter of time before somebody discovered a way to maximize profits, and that person was Andre Cronje. He created Yearn Finance, a protocol that finds which DeFi service has the highest yields and automatically deposits cryptocurrency into that platform, effectively creating a robo-advisor that constantly finds the best yields in DeFi. Though a seemingly simple dApp, it has made DeFi even more profitable for many investors, and will be relevant as long as DeFi is around.
The technological advancements made in blockchain this year are significant and help justify the massive price increases in some of the biggest cryptocurrencies. More and more projects, like Filecoin, Polkadot, and Cardano, are transitioning from an ICO and an idea to a real-world use case and blockchains with value. In 2021, if this rate of advancement continues, cryptocurrency and blockchain projects may begin to see more adoption and use, and allowing them to achieve their goals of becoming global financial tools.
By Lincoln Murr