In 2019, it was clear that regulators overall had become much better at parsing the differences between cryptocurrency and blockchain and, increasingly, the difference between permissioned and permissionless blockchains, an even less acknowledged and understood distinction.
In cryptocurrencies, questions around their classification were prevalent. In blockchain, there were two new trends: firstly, regulators putting together comprehensive blockchain strategies; secondly, the public sector making advances in using blockchain themselves – known as ‘govtech’. The progress for the latter took many forms, issuing requests for information (RFIs) and requests for proposal (RFPs), creating govtech sandboxes, making funds available for govtech solutions, and including govtech in public sector blockchain strategies.
The prominence of govtech in 2020 blockchain
Looking ahead at 2020, we expect to see several trends as blockchain becomes increasingly adopted through a variety of industries.
We anticipate a significant uptick in the quantity of govtech engagements, particularly related to procurement and funding distribution, food and drug safety, asset tracking, and identity solutions. We expect the majority of the govtech tenders to be relatively small in size as governments are on the path toward full deployments, but most will steadily ramp up the size of each project from proof of concept phase, to pilot, and then to production. As governments are generally risk averse and cost conscious, they – like the private sector – will be looking to establish proof points to justify further investment and expansion of blockchain work. One way to do that is to deploy a solution first in the smallest, tightest scope and expand to additional participants, products, or regions as appropriate.
Another trend for 2020 will involve regulators focusing on practical implications of blockchain implementations, including data privacy and data transfer, as well as governance. We’ve heard many regulators say – both behind closed doors and publicly – that the near term blockchain implementations will be on permissioned blockchains, as only they are able to meet regulatory scrutiny. That is because permissioned ledgers enable strong identity and also allow for governance in which obligations are clear, liabilities are assigned, and data flows and management are known to the participants.
The predicted uptake of central bank digital currencies
Through 2019 we heard much buzz around the digital currency space, with initiatives such as Facebook’s Libra pushing the assets into the limelight. In January 2020, six of the world’s central banks came together to share their knowledge in order to assess the case for central bank digital currency (CBDC) in their home jurisdictions. This group comprised The Bank of Canada, The Bank of England, The Bank of Japan, The European Central Bank, The Sveriges Riksbank and The Swiss National Bank, together with The Bank for International Settlements (BIS).
With the backing of these central banks and many more around the world working on CBDC, we expect CBDCs to gain more traction and support, just as they did with Mark Carney’s comments last year, highlighting CBDC as a possible replacement to the US dollar. CBDCs aren’t yet at the stage of full public implementation; however, throughout the course of 2020, we expect CBDCs to remain a very hot topic and even to see a surge in interest.
Increased blockchain strategies and organisations
With the world waking up to the promise and capabilities of blockchain as it moves into production, we expect that 2020 will see the issuance of more blockchain strategies by government bodies. For example, in September 2019, the German government announced their exploration of the use of blockchain for digital identity, making Germany one of the first countries to unveil a blueprint for seizing the advantages blockchain technology has to offer. While no specific timeframe has been committed, it is expected that at some point during 2020, the German government will launch a pilot project for a blockchain-based digital identity, with implementations such as maintaining records of civil status, passports and ID cards. Following the warm reception to the German blockchain strategy, we expect many others to soon follow suit and issue their own strategies.
In summary, 2020 is going to be something of a coming of age year for blockchain, particularly in the eyes of the public sector. Governments will look to have global coordination; they will be asking hard questions around how blockchain is deployed, including identity and data sharing models; and they will be moving forward in exploring govtech use cases. We’ve been part of an incredible wave of innovation and experimentation over the past few years, and have created a platform that is able to be deployed in a variety of different models and facilitates compliance with the various applicable regulations around the world. As R3’s Chief Technology Officer Richard Gendal Brown said about 2019, “Blockchain’s ‘troughs of disillusionment’ are really the ‘trenches of deployment.’” In 2020 we will see enterprise blockchain enter its “plateau of productivity, perhaps in record speed . . . The time for real change is now.”