When evaluating 2018, some historical events and trends in the cryptocurrency and blockchain space were revealed as the year following the 2017 ICO craze and massive evaluations of many cryptocurrency projects. Out of the ICO frenzy came an extended bear market and revelations into the lack of practical applications of many platforms throughout 2018. Behind the mainstream coverage of volatile price swings and precipitous declines from the market, several consequential trends that are poised to define the narrative of blockchain tech in 2019 are emerging.
Security Tokens & Financial Instruments for Digital Assets
Security tokens are pegged as the next wave of innovation that will connect conventional finance and blockchains. Ostensibly just securities and security tokens confer the advantages of programmable compliance as well as better liquidity and more flexible digital assets for mainstream investors to access. Several platforms are explicitly focusing on integrating regulators, service providers, developers, and issuers into the blossoming landscape for blockchain-based financial assets, and their growth should provide a useful indication of the broader acceptance of blockchain tech by traditional financial institutions.
Parallel to the developments of security tokens, are the increasing regulatory pressures facing ICO projects by government agencies like the SEC and CFTC. Regulators are diving further into the cryptocurrency and digital asset sphere, working directly with exchanges on building the regulatory framework for KYC processes and listing more digital assets. Similarly, stablecoins have flooded the markets recently, with many of them under the regulatory oversight of state financial agencies, including Gemini dollars under the supervision of the NYSDFS.
More financial instruments for digital assets are also expected to make headway in 2019, including Bitcoin ETFs, CFD, and derivatives trading options for cryptocurrencies.
Despite the increasing involvement of regulatory authorities in the space, innovative privacy developments that are already launching and on the horizon, present some challenging tasks for regulators as the year begins.
Privacy advances were one of the most subtle progressions in cryptocurrencies in 2018. BEAM and Grin– the first two Mimblewimble protocol implementations — just went live and offer new methods for transaction construction and validation using an optimized version of Confidential transactions.
Other privacy-oriented cryptocurrencies like Monero and ZCash made significant strides in improving the efficiency of their leading privacy tech. Monero integrated bulletproofs — a form of zero-knowledge proofs — for reducing anonymous transactions sizes, and ZCash completed their Sapling upgrade, reducing the computation and time required to construct shielded transactions.
Privacy developments were not strictly limited to altcoins either. Bitcoin is planning on adding the Dandelion++ protocoll, a network-layer privacy enhancement that alters how transactions are broadcast via its gossip protocol. Several Bitcoin wallets have also added better privacy-preserving features, such as Chaumian CoinJoins in Wassabi Wallet and stonewall in Samourai Wallet. The long-awaited inclusion of Schnorr signatures into the Bitcoin protocol is also planned for 2019.
There are many more privacy upgrades in various cryptocurrencies scheduled for 2019, and the eventual launch of Nym may provide privacy enhancements to multiple cryptocurrencies as the year progresses.
Bitcoin’s Lightning Network
Bitcoin’s second layer — the Lightning Network (LN) — is designed to facilitate the P2P digital cash functionality of the network that was originally envisioned by Bitcoin’s anonymous creator Satoshi Nakamoto. The LN saw an explosive growth in 2018 following its launch early in the year and has made noticeable strides in development, including Blockstream’s c-Lightning implementation and Lightning Labs’ Ind build.
The list of LN apps (lapps) is continually growing, and the design space of a P2P mesh payments network built on top of Bitcoin is enormous. Several major hurdles still face the further proliferation of the LN, but the developers behind the tech have shown an ability to evolve and adapt to the network’s requirements prudently.
Blockstream’s satellite project for broadcasting Bitcoin transactions across the world even recently added LN payment functionality. How Bitcoin’s LN develops over the next year is one of the most important trends to watch and may definitively answer the question to whether Bitcoin can adequately scale to the levels needed for a P2P digital cash.
Scalability of Platforms
Scalability of blockchain networks is a well-documented problem and was one of the major initiatives by most of the larger and welll established platforms throughout 2018. In particular, Bitcoin launched the LN while other platforms like Ethereum are planning on transitioning to proof-of-stake (PoS) consensus rather than proof-of-work.
Ethereum’s Constantinople upgrade was recently delayed but will initiate the first steps necessary for the popular smart contracts platform to make the conversion to PoS. Upcoming platforms like Polkadot and Cosmos look to steal market share from Ethereum as they are designed as ecosystems of connected blockchains, offering both the interoperability and scalability that public chains seek.
Scalability of blockchains is a long-standing problem as they were not initially designed to be so, and 2019 should reveal which platforms can scale to meet growing user demands for censorship-resistant public networks.
2019 is shaping up to be a pivotal year for cryptocurrencies. Some of the decisive trends from 2018 are set to unfurl throughout the year and bring with them some hefty implications for the broader blockchain technology sector.