2020 was certainly not the year anyone expected. In the financial services sector, early expectations for more mainstream adoption of blockchain and cryptocurrency failed to materialise.
However, the pandemic did demonstrate new and greater use cases for cryptocurrency. And ultimately, the experience of the past 12 months helped strengthen the foundation for the technology, though regulation remains the biggest concern.
Looking ahead, Ripple executives anticipate a year of continued acceleration for blockchain and cryptocurrency innovation. In this article, they share their insights into what 2021 might bring.
Crypto quickening: The line between crypto and banking is blurring, says RippleNet general manager Asheesh Birla. This represents an opportunity for nimbler fintech companies to apply the potential of crypto to erode the market share of larger, slower-moving incumbent banks.
Among those embracing crypto are consumer-facing fintech businesses such as Square, Robinhood and PayPal. Having already made mobile and digital banking services more accessible, they are now introducing more people to digital assets and blockchain-enabled financial services.
Birla anticipates the use of crypto and streamlined fintech regulations will help even more fintechs compete with banks on a level playing field in 2021.
At the same time, crypto companies are exploring more traditional banking opportunities as evidenced by the number of crypto and blockchain firms that applied for banking charters in 2020.
"The tide is turning," he said. "It's possible we could even see a fintech or cryptocurrency company acquire a traditional financial institution this coming year."
Dawn of DeFi: DeFi, or decentralised finance, has generated a lot of buzz and some interesting applications, largely confined to the crypto space, but clearly offering broader potential.
Michael Zochowski, head of DeFi at Ripple, predicts the technology will gain even more traction as it matures.
"I anticipate many of the early DeFi projects will fizzle out, consolidate, or get acquired in the months ahead," he said. "But the truly useful ones -- most likely the simpler applications replicating financial services like wrapped assets or decentralised exchanges -- should continue to gain momentum with users."
In particular, Mr Zochowski expects more "sidechain" projects -- bridges between networks and smart contract applications -- to emerge as interoperability and efficiency increase in importance.
He also sees new initiatives coming from the ecosystem built around the Ripple-developed XRP Ledger (XRPL), which will extend its leadership role in DeFi.
"We're expecting the asset tokenisation trend to accelerate on XRPL, particularly stablecoin issuance, with multiple production deployments in corporate products built on new and improved tooling," said Mr Zochowski.
Regulatory clarity: A new US administration under President Joe Biden is expected to bring a renewed focus on regulation and enforcement from the White House. As cryptocurrencies move further into the mainstream, G20 countries will have no choice but to consider these technologies on a short list of financial regulatory priorities.
The lack of a clear regulatory framework over the last four years in the US has left fintech and blockchain players in a state of limbo. Other countries including the UK, Switzerland, Singapore and Japan are miles ahead as a result.
Stu Alderoty, Ripple's general counsel, predicts crypto regulation will be a top priority for a Biden team that understands its implications for public and private sector innovation.
This could lead to a unified framework and a streamlined application process for fintechs seeking crypto licences.
The Year of CBDCs: The relationship between government regulation and innovation is also at play in the white-hot arena of central bank digital currencies (CBDCs).
Driven by pandemic realities, such as a move away from cash and a need for improved ways to distribute government aid, as well as China pushing ahead with its own CBDC, many countries have accelerated their nascent projects.
Notably, a number of European countries are actively exploring the feasibility of a digital euro, while the US Federal Reserve is collaborating on research with the MIT Digital Currency Initiative.
In the coming year, the focus of CBDCs will broaden from solving for domestic solutions to addressing cross-border interoperability, says James Wallis, vice-president for central bank engagement at Ripple.
Taking their cue from China, some central banks will focus on retail CBDCs tied to e-commerce platforms, while others will experiment with replacing cash, as in Sweden or the Bahamas.
Focus on impact: Monica Long, general manager of the RippleX open development platform, anticipates a greater commitment to real-world impact over the coming year.
"In 2021 we'll see crypto make good on its original promise to remake finance as more accessible and equitable for the world's underserved," she said.
To help achieve that vision, crypto will first help level the competitive playing field, opening the door to fintechs that emphasise consumer empowerment.
The ultimate winners, she says, will be companies that offer services that are easy to use and understand; are safe, secure and private; boast interoperability globally; and help people build wealth and achieve socioeconomic mobility.
Ms Long expects to see the greatest change come at the expense of established financial providers and in developing nations across the Middle East, North Africa and Sub-Saharan Africa that have already embraced a digital path.
For countries that have leapfrogged traditional banking and credit card networks in favour of mobile services, crypto is a logical next step.