The New World of Blockchain: CBDCs, DAOs, DeFi, NFTs, BaaS and Metaverse
The cryptocurrency market hit an all-time high of $3 trillion at the end of 2021. However, only Bitcoin accounted for $928 billion, and the blockchain witnessed its number of wallet users increase to over 82 million.
If you think these numbers are significant, then you are in for a surprise when we say the cryptocurrency market is still in its early stages. However, more people are expected to adopt it, evident in the innovative trends emerging from different blockchain markets.
Trends come and go, but the following will stay for some time, given how much they have been welcomed and the amount of attention given to them. Emerging trends in blockchain technology range from its adoption by governments to innovations around NFTs, DeFi, the Metaverse, DAO, and even blockchain offered as a service (BaaS).
Central Bank Digital Currencies (CBDCs)
A central bank digital currency (CBDC) is an electronic representation of money acknowledged as legal tender. These CBDCs are issued by the central bank of a country, globally accessible to citizens that wish to use them, and will be accepted as payment for goods within the central bank’s jurisdiction.
The adoption of CBDCs before the advent of blockchain technology had been an issue and considered impractical to use on a large scale. Blockchain technology has provided us with a new way of using digital assets without corruption, and many banks and governmental institutions are wholly welcoming of the idea.
A report from the Bank of International Settlements shows that 80% of central banks around the world have begun research into CBDCs. A group of 8 countries even have CBDCs of their own, including China, Sweden, Russia, India, Nigeria, Marshall Islands, The Bahamas, and Jamaica.
Given the opposition to centralized authorities within the space, you may be wondering why current users of other cryptocurrencies may willingly switch to digital assets from central banks. Well, one apparent advantage these currencies have over regular cryptocurrencies is the stability they bring.
Central banks also adopt the blockchain’s distributed ledger technology because of the scalability and accessibility it brings to users. This adoption also means fiat currencies are not left behind in other emerging trends, and middlemen are entirely done away with, even within traditional financial systems.
Decentralized Autonomous Organizations (DAOs)
Traditional systems are governed by centralized organizations. So, for example, the internet and other digital platforms as we know them are majorly governed by top organizations like Google, Apple, Amazon, and Facebook, among others.
These centralized organizations make autonomous decisions that affect users, and they do this without necessarily consulting what users think about these changes. DAOs are different in this respect.
The decentralization brought about by blockchain technology has introduced a new way to use the internet and innovations within it. DAOs are community-based organizations within web3 that are owned by every member of the community.
Decisions are not made by a centralized authority but are formed through a consensus from every interested community member, as every member has a stake in the investment. From just 700 in May 2021 to over 6000 in June 2022, you see a 757% increase in the number of DAOs that is not expected to dwindle anytime soon. The next trend goes hand in hand with these.
Non-Fungible Tokens (NFTs)
Non-Fungible Tokens (NFTs) are unique digital assets that don’t entirely share the same characteristics with other assets. By this, we mean that they are unlike regular cryptocurrency assets that may be interchanged with each other (hence, non-fungible).
For instance, one bitcoin token is equal to one bitcoin token in both value and characteristics. However, NFTs are peculiar in a way that each token has unique traits and may be priced differently. This price is based on the value given to it by the seller.
Why have they become popular and increasingly adopted? Well, the market is worth over $150 billion, and there are a lot of ways to exploit it. These range from flipping for short or long-term profit, to representing the value of (and membership in) a community, like DAOs, through tokens.
NFTs witnessed a 426% increase in interest in August 2021 and have remained on the radar of many investors since then. Huge brands like Adidas and Pepsi have gotten into the space, as well as celebrities like Shawn Mendes, Shaquille O’neal, and footballing star, Neymar. This is just the beginning of the buzz around NFTs, and it isn’t stopping anytime soon.
In all the lists of the biggest blockchain platforms around today, you’d find the Ethereum network at the very top. Why? Because it offers everyone in the cryptocurrency space the most solutions and autonomy.
The platform has grown significantly over the past few years, with just 2021 having added over 18 million wallets. However, one problem with the network is congestion recently brought about by the boom in DeFi and yield farming activities.
One obvious solution is scalability, which lies in developing Layer 2 (L2) platforms to support traffic on the Ethereum mainnet (Layer 1). While taking offload from the mainnet, Layer 2 solutions maintain the wholly decentralized nature of the Ethereum network.
This is just the beginning, and we expect to see an increasing amount of L2 platforms within the space. So you may position yourself well and get involved with this emerging market. You may have noticed we mentioned DeFi, which has come with its own trends.
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Decentralized Finance is one of the areas in cryptocurrency where the most development is anticipated. This is because it represents the fundamental shift from legacy financial systems to an entirely digital world of currency.
A solution within DeFi that is increasingly popular is bridging. Bridging is all about multichain interoperability, helping to facilitate the transfer of tokens between different blockchains. Solutions center around reducing the security risks associated with it, and these solutions will facilitate both trusted (centralized) bridging and trustless bridging, where many risks are.
Self-repaying loans and synthetic asset investments are also innovations that more people and developers will adapt. You accelerate your loan repayments through yield farming and trade on stocks of real-world entities using mirror protocols on the blockchain framework.
One last trend to expect is the emergence of multiple standard DeFi protocols outside the Ethereum blockchain. These are protocols to be expected on Solana, Cardano, and Polkadot, meaning other big players are coming to the DeFi world.
Blockchain As A Service (BaaS)
How would you like to own your blockchain framework and still have someone else run it for you? This is what blockchain as a service is all about.
BaaS is a cloud-based solution that allows businesses to integrate blockchain technology into software applications they develop. You don’t need to go through all the complex coding, and you outsource the hosting and maintenance of your blockchain solution to your vendor.
With BaaS, you also reduce your costs. This is because the top service providers give you the freedom to scale up or down based on your needs, limiting your expenses to the exact amount used.
BaaS is an emerging trend you expect to take off soon, and don’t be surprised if you see traditional financial institutions exploiting this innovative technology.
We aren’t talking about the centralized world of Facebook but rather a decentralized virtual world for all cryptocurrency players to exist and build in.
In this sense, the metaverse represents many possibilities in facilitating the development of augmented realities. Moreover, these virtual realities are as close to real-world counterparts as ever, without the control of a centralized authority.
Everyone independently exists in this virtual world, and necessary commodities are made available thanks to the integration of NFTs. For instance, crypto wallets are available to make purchases, you buy top brand apparel like Adidas shoes, and 3D worlds are accessible to be explored. You may also attend virtual concerts and congregations without leaving your home.
The blockchain’s augmented reality solutions will be on the rise, and more participants will be in this decentralized world.
Reduced Environmental Impact
Many cryptocurrencies depend heavily on mining (proof of work), including Bitcoin, the largest cryptocurrency in market cap and price per unit. Proof of work involves individuals laying down their devices as nodes to support the distributed ledger technology.
Now, the trick about mining is that these individuals are paid for verifying transactions, and there is a race amongst miners to be the first to verify a transaction. Power-consuming devices are more effective for this and create an apparent problem; massive and unhealthy electricity use.
Blockchain technology is witnessing innovations limiting the amount of power used to support it. One of these is the increased reliance by new blockchains and networks on “proof of stake” rather than “proof of work.” Proof of stake involves limiting miners or validators to the number of holders rather than just allowing anyone in on it.
This creates an environmentally friendly alternative to unregulated mining. Through Ethereum 2.0, for instance, the popular blockchain is expected to adopt this proof of stake consensus model later this year. This is the first of many switches to a better environment, both digitally and physically.
Emerging trends and innovations with blockchain are thanks to the tight community of developers and the freedom they have to grow within the space. Web3, as this new reality is called, is here to bridge all the gaps in the real world, and you may position yourself appropriately, so these trends don’t pass you by.