Reflecting on 2020, I struggle to think of another year in recent decades with both so many all-time highs and all-time lows.

From the COVID-19 pandemic raging across the global population to record-setting wildfires in the western United States to numerous other calamities, the world this year has often appeared figuratively and literally in flames.

This post is part of CoinDesk's 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Garrick Hileman is head of research at Blockchain.com and a visiting fellow at the London School of Economics. Current research interests include governance, digital entrepreneurship, financial repression and measuring crypto-asset adoption. 

Starkly juxtaposed with this death and destruction have been uplifting scenes of pandemic-stricken communities pulling together and celebrating front-line workers, innovations such as astonishingly fast vaccine development and the first privately funded, human-flown space launch of a reusable rocket and the red-hot markets and crypto-asset space, the focus of this article.

Years from now, I believe we will look back on 2020 as a critical inflection point in the wider adoption of crypto-assets and blockchain technology. 

From the long-heralded and -awaited arrival of institutional crypto adoption, to the acceleration of digital currency and payments spurred on by the pandemic, to greater regulatory clarity in key jurisdictions like the U.S., 2020 has proven, in my view, to be crypto’s best year yet.

As we head into 2021, what can we expect for crypto? 

Two macro forces that have powered the ascent this year of crypto assets like bitcoin to yet another new all-time high show little signs of slowing down.

1. Outsized government spending and money printing

Arguably the single biggest factor driving increased crypto asset valuations and adoption is concern over government spending and monetary stimulus. Indeed, debt levels were already worrisome prior to the pandemic, with many (myself included) sounding the alarm over world-war levels of public indebtedness, sans world war.

However justified the generally bipartisan pandemic stimulus may be, the simple mathematical reality is that when governments and central banks suppress interest rates and increase the money supply, then the value of relatively scarce assets will often increase.

Simply put, more fiat currency and debt chasing a finite number of things (e.g., bitcoin) equals a higher price for those things.

Within the crypto space the biggest winner from this trend is bitcoin, which appears to have achieved broader product market fit this year on Wall Street and elsewhere around its “digital gold” investment thesis. 

Indeed, there are some recent indications that, alongside growing inflation fears, some investors are rotating part of their gold portfolio allocation into bitcoin. A continuation of this trend would provide strong support for further bitcoin price appreciation.

See also: Worsening US Dollar, Inflation Metrics Bode Well for Bitcoin’s Continued Rally

With the development of several promising vaccines, the COVID-19 pandemic and accompanying damaging economic restrictions should begin winding down sometime in 2021. However, an unprecedented global debt overhang will remain, creating debt sustainability concerns for the foreseeable future and a bullish tailwind for algorithmically supply-constrained crypto assets.

2. U.S.-China economic and geopolitical tension

Even with the upcoming change in U.S. presidential administrations, geopolitical and strategic competition between the world’s two superpowers – China and the U.S. – is unlikely to abate.

What this evolving clash of superpowers fully means for crypto is something we are still just beginning to understand, but some likely outcomes include:

• Increased government spending on a “new Cold War,” exacerbating macro force #1 above
• Accelerated rollout of central bank digital currencies
• Divided global governance and financial systems

All of these developments are broadly positive for relatively decentralized crypto assets like bitcoin and ether. 

While central bank digital currencies may pose challenges for some more centralized crypto asset networks (e.g., stablecoins) in the form of increased competition and regulatory scrutiny, the further digitization of fiat currency and payments is more complementary than competitive for decentralized crypto assets like bitcoin, which will have less design overlap. For example, central bank digital currencies will not feature a finite supply like bitcoin’s 21 million-coin hard cap, and it is also extremely unlikely they will have the same degree of censorship resistance and trust minimization as bitcoin.

Bitcoin is a powerful tool in promoting freedom and open society values.

A divided global governance picture means we are unlikely to see the type of widespread and coordinated regulatory crackdown that hedge fund manager Ray Dalio and others have suggested will occur if crypto ever gets “too big.” And a multi-polar global financial system, carved up into U.S. and Chinese spheres of influence, arguably creates space and motivation for more neutral blockchain-based assets and financial infrastructure. 

Money historian Niall Ferguson (my PhD supervisor) also argued recently that part of the reason the U.S. should embrace bitcoin and crypto assets is to support a more privacy conscious and open financial system versus the more centralized one being actively promoted by China via its central bank digital currency, the DCEP.  

There’s also the question of who controls or influences the largest public blockchains, like Bitcoin and Ethereum. Acting U.S. Comptroller of the Currency Brian Brooks recently fretted over China’s outsized influence over cryptocurrencies like bitcoin through their dominant share of the computational mining power securing blockchain networks. This concern over Chinese influence over Bitcoin and Ethereum was also recently echoed by Ripple in its response to the recently filed Securities and Exchange Commission lawsuit.

The growing support for crypto among those concerned with democratic values and the global balance of power could mean we also soon see one of the most positive developments for crypto assets: governments taking a direct role in supporting and even owning crypto assets. 

While admittedly speculative, it is possible to imagine the U.S. and China both gaining from more fully embracing crypto assets like bitcoin. 

As I have previously argued, an ascendant financial superpower like China could potentially leapfrog up the reserve asset league tables on the cheap by actively acquiring bitcoin. FOMO is not something restricted to private-sector market participants, and first mover nation states will gain the most in any race to acquire a new reserve asset. As an American my hope is the U.S. will think twice before rushing to auction off its latest law enforcement seizure of nearly 70,000 bitcoins connected to the shuttered Silk Road marketplace.

See also: Mable Jiang – Bridging Cultural Gaps in 2021: Crypto in China and the US

At the same time, the U.S. and other democractic countries may increasingly come to see permissionless and relatively decentralized blockchain networks as similar to the open internet: a powerful tool in promoting freedom and open society values.

Post-pandemic acceleration

While the pandemic and its punishing economic and social restrictions will, I hope, end next year, there is little reason to believe the accelerating crypto adoption we are currently witnessing will end along with it. 

This year has cemented the notion that crypto assets are not only not going away but will be integral to our financial lives going forward. As we close out a very trying and historic 2020, the future has never looked brighter for bitcoin and crypto asset ownership and use.

By late 2013, it was clear crypto assets would be the future of finance. It was the first time bitcoin crossed $1,000. To the cypherpunks’ chagrin, central banks around the world began publishing warnings to curb the “decentralized genie” threatening the stability of the familiar system. First they ignore you, then they fight.

Bitcoin’s rally stopped short due to a lack of trust and high volatility, rather than any state intervention. That was when people realized crypto assets needed a bridge to financial world, based on our own terms. This was the impetus to create “stable cryptocurrencies,” or stablecoins.

This post is part of CoinDesk's 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Sasha Ivanov is the founder of Waves, a blockchain platform.

From that moment, two different approaches to stabilize crypto asset prices began to develop simultaneously: fiat-backed stable assets and algorithmic stablecoins. While central banks perceived cryptocurrencies as a potential threat to the stability of the financial system and their monopoly in money issuance, it wasn’t until recently that they began to research, develop and experiment their own digital currency (CBDC) alternatives.

While the tension between stablecoins and CBDCs has not come to a head, it is still present to the perceptive. Just look at how China, the European Union and the U.S. responded to the libra (now diem) stablecoin project, for instance. These asset groups, fiat-pegged and algorithmic stablecoins, will eventually compete directly with CBDCs to try to squeeze each other out of the market.

Stablecoins backed by fiat

The first and most common type of stablecoins are fiat-backed tokens on public blockchains, typically denominated in U.S. dollars. The most popular collateralized stablecoins are issued by cryptocurrency exchanges – Bitfinex’s USDT, Coinbase and Circle’s USDC, Binance’s BUSD and Gemini’s GUSD. Tether first appeared in 2014 and is the most popular “crypto dollar” today, with a market cap exceeding $18 billion. 

Issuers of fiat-pegged stablecoins typically claim these crypto assets are backed with real dollars, other cryptocurrencies and government bonds, with reserves held in a bank account. This is what preserves a token’s “dollar parity.” Tether’s price, for instance, rarely deviates by more than a tenth of a percent.

See also: Stanford Prof Darrell Duffie on Our Big Stablecoin Future

But it is not easy to verify the real backing of such stablecoins. One has to trust reports of the issuer, that is a crypto company often registered in an offshore jurisdiction, or the occasional attestation by a third party. (The New York State Attorney General’s office is investigating the company Tether’s claims about its reserves.)

Users of fiat-backed stablecoins hardly think about their real backing, as the ease of use exceeds all doubts and risks. The stability of their price is maintained by trust, without using the market or technical methods. 

The essence of “collateralized” stablecoins resides in a centralized issuer, an organization that bears economic and legal responsibility, and maintains fiat currency reserves in a bank account. In fact, these are not cryptocurrencies, but tokenized fiat – digital money on the blockchain.

Regulators have already managed to noticeably slow down the release of Libra.

Conceptually, they are similar to payment systems such as PayPal. On the technical side, their main difference is the transparency of transactions, as they pass through public blockchains.

USDT has occupied a big niche in the real economy, as it facilitates international transfers  and enables market traders to send money easily from Moscow to China and to many other countries. Instant transfers, low fees and the absence of know your customer/anti-money laundering (KYC/AML) requirements in some exchanges made classic stablecoins a very convenient tool.

Algorithmic stablecoins

Algorithmic stablecoins appeared even before their fiat-backed cousins. The first instances were launched on the Bitshares blockchain back in 2013. They were backed exclusively by the blockchain’s basic token, BTS, but were found to not be stable enough. 

The most popular decentralized stablecoin, DAI, was launched in 2017, on the Ethereum blockchain. Its U.S. dollar parity is supported by market and technical mechanisms based on smart contracts that implement a price stabilization algorithm. Hence the term “algorithmic.”

An algorithmic stablecoin works on top of a public blockchain and is backed by a base cryptocurrency like ether (ETH). This crypto collateral  is locked into a smart contract and a new crypto asset is launched on its basis. Price stability is achieved by a CDP (Collateral Debt Position) mechanism with a collateral surplus of up to 50%, on average. When redeeming their tokens, users receive ETH back into their wallet.

Thus, with the help of price regulation algorithms, a stable crypto asset is created without the participation of fiat currencies and the necessity of connection to the traditional financial system. Algorithmic stablecoins work like cryptocurrencies. Unlike USDT and its analogues, they are decentralized and are not subject to a single issuer and regulators.

The crypto industry is now dominated by collateralized stablecoins. And while they are capable of maintaining a dollar peg, algorithmic stablecoins can be quite volatile during crises.

Algorithmic stablecoins are widely used in the DeFi industry, but they cannot yet go beyond it. They have yet to be used in real economic operations.

State and bank stablecoins

In late 2013 and early 2014, most central banks issued initial statements and warnings about crypto assets. But it wasn’t until Facebook pitched libra, that they really kick-started their own digital currency R&D.

As of this year, there are nearly 50 ongoing central bank digital currency (CBDC) pilots or research projects. A CBDC could be a natural progression of money, as central banks are already familiar with running cashless transactions, with the benefit of increased financial transparency.

The main advantage of private bank stablecoins is the large distribution, user base and strong reputation of traditional financial institutions.

Earlier this year, the European Union, Great Britain, Canada, Japan, Sweden and Switzerland, together with the Bank for International Settlements (BIS) and the Financial Stability Board (FSB), began work on a joint study and coordination of the issue of CBDCs. In 2021, experiments with CBDCs are expected to begin in the European Union.

In October, the Bank of Russia presented plans to create a digital ruble. And in China, a pilot project to test the digital yuan in the real economy is already underway. The U.S. Federal Reserve has been conducting research for several years, but dates for the issue of a digital dollar have not yet been determined.

See also: 6 Central Banks Form Digital Currency Use Case Working Group

With the release of CBDCs, central banks strive to create a controlled, secure and stable monetary system that will reduce incentives for the creation of cryptocurrencies and other private money. CBDCs will be supported by central banks in the same way as national currencies and will have the status of legal tender.

So far, two state cryptocurrencies have been issued. Venezuela was the first country to release a state digital currency, called the petro, in 2018. However, its turnover is not transparent and its collateralization and use in the real economy are seriously questionable. In late October, the central bank of the Bahamas released its “sand dollar” CBDC. It is regulated similarly to the Bahamian dollar and is accepted throughout the island state.

Trends in stablecoin development

From the end user’s point of view, CBDCs and bank tokens are very similar to fiat-backed stablecoins. Therefore, these three asset groups will compete directly and try to squeeze each other out of the market.

The main advantage of private bank stablecoins is the large distribution, user base and strong reputation of traditional financial institutions. People will use them like other banking products, in the same applications. That’s why stablecoins issued by private companies, such as jpmcoin and libra, are causing serious concerns for regulators.

Given that, traditional crypto stablecoins may not be needed. They are likely to survive but will be under a lot of regulatory pressure and their volumes will drop significantly. Their functions will be taken over by banks and CBDCs.

CBDCs have the strongest positions thanks to the administrative resources behind them. Regulators have already managed to noticeably slow down the release of libra, and perhaps this token will not appear on the market until all legal issues are resolved. The state will aim to completely overtake the niche of “blockchain digital money” as it does not need any outside players in this area. This process is already underway in China at the level of a pilot project – millions of Chinese in several regions are using the digital yuan, and their number will only grow. 

Wide spread of CBDCs and elimination of cash are very interesting prospects for governments. This is the real basis for a modern financial infrastructure of the state in the 21st century, where it has full control over all transactions, cash flows of individuals and of companies.

There is no need for physical audits because all the transactions are made visible by the technology behind them, making it impossible to hide anything. More central banks will sooner or later adopt this concept, with different levels of control and possible privacy for citizens.

Strengthening control

The crypto community will respond to the strengthening of state control with new and improved decentralized stable crypto assets. It is in uncertain situations that algorithmic stablecoins, which do not depend on banks and regulators, can prove themselves. 

There is a need for cryptocurrency stability mechanisms built into blockchain architectures, and for cryptocurrencies with an inherently stable price, rather than a superstructure built over already volatile instruments. 

In the crypto industry, they will take over the functions now performed by USDT and other collateralized stablecoins. They will become true stable cryptocurrencies, rather than just digital money.

To create them, similar mechanisms  to traditional bond markets are possible, just like the dollar is supported by treasury bonds. To do this, a token must be issued on a blockchain with already built-in stability. Such mechanisms have not been developed yet. 

See also: Marcelo Prates – Central Banks Had to Up Their Money Game This Year – And They Did

On the other hand, against the backdrop of the pandemic and accelerated money issuance with governments worldwide, fiat currencies are depreciating more and more quickly. As such, the idea of pegging cryptocurrencies to declining fiat currencies becomes a dangerous play. In this case cryptocurrencies that withstand the volatility of fiat, that will be developed  in the next five years, reach the global scale and become the basis of a truly decentralized financial system.

It is often said that Julius Caesar brought the Roman Republic to an end when he crossed the Rubicon River with the 13th Legion of the Roman Republican Army on Jan. 10, 49 BC, starting the civil war that would leave him dictator. 

This post is part of CoinDesk's 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Teddy Fusaro is chief operating officer at Bitwise Asset Management, a crypto asset management firm. He previously held positions at IndexIQ, Direxion Investments and Goldman Sachs.

But Caesar accurately believed the Republic had by that time become only a name, its spirit and essence hollowed out by decades of attachment to the status quo, corruption and internal strife.

Like 49 BC, 2020 will be looked back on as the year that marks the present era from the past; the demarcation line separating the before and the after. It will be remembered as the year that everything changed.

The COVID-19 pandemic that left millions of humans sick and dead, shocked the global economy to a sudden halt, grounded all airplanes, put millions out of work and froze people in their homes for months on end will be remembered as the “Rubicon moment” that left the world indelibly transformed. 

But as with Caesar’s claim that the Roman Republic had already transformed before he crossed the tiver, the truth of 2020’s change is much more nuanced, too.

A world ripe for change

Geopolitical tensions between the United States and China have been growing for decades.  

The relationship that we as individuals have to each other and the methods by which we communicate, work and interact have been undergoing changes since the advent of social media in the early 2000s.  

Trust in government and traditional institutions, including the way we consume news and media and from whom, has been eroding at a quickening pace for years.

The “Overton Window” of acceptable policy positions related to government deficits, spending, taxation and monetary policy has been opening wider since “quantitative easing” arrived en masse 12 years ago, allowing previously radical ideas to flow into the mainstream.

The world has been furiously accelerating towards digital, mobile and virtual modes of speech, spending, living, loving and warring for most of the last 20 years. The COVID-19 pandemic of 2020 hastened the transitions, filling a vacuum that only needed a spark to ignite the flame that would become indefinite change, pushing the world across the Rubicon. A more resilient Western world would have already embraced the technological changes now being foisted upon society by the pandemic, and would have been more easily able to handle the public health and economic-financial fallout. 

The Russian Communist revolutionary Vladimir Lenin said that “there are decades when nothing happens, and weeks when decades happen.” In many respects, 2020 has been a year of decades.

As this year has pulled forward the newer ways in which we work, meet, live, communicate and even vote, so, too, has it pulled forward the ways that we spend, save, invest and plan for the future.  

Meet the moment

It is unsurprising then, in that context, that bitcoin and cryptocurrencies have also crossed their own chasm in 2020.  

Commentators often miss the connection but as other norms and institutions evolve into their future digital, mobile and virtual shape, so, too, are norms around banking, financial services and investing. The interrelationships between decentralized systems like Bitcoin and Ethereum and these dynamics are too often misunderstood or underappreciated.    

In the pantheon of business literature that describes America’s Silicon Valley, Geoffrey Moore’s “Crossing the Chasm” is perhaps the most frequently referenced work on how new technologies achieve adoption.

According to Moore, each disruptive technology must go through five stages of adoption: starting with tinkering “innovators” who first try new technologies, through the “early adopters,” to the “early majority” and “late majority” – the two biggest groups – and finally, to the “laggards.”

It is striking how regularly and routinely this roadmap has played out in technology after technology. The most critical stage of Moore’s framework for these journeys is what he terms “the chasm.” The chasm yawns between the “early adopters and the “early majority” because there is a step-function difference between the demands of these two cohorts. This is often where new technologies go to die.

Bitcoin and crypto may not have been ready to jump across the chasm yet, but the long year of 2020 that propelled the world across the Rubicon pushed cryptocurrency across its adoption “chasm.”  

As investors and policymakers grapple with the changing dynamics of the developed-world monetary responses to the crisis alongside furious technological changes, giant financial companies like PayPal have also put crypto at the fingertips of every consumer. Crypto startup exchange, custody and trading platform Coinbase now has more user accounts than financial giants Charles Schwab, TD Ameritrade, E*Trade and Interactive Brokers combined. The Chicago Mercantile Exchange’s bitcoin futures derivatives contract has become the largest and most active bitcoin trading market in the world, previously the dominion of unregulated and un-domiciled platform operators. 

Meanwhile, we have seen myriad other indications of step-function developments. JPMorgan embedded crypto as an asset class on Wall Street. Fidelity began to hire broadly, building out its crypto product suite. Square announced large technical development grants for engineers to work on bitcoin as its bitcoin offering bolstered its financial performance. Central banks announced they would build their own digital currencies. Endowments invested over $750 million with venture managers within the space. 

On the regulatory front, while frequently misunderstood, significant breakthroughs have emerged despite the near-sighted interpretation of many industry participants.  

The Office of the Comptroller of the Currency (OCC) concluded that federally chartered banks may provide custodial services for cryptocurrencies, finding that providing crypto custody is a modern form of traditional banking.  The Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of the Treasury, proposed new rules related to “unhosted wallets” that, while philosophically contra to certain core bitcoin principles, does not reach as far as many feared it would. The Securities and Exchange Commission announced that its Strategic Hub for Innovation and Financial Technology (or FinHub) would become a standalone office and brought or concluded several high-profile cases in the space. 

The drumbeat of clarifying and confidence-inducing enforcement action from the SEC and the U.S. Department of Justice has continued to push the bad actors and felons to the margin, creating a safe space for innovators and developers to play by the rules. The U.S. financial system is the envy of the world in large part due to the integrity of its markets, the sanctity of its laws and the sophistication of its regulatory agencies.  Although changes in this sphere move more slowly than innovation itself, the importance of each additional piece of clarity, independent of opinions on the rules themselves, cannot be overstated. 

Despite certain loud industry voices crying foul, the regulatory activity of 2020 has further laid the foundation for the future success of crypto and related businesses in the U.S.

A reason for optimism

The global cross-currents of 2020 have been both turbulent and severe. The world has been shaken to its core. The first global pandemic in a century has mixed with a torrent of necessary technological adoption, causing all of us to adapt in different ways. These broad themes have put a spotlight on the power, resiliency, trust and immutability of decentralized public blockchains like Bitcoin and Ethereum. These public blockchains have emerged in stark contrast to our hollowing social, political and economic moorings, revealed as brittle and weak by the change brought on by the public health and economic crises.   

The ideas inherent within Bitcoin and other open-source blockchain networks offer an alternative and hopeful vision for Western liberal and classical American values to mature into a fully digital future. Bitcoin is based on the enduring ideals of free speech, freedom from censorship, self sufficiency, opportunity, resiliency and the right to privacy.  It is with great optimism that we should view this acceleration of crypto’s maturation due in part to 2020’s global transformation. 

2020 was the year we will look back on and believe we crossed the Rubicon. But the truth is that COVID-19 emerged into a world overdue for a watershed moment. The foundational transformations had long since manifested conditions ripe for such transitions, a system rotted through from years of bureaucracy, infighting, cronyism and resistance to change, much like the Roman Republic that Caesar marched upon in 49 BC.   

While 2020 closes, as ever, the future remains vague. But what is clear is the analog world is behind us. The future is digital, mobile, distributed, trust-minimized and immutable. In 2020, the world has crossed the Rubicon and cryptocurrencies have crossed the chasm.