Blockchain, the underlying infrastructure behind cryptocurrencies, is likely among the most transformative technological innovations of our age, with promising use cases for many industries.
In a nutshell, blockchain is an open and censorship-resistant database model, secured by encryption and decentralization. Blockchain records information in blocks on a shared ledger, storing a synchronized copy of it on all the systems participating in the network, hence assuring its immutability.
As companies start recognizing the benefits of this technology, we’ve seen exciting new blockchain developments this past year. Below we’ll take a look at five of the biggest blockchain trends of 2021 and what they might mean for the next year.
Blockchain in supply chain
Blockchain can be a game-changing technology for multiple sectors, especially for the supply chain industry. Increasing globalization has created more complex distribution processes than ever, creating new challenges in supply chain management. Blockchain infrastructure can be applied to create more transparency and automation in supply chain processes on a global scale.
The distribution of the Covid-19 vaccine has created more stringent logistic requirements, due to the vaccine’s limited supply and need to be kept refrigerated. As a result, two UK-based hospitals have started experimenting with blockchain technology — which they were previously using to track chemotherapy drugs — to monitor and track the supply chain of vaccines. Vaccine shipments are equipped with internal temperature sensors, and a rise above the minimum threshold temperature will automatically create an entry in the blockchain, removing the affected dose from the supply chain.
IBM is also harnessing the power of blockchain technology to deliver verifiable Covid-19 vaccine data and health passes. IBM’s blockchain-powered distribution system aims to infuse more speed, accountability, and transparency across the supply chain. By using the IBM blockchain, distributors gain real-time visibility of the process, while manufacturers can improve their recall management.
IBM was also contracted by the state of New York to build a digital health pass to help jumpstart the economy. IBM’s digital health pass helps businesses verify the health status of its customers with tamper-proof data, ensuring that each health pass is genuine and in compliance with the current guidelines.
IBM is solving some of the biggest issues created by the pandemic, including the need for a transparent supply chain and censorship-resistant health data. This has also inspired numerous other blockchain-infused healthcare initiatives across the world and will likely create more interest in the application of blockchain to supply management.
Smart contracts are fostering blockchain adoption
2021 has seen an increase in blockchain adoption, partly thanks to the development of smart contracts. Smart contracts are essentially agreements between two or more parties, recorded as computer code on the blockchain — making them immutable and tamper-proof for all parties. Smart contracts are automatically executed by the blockchain when the set predetermined conditions are met, making trustless agreements possible without any intermediaries.
Smart contract algorithms make blockchain-based services accessible for companies that don’t have the means to invest in years of research and development for their blockchain network. DeFi platforms like Ethereum, Solana and Avalanche enable companies to create smart contracts directly on their blockchain and benefit from their immutability. Statistics by Valuates Reports predict the global smart contracts market will grow from US$106.7 million in 2019 to US$345.4 million by 2026 — with increasing adoption in banking, supply chain, insurance, and real estate being some of the major driving factors of the industry.
Smart contracts are versatile instruments with numerous applications. For instance, insurance companies can use smart contracts to streamline their bookkeeping and issue automated insurance payments. French insurance giant AXA has been employing smart contracts since 2017 via Fizzy, a flight-delay product that utilizes Ethereum smart contracts to automatically compensate for flights that were delayed over two hours.
Smart contracts are also efficient in streamlining processes with multiple points of friction. Ujo Music is another platform built on Ethereum that utilizes smart contracts, enabling artists to sell their music directly to their fans. Smart contracts could even streamline royalty payments and automatically send them to all the parties involved, from producers to record labels and managers. Governments could also benefit from smart contracts, by applying them to operations like land title recording. Smart contract algorithms could automatize property transfers and recording, creating more efficiency and transparency in the process.
Blockchain goes renewable
The energy consumption of cryptocurrency is in the crosshairs, notably with China banning crypto mining. Bitcoin’s high energy consumption was especially scrutinized with its proof-of-work consensus algorithm. Electric vehicle manufacturer Tesla, has suspended Bitcoin payments — due to Bitcoin mining’s reliance on fossil fuels — until the network is secured by more sustainable energy sources.
These developments, paired with efforts to reach net-zero carbon emissions by 2050, have given rise to numerous incentives aiming to make blockchain greener. One of the projects making the blockchain space more sustainable is the Crypto Climate Accord — a joint effort that includes the World Economic Forum, Ripple and ConsenSys, aiming to reach net-zero crypto emissions by 2040. This private sector-led initiative aims to decarbonize the blockchain industry and make crypto 100% reliant on renewable energy by 2025.
Another such initiative is the emergence of proof-of-stake-based blockchain protocols, which consume about 99.5% less energy than Bitcoin’s proof-of-work consensus model. Ethereum, the second-largest cryptocurrency by market capitalization, is also aiming to become more energy-efficient and is preparing to migrate from its proof-of-work model to proof of stake in 2022.
As per a Bitcoin Mining Council’s press release, 56% of the Bitcoin mining sector was already powered by sustainable energy in Q2 2021. As renewables are the cheapest source of energy, crypto mining operations will increasingly seek out greener pastures. The rest of the blockchain space is also seeking to become greener, to further complement global net-zero carbon emission goals and make the industry more sustainable.
Entering the metaverse
The concept of a virtual metaverse has caught the attention of some of the biggest companies worldwide, considering Facebook’s US$10 billion initiative to rename the company Meta and start developing a metaverse strategy. Microsoft has also unveiled big metaverse plans with Microsoft Mesh, an update to Teams and Xbox consoles that allows people in different physical locations to join collaborative and shared holographic experiences.
Hoping to get a head start, Nike also announced the launch of Nikeland, the company’s own metaverse built on Roblox. Nikeland will offer users a virtual experience where they can create avatars, play sports games and acquire virtual Nike merchandise.
Competing with Facebook’s centralized metaverse concept, the idea of a decentralized metaverse emerged, as the Winklevoss twins raised US$400 million to build an alternative metaverse experience to Meta. The Winklevoss twins believe the idea of a decentralized metaverse will create more possibilities for its users: “There’s a centralized path, like Facebook or Fortnite, that is one step away from being a metaverse, and that’s totally fine. But there is another path, which is the decentralized metaverse and that’s the metaverse where we believe there’s greater choice, independence, and opportunity, and there is technology that protects the rights and dignity of individuals,” said Cameron Winklevoss, the co-founder of Gemini, in an interview with Forbes.
Whether a centralized or decentralized metaverse will become the most popular alternative is yet to be seen, but both iterations need to address the accuracy and reliability of data, and this is where blockchain comes into play. Applied to the metaverse, blockchain can store user data on a tamper-proof, shared ledger, assuring users of its immutability. As blockchain ledgers are openly verifiable, this will create more trust in these emerging virtual environments. Blockchain-based metaverse projects are already emerging, with The Sandbox and Decentraland being some of the most popular projects. Both virtual worlds are built on Ethereum, leveraging its open infrastructure to create a trusted data environment.
Mark Zuckerberg affirmed that crypto and NFTs will be supported in Meta’s metaverse, hinting that the virtual world will also require a new form of governance: “Most of all, we need to help build ecosystems so that more people have a stake in the future and can benefit not just as consumers but as creators,” Zuckerberg wrote in a founder’s letter. His statement may allude to the open community governance of blockchain-enabled DAOs (decentralized autonomous organizations) where each member is also a stakeholder. Many of Meta’s job listings also require blockchain knowledge, meaning that its metaverse will likely adopt the technology, but there are still no details as to what extent.
NFTs are introducing more use cases for blockchain
NFTs, short for non-fungible tokens, have been among the hottest trends in blockchain technology this year. NFTs are minted on the blockchain as unique tokens that can’t be duplicated, hence introducing the principle of scarcity to digital assets for the first time. NFTs enable a myriad of new use cases for blockchain, extending beyond art and digital collectibles.
Think of NFTs as tamper-proof digital ownership certificates that can be applied for both tangible and intangible assets. Their origin, history of owners, selling price, and everything in between can be publicly verified on the blockchain — enabling trustless online transactions.
The music industry was among the first to embrace NFTs, as artists started tokenizing their songs and selling them directly to their fans. Moreover, NFTs can be fractionalized, meaning that artists can mint a song as an NFT with multiple unique copies, giving fans a small piece of the original song. Another advantage for the music industry is that NFTs can enable automatic royalty payments to record labels, musicians, managers, and all the parties involved.
Hong Kong’s 118-year-old newspaper, The South China Morning Post, has also started experimenting with NFTs by creating ARTIFACT — a standardized metadata structure for recording snippets of history as non-fungible tokens (NFTs) that are tradeable in a marketplace. ARTIFACT will be used to record historical assets and accounts of important events and create more transparency in the news media industry.
Vogue has also launched two digital covers as NFTs in its September edition, marking the fashion magazine’s entry into the metaverse. Beyond magazine covers, philanthropy is also proving to be a compatible use case for NFTs. The founder of Visualize Value, Jack Butcher, has created an NFT fund to help Afghan families affected by the recent conflict. Each NFT was priced at 0.028 ETH, or US$89.50, covering the emergency needs of a family for an entire month.
Last but not least, NFTs are ushering in a new era for play-to-earn gaming, as games like Axie Infinity and MIR4 are tokenizing in-game assets and characters. The tokenization of in-game assets represents the first time in gaming history that gamers are the true owners of their items, which they can sell on NFT marketplaces for cryptocurrency, extracting real-world value from these games. As the metaverse concept is being developed, NFTs will likely become a significant part of these virtual worlds, and gain new use cases in the process.
Looking ahead in 2022
While the next wave of developments is impossible to predict in the rapidly shifting world of blockchain, the above-mentioned five trends will likely remain prevalent in the next year.
As blockchain is proving its utility in healthcare and supply chain management, further adaptations of the technology will likely emerge as companies gain more trust in it. In addition, blockchain-based supply chains will help the world better prepare for future health crises, by creating more transparency and efficiency in logistics.
As the top DeFi platforms are chiseling their smart contract algorithms, these may also see increased adoption as corporations realize their potential in cutting costs and streamlining complex processes like payroll and financial data recording.
Lastly, El Salvador’s adoption of Bitcoin may inspire other countries to follow suit. El Salvador isn’t the only country to grapple with high international remittance fees and a large unbanked population, which it addressed by adopting Bitcoin as legal tender. This may be a historical turning point for blockchain and cryptocurrency adoption, especially as the design of Bitcoin incentivizes the early adopters.