In recent years, digital currencies have been all the rave. However, the idea that digital assets are exclusively some form of currency is slowly falling by the wayside as different use cases are emerging and being rapidly adopted. This May, The Fintech Times is looking to showcase some of these new methods and explore how the digital asset ecosystem is evolving.
Our monthly focus now turns to the most well-known form of digital assets: cryptocurrencies. Since Bitcoin’s inception in 2009, the crypto world has jumped from one height to the next continually breaking records. But what is keeping this momentum going? We set out to find out about the latest innovations in the world of crypto.
Converging TradFi and DeFi
Arguably, the best way to determine crypto’s impact is how it is affecting our day-to-day lives. For Danny Chong, co-founder of Tranchess, the yield-enhancing asset tracker, the innovations enabling the convergence between the old ways of finance and the new are the ones to take the most notice of.
“The convergence of traditional finance (TradFi) and decentralised finance (DeFi) continues to accelerate innovation within the crypto industry. This convergence is seeing cryptocurrency increasingly making its mark in the real world, with financial giants like Fidelity and BlackRock showing interest and investment in the space. The emergence of spot Bitcoin ETFs is just one example of this integration, with more to come as traditional finance and crypto become increasingly intertwined.
“While much attention is given to Bitcoin ETFs, it’s essential not to overlook the long-term potential of Real World Assets (RWA).
“We’re currently witnessing RWAs being traded seamlessly on-chain across major networks, with significant financial institutions entering the fray. They’re embracing digital networks like Ethereum for asset trading, marking a notable departure from their reliance on proprietary systems.
“This shift underscores a growing trust in these new digital systems by large institutions, signalling a significant advancement for the entire industry. Such developments were scarcely imaginable just a few years ago, highlighting the rapid evolution and convergence of cryptocurrency with traditional finance.
Make way for mainstream tokenisation
Cassie Craddock-Ball, UK and Europe managing director at Ripple, the all-in-one digital asset payments platform, analyses how tokenising real-world assets is impacting the ecosystem: “Over the past year, the crypto industry has hit an inflection point. As the technology has matured, attention has turned to its real-world utility, dispelling the ‘hype’ that has distracted from the industry’s progress in prior years. Payments are and continue to be the proven ‘killer application’ for crypto.
“There’s clear utility and importantly, payments are a critical entry point to many other financial use cases.
“Tokenisation has fast emerged as a new crypto use-case and has captured the interest of businesses and investors thanks to its potential to revolutionise finance and asset ownership. By representing real-world assets as digital tokens on a blockchain, tokenisation unlocks liquidity, enhances accessibility, and fosters a more efficient exchange of value.
“Tokenisation increases transparency and reduces the complexity of asset transfer and management, setting a precedent for a more inclusive and borderless financial ecosystem. While we are still in the early days, there is a huge opportunity to unlock greater innovation as we see pilots across industries increase their adoption of tokenisation – such as our eHDK pilot project with the Hong Kong Monetary Authority.”
A focus on scalability
Nikhil Joshi, COO, of EMURGO, the blockchain product and services provider shared a similar view on tokenisation saying:” One of the more notable innovations is the tokenisation of real-world assets which has emerged within the cryptocurrency space.
“Tokenised real-world assets, representing ownership of physical assets such as real estate, artwork, or commodities, are digital tokens on a blockchain. They provide enhanced liquidity, fractional ownership opportunities, and improved accessibility to traditionally illiquid markets. Platforms facilitating the tokenisation of real-world assets are empowering investors to diversify their portfolios and unlock new avenues for investment, further expanding the utility and adoption of blockchain technology.”
He also noted how scaling the technology has improved: “Elsewhere, significant strides have been made in Layer 1 and Layer 2 blockchain innovations. Layer 1 solutions focus on improving the foundational layer of blockchain networks, enhancing scalability, security, and functionality. Major blockchain networks such as Ethereum 2.0 and Cardano have since undergone major upgrades to address scalability issues and enable a wider range of use cases.
“Meanwhile, Layer 2 scaling solutions aim to alleviate congestion and reduce transaction fees on existing blockchain networks. Projects now provide off-chain scaling solutions that improve transaction throughput and enhance user experience, paving the way for broader adoption and utility of blockchain technology.”
More than just a coin
Bitcoin is much more than just a digital coin explains Anthony Rousseau, head of brokerage solutions at TradeStation Group, the online trading and brokerage services platform. He notes three key developments: “The last year has seen various innovations on different networks, the most notable products and capabilities on the largest and most secure network in the world.
“Bitcoin Life Insurance: This is an interesting product for those who are interested in finding ways to manage their stored wealth on top of the Bitcoin network with a life insurance product. Many questions still need to be answered, but what’s most fascinating is that these innovations are starting to be built on a potentially new monetary system and may continue to be since the TradFi banking system has not innovated in this direction.
“Bitcoin Ordinals: NFTs on top of the Bitcoin Blockchain – this is an improvement to the smart contract layer, and quite a contentious innovation in the Bitcoin community. This innovation illustrates that you don’t need to go to other networks to do these types of transactions, and there’s potential that Bitcoin ends up eating up the world of Alt coins in the future as being seen as the best network to build on.
“Bitcoin Token Layer called Runes fungible token standard was launched at Bitcoin’s fourth halving. This also illustrates that Bitcoin as a base layer can be built on in different ways. Although, it is quite contentious in the community for wanting to keep the network focused on a base money or monetary system providing the most secure distributed ledger for global use. Either way, this just shows how important it is to pay attention to what’s happening and where the development communities are spending their time.”
Enabling better remittance processes
Nicole Valentine, fintech director at the Milken Institute, the nonprofit, nonpartisan think tank identifies the positive impacts that cryptocurrencies are having in the payments world.
“We are in the first wave of crypto innovations, and I believe we will see more innovative use cases as the industry develops. The first wave includes the use of crypto to make cross-border transactions more affordable, efficient, and transparent.
“Today, about one billion people in the world are involved with remittances, either as a recipient or sender. Before crypto innovations like stablecoins and the expanded use of blockchain technology for payments, the experience of sending and receiving money had too much friction and frustration in the process. If you survey the people most impacted by the costs of remittances, they will say that they are in a better place today than they were five or 10 years ago.”
Greater security
Crypto prides itself on its security. However, on the occasions that criminals have obtained someone’s private key, it can be extremely challenging for funds to be recovered. Veronica Wong, the CEO and co-founder of SafePal, the comprehensive crypto wallet suite with 12 million users across hardware, software and browser wallet extension offerings, highlights which innovations are fundamentally changing crypto’s security for the better to ensure reliance on private keys is reduced.
“Account abstraction(AA) is an interesting innovation, as it seeks to eliminate the reliance on private keys and seed phrases with self-custodial crypto wallets. While it is relatively nascent and yet to be battle-tested, it will drastically remove user onboarding and retention roadblocks while improving UX and security, and make it difficult for malicious actors and hackers to steal crypto from user accounts.
“Even veterans are not immune to hacks and security risks when using self-custodial crypto wallets, with the co-founder of crypto payments firm Ripple losing $110million from his personal crypto wallet being compromised as a recent example.
“While there are different causes for a user’s wallet getting compromised ranging from phishing, hacks, social-engineering to user errors, innovations like AA that minimise any possible attack vectors will definitely be a net positive for the cryptocurrency industry as over $1.7billion was lost from crypto hacks in 2023 alone — so security and safety concerns remain a legitimate concern and onboarding hurdle for new users.”
Creating stronger infrastructure
For Oleg Fomenko, co-founder of Sweat Economy, a Web3 ecosystem on a mission to promote healthier lifestyles by encouraging people to move more, there are two major innovations. One which the industry generally agrees upon and one which is more personal to him.
“The first innovation the industry continues to focus on is infrastructure – building the rails that will form the basis of the future mass-market adoption of crypto by the next billion people. In this space, of course, we have to mention continuous progress on the speed and costs of transactions that chains can demonstrate – faster and more stable Layer 2 roll-ups of Ethereum (Aptos and Optimism) as well as incredible progress of Near Protocol which continues to prove that sharding is the route to an almost-infinite scalability.
“The other big area of infrastructure innovation is constantly improving cross-chain functionality and building cross-chain DEXes and aggregators allowing for fast and cheap shifting of assets between chains.”
Chain abstraction
Fomenko continues: “The second area, and the one closer to my heart, is an area of innovation driving forward mass crypto adoption and onboarding the next billion people. And while this area and the narrative of consumer crypto has not yet taken over from the infrastructure in terms of attention and amount of money raised it is only a question of time before the consumer crypto narrative starts to dominate.
“After all, all of the billions of dollars we have invested into infrastructure over the last 15 years are there to build products to be used by hundreds of millions of users. Here the most exciting work has been done by the MPC players facilitating the ease of onboarding users onto multiple chains without unnecessary complexity.
“The other exciting area that is taking off is chain abstraction – the innovation that allows keys from one account on one chain to manage assets on any chain out there effectively starting to create a ‘chainless’ world. Future users would be managing assets, not assets-on-a-specific chain and those players who can offer seamless cross-chain experience will be the ones who will control the liquidity of the future.”
Nowhere is safe from the reach of AI
AI has been one of the biggest talking points worldwide, let alone fintech, in the last year. Ronen Cojocaru CEO of 8081, the automatic crypto trading platform, highlights how the tech is impacting the crypto ecosystem: “One of the most significant developments in cryptocurrency exchange technology is the integration of decentralised finance (DeFi) protocols.
“DeFi has gained immense traction as it allows users to engage in financial activities without the need for traditional intermediaries. Cryptocurrency exchanges are incorporating DeFi features like decentralised lending, borrowing, and yield farming to provide users with a more robust and autonomous financial ecosystem.
“Artificial intelligence (AI) and machine learning (ML) are making waves in the cryptocurrency exchange development landscape. These technologies analyse market trends, predict price movements, and identify potential security threats. Additionally, AI and ML algorithms help create more accurate trading signals, automate risk management, and provide users with personalised trading insights.”
