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Three products set to shake up cryptocurrency in 2020

#crypto #bitcoin

As we move into the next decade, a few technologies being developed behind the scenes may help to solve some of the nascent ecosystem's biggest challenges.

1. MPC Custody

Poor private key management practices are an ongoing issue for the crypto industry, leading to millions of dollars worth of losses. This has made life difficult for retail investors and has kept most big institutional investors at bay. As tech research firm Gartner says, "private key management has become "the Achilles Heel of blockchain applications."

Secure multiparty computation—or MPC—promises to revolutionize crypto asset custody.

Instead of taking control of private keys, MPC-based custody solutions use mathematical algorithms to sign blockchain transactions with a secure cryptographic operation. Proponents claim this creates unprecedented security without the need for cumbersome withdrawal processes.

Fireblocks, Qredo, Unbound, and Curv are a few vendors of this new technology. Each has taken a slightly different approach to create the MPC-based security infrastructure that could ultimately give large institutions the confidence needed to enter the space.

2. Private stablecoins

Stablecoins hit primetime in 2019, with banks, big tech, and crypto startups all clamoring to offer blockchain-based versions of fiat currencies. These are now being used for trading on cryptocurrency exchanges, making remittances, and borrowing and lending in the fast-growing DeFi and CeFi markets.

But all this activity has put stablecoins on the radar of regulators. Authorities around the world are waking up to this new form of digital money, and stepping up scrutiny on concerns over money laundering, lack of reserves, and surveillance across networks.

As a result, stablecoin issuers are now forced to act more like centralized banks by blacklisting addresses suspected of criminal activity, and freezing assets anytime they like.

Blockchain surveillance companies have made this even easier, offering a continually wider view of ledger activity. CipherTrace—which works with various law enforcement agencies—claims to be able to see almost 90 percent of all cryptocurrency trading volume, meaning few stablecoins are likely to be free from prying eyes.

At present, there are only a couple of stablecoins—including $USDT on Liquid and $DAI—that can't be frozen indiscriminately. Of these, only $USDT on Liquid offers privacy functionality through Liquid‘s’ Confidential Transactions, but this comes with the uncertain reputation of Tether.

This leaves a large gap in the market for a truly decentralized and private stablecoin, like Haven's xUSD which is one such project currently in development. This asset uses the privacy tech of Monero—stealth addresses, ring signatures, and bulletproofs—to create a private, non-asset backed, algorithmic stablecoin. The coin is currently circulating on testnet, and could have an existing customer base of privacy supporters when the mainnet launches in January.

3. Decentralized insurance

Decentralized finance (DeFi) has become a complex interlinked ecosystem, with composable crypto assets shared between protocols like Maker, Augur, and Compound and assembled in multiple combinations like lego bricks.

But this added complexity brings systemic risk. Smart contracts can suffer from bugs or governance issues, and problems with a single protocol can ripple out to cause havoc across the whole ecosystem. Much like the rehypothecation of assets by banks that led to the financial crisis of 2008.

To help users of these protocols and platforms share the risk, a few companies are pioneering different approaches to smart contract insurance.

Nexus mutual is one such offering that bills itself as a people-powered alternative to insurance. Resources are pooled together by members, and when a claim is made, members decide collectively if it is valid, with all decisions enforced publicly by smart contracts. The insurance covers blockchain-specific risks, like potential bugs in smart contract code or wallet hacks, and more mainstream risks like earthquakes and natural disaster protection.

Competing service Etherisc is also beginning to offer insurance for token economies and crypto lending markets, along with more mainstream packages including fully licensed flight delay insurance, and hurricane protection that offers instant payouts triggered automatically by weather station data.

Though the original appeal of smart contracts was trustlessness—providing automated transactions without a third party—decentralized insurance could ironically help deliver the trust needed to achieve more mainstream adoption of decentralized financial services.



Kieran Smith, Khareem Sudlow