After rather chaotic previous years, Ethereum (ETH) exceeded many expectations in 2020. Not only the decentralized finance sector (DeFi), but also the non-fungible token market (NFT) recorded enormous growth. In addition, the first phase of the long-awaited Ethereum 2.0 upgrade began. We take a look at the most burning topics and review 2020.

Ethereum 2.0 Phase 0 is live

The wait is finally over. Ethereum 2.0 has become a bit of a reality in 2020 and on December 1, the long-awaited upgrade by the community started in the first phase. As planned, the mainnet went live successfully at the first attempt and there were no major complications. On the contrary, the rush to the ETH-deposit contract, which makes the Punting ether possible was overwhelming.

Currently, over $ 1.2 billion worth of ethers are staked. Put simply, by staking, investors help secure the Ethereum network and receive an ETH return in return. However, it is not yet clear how long ethers will be bound in the so-called deposit contract – possibly years. The enormous amount of Ether that is already staked is a good demonstration of how optimistic many investors are about the future of the smart contract platform.

One of the most important functions of Ethereum 2.0 is known as “sharding”. “Sharding” allows transactions to be processed at the same time, which is intended to take the current speed of the Ethereum network to the next level. This will make it possible for developers of decentralized applications (dApp) to develop cheaper, more complex and more user-friendly dApps. Solving the scaling problem could therefore help emerging sectors like DeFi and the NFT space to innovate, and some of the most pressing problems that have plagued ETH for a long time may finally be solvable. In addition, completely new sectors could emerge, for which it did not make sense to build decentralized applications on Ethereum for reasons of cost.

Decentralized Finance: Revolution of the Financial Sector

2020 was without a doubt a successful year for Decentralized Finance. While a few crypto enthusiasts were already fairly familiar with the emerging sector in advance, DeFi experienced a huge hype in 2020.

What is DeFi?

DeFi shakes the traditional understanding of the financial world and redefines some rules of the game. There are no central institutions or intermediaries in DeFi. This means that banks, brokers and all other middlemen are eliminated because the blockchain doesn’t need them to function. Everything is regulated decentrally via the Ethereum blockchain and smart contracts.

Still, the sector is in its infancy and can currently be considered experimental. Not all DeFi projects are 100 percent decentralized yet, but the way there is paved.

One of the most important indicators to analyze DeFi space growth is the Total Value Locked indicator. The indicator measures the total value of all ETH and all other ERC-20 tokens tied in the corresponding Smart Contracts of the DeFi protocols, in US dollars. For this reason, not only Ethereum is one of the assets that are in DeFi protocols, but also stablecoins, tokenized Bitcoin and in some cases even NFTs.

Specialist lawyer Lutz Auffenberg and his law firm Fin Law have specialized in the field of fintech and innovative technologies. In particular, blockchain technology and its regulation are the focus of his activities. In his guest commentary he deals with tokenized investments.

This article is first on the Fin Law Blog published

Companies looking for capital have numerous options for financing investments in Germany. The first point of contact is usually the house bank, even if the use of bank loans is usually associated with the granting of extensive loan collateral. Startups in particular regularly choose the option of surrendering business shares to business angels and venture capital investors. A third variant is the financing of projects via the free capital market. If the owners of the company seeking capital do not want to give up any shares in the company for financing, there is the option of public offering of purely debt-related bonds. Investors receive interest for the temporary provision of capital as well as a repayment claim at the end of the term, whereby the details of the offer are variable. While most of such bond products are regulated as securities, there is a special regulatory regime in Germany for certain arrangements – the Asset Investment Act (VermAnlG).

What are investments and how do they differ from securities?

Only investment products that are not already regulated as securities according to the EU Prospectus Regulation or as shares in investment funds according to the Capital Investment Code are considered as investments. In addition, it is necessary that the issuer’s acceptance of investor funds is not classified as a deposit transaction and thus as a banking transaction under the German Banking Act (KWG). Historically, these are those products that were previously considered investment products on the gray capital market.

The gray capital market denoted investment opportunities that were legal, but not further regulated, so that issuers were not required to provide a prospectus for the public offering of such products. With the introduction of the Asset Management Act, the legislature wanted to regulate the products of the gray capital market and subject issuers and providers of assets to transparency, conduct and publication obligations. Since then, limited partner shares, shares in trust assets, subordinated loans and unsecuritized profit participation rights as well as registered bonds and direct investments have been regulated accordingly in Germany.

Hoewel de prijs van Bitcoin is gestegen, is MicroStrategy BTC blijven kopen. Het bezit nu ongeveer 765 miljoen dollar.

Volgens SEC-dossiers van vandaag heeft het bedrijf MicroStrategy 2.754 Bitcoins gekocht voor $19.427 per stuk, met een totale waarde van $50 miljoen. CEO Michael Saylor bevestigde de aankoop op Twitter.

Het beursgenoteerde bedrijf investeerde begin augustus $250 miljoen in de penning en pakte 21.454 BTC toen de prijs in de range van $11.700 lag. Op 14 september werd nog eens $175 miljoen in Bitcoin Rush gestoken, waarbij 16.796 BTC werd gepakt toen de prijs voor een penning tot ongeveer $10.700 daalde.

Hoewel de prijs van Bitcoin sindsdien aanzienlijk is gestegen en net deze week een recordhoogte bereikte in de buurt van de $20.000, blijven MicroStrategy en zijn Bitcoin-evangeliserende CEO duidelijk bullish. Met de meest recente aankoop heeft het nu 40.824 Bitcoin in handen, met een waarde van meer dan $765 miljoen tegen de huidige tarieven. Niet slecht voor een investering van $475 miljoen.

MicroStrategy heeft meer Bitcoin in handen dan welk ander overheidsbedrijf dan ook, volgens Bitcoin Treasuries. Galaxy Digital Holdings, onder leiding van de bullish investor Mike Novogratz, is eigenaar van 16.651 BTC. Jack Dorsey’s Square, dat ook Bitcoin-diensten aanbiedt via de Cash App, heeft 4.709 BTC in haar boeken staan.

The decision on a digital euro could take a long time.

The financial authorities in Europe could work out an investigation plan for a digital euro as early as next year, according to a manager at the European Central Bank

Holger Neuhaus, Head of the Department for Market Innovation and Integration at the ECB, took part in the Singapore FinTech Festival 2020 on December 7th and spoke about the global development of digital central bank currencies (CBDCs).

In the online discussion, Neuhaus claimed that the ECB expects the European tax authorities to check by mid-2021 whether they want to work on a digital euro:

„In mid-2021 the euro system will examine whether a project for a digital euro should be launched. But I would like to emphasize that this would only be an investigation phase and not a decision. That would basically enable us to actually work out a plan. Then we would talk about what a digital euro could be, what it could look like, how it could be implemented and whether and when a political decision would be made. “
Neuhaus emphasized that a digital euro would only complement, not replace, cash or large customer central bank deposits. He also noted that central bank digital currencies would pose major challenges when used overseas, particularly with regard to cash flow management and relative compensation issues.

„This is where it becomes difficult and we have to think about how we can limit that. With fixed limits, be it with incentive systems or other possibilities,“ says Neuhaus.

Regarding CBDCs in Europe, Neuhaus also spoke about the ECB’s public consultation on a possible digital euro. This consultation was published in mid-October 2020 and aims to collect feedback from public and private people to assess whether Europe needs a digital euro.

In November 2020, ECB President Christine Lagarde asked the bank to make a decision on the introduction of a digital euro in January 2021.