With an explosive growth in 2021, what can expect from the crypto industry in 2022? Here’s our crypto predictions for the coming months.
It’s been a wild ride for the crypto and blockchain space in 2021. We’ve seen decentralised finance (DeFi) hitting a total value of $110 Billion, the rise of non-fungible tokens (NFTs), and the idea of exploring a virtual metaverse with blockchain technology.
With 2022 upon us, what new developments can we expect to see from the cryptocurrency and blockchain space? Here’s some crypto predictions we expect to see this year.
NFTs will continue to evolve
Non-fungible tokens have been a hot, and sometimes controversial, topic so far in 2021. Celebrities are snapping up NFTs as a new form of luxury status and brands are hopping on the digital bandwagon as another form of marketing. Furthermore, the success of 8-bit collections like Cryptopunks and KAWS-ish digital art like Bored Ape Yacht Club are fuelling a plethora of copycat launches in the hopes of being the next big thing in the NFT scene.
“The NFT marketplace has truly boomed in 2021. So much so that the word NFT has become Collins Dictionary’s word of the year. Our research has shown that users have sent at least $26.9 billion worth of cryptocurrency to Ethereum smart contracts associated with NFT marketplaces and collections. And NFTs have achieved popularity all over the world, with no specific region making up more than 40% of monthly web visits since March 2021.” Observed Ethan McMahon, Economist at blockchain data platform Chainalysis.
Yet the potential of NFTs go way beyond that of unique JPEG artworks. With blockchain technology being used to certify real-life certificates and real estate, NFTs could soon be the go-to for important documents like title deeds, hospital records, contracts, and other forms of documents. With the records of essential documents being stored on the blockchain, having to trace one’s ownership to a real estate or debates over a will could soon be a thing of the past.
At the same time, the infrastructure supporting NFTs will continue to grow in 2022. According to Messari, reliable and ubiquitous NFT tooling are still missing from the NFT ecosystem, and areas such as marketplaces, financialisation primitives, creator tools, community-oriented business models, and decentralised identity management are the key areas to watch in the coming months.
While Chainalysis predicts that more artists, creators, celebrities, and video game makers will launch their own NFT collections, the online art world has been largely divided on NFTs. Some see it as a way to own their work and create a fair income from it especially after the Beeple NFT sale, while others artists are denouncing it due to their art being plagiarised and minted for NFTs, plus the environmental concerns of minting these digital assets. The potential for NFT is huge, but such concerns need to be addressed if we expect blockchain technology to be widely adopted by different sectors.
Regulations will be the top concern for authorities
‘Regulations’ were the buzzword for governments and financial authorities across the globe when it came to cryptocurrencies. Singapore saw the recent closure of Binance and Huobi, while centralised exchanges like Coinhako and Independent Reserve raced to attain their In-Principal Approvals from the Monetary Authority of Singapore (MAS).
Investors within the ASEAN region are one of the biggest adopters of cryptocurrencies, but regional governments don’t seem to share the same sentiments with Malaysia banning Binance from the country, and Thailand advising against cryptocurrencies as payments. As Ripple’s Managing Director for APAC & MENA, Brooks Entwistle, puts it, “Intertwining social, economic, digital and political challenges in each jurisdiction creates unique complexities – which means some markets are going to race ahead while others struggle to come up the curve.”
With ongoing high profile cases such as the SEC’s legal tussle with Ripple and the recent hearing by the United State’s House Financial Services Committee, you don’t need a crypto prediction to know that regulatory matters will continue to be a longstanding issue between authorities and the crypto industry.
The first dApp store
Chief Economist at Chainalysis, Philip Gradwell, noted that DeFi and NFTs have shown more can be done with crypto than just investing in it, but there is no single crypto platform that owns the customer relationship and aggregates suppliers. Therefore the next area of competition could be a race to build a platform that integrates DeFi and NFTs, a crypto prediction that we agree with here.
While different infrastructure blockchains like Avalanche, Solana, and Cosmos are busy integrating different decentralised apps (dApps) like DEXes and NFT marketplaces to build their blockchain ecosystem, there is no one-stop site or platform where you can access them quickly. Sure, certain digital wallets like Trust Wallet or Enjin wallet link to other dApps, but let’s face it – the user experience is neither smooth nor friendly.
The only concern we have is, would the dApp store be linked to a single chain, or does it aggregate dApps from different chains? A multi-chain dApp store would be a heavy undertaking to create an application that can bridge all chains. Nevertheless, the creation of a dApp store would ease the experience for new crypto entrants.
The rise of DAOs
The formation of Decentralised Autonomous Organisations or DAOs is not a new idea, but it has certainly gained traction after a handful of users formed ConstitutionDAO to buy the U.S. Constitution.
Going back to the core concept of DAOs, it is simply an organisation that is held in placed and maintained by code and smart contracts. Think of a traditional organisation – the C-executives make decisions which are cascaded down to managers, who make the decisions happen by planning and executing with their team, and new users are hired via interviews. On the other hand, joining a DAO simply means holding the governance token of the organisation, and those tokens also allow participants to vote on decisions. Other than voting, members can also work for the DAO in exchange for more governance tokens or stablecoins.
While DAOs are often associated with decentralised finance such as MakerDAO and OpenDAO, the term can be applied to any group of like-minded individuals working towards a common goal. This is the case with herstoryDAO, an art collective dedicated to preserving and incubating the stories of marginalized crypto creators; Friends With Benefits DAO (FWB) which is a crypto-backed socialite club (and totally not referring to the actual FWB); and NFT collective PleasrDAO which collects luxury NFTs like Wu-Tang Clan’s “Once Upon a Time in Shaolin” and the original Doge NFT.
With DAOs changing the idea of what it means to be in a group or organisation, only time will tell if the concept continues to take flight in 2022.
Cryptocurrency security continues to improve
Let’s face it – the need to regulate cryptocurrency is partially due to the security risk that the industry faces. The most prominent issue is the DeFi space which faces one hack after another on an alarming regular basis, such as the Spartan Protocol and Thorchain hack to name a few.
According to Chainalysis’ latest report on crypto crime trends, cryptocurrency-based crime hit a new all-time high in 2021 with illicit addresses receiving $14 billion over the course of the year, up from $7.8 billion in 2020. Over $2.8 billion was lost to rug pull scams, and roughly $3.2 billion worth of cryptocurrency was stolen in 2021 — a 508% increase compared to 2020.
The spate of high-profile ransomware attacks on companies like Kia Motors, Acer, Accenture, and the Colonial Pipeline Company has not helped crypto’s brand image too. These cyberattacks use malicious software to block access to a computer system until a sum of money is paid, and the pay outs were often requested in bitcoins.
But while cryptocurrencies often get a bad rep when it comes to illegal dealings, the technology itself is key to deterring further crime thanks to its transparency. Chainalysis Global Public Sector Chief Technology Officer, Gurvais Grigg, states that blockchain’s public, immutable blockchain ledgers will making transactions more transparent and allows cryptocurrencies to become a critical tool in the fight against crime. Messari’s latest crypto thesis also highlights the visible trail that criminals leave on-chain, and crypto-crime departments are using these to their advantage in stopping crime.
As more people realise the positive narrative that blockchain technology has in fighting illicit activities, it will turn the image of cryptocurrency around from an asset used for crime to one that has proper utility.
CBDCs and payments will continue to make headlines
Central Bank Digital Currencies (CBDCs) are centralised digital versions of fiat currencies backed by government authorities, and countries around the world have been busy planning out their own CBDCs. Perhaps the country closest to completion is China with its digital yuan currency – it has already done its pilot trials in cities like Shenzhen and Suzhou, and companies are starting to accept the centralised currency as payment.
Singapore has also been busy developing its own CBDC here. What started as a plan to test its feasibility in Project Ubin culminated in the conclusion of the Global CBDC Challenge during the Singapore Fintech Week, which wrapped up the study by MAS to explore retail CBDC solutions. MAS will embark on Project Orchid next which aims to establish the technology infrastructure and capabilities needed to build a retail CBDC system.
More importantly, we are keen to see how CBDCs will eventually change the way payments are made in everyday life. Earlier last year, we spoke to Wadzpay Chief Executive Officer Anish Jain who noted that blockchain and CBDCs could create a level playing field for countries, and make payments efficient, faster, and cheaper from a remittance standpoint.
Ripple Managing Director for APAC & MENA Brooks Entwistle also notes that the emergence of CBDCs and real-time payment systems had shined the spotlight on ways to address inefficiencies in cross-border payments. “Remittances will continue to be a key use case, but given the fragmented nature of this landscape, we should expect other applications to come to the fore as well – such as trade flow or treasury management”.
Nothing highlights the CBDC race than a map which shows the number of nations leaping onto the CBDC bandwagon. With almost every country in the midst of researching or creating a CBDC proof-of-concept, we may soon see more centralised digital currency launches in 2022.
Decentralised storage and processing is key to blockchain survival
These two words seem to contradict each other. How could a system claim to be decentralised if it can be shut down? That’s exactly what happened with blockchains like Solana and Layer 2 solution Arbitrum One.
While Solana is a rising star in the blockchain community, its network has been affected twice due to overwhelming transaction load. On 15 September, a large 400,000 per second load had overwhelmed the network and caused the network to start forking. Solana’s engineers were unable to stabilize the network and its validator community chose to restart the network. On 10 December, the network was again affected due to network congestion from a recently launched NFT game.
On the other hand, Layer 2 rollup Arbitrum One saw their sequencer going offline for 45 minutes which meant no new transactions could be submitted. This incident occurred after a large batch of transactions were submitted to the Arbitrum sequencer over a short period of time.
Perhaps the incident that turned heads in the crypto community was the AWS outage on 8 December which took out both centralised and decentralised exchanges. Popular exchange Coinbase was out of commission along with Binance.US, and the decentralised exchange (DEX) dYdX also went down. The fact that a DEX could potentially be shut down was not lost on the community, and the team admitted that the platform still relies on centralised services.
Overall these incidents highlighted the fact that network nodes aren’t truly decentralised if centralised internet infrastructure can take them down. A system needs to be distributed in terms of network and physical infrastructure, and decentralised cloud storage projects that can spread out the storage and processing load would be key to preventing further blockchain shutdowns.
Metaverse and Play-to-Earn games need to substantiate their hype
Play-to-Earn (P2E) games and the metaverse are undoubtedly two of the hottest topics at the moment. P2E games exploded on the scene with the success of Axie Infinity and have spawned a plethora of P2E games like Splinterlands, Gods Unchained, and the more recent DeFi Kingdoms. On the other hand, the metaverse and virtual lands became the new buzzword almost overnight with Facebook’s Meta rebranding.
As both categories start to expand, they become increasingly overlapped. For example, Axie Infinity players can purchase parts of the Axie-verse through tokenised plots of land, and the Sandbox metaverse encourages players to create games and interactions on their own lands. From an investor’s point of view, both categories represent another avenue to invest in. But from another perspective, both P2E and the metaverse falls flat as a concept.
Let’s start with the metaverse. While the idea that the metaverse will be the next ‘Ready Player One’, it will most likely be an amalgamation of social media, e-commerce, and gaming coalesced into a virtual world, with VR gadgets being optional. This raises a few questions:
- What network will the metaverse be created on?
- Can the network handle the load of a live virtual world 24/7?
- If different networks have their own metaverse, how will they be connected?
To create a virtual world that engages individuals these hurdles must be answered first. In essence, these questions are similar to issues faced by blockchains too. There must be enough computational power, processing, storage, and transaction speeds to handle the load of a virtual world, and there isn’t enough of that with today’s current technology.
Moreover, the issue of bridging across metaverses on different chains is another major hurdle. At present, cross-chain bridges are now only starting to gain traction in the crypto space, and we can’t even begin to imagine moving virtual characters across different chains to other metaverses in a short amount of time.
And what about P2E games? Let’s view it from a gamer’s point of view here. If you’ve seen the launch of highly expected games like Cyberpunk 2077 and Battlefield 2042, you’ll know that the gaming community is a hard crowd to please. While continuously playing games to earn tokens are fine if you view it as a job, opting for mindless grinding in a game with unentertaining gameplay is sure to drive players away.
In essence, P2E games need to start viewing the crypto earning aspect as an added feature of the game instead of making it the reason for playing, and metaverse platforms need to solve some fundamental hurdles before both categories become a passing trend by 2022.
We’ll start to see more blockchain bridges
The maximalist idea of a single chain or token crowding out other projects is dead, and the future of blockchains is a multi-chain one. That said, we can expect to see more cross-chain bridges popping up in 2022.
Just as we want to be able to send documents between different operating systems seamlessly, we would also want to move our assets between different blockchains without a hitch. A bridge does exactly that by converting or wrapping assets from one chain to another chain while maintaining the same value, which helps link different chains together and prevents any blockchain from becoming isolated within its own ecosystem.
Cross-chain bridges like Cosmos’ Gravity bridge, Polygon Wallet bridge, Solana’s Wormhole bridge, and xPollinate recently launched in 2021 and we can expect to see more bridges appearing in 2022 to help users move their assets between chains.
Ethereum might lose its dominance
Ethereum has been on a roll in 2021. It has seen its recent London hard fork and Arrow Glacier upgrade being executed successfully, while chain merging and sharding is slated to happen in 2022 and 2023 respectively. But let’s be real – retail investors aren’t interested in the upgrades unless it can solve the issue of high gas fees.
Despite being the chain of choice for many decentralised apps and projects, high gas fees are stifling the overall ecosystem. No one wants to pay $200 worth of fees to transfer $100 worth of tokens or buy a $60 NFT. Interacting with DeFi protocols are prohibitively expensive which means only large transactions would make sense, but this turns away users with smaller asset holdings.
Rising blockchains have successfully managed to grow their own ecosystem aggressively thanks to their low transaction fees, and this has encouraged users to interact or try out new dApps without it costing them an arm and a leg with every transaction approval. If Ethereum doesn’t resolve its high gas fee issue by end of 2022, they may lose their first-mover dominance and become another standard chain with Layer 2 solutions as its crutch to lower fees, while successful Layer 1 chains like Avalanche, Solana, Cosmos, Polkadot, and Terra continue to grow their user base further in a multichain world.