2022 Wasn’t So Bad For Crypto (Just Mostly)

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Crypto had a terrible, horrible, not good, very bad year in 2022.

Coins started piling up at the start of the second quarter and never bounced back; Terra collapsed in May, leading to the bankruptcies of Celsius, Voyager and Three Arrows Capital; the Feds sanctioned Tornado Cash in August; FTX collapsed in November, bringing bankruptcy to BlockFi and warning signs from Genesis and Digital Currency Group. The whole world is watching crypto right now for the wrong reasons.

But the year has not been bad. The industry has seen glimmers of positive progress that you’d be excused for missing, or forgetting, amid mass panic over the alleged Sam Bankman-Fried fraud.

Ethereum merger

After years of waiting and numerous delays, the Ethereum merger event happened in September and went off without a hitch. Ethereum, the #2 cryptocurrency, has gone from the energy-intensive proof-of-work mining mechanism used by Bitcoin (and long been the punching bag of environmentalists) to a proof-of-stake mechanism that uses 99% less hardware. ‘electricity .

The impact of this transition could take years to understand, but it could put Ethereum in pole position to rival Bitcoin in terms of adoption and perhaps, one day, even value. Just because ETH price didn’t budge from the event, and just because the reaction from the general public sounded like a groan instead of a clap, doesn’t mean the merger was a shrug. (It also came at a time when the U.S. economy was cracking, inflation was skyrocketing, and all investment asset classes were down.)

“It was a gigantic undertaking that the Ethereum developer community handled remarkably well,” ConsenSys CEO Joe Lubin, co-founder of Ethereum, told me in October. “That was, I think, the last big question mark surrounding whether Ethereum will be systemically important in the future…And I think our colleagues in other ecosystems probably feel a little more respect for the Ethereum ecosystem.” They do: even the old “Bitcoin maximalists” recognized the importance of the merger.

Legislative dynamism

In crypto, everyone talks about regulation as a dreaded bogeyman: regulation = death. This is understandable, as the whole initial appeal of crypto for many was to cut out the middleman, decentralize everything, and exist outside of government regulation. Over the years it has become very clear that this is not a realistic vision for most projects. Just look at the shocking Tornado Cash penalty this year. The future of crypto is going to look more regulated than purists would have liked, but regulation doesn’t necessarily mean interference.

While SEC Chairman Gary Gensler’s statements have been very chilling, other key DC figures are much more open-minded and are working on legislation that would regulate crypto markets in a way that doesn’t. not hinder innovation. Senators Lummis and Gillibrand have reached across the aisle to side with a bill that would give the CFTC responsibility for crypto rather than the SEC (sorry, Gary), and Coinbase is bringing its support for two other bills (one from Senators Stabenow and Boozman in the Senate, and one from Representatives Thompson and Khanna in the House) that have a similar purpose.

The thing is, there are some encouraging regulatory moves quietly unfolding while everyone in crypto is busy freaking out about Gensler and the SEC. Even President Biden’s Crypto Executive Order in March should be seen as a positive indicator: the order was a (light-hearted) call for multiple agencies to agree on crypto regulation; he didn’t say “shut everything down”. Meanwhile, overseas, the European Parliament passed a crypto legislative package in March that specifically mentioned “ensuring that the EU’s financial services regulatory framework is innovation-friendly and does not pose ‘barriers to the application of new technologies’.

VCs still believe

Call them crazy or deluded, but VCs keep pouring money into Web3 games. Andreessen Horowitz (a16z), the elephant in the room at Web3, has raised $4.5 billion for another crypto-centric fund (his fourth); a16z alum Katie Haun Haun Ventures has raised $1.5 billion for crypto investments; Pantera has raised $1.3 billion for a blockchain fund. A slew of crypto companies and projects made money even in the deep freeze of a crypto winter, including Fireblocks ($550m), ConsenSys ($450m), Secret Network ($400m). million), NEAR ($350 million), Chainalysis ($170 million), Keyrock ($72 million), and Ramp ($70 million), to name a few.

Oh, and there was a crypto derivatives exchange called FTX that raised $800 million in 2022 ($400 million for FTX and $400 million for the “separate” US entity FTX) at a valuation of $32 billion. of dollars.

Oops. This last example is a reminder: VCs can be very, very wrong. It’s their job to throw money at a lot of things and hope that a couple will hit it big. But even after the series of collapses and bankruptcies of 2022, those with deep pockets still want to donate money to crypto founders.

The big brands have embarked on NFTs

Yes, the fast-reversing JPEG speculative bubble has burst. To deny this, you would need to check your head. But mostly it was the PFP mob (profile picture), coughing up hundreds of thousands of dollars for a cartoon monkey. This madness has earned us rug pulls, comically botched art reveals, and “wash swaps” to inflate the sales volume of a new market.

As several executives in the NFT space have said since the bubble burst, the mania was not sustainable for the space. From a mental health perspective, it wasn’t healthy for Art Blocks as a team, and it wasn’t healthy for Art Blocks artists, Art Blocks founder Erick told us. Calderon, on the gm podcast.

In the aftermath, as the dust settles, real use cases remain. NFTs are just tokens (I think we’ll stop using all those acronyms and jargon soon enough) that can function as anything that requires immediate, verifiable ownership, from a party pass to a sport through membership in a club and a real estate deed. These are the legitimate possibilities that excite people able to look past the point disdain and laugh at those who seem to be triggered by the very term “NFT”.

Believers now include big brands like Tiffany, Adidas, Starbucks, Bud Light, Instagram and Reddit, all of which took steps to adopt NFTseven after NFT trading volume plummeted. (And a big shout out to Polygon, chosen as the blockchain partner for three of those brands.) Are all of those brands totally and humiliatingly wrong, or is it possible they’re onto something?

Yosuke Matsuda, president of “Final Fantasy” game publisher Square Enix, sounded a bullish note on NFTs in his year-end letter: “I expect to see a possible resizing of digital goods offerings to as they become more common among the general public, with the value of each available content corrected to their true appraised value, and I expect they will become as familiar as transactions of physical goods.”

Crypto Media Remains Hungry

To end on a more meta (not the company) note: Sam Bankman-Fried’s cinematic downfall was a boom time for crypto media. The collapse of FTX has sparked mainstream fascination beyond anything that has ever happened in crypto bigger than Mt. Gox, bigger than Silk Road, bigger than the DAO hack, bigger than the Quadriga fiasco, bigger than the sudden bull run of 2017.

I’ve been writing about Bitcoin since 2011, and never have my phone and inbox exploded with so many requests from crypto-curious friends and family. Major print and broadcast media recognize that they need to understand and report crypto events. I’m proud of the way our team of reporters covered the FTX story, and also happy to see the great work of some of our peers (especially CoinDesk, which got a lot of attention for its track record scoop of Alameda).

So, while it might seem contradictory to say at a time when the crypto markets are in the midst of winter and the biggest news is negative: it is an exciting time to report on crypto. As I like to say, it’s never boring. Hope you stick with Decrypt in 2023 for crypto-breaking news, education, buzz, and insight.

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