Crypto: after winter, spring

Blockchain Chronicle. Three themes could emerge as winners from the crisis: regulation, NFT and web3. Not to mention the second level (or L2) speed solutions.

The price of Bitcoin has dropped below $ 20,000. It is winter in the world of cryptocurrencies. Two scenarios arise. Either winter continues, the temperature drops again and it is white death, or spring returns, as it always returns after winter.

Every winter is different. This is unique in that it coincides with a bear market for traditional assets. The drop in the price of bitcoin and all cryptocurrencies is linked to the global macroeconomic and financial environment. The war in Ukraine, inflation, the economic slowdown, the energy shortage, the rise in policy rates and the reduction in overall liquidity have accelerated both traditional and digital markets.

It’s hard to know when this winter will end. An improvement in the global environment, a softening of central bank rhetoric, could turn the tide. We are not.

We take advantage of this darkness to project ourselves into the future and imagine what spring could be like.

Three themes could emerge before the crisis: regulation, NFT and web3. Without forgetting also the second level speed solutions (Layer 2 scalability solutions in English) which for simplicity we will shorten with L2.

The rules

Regulatory pressure is palpable at all levels in the world of digital assets. The Bank for International Settlements has just released its recommendations on the treatment of digital assets for banks. By the end of the year, the European Union is expected to implement a new regulation known as MiCA for the cryptocurrency market. Britain started regulatory work in 2019 with the publication of a guide that is continually being adapted. Finally, in March the President of the United States signed an executive order aimed at ensuring the responsible development of digital assets.

In addition to this substantial work, lawsuits have been initiated against Do Kwon, founder of Terra Luna, the ecosystem whose UST algorithmic sandcoin has imploded, and against Tornado Cash, a decentralized application whose purpose is to protect users’ identities. of cryptocurrency.

These actions show that investor and consumer protection as well as traceability such as the origin of funds (anti-money laundering) and know-your-customer are topics that will define the blockchain world of tomorrow.

Regulated operators, stablecoins whose reserves are controlled, and digital asset service providers who apply strict rules on the origin of funds and clients are well positioned. An institutionalization of the sector must therefore be observed.

In this context, NFTs (non-fungible tokens) could also play a central role because they combine identity and confidentiality.

NFTs in the context of the web3

Linked to the delicate notion of traceability, NFTs have unique properties, making this technology an ideal candidate for this function. Indeed, NFTs are meant to list unique digital values, such as identity. Furthermore, one of the valuable features of cryptography is the ability to simultaneously prove identity without revealing it. In other words, an NFT combines identity and privacy.

Then you can create a digital identity that lists your data and defines you. Thanks to this identity, you can access regulated services, without revealing your name, and thus carry out transactions anonymously in a secure environment.

There is a category of NFT called SBT for Soulbound Token and which has the particularity of not being transferable. This particularity is essential for everything related to identity. Indeed, a non-transferable identity is a prerequisite for high data quality.

In a broader context, that of web3, the web of tomorrow in which the user owns their data, NFTs could play the role of identifier. For example, instead of the usual coffee vendor loyalty card, you might have a “bored coffee status NFT” that represents you and contains data that matches you. If the NFT is associated, for example, with super latte type coffees, this NFT will allow you to enjoy the new super latte double cream, skim milk. It takes you into the closed circle of lovers of a certain type of coffee and gives you access to tastings from the best baristas.

Second level speed solutions: L2

Finally, another promising topic on which blockchains work is that of the speed of execution of transactions and the cost of these transactions. In the case of bitcoin, you have to wait for a block to be attached to the chain for the validation of the transaction. With bitcoin, on average a block is attached every ten minutes. Furthermore, since the block size is fixed, it is sometimes necessary to wait to see the transaction executed, or to pay more to place it at the top of the list of subsequent transactions.

Thanks to L2, transactions are performed quickly and at a lower cost. There are a large number of solutions called rollups that are emerging.

Imagine blockchain being able to complete tens of thousands of transactions in less than a second, 24/7, all year round. This implies that any digital (bitcoin, stablecoin) and digitized (paper-value) value can be transferred at any time and instantly to the four corners of the planet and at a negligible cost.

In short

Innovation and development continue despite the difficult environment. Three themes could emerge as winners from the crisis: regulation, NFT and web3, and finally second level speed solutions (Layer 2 scalability solutions) which for simplicity we will shorten to L2.

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