We find ourselves in a pivotal moment in the blockchain revolution, with the events of 2023, particularly the banking crisis, serving as reminders of the enduring significance of blockchain technologies’ attributes of decentralization, self-custody, and transparency.
This article is divided into two sections, each exploring the dynamics of the blockchain industry and highlighting that we’re in the midst of crypto’s “broadband moment.” In the first section, I highlight 4 technical driving forces that shaped 2023 and bound to underpin the upcoming months:
- Trend #1: The ongoing battle for protocol scalability.
- Trend #2: The Data Availability war.
- Trend #3: The rise of Account Abstraction, the next standard for user interaction.
- Trend #4: The emergence of the Shared Security concept, bound to shape crypto’s future.
- Trend #5: NFTs, a rapidly changing landscape.
In the second section, I outline my 2024 predictions by answering the following questions:
- Which blockchain protocol will prevail in the near future?
- Which consumer-facing crypto use cases are to be expected this year?
- And in bonus: a few complementary forecasts for 2024 🙂
Part I: What shaped 2023 in the blockchain field?
Trend#1: The ongoing battle for protocol scalability:
Our daily Internet applications couldn’t exist without the exponential broadband speed reached decades ago. As we examine the evolution of the crypto landscape throughout 2023, it is clear that we’re in the midst of a similar “broadband moment” characterized by a blockchain race for increased scalability. Let’s examine how the main blockchain protocols evolved over the past 12 months.
Cosmos – leveraging blockchain modularity:
Cosmos is a decentralized network of independent, interoperable blockchains aiming to solve the scalability and interoperability challenges many blockchains face. The foundational principles (and strengths) of Cosmos lie in modularity, a feature that facilitates the development of dedicated chains for implementing an application. At the heart of this feature is the Inter-Blockchain Communication Protocol (IBC), a system that enables communication and the transfer of assets between different blockchains within the Cosmos ecosystem, Tendermint, and its associated dPOS.
Several interesting protocols have recently moved to the Cosmos ecosystem, highlighting the protocol’s strong vitality. This is exemplified by DyDx’s transition from StarkEx to its dedicated chain in the Cosmos ecosystem. This move is accompanied by intriguing incentive structures, where trading fees flow to validators through staking mechanisms. Interestingly, Celestia, a modular data availability network, also launched on the Cosmos ecosystem.
I believe this Cosmos modularity narrative could play an important role in the next cycle, and that the Cosmos ecosystem could be an interesting setup for bringing assets and services to the other chains, highlighting the potential for cross-chain collaboration within this specific blockchain landscape.
Solana – the renaissance of a robust Layer-1 network:
Following FTX’s downfall in November 2022, many commentators declared the death of Solana. 2023 proved them wrong. Post-FTX, renewed interest in Solana has been fuelled by fundamental strength, positive technical indicators, and impressive market performance. Solana’s recovery is now evident, with a token price above $100 and a 1000% annual increase. Key elements driving the token’s resurgence include significant updates, developer commitment, community support, and strategic partnerships. The platform’s breakthroughs in high-speed blockchain technology, NFTs, DeFi, and Proof of History distinguish it in the crypto landscape.
As a matter of fact, Solana’s core value proposition is resolving scalability challenges through a robust and scalable Layer-1 (L1) solution. Indeed, one of the key advantages of the Solana design is that everything happens on Layer-1 mainnet, which avoids liquidity fragmentation and complex bridging problems. This is achieved with faster consensus but heavier validation requirements, which could lead to less decentralization, although this is subject to debate. To achieve a high level of scalability, Solana leverages, among other things, parallel execution. A few other projects followed this track, including Aptos, Sui, and notably Monad, which is EVM compatible.
The future of Solana hinges on upcoming projects, institutional adoption, and addressing scalability challenges. Despite potential obstacles, Solana’s resilience and potential for growth position it as a significant force in the evolving crypto narrative. Comparing Solana to Ethereum, Solana’s scalability and low fees position it as a strong competitor.
Ethereum – a focus on infrastructure building:
In the previous crypto cycle, the soaring number of DApps on Ethereum led to congestion and skyrocketing fees. That’s why in 2023, the Ethereum ecosystem mainly focused on fortifying its foundational infrastructure to face limiting throughput. The solution came in the form of OP STACK, a technology leveraged by Coinbase to introduce BASE, a highly successful project. On top of that, various other solutions played integral roles in scaling protocols in 2023, including validity rollups, Zero-Knowledge sync, Starknet, Scroll, and several others. Validity rollups have a key advantage over optimistic rollups: transactions are final as soon as they are anchored on the L1. In contrast, on optimistic rollups, transactions are final as soon as the fraud claim period is over (generally 7 days).
In the near future, we’ll see a wide range of Layer-2 protocols enabling the seamless operation of blockchain-intensive applications. For a deeper exploration of the future trajectory of Ethereum and its capability to facilitate the mainstream adoption of Web3, refer to my comprehensive publication.
Bitcoin – tackling a historical throughput challenge:
In 2023, the Bitcoin network addressed its long-standing challenge of slow transaction speeds through the growing popularity of Layer-2 networks, promising to improve transaction processing times significantly. In this regard, the Lightning Network gained significant traction in 2023 but remains small, with around 5,000 BTC. Over 70 LN-enabled wallets from providers like BlueWallet, Muun, and Phoenix supported this progress, with adoption ranging from individuals in inflation-hit nations to global corporations.
In tandem with the Lightning Network’s progress, the Bitcoin ecosystem experienced noteworthy advancements in roll-up technologies, featuring various forms with unique attributes. The landscape was enriched by significant research, particularly with BitVM, and the resurgence of discussions surrounding covenants and drive chains contributed to the ongoing evolution of Bitcoin’s technological landscape.
Trend #2: The Data Availability War
When interacting with blockchains, users want to write data that can’t be tampered with. Sometimes this data is programs that can be executed. Sometimes, it’s simply read-only data that must be available. A good example of this is ZK Rollups. Zero-Knowledge Proof (ZKP) technologies ensures the validity of Layer-2 (L2) state in the blockchain. However, accessing this state also requires additional considerations. To enhance throughput, execution is moved off-chain, but the data must remain accessible for reconstruction. Transactional data is submitted as calldata on Ethereum, ensuring availability for future reconstruction, and can be stored in decentralized storage like IPFS or Arweave. Storing this data on-chain is less efficient and expensive, as it only reconstructs the L2 state without execution.
To tackle this, Ethereum developers proposed to split the Ethereum data into executable data (traditional blockchain space in call data) and non executable data. The implementation of EIP-4844 will introduce a new transaction type for immutable and read-only Layer-2 data storage, which is not accessible by the Ethereum Virtual Machine (EVM). This evolution of the Ethereum blockchain is planned to be live soon. In January on Goerli and Sepolia, early February on Holesky and soon after on mainnet! These EIPs align with the ZKRollup roadmap, focusing on essential L2 data storage, and Execution Sharding roadmap, specifically Proto-Danksharding (EIP-4844). Danksharding involves breaking large datasets into smaller parts for parallel processing, relevant in big data and AI. Proto-danksharding doesn’t implement sharding but offers cheaper calldata storage that could potentially be sharded, enhancing Ethereum scalability on L2.
On top of that, Celestia, Near and EigenDA are introduced as potential Data Availability Layers, suggesting alternatives for storing data that doesn’t need to be executed. These layers could play a crucial role and directly compete with EIP-4844. Simply put, after the 2023 scalability battle, we should witness the Data Availability war in 2024.
Trend #3: Account Abstraction, becoming the next standard for user interaction
In March 2023, the Ethereum mainnet witnessed the introduction of EIP-4337, a development establishing standards for Account Abstraction. This blockchain-enabled technology aims to revolutionize user experience in crypto, as today’s interactions with Externally Owned Accounts (EOA) remain basic.
The potential transformative power of Account Abstraction lies in its ability to enforce complex on-chain rules, promising a paradigm shift for crypto users. Recent strides in EIP-4337 mark substantial progress toward realizing this transformative vision. However, several challenges must be addressed. One such challenge is the inherent costliness of executing the flexible governance model of Account Abstraction directly on the blockchain compared to conventional EOA transactions. On Ethereum’s Layer-1, the limited scalability of the chain leads to high execution costs. Nevertheless, on scalable Layer-2s, Account Abstraction could emerge as the default choice, allowing users to define complex governance rules enforced by the Layer-2 consensus and anchored in the Ethereum Layer-1.
Read this article to learn how “Account Abstraction” promises to improve user experience and why hardware wallets will serve as foundational roots of trust in this emerging paradigm.
Trend #4: Shared Security, a concept bound to shape crypto’s future
“Shared Security” is a groundbreaking concept that marked 2023 and holds big promises for the future of the industry. In crypto, starting new projects involves daunting challenges, including a wide range of variables and costs to support a growing user base. The model of “Shared Security” tackles this challenge, as it involves applications pooling resources on a dependable decentralized system, ensuring that the benefits of secure blockchain networks are extended and utilized across various platforms, fostering a more interconnected and resilient ecosystem.
Two notable platforms, Babylon and Eigenlayer, are actively contributing to the realization of the Shared Security vision, albeit with distinct approaches.
Eigenlayer focuses on Ethereum’s Shared Security model, utilizing a mechanism known as “Restaking.” This allows users to use Ethereum to stake other services concurrently, enabling participation in validation services and receiving payment. Eigenlayer also introduces innovations like the Data Availability Layer, which enhances data transfer speed using Roll-ups technology. In contrast, Babylon leverages the Bitcoin network to secure decentralized applications. It introduces various protocols, including the Timestamping Protocol, which identifies Bitcoin’s secure time, establishing it as a universal standard for use with other Proof-of-Stake networks.
The significance of Shared Security in shaping the future of crypto lies in its capacity to provide a collaborative and secure foundation for a diverse array of applications. As Babylon and Eigenlayer forge partnerships and navigate challenges, the pursuit of Shared Security emerges as a pioneering force bound to shape the trajectory of crypto.
Trend #5: NFTs: A Rapidly Shifting Landscape
The NFT hype fuelled the previous crypto cycle, with OpenSea reigning supreme in the digital collectibles realm. Despite numerous attempts by competitors, none could unseat its dominance. However, as the NFT market, like the broader crypto economy, succumbed to the bear market by the end of 2022, a game-changer emerged: Blur.
Blur: the birth of a disruptive NFT platform
Blur, unveiled in October 2022 by @PacmanBlur (also the creator of Blast), swiftly disrupted the NFT market, challenging OpenSea’s dominance. Within four months, Blur’s strategic approach, including zero marketplace fees and a 0.5% minimum creator royalty, has garnered significant attention. The introduction of the BLUR token also marked a pivotal moment in Blur’s growth strategy, as it empowered BLUR token holders to participate in decentralized governance, influencing key platform parameters. The big token’s airdrop fostered community engagement by promising decentralized decision-making.
Blur’s impact on OpenSea is evident in key performance indicators. Trading volume on Blur surpassed OpenSea’s within days of its token launch, and daily users tripled post-airdrop. With a trade count comparable to OpenSea, Blur demonstrated its ability to compete with established players.
As the above chart highlights, the average sale size on Blur is higher, driven by a focus on high-value trades. Blur’s royalty fees model allows creators to earn full royalties everywhere, unlike OpenSea’s limitations. A loyalty feature incentivizes exclusive listings on Blur, aiming for 100% user loyalty.
Blur’s success rests on three pillars: an extensive array of NFT choices, impressive speed (10x faster and 20% more gas-efficient than Gem), and a user-friendly interface. On top of that, BLUR tokenomics, inspired by Uniswap’s UNI vesting schedule, emphasizes community involvement and a straightforward distribution approach. The governance token is distributed based on a point system tied to liquidity provision, bidding, and risk-taking.
Blur’s success poses a challenge to OpenSea’s market leadership. Despite the potential impact of token airdrop completion, Blur’s product-market fit, lower fees, and superior trading tools position it as a strong contender in the competitive NFT landscape. The ongoing market dynamics will determine whether Blur can sustain its momentum and become a lasting force in the NFT ecosystem.
Is EVM still the house of NFTs?
Unexpected contenders are challenging Ethereum’s long-standing dominance in the NFT landscape: Bitcoin and Solana… marking a new era for digital collectibles?
- Bitcoin has experienced a remarkable surge in NFT trading, fueled by the popularity of ordinal inscriptions in 2023, making Bitcoin the biggest chain in terms of NFT volume in Q4. These inscriptions enable the creation of NFT-like assets directly on the Bitcoin blockchain. The appeal lies in the trust in Bitcoin, the affordability and the uniqueness of storing NFTs directly on the blockchain, expanding Bitcoin’s presence in the NFT market. Bitcoin ordinals have also led to a substantial increase in the blockchain’s mempool, reaching an all-time high, resulting in slower processing times and higher fees, and reflecting the challenges of adapting to increased demand for blockchain services.
- Solana has also emerged as a strong competitor, recording higher NFT trading volumes than Ethereum. Successful initiatives and partnerships, including Jito’s airdrop distributing $165 million worth of tokens, have contributed to this upswing. Tensor, a Solana-based NFT marketplace, has seen increased activity, with speculations about potential airdrops driving sales. The Pudgy Penguins NFT collection has gained attention with its innovative online game and expansion into physical toys, exemplifying how NFTs bridge digital and physical realms.
As examined, the NFT market is undergoing a paradigm shift, with Bitcoin and Solana challenging Ethereum’s historical supremacy. This competition is fostering innovation, introducing new methods of NFT creation and trading, and reshaping the NFT ecosystem structural dynamics.
Part II: Predictions for the year ahead
As we embark on a new year, it is now time to assess the possible driving forces for the year ahead. In this section, I answer the following questions: which blockchain protocol will prevail in the near future? Which consumer-facing use cases could play the most important role as 2024 unfolds? In bonus, I provide a few complementary forecasts for the months ahead.
Which blockchain protocol could win the scalability battle?
As I’ve examined, the blockchain sector has faced profound scalability limitations during the previous cycle, but these limitations now have several solutions. In parallel, determining which solutions will prevail in the medium term remains uncertain.
The Cosmos ecosystem, built on Tendermint, boasts a robust design, but also faces adoption barriers due to the Atom token’s peripheral role and limited developer ecosystem. Without introducing novel apps or features compared to the Ethereum Virtual Machine (EVM), Solana could lose its potential as an “Ethereum-killer.” However, the native interoperability and streamlined deployment of a blockchain app on Cosmos could play a significant role in the upcoming cycle, supporting an ecosystem rich in applications like Decentralized Exchanges (DEX) and Data Availability. While Solana returned unexpectedly in 2023, its one-chain model and enhanced robustness position it favorably for the next cycle.
Ethereum, with its expansive and continually growing ecosystem, holds a significant advantage. The rollup design promises a growing range of new applications at the Layer-2 level, potentially positioning Ethereum as a settlement layer for EVM chains. This could mean that the mainnet virtual machine would become useless, and the Ethereum design would be overly complex for doing settlement only, leaving the door open for a Vampire attack! Yet, Ethereum’s rollup strategy encounters challenges, which could lead us to a Data Availability war. Although Proto-danksharding will be implemented soon, other solutions may outcompete, delaying the realization of the danksharding vision.
Which consumer-facing use cases are to be expected in 2024?
Solving scalability challenges opens up affordable blockchain space, paving the way for previously unfeasible apps and experiences. This begs the question: which use cases will prevail in 2024?
Web3 gaming emerges as a significant use case, transitioning from a niche primarily due to scalability constraints. The Play-And-Earn model could realistically replace the Play-To-Earn paradigm, and players could interact with blockchains without knowing it. Account Abstraction is bound to play a crucial role in this emerging gaming model, simplifying complexity, adding a governance layer, enabling social recovery, and facilitating third-party sponsorship of user transactions.
Advancements in blockchain-powered Decentralized Identity are also to be anticipated, although mainstream adoption of the Self-Sovereign-Identity stack, with high interoperability and private identity attributes, remains difficult to reach in the medium-term.
Last but not least, “Decentralized Social Media” could capture significant attention as they confront the widely recognized inefficiencies and centralization issues at the core of today’s social media landscape. In this context, Decentralized Social Media could emerge as viable solutions, enabling user-centric models built upon principles of data ownership and censorship resistance.
Here are a few complementary predictions that I believe will shape 2024:
- The re-staking and “shared security” model will spark discussions and competition, possibly leading to failures when incentives deviate from game theory frameworks.
- Ecosystem fragmentation will heighten the importance of (trustless) bridges, though unfortunate hacks may occur.
- The stablecoin market will continue to grow, with different projects addressing various needs, posing challenges and opportunities in terms of transparency, governance, and regulatory compliance. In this regard, we might unfortunately witness new disasters.
- Bitcoin will retain its dominance, fueled by traditional finance’s increasing involvement.
- The Bitcoin blockchain space will be more scarce, and the rise of Ordinals will drive higher transaction costs. The Lightning Network’s adoption will remain limited, but the Bitcoin hash rate could reach all-time highs despite the halving.
- After the approval of the U.S. Spot Bitcoin ETFs, the U.S. will witness the mainstream introduction of Ethereum Spot ETFs, while blockchains will gradually become preferred infrastructures for value exchange.
- Traditional Finance adoption will progress significantly, giving rise to new financial products based on the world’s main crypto-asset. We will see a prominent trend of TradFi assets tokenization that can be exchanged efficiently on Blockchains (faster, cheaper, and on a transparent ledger). We’ll also witness traditional banks offering crypto to their customers.
- The U.S. and EU continue their efforts on Central Bank Digital Currency (CBDC) projects, though none is expected to be released in 2024. Regulators will provide increased clarity on the use of crypto-assets.
Today, the world counts nearly 5.3 Billion Internet users. However, such a digital shift wouldn’t have materialized without exponential broadband speed and scalable Internet infrastructures reached decades ago. And the same is true for the blockchain field today: crypto use cases require scalable protocols to spread to billions of users.
As we navigate the multi-faceted technical landscape of blockchains, it becomes clear that we are currently in the midst of what can be described as the “broadband moment” of the crypto revolution. As blockchains become more scalable and clear winners emerge, the next step will undoubtedly be the growing accessibility of consumer-facing applications that hundreds of millions of users will be able to access.