Final winter, I discovered myself at a cocktail party within the metropolis. It was a combined crowd, by which I imply individuals who understood my work, those that didn’t, or those that have been skeptical of it. I’m a crypto lawyer and coverage advocate, so I’m used to questions like: Are you a lawyer for Bitcoin? And do you even use a financial institution?
As everyone knows, the crypto business had been rocked on the finish of 2022, which meant I fielded extra questions than standard. At one level, a pal pulled me apart and requested, “Is this the end of crypto? Are you okay?”
Now, a 12 months later, I can reply with confidence: Not solely was it not the top, however 2023 was additionally really good for crypto. I’m extra dedicated to this house than ever, and going into 2024, I’m assured that the expertise will persist — that crypto is right here to remain — even within the face of repeated destructive press, continued naysayers, and chronic international regulatory stress.
The optimist’s case for crypto is easy: Technical maturity is happening in tandem with regulatory headway and wider adoption.
However to be an optimist in crypto is definitely to be a realist, to acknowledge not solely the thrilling developments we see coming into 2024, but in addition the challenges we should take head-on within the 12 months forward. I name this strategy “crypto optimist realism”: an acknowledgment of each how far we have now come and the way far we have now to go.
Even when 2023 exceeded the expectations of optimists like myself, it doesn’t imply that 2024 will probably be a cakewalk. In reality, within the three points that matter most to crypto — technical development, regulatory progress, and adoption — the tailwinds taking us into 2024 will probably be met with continued headwinds we should overcome to progress right into a mature business.
The expertise superior sooner than anybody imagined. Now we have to present why that issues.
Within the wake of centralized “crypto-in-name-only” monetary collapses, 2023 bore out a vitalized recommitment to advancing sustainable, hardened, decentralized networks. The expertise, throughout various networks, is lastly attending to a spot that may deftly deal with what “normies” would anticipate from the web itself, whether or not or not it’s for monetary, social, communication/messaging, or informational functions.
Final 12 months, the business obsessed over zero-knowledge expertise, zkEVMs, and scaling options, rightly so. Large technological leaps got here to life at scale, defying the expectations of many who believed that if such expertise have been potential exterior of mathematical theorems, it wouldn’t be potential for many years.
Throughout practically any vertical you may think about, some aspect of blockchain has begun to look.
There are actually sooner, extra inexpensive, and extra environment friendly methods to transact and work together on the web, secured by decentralized databases hosted by computer systems globally that permit people to protect and management their very own knowledge, worth, and content material. The present state of blockchain positively seems like one thing out of “Neuromancer.”
However right here we’re, residing it.
Now the problem is guaranteeing that hundreds of thousands of individuals worldwide can reside this future, too.
The primary chasm to cross is the right way to speak accessibly about what blockchains really do and why they’re higher, a minimum of for sure use instances, than what we have now now. The usage of insider phrases (“rollups,” “smart contracts,” “oracles”) with the normal world is usually counterproductive. Jargon makes the tech and the business esoteric, isolationist, and inaccessible. A lot of the lexicon related to blockchain developed for a small, developer viewers, which suggests to develop alongside the increasing attain of the tech, we should change how we speak about it, too.
With some tech challenges properly on their technique to being solved at scale, a main hurdle stays to make the why of blockchain higher understood.
This implies explaining how the expertise gives actual, tangible advantages in a fashion simply grasped on a world foundation and throughout techies, normies, and industries.
“Regulatory clarity” superior in surprising methods, however the AML quicksand requires an answer
For these of us participating on coverage issues, the top of 2022 was existential. It was exhausting to fathom how regulators and policymakers may have interaction meaningfully after the business writ giant had been plastered with integrity points that arose from the downfalls of companies that shall not be named (and that properly by now). A lot to my nice shock, final 12 months noticed important engagement by policymakers across the globe on crypto issues, in lots of constructive methods I couldn’t have anticipated. Globally, 2023 noticed:
- Japanese lawmakers printed a “Cool Japan” whitepaper in April. It proposed a regulation for decentralized autonomous organizations (DAOs — one other phrase to make accessible!) as methods for much less related cities and communities to be engaged with the federal government and divulge heart’s contents to non-yen-backed stablecoin (with stringent stablecoin regulation)
- The EU formally handed and commenced implementing the Markets in Crypto-Property regulation (MiCA). A primary-of-its-kind complete laws centered on centralized companies and repair suppliers within the crypto house, MiCA units out stringent necessities for crypto companies within the EU whereas additionally permitting for continued innovation on the tech facet.
- The U.Okay.’s Treasury Division issued a complete proposal for crypto regulation.
- In France, policymakers started desirous about frameworks for decentralized finance (DeFi), taking the expertise significantly sufficient to contemplate laws that gained’t stifle innovation whereas additionally defending shoppers and preserving market integrity.
- Hong Kong and the UAE created crypto licensing regimes for centralized crypto companies and repair suppliers, together with — in Hong Kong — a brand new proposed regime for issuance of stablecoins.
- Within the U.S., two main items of proposed laws, the Monetary Innovation and Expertise for the twenty first Century Act (FIT Act) and the Clarity for Payment Stablecoins Act, made their means out of the Home Monetary Companies Committee in a bipartisan method, with potential preparations to maneuver to the Home ground in 2024. And final June, the U.S. Home Committee on Vitality and Commerce performed a significant listening to on nonfinancial use cases for blockchain. This was a firsthand demonstration that policymakers are starting to know the in depth scope of what will be achieved utilizing blockchain.
In parallel, developments on crypto coverage within the U.S. additionally got here in hoped-for however surprising choices from the courts.
Quite a few federal judges — appointed by presidents from each events — confirmed a specific understanding of the nuances and variations offered by the expertise and the way in which the business capabilities. The Ripple, Grayscale and Uniswap courts all acknowledged a lot of the arguments round decentralization and self-custody that the business has been making for years. In doing so, these courts confirmed that sure regulators’ positions actually attempt to match the crypto sq. peg into the TradFi spherical gap, with restricted outcomes.
The choice in Risley v. Uniswap Labs et al. is especially noteworthy for 2 causes. First, the choice dives deep into the expertise round decentralized finance. It acknowledges that software program builders innovating with new expertise can’t be chargeable for the actions of unknown, unaffiliated third events who might have interaction in “bad acts” through the software program (a corollary to the choices in Napster and Grokster greater than 20 years in the past). Second, the choice acknowledged that we don’t know what crypto property are at the moment — “securities, commodities or something else.” Making that distinction is a choice in Congress’ purview. This latter recognition can also be noteworthy for the reason that SEC’s case towards Coinbase, which hinges largely on whether or not “tokens are securities,” is earlier than the identical court docket.
Regardless of these developments, the business doesn’t have the “regulatory clarity” for which it has been asking. In reality, the problem for 2024 is larger than ever: How will we work with regulators and policymakers globally to fight dangerous actors utilizing crypto for illicit means? This query, one which’s typically known as the AML (anti-money laundering) subject, is essential for crypto to not solely flourish, but in addition to outlive.
How the business can and may handle the query of AML requires its personal article (or articles!), however our problem on the regulatory entrance is evident. The business should band collectively to offer viable options that talk to the regulatory objectives of detection and deterrence of dangerous actors.
Broader use instances now abound, however we have to make them extra helpful
It can come as no shock that I might dub 2023 “the Year of the Use Case.” It was a 12 months during which I used to be concerned in serving to launch an open, interactive web site, The Value Prop (thevalueprop.io), to showcase use instances for blockchain expertise all around the world. This web site aggregates novel blockchain-based functions already in existence.
Assume avatars on Reddit, digital sneakers on Nike, or loyalty NFT reward applications with Starbucks. Assume main manufacturers experimenting with what it appears to be like prefer to let go of complete management over loyalty applications and factors, as a substitute relinquishing these into the custody and possession of customers. The California DMV appeared into tokenizing car titles; there are experiments with placing land registration on-chain in Peru; and round half of Indian states have begun to include throughout completely different providers, together with police complaints.
Assume tokenization of off-chain property within the monetary sector and past, the place JPMorgan, Franklin Templeton, BNY Mellon, Mirae Asset Securities, and lots of others have already begun tokenizing property, with some estimates placing the variety of complete tokenized property already at $3 billion. Initiatives like Courtyard and Regen Community permit for tokenization of property like Pokémon playing cards and carbon credit.
Whereas the previous group will permit our present monetary system to maneuver extra rapidly and effectively, the latter will remodel who can take part within the financial system, and the way.
Throughout practically any vertical you may think about, some aspect of blockchain has begun to look.
Though increasingly persons are interacting with some side of some blockchain on daily basis, many with out even figuring out it, the problem now’s focusing the business on use instances which are the most impactful, the most recreation altering. Builders must hold constructing, however in ways in which have highly effective enchantment. Meaning pondering past the long-standing narrative of “banking the unbanked,” which, for higher or for worse, is a narrative we have now moved past.
As a way to be certain that adoption proliferates and the worth of this expertise is accepted, particularly within the face of very loud crypto pessimists (the doomers!), builders ought to lean into product-market match (PMF) that’s already robust with some crypto use instances, like stablecoins. Constructing and innovating on this success means pondering past previous narratives, with PMF in thoughts.
This will probably be a problem. A lot of this house has been centered on value and quantity for various years, indicators of adoption.
This winter, I skipped the dinner events, opting to work and plan for among the challenges mentioned above. The momentum of 2023 has led to a rising sense, even amongst mates and acquaintances who don’t observe the house carefully, that the business and I are okay, that crypto is right here to remain.
Whatever the challenges the business faces going into 2024, I’m as optimistic as ever: Those that are nonetheless constructing are the most effective, most passionate individuals who will permit the business — and this expertise — to succeed in its full potential.
