When the blockchain launched in 2008, the expectation among enthusiasts was that Satoshi had created a new technology that would soon reshape the world. Money, in particular, would never the be the same. Instead of the whim of a central banker determining the value of a national currency through the printing of more cash, a connected world would use a limited currency whose value would be determined by its users.
It hasn’t worked out that way. With the exception of El Salvador, thirteen years of Bitcoin development has seen the currency used only for speculation and to launder illicit funds. But the blockchain, the technology that underpins Bitcoin, has developed in a number of unexpected ways. Not all of them will prove successful but it is clear that a number of blockchain-based technologies are currently showing promise and developing in interesting new directions.
Here are five blockchain trends that you need to know now.
- The Fall of Bitcoin, the Rise of Defi
In January of this year, an anonymous start-up founder published a long post on Medium outlining his concerns about Bitcoin, an asset in which he had invested and which, he said, had changed his life. The Bit Short: Inside Crypto’s Doomsday Machine didn’t focus on Bitcoin itself. Instead, it looked at Tether, a stablecoin used to purchase more than two-thirds of all Bitcoins.
American banks won’t open accounts for many of the world’s biggest crypto exchanges in case the exchange’s operations breach money laundering regulations. Those exchanges, unable to accept dollars, they sell Bitcoins for Tether. Because Tether claims to be backed one-to-one by dollar assets, the exchanges can use them to make stable transactions.
The coin was created by Brock Pierce, a former child actor, and has sold more than 48 billion coins this year alone, bringing the total in circulation to around 70 billion. If Tether is backed one-to-one, that should mean the company has $70 billion in assets sitting in a bank somewhere. A recent investigation by Businessweek tracked down about a quarter of those assets to a bank in the Bahamas run by the creator of the cartoon character Inspector Gadget. Some of the rest appeared to be in the form of loans to Chinese companies and other cryptocurrency businesses. As for the rest, who knows? In February this year, Tether agreed to pay $18.5 million to settle a suit brought by the New York Attorney General who accused the company, together with the Bitfinex exchange, of covering up losses. The Office of the Attorney General had found that by mid-2017, Tether had no access to banking anywhere in the world and therefore held no reserves to back tethers in circulation at the rate of one dollar for every tether.
“Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie,” said Attorney General Letitia James.
For the anonymous Bitcoin speculator, writing before the investigation’s conclusion, that lack of backing was a flashing red light. Not only was Tether unsupported but its issuance closely matched the price of Bitcoin. Tether would issue great piles of coins which people would use to buy great piles of Bitcoin, pushing the price up. But if Tether isn’t supported, a run would destroy its value. So how much is Tether really worth? And if Tether underpins the price of Bitcoin, how much is Bitcoin worth?
With such shaky foundations, the future of decentralized finance won’t be Bitcoin. Outside of El Salvador, a country dependent on foreign transfers to people with no bank accounts, no country will adopt it.
But the benefits of a currency that can be transferred digitally, instantly, and at low cost are clear. El Salvador turned to Bitcoin because money transfer companies are expensive. Retailers still pay sizeable percentages of their incomes to credit card companies and banks, fees they don’t have to pay when they take cash. Transactions that take place on a blockchain should be transparent but also low-cost and almost instant.
Some countries have already taken steps to create their own digital currencies. China, which recently banned Bitcoin transactions, is preparing to launch a digital Yuan. The Federal Reserve is starting a review of a US Central Bank digital currency.
The Fed has been slower than other central banks to create a digital currency but it’s likely to happen. It just won’t be Bitcoin.
- Unique, Not Generative, NFTs
While Bitcoin continues to fall and rise on the back of Tether and opaque speculation, one byproduct of the blockchain has seen almost non-stop growth recently. Non-fungible tokens, or NFTs, can be described as versions of Bitcoins in which each coin is unique. Instead of minting identical and easily transferable tokens, creators mint items with strictly limited availability and may even be one of a kind.
One way to think of NFTs is as postage stamps to Bitcoin’s currency. Some of the tokens will be as common as the postage stamps we place on letters. Other individual tokens though will have rare or unique qualities that hugely affect their value, like Penny Blacks.
The challenge for NFT designers has been introducing that rarity into their tokens. Designing individual tokens is labor-intensive and time-consuming. It means hiring a designer, trusting their style, and hoping that a market will like it too. Algorithms can make the process much easier. Create a template, such as the face of an ape or a pixelated punk. Randomize attributes of the image such as the background color, items of clothing, or accessories, and some of the results will be more desirable than others.
It’s a simple solution, and so far, it’s worked. Individual CryptoPunks, the simplest of pixelated images, have sold for almost $12 million. It’s no wonder that so many other companies have piled in with similar offerings of their own. Collectors can now buy generative NFTs in forms that could fill an entire menagerie. Designs range from hornets and turtles to cats and toads.
The hope among buyers is that they’ll land the one rare configuration that gives them a multi-million dollar resale. But as the projects have mounted, sales have fallen. Drops that used to sell out in seconds are now left with unclaimed products. With more launches than buyers, generative projects appear to have had their day.
Some projects have looked for more artistic generative solutions. Art Blocks allows artists to upload an algorithm and limit the number of iterations it produces. Buyers choose their algorithm and take what they get. The output is more art than avatar, and the company saw $600 million worth of sales in August to more than 12,000 buyers.
But while generative abstract artworks—rather than simple JPG animals—have a market, the future of NFT art is more likely to lie with digital artists. No generative NFT has beaten artist Beeple’s $69 million sale. His work was a collage of 5,000 hand-drawn images. As generative NFTs fall away outside of abstract art, expect the rise of unique digital art from recognized artists.
- It’s in the NFT Game
What can collectors of NFTs do with the JPGs they’ve collected? The items that they might be paying millions of dollars to own have no function. At least artworks can be displayed on walls and shown off to guests and visitors. NFT collections sit unseen in private wallets.
The world of video gaming is trying to give NFTs a whole new world in which they can be used.
In July this year, Animoca Brands, a gaming company, completed a funding round worth $138.9 million. The capital, raised from investors including Blue Pool Capital, Coinbase Ventures, Korea Investment Partners, and Samsung Venture Investment Corporation, values the company at more than a billion dollars.
But Animoca Brands isn’t a regular gaming company. It describes itself as bringing digital property rights to gamers via NFTs. Its products include a series of racing games in which the cars are NFTs and their racing sessions are recorded on the blockchain. Players can also use tokens to purchase in-game items that they continue to own.
Animoca has also developed The Sandbox, a metaverse in which players can create their digital assets in the form of NFTs, upload them to a marketplace, and integrate them into games. Think of it as a kind of Minecraft in which players get to own their creations instead of handing them over to Microsoft. The Sandbox competes with Decentraland, Axie Infinity, and VulcanVerse, among others. And Facebook is now joining the fray. The company has just announced plans to build its own metaverse, and will hire 10,000 people in the European Union to help develop it.
It’s not clear that these blockchain-supported virtual worlds will any succeed any more than Second Life did. But gaming is where blockchain investors are putting their money now.
- Metaverse Real World Crossovers
The challenge for metaverse creators is that however immersive they make their worlds, the real world is even more immersive. It’s more realistic, it’s easier to access, and it appeals to everyone. Developers need to give users a reason to spend their time on their platforms instead of immersing themselves in a book or in any of the other myriad ways they could spend their time.
One way will be for actions in the metaverse to affect the real world.
That’s part of the premise of SNKRWARS, a new metaverse from Arc Footwear and sneaker designer Marc Scepi. The metaverse uses a story of a battle between two warring sides to build its world—and adds shoe design. The company will produce a limited range of shoes to match the game’s NFTs, allowing players to use their footwear in the virtual world. They’ll even be able to design shoes in the metaverse and pick them up in local stores.
If the idea works, we can expect to see more metaverses turning virtual world actions into real world merchandise.
- Cross Chain NFTs
The blockchain’s biggest sales point is that it’s decentralized. No one controls the chain. But it’s also fragmented. There are lots of different chains and they can’t communicate with each other. An NFT on the Ethereum network can’t pass to someone using Solana. It’s as though each telephone not only operates on its own network but can only send messages to people using that network.
Clearly, tokens that can cross from one blockchain to another would be more flexible and more usable.
It’s something that’s been tried before. IN 2018, the EverDragons project minted its first NFTs. Like most NFTs at the time, they were generative and minted randomly. But they’re weren’t meant to be collected. Instead, they were meant to be used in games such as Four-in-a-Row. Players could play those games on the Tron network but also on Ethereum, making the dragons one of the first cross-chain NFTs as well as one of the first gaming tokens.
As chains have proliferated, the need for blockchain agnosticism has grown. Enjin, a metaverse, is now building a blockchain specifically for NFTs. Keys to the Metaverse, another NFT project, is building a multi-chain bridge to enable collectors to move their keys from one chain to another.
Generative NFTs might be on their way out, but the tokens that remain will be written into any distributed ledgers their owners want.