Last winter, I found myself at a dinner party in town. It was a mixed crowd, and by that I mean people who understood my work, those who didn’t, or those who were skeptical of it. I’m a cryptocurrency lawyer and policy advocate, so I’m used to asking questions like: Are you a Bitcoin lawyer? Do you even use a bank?
As we all know, the cryptocurrency industry took a shake-up at the end of 2022, which meant I answered more questions than usual. At one point, a friend pulled me aside and asked, “Is this the end of cryptocurrencies? Are you okay?”
Now, a year later, I can answer with confidence: not only was this not the end, but 2023 was also a good year for cryptocurrencies.. I am more committed to this field than ever, and heading into 2024, I am confident that the technology will endure – and that cryptocurrencies are here to stay – even in the face of recurring negative press, continuing naysayers, and ongoing global regulatory pressure. .
The optimist’s argument for cryptocurrencies is simple: technical maturity occurs alongside regulatory progress and broader adoption.
But being bullish in crypto actually means being realistic, acknowledging not only the exciting developments we are seeing as we enter 2024, but also the challenges we must face head-on in the coming year. I call this approach “optimistic crypto realism”: recognizing how far we have come and how far we have to go.
Even if 2023 exceeds the expectations of optimists like me, this does not mean that 2024 will be easy. In fact, on the three most important issues for cryptocurrencies – technical progress, regulatory progress, and adoption – the tailwinds that carry us into 2024 will face persistent headwinds that we must overcome to advance into a mature industry.
Technology has advanced faster than anyone imagined. Now we need to show why this is important.
In the wake of the centralized financial meltdowns of “crypto in name only,” 2023 sees a vital commitment to promoting sustainable, robust, and decentralized networks. Technology, across various networks, has finally arrived at a place that can deftly handle what “standards” expect from the Internet itself, whether that be for financial, social, communications/messaging, or informational applications.
Last year, the industry was obsessed with zero-knowledge technology, zkEVMs, and scaling solutions, and rightly so. Huge technological leaps have emerged on a massive scale, defying the expectations of many who believed that if such technology was possible outside mathematical theories, it would not be possible for decades.
Across almost every sector you can imagine, some elements of blockchain are starting to emerge.
There are now faster, cheaper and more efficient ways to transact and interact on the Internet, secured by decentralized databases hosted by the world’s computers that allow individuals to preserve and control their data, value and content. The current state of blockchain certainly sounds like something out of “Neuromancer.”
But here we are living it.
The challenge now is to ensure that millions of people around the world can live in this future as well.
The first chasm to cross is how to talk in an accessible way about what blockchain technology actually does and why it is better than what we have now, at least in certain use cases. Using internal jargon (“swarms”, “smart contracts”, “oracles”) with the traditional world is often counterproductive. Terminology makes technology and industry esoteric, insular, and inaccessible. Much of the vocabulary associated with blockchain has been developed for a small audience of developers, which means that to grow alongside the expanding scope of the technology, we must change the way we talk about it as well.
With some technical challenges on their way to being solved at scale, a key hurdle remains in better understanding why blockchain technology is being used.
This means explaining how technology provides real, tangible benefits in a way that can be easily understood on a global basis and across technologists, standards and industries.
Regulatory clarity has advanced in unexpected ways, but the shifting sands of anti-money laundering require a solution
For those in politics, the end of 2022 marked an existential one. It was difficult to understand how regulators and policymakers could engage meaningfully after the industry was plagued by integrity issues arising from the downfall of companies that shall not be named (and which you now know well). To my pleasant surprise, the past year has seen significant engagement by policymakers around the world on crypto-related matters, in many positive ways that I did not expect. Globally, 2023 saw:
- Japanese lawmakers published a report titled “Remarkable Japan” in April. He proposed a law for decentralized autonomous organizations (DAOs – another word for accessible!) as a way to enable less connected cities and communities to engage with the government and open up to non-yen backed stablecoins (with strict regulation of stablecoins).
- The European Union has officially approved and begun implementing the Markets in Cryptoassets (MiCA) regulation. The first comprehensive legislation of its kind focusing on central companies and service providers in the cryptocurrency space, MiCA sets stringent requirements for cryptocurrency companies in the EU while also allowing for continuous innovation on the technological side.
- The UK Treasury has issued a comprehensive proposal to regulate cryptocurrencies.
- In France, policymakers are starting to think about it Decentralized finance frameworks (DeFi), taking technology seriously enough to consider regulations that won’t stifle innovation while also protecting consumers and maintaining market integrity.
- Hong Kong and the UAE have established cryptocurrency licensing regimes for centralized cryptocurrency companies and service providers, including – in Hong Kong – a proposed new system for issuing stablecoins.
- In the United States, two major proposed pieces of legislation have been introduced, the Financial Innovation and Technology for the 21st Century Act (Suitable law) and the Clarity of the stablecoin payment law, They have worked their way out of the House Financial Services Committee in a bipartisan manner, with potential preparations to move to the House floor in 2024. Last June, the US House Energy and Commerce Committee held a major hearing on Non-financial use cases For blockchain. This was direct evidence that policymakers are beginning to understand the broad scope of what can be accomplished with blockchain technology.
In parallel, developments in cryptocurrency policy in the United States have also come through hoped-for but unexpected decisions from the courts.
Many federal judges — appointed by presidents of both parties — have demonstrated a particular understanding of the nuances and differences that technology presents and the way the industry works. The Ripple, Grayscale, and Uniswap courts have recognized many of the arguments about decentralization and self-custodianship that the industry has been making for years. In doing so, these courts have shown that the positions of some regulators are indeed trying to shoehorn cryptocurrency square peg into TradFi’s round hole, with limited results.
The decision in Risley v. Uniswap Labs et al. It is particularly noteworthy for two reasons. First, the decision delves into the technology related to decentralized finance. It acknowledges that software developers who innovate with new technology cannot be held liable for the actions of unknown, unaffiliated third parties who may engage in “bad acts” through the software (a corollary of the decisions made in the Napster and Grocster case more than two decades ago). . Secondly, the decision acknowledged that we do not know what crypto assets are at the moment – “securities, commodities or something else”. Making that distinction is a decision within the jurisdiction of Congress. This latest admission is also noteworthy given that the SEC’s case against Coinbase, which largely hinges on whether “tokens are securities,” is before the same court.
Despite these developments, the industry does not have the “regulatory clarity” it has been demanding. In fact, the challenge facing 2024 is greater than ever: How can we work with regulators and policymakers globally to combat bad actors using cryptocurrencies for illicit purposes? This question, commonly referred to as the AML (anti-money laundering) issue, is crucial to not only the prosperity of cryptocurrencies, but also their survival.
How the industry can and should address AML requires its own article (or articles!), but the challenge we face on the regulatory front is clear. The industry must come together to provide workable solutions that align with regulatory goals of detecting and deterring bad actors.
There are more widespread use cases now, but we need to make them more useful
It will come as no surprise that 2023 has been dubbed the “Year of the Use Case.” It was a year in which I was involved in helping launch an open interactive website, The Value Prop (thevalueprop.io), to showcase blockchain technology use cases around the world. This site collects new blockchain-based applications that already exist.
Think avatars on Reddit, digital shoes on Nike, or NFT loyalty rewards programs with Starbucks. Consider how major brands experience what it looks like to give up complete control of loyalty programs and points, rather than relinquishing them to the custody and ownership of users. The California DMV looked into the matter Automotive address encoding; There are experiments with laying Land registration on the chain in Peru; And about Half of the Indian states It is starting to integrate across different services, including Police complaints.
Consider off-chain asset tokenization in the financial sector and beyond, where JPMorgan, Franklin Templeton, BNY Mellon, Mira Asset Securities, and many other companies have already started to tokenize assets, with Some estimates Which already puts total token assets at $3 billion. Projects like Courtyard and Regen Network allow assets like Pokémon cards and carbon credits to be tokenized.
While the first will allow our current financial system to move more quickly and efficiently, the second will transform who can participate in the economy and how.
Across almost every sector you can imagine, some elements of blockchain are starting to emerge.
Although more and more people interact with some aspect of blockchain every day, many without even knowing it, the challenge now is to focus the industry on the use cases that represent… Most touching, Most Change the game. Builders need to keep building, but in ways that have strong appeal. This means thinking beyond the old narrative of “treatment of the unbanked,” which, for better or worse, is a story we have outgrown.
In order to ensure widespread adoption and acceptance of the value of this technology, especially in the face of very vocal crypto pessimists (the defeated ones!), builders must rely on the already strong product market fit (PMF) for some uses of cryptocurrencies. Cases, such as stablecoins. Building on and innovating on this success means thinking beyond old narratives, with the Popular Mobilization Forces in mind.
This will be a challenge. Much of this space has been focused on price and volume for a number of years, which are indicators of adoption.
This winter, I skipped dinner parties, choosing to work and plan to address some of the challenges discussed above. The momentum of 2023 has led to a growing feeling, even among friends and acquaintances who don’t follow the space closely, that the industry and I are doing well, and that cryptocurrencies are here to stay.
No matter what challenges the industry faces through 2024, I am as optimistic as ever: those still building are the best and most passionate who will allow the industry — and this technology — to reach its full potential.