2024 is set to be a pivotal year for the cryptocurrency industry, as it faces challenges such as scalability, user-friendliness, and security. However, the emergence of a new generation of networks offers hope in realizing the vision of a decentralized financial system.
2024 is expected to be one of the most important years for the cryptocurrency industry to date. However, in the weeks following the highly anticipated Bitcoin halving event, the price of Bitcoin has dropped by 11%. Despite significant work done during the bear market, this year has been somewhat disappointing for the industry, with little progress made other than the approval of a Bitcoin ETF.
However, it is not yet time to make a final assessment of 2024. We haven’t even reached the halfway point of the year, and in past cycles, the impact of halving typically takes several months to manifest.
But perhaps a more important question needs to be asked. Despite Satoshi Nakamoto outlining the vision of a peer-to-peer electronic cash system in the Bitcoin whitepaper 15 years ago, why has the crypto and Web3 space not been able to achieve this vision? What does it take to fulfill the industry’s promises?
1. Is decentralized cash the real goal?
Describing decentralized electronic cash in 2008 may have seemed like a bold statement, but in hindsight, it’s akin to describing the main benefits of the internet as being able to send electronic mail.
Payments make up a relatively small portion of the global financial system. With the development of smart contracts, the possibilities of decentralized ledger technology have been greatly expanded, offering a more efficient, open, and competitive global financial system.
During the DeFi Summer of 2020, decentralized finance applications found real product-market fit. Decentralized exchanges like Uniswap created markets without the need for market makers. Protocols like Aave allowed holders to generate income while using their tokens for other activities, including traditionally impossible products like flash loans.
Although the momentum has since slowed down, with one of the main reasons being Ethereum’s scalability issues, this space still made rapid progress during the bear market. One of the most notable changes was the shift from user-to-dApp interaction to dApp-to-dApp interaction, similar to the development of Web2, where most interactions are API-driven.
Now, in 2024, terms like Real World Assets (RWAs), Decentralized Physical Infrastructure (DePIN), and digital identity are starting to gain attention. While they may have fancy new names, many will remember these concepts from the ICO era. The difference now is that they are combined with the innovations of decentralized finance, with clear economic and practical benefits of “tokenizing everything.”
In my view, this evolution is also a progression of Satoshi’s vision of global decentralized currency evolving into globally decentralized programmable assets. But if this is true, why haven’t we seen the explosive growth this revolution is expected to unleash?
2. Obstacles to mass adoption
The recent approval of a Bitcoin ETF undoubtedly marks Bitcoin’s entry into the mainstream financial system. With more institutional capital flowing into the industry, institutional investors can now participate in cryptocurrencies through regulated entities, allowing more cautious individuals to engage in a thriving asset class. While this adds legitimacy to the cryptocurrency space, it also raises concerns about Bitcoin’s status as a viable alternative monetary system.
Meanwhile, Bitcoin’s blockchain’s limited capacity in executing transactions is becoming increasingly apparent as the network grows and usage increases. The Proof-of-Work (PoW) mechanism is the most significant constraint on Bitcoin, indicating the need for a new Layer 1 solution. This process consumes significant energy and manpower, slowing down transaction execution. Its high energy dependence raises concerns about its environmental impact.
Ethereum initially aimed to address Bitcoin’s shortcomings by executing programmable money through smart contracts. While well-intentioned, Ethereum has failed in two aspects: 1) the network is fundamentally not scalable, and 2) it is not suitable as a programming language.
Layer 2 solutions were developed to address Ethereum’s scalability issues. However, they ultimately serve as temporary fixes, introducing greater fragmentation and fragility. It is worth noting that developing DeFi applications requires a high level of technical knowledge beyond the reach of typical developers. The Solidity language, specifically designed for Ethereum smart contracts, is notorious for its difficulty to master. These barriers to entry hinder higher levels of growth and competition among dApps, which are necessary for mainstream adoption.
Even more concerning is that despite the Ethereum community having highly skilled developers, security issues persist as a persistent problem, with billions of dollars worth of vulnerabilities and security flaws emerging within the ecosystem. From the DAO attack in 2016 to annual losses in the billions, Ethereum has repeatedly proven unsuitable for developers to build secure DeFi applications that users can confidently participate in.
3. Moving forward
The expansion of other networks based on the concept of Bitcoin demonstrates that it is becoming a realized goal as a monetary system. However, to truly achieve widespread adoption of cryptocurrencies and remain aligned with Satoshi’s original vision, blockchains must possess scalability and programmability.
While Ethereum and its array of Layer 2 solutions attempt to address some of these challenges, they also bring new problems. Meanwhile, early networks like Solana have made comparable progress in certain aspects but are still far from the level needed to build a global asset layer.
As the next generation of Layer 1 networks emerge to challenge Bitcoin and Ethereum, end-users and developers are gradually being equipped with the necessary tools to build and use intuitive, secure, and powerful Web3 applications, providing a viable path forward.
In conclusion, some may argue that Satoshi’s vision of the future he envisioned for Bitcoin can only be realized in the absence of Bitcoin.
