By Benjamin Dean
In just over a decade, digital assets have changed from nothing to what is now a vibrant, diverse and fast-growing ecosystem. By certain measures, such as market capitalization, the ecosystem reached an all-time high of more than US $ 3 trillion in 2021 before being shaken by news such as the Federal Reserve’s interest rate hikes that could come sooner than expected. It now hovers around US $ 2 trillion, it does not include the value of businesses built or using digital asset networks – Coinbase (COIN) was recently valued at more than US $ 40 billion1 and FTX at US $ 32 billion2, to name just two. In addition, the transactions facilitated by some of these decentralized payment networks make more than US $ 100 billion in USD terms per day.3– a figure that does not include transactions performed within closed-loop services such as Cash App or Blockchain.com.
With this growth and these milestones no longer hypothetical, two questions arise: where can this space grow in the future, and what opportunities can it create? When thinking about answers to these questions, it is helpful to frame your thinking in terms of emerging use cases as well as technical changes. With the recent launch of the RWM WisdomTree Crypto Index, consisting of Bitcoin (BTC-USD) and Ethereum (ETH-USD) as well as 11 altcoins spanning a multitude of use cases from decentralized finance (DeFi) to the metaverse, there is no shortage of new ecosystem developments to monitor throughout the new year.
Payments are the original use case – the “killer application” – for digital asset networks, and it does not go away. The most important development for this use case is the integration of digital asset networks – and their payment functionality – into existing internet platforms and daily mobile payment applications. Jack Dorsey’s Twitter, for example, has begun assigning Bitcoin Lightning wallets to users’ profiles, enabling people to “tip” each other cheaply, quickly and seamlessly in exchange for content.4 More and more open source Bitcoin Lightning wallets are appearing on mobile application stores with better designed user interfaces (e.g. Muun, Pine, BlueWallet). This is coupled with new ways to acquire Bitcoin, such as Azte.co’s5 “mobile recharge” model proof product. Western Union is going to have to change its business model again.
At the same time, developers are finding new ways to take full advantage of the decentralized application functionality of networks such as Ethereum, Solana (SOL-USD) and Avalanche (AVAX-USD). The decentralized financial field will keep traditional finance (TradFi) people awake later in the night as exchange services (e.g. Uniswap), loans (e.g. Aave) and yield farming (e.g. Yearn Finance) pick up new users.
Non-fungible tokens (NFTs), more simply referred to as digital collectibles, were one of the breakthroughs of the digital asset ecosystem in 2021. They brought in new users, especially from the entertainment and arts industry, and fueled tremendous activity via platforms like OpenSea6. The first iterations of business models seen in this space during 2021 are likely to develop in the near future. When one combines technically minded developers with creatives in art, music and games, it creates an eclectic combination.
Games and the metaverse are other areas where smart contract functionality is driven. Gaming has been generating more revenue than Hollywood for years.7 Recently, 500 million people joined in to watch the final round of an eSports tournament.8 Digital asset networks provide the infrastructure to support both in-game tokens and economies, supporting many of these virtual worlds (e.g. Axie Infinity, Decentraland). As the lines between meta-space and cyberspace continue to blur, be prepared to see changes in how people interact financially in what some people currently refer to as metaverse.
It all comes against a backdrop of continuous technical improvements and evolutions. Last November, the Bitcoin network underwent a major upgrade called Taproot, which aims to increase network privacy and security.9 At some point, the Ethereum network will make the long-awaited transition to a proof-of-game consensus mechanism10, which will create a new source of returns to those who “stake” ether to manage a validator node. Finally, expect greater interoperability between digital asset networks as people try to make the most of a combination of specialized features offered across different networks.
Thinking about the future of the digital asset ecosystem is difficult because of the unpredictability of open source developer communities coupled with the iterative trial and error process that characterizes the entrepreneurial engine. It is not unique to digital assets; it is an essential dynamic that new technologies experience during their development, commercialization and distribution. The past decade has seen several ups and downs in the digital asset ecosystem – all of which have led to where space is today – and it will continue as new technical functionality is developed and people experience new problems facing the functionality of digital asset networks offers new solutions. The RWM WisdomTree Crypto Index will change to reflect the evolution of the ecosystem and thereby provide a way to capture exposure to emerging opportunities in this space.
1 https://www.bloomberg.com/quote/COIN:US2 https://www.cnbc.com/2022/01/31/crypto-exchange-ftx-valued-at-32-billion-amid-bitcoin-price-plunge.html3 https://www.coingecko.com/en/coins/high_volume 4 https://blog.twitter.com/en_us/topics/product/2021/bring-tips-to-everyone 5 https://azte.co/ 6 https://opensea.io/ 7 https://www.marketwatch.com/story/videogames-are-a-bigger-industry-than-sports-and-movies-combined-thanks-to-the-pandemic-11608654990 8 https://www.bloomberg.com/news/articles/2021-11-08/tencent-gets-respite-from-crackdown-with-league-of-legends-hits 9 https://www.theblockcrypto.com/linked/124276/bitcoin-taproot-activated 10 https://ethereum.org/en/eth2/
Important risks associated with this article
Benjamin Dean is an employee of WisdomTree UK Limited, a European subsidiary of WisdomTree Asset Management Inc. ‘s parent company, WisdomTree Investments, Inc.
There are risks associated with investing, including the possible loss of principal. Crypto-assets, such as bitcoin and ether, are complex, generally show extreme price volatility and unpredictability, and should be considered highly speculative assets. Crypto-assets are often referred to as crypto-currencies, but they typically operate without central authority or banks, are not backed by any government or issuing entity (ie no right of recourse), have no government or insurance protection, are not not legal. tender and has limited or no usefulness compared to fiat currencies. Federal, state, or foreign governments may restrict the use, transfer, exchange, and value of crypto-assets, and regulation in the U.S. and worldwide continues to evolve.
Crypto-asset exchanges and / or settlement facilities may stop working, be permanently closed or experience problems due to security breaches, fraud, insolvency, market manipulation, market surveillance, KYC / AML (know your client / anti-money laundering) procedures, non-compliance applicable rules and regulations, technical errors, hackers, malpractice or other reasons, which could adversely affect the price of any cryptocurrency traded on such exchanges or which is dependent on a settlement facility, or otherwise access or use of the crypto asset can prevent. Crypto-assets can experience unique events, such as forks or air droplets, which can affect the value and functionality of the crypto-asset. Crypto-asset transactions are generally irreversible, which means that a crypto-asset can be non-recoverable in cases where: (i) it is sent to the wrong address, (ii) the wrong amount is sent or (iii) transactions are fraudulent from an account. .
A crypto-asset may decline in popularity, acceptance or use, affecting its price, and the price of a crypto-asset may also be affected by the transactions of a small number of holders of such a crypto-asset. Crypto-assets can be difficult to value, and valuations, even for the same crypto-asset, can differ significantly by price source or be otherwise suspicious due to market fragmentation, illiquidity, volatility and the potential for manipulation. Crypto-assets generally rely on blockchain technology, and blockchain technology is a relatively new and untested technology that functions as a distributed ledger. Blockchain systems can be subject to Internet connection interruptions, consensus failures, or cyber-security attacks, and the date or time you start a transaction may be different from when it was recorded on the blockchain. Access to a given blockchain requires an individualized key, which, if compromised, can lead to loss due to theft, destruction or inaccessibility. In addition, different crypto-assets display different characteristics, use cases and risk profiles.
Information provided by WisdomTree regarding digital assets, crypto assets or blockchain networks should not be construed as investment or other advice, or as a recommendation of WisdomTree, including regarding the use or suitability of any specific digital asset, crypto asset, blockchain network be considered or relied upon. or any specific strategy. WisdomTree does not act and has not agreed to act in an investment advisory, fiduciary or quasi-fiduciary capacity towards any adviser, end client or investor, and has no responsibility in this regard, with respect to any digital assets, crypto-assets or blockchain networks.
Benjamin Dean, Director of Digital Assets at WisdomTree in Europe
Editor’s note: The summary bullets for this article were selected by Seeking Alpha editors.