2024 is expected to be a crucial 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 predicted to be one of the most important years for the crypto industry to date.
However, in the weeks following the highly anticipated Bitcoin halving event, the price of Bitcoin dropped by 11%. Despite making significant progress during the bear market, this year has been somewhat disappointing for the industry, with little advancement except for the approval of Bitcoin ETFs.
However, it is not yet time to make a final assessment for 2024. We haven’t even reached the halfway point of the year, and in past cycles, the impact of halving usually takes a few months to manifest.
But perhaps a more important question needs to be raised. 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 industry 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, I believe it is akin to describing the main benefit 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 potential of decentralized ledger technology has been greatly expanded, providing a more efficient, open, and competitive global financial system.
During DeFi Summer in 2020, decentralized finance applications found true product-market fit. Decentralized exchanges like Uniswap created markets without the need for market makers. Lending and borrowing protocols like Aave allowed holders to earn interest on their tokens, including products traditionally impossible, such as flash loans.
Although the momentum has since slowed down, with one significant reason being Ethereum’s scalability issues, this space has still made rapid progress during the bear market. One of the most notable changes is the shift of DeFi from primarily user-interaction with decentralized applications to interaction between decentralized applications, similar to the development of Web2, where most interactions are API-driven.
Today, in 2024, terms like Real-World Assets (RWAs), Decentralized Physical Infrastructure (DePIN), and digital identities are starting to catch people’s attention. While they have fancy new names, many will remember these concepts from the ICO era. The difference now is the integration of decentralized finance innovations, with clear economic and practical benefits of “tokenizing everything.”
In my view, this evolution is also an evolution of Satoshi Nakamoto’s vision of a global decentralized currency evolving into a global decentralized programmable asset. But if this is true, why haven’t we seen the explosive growth that this revolution is expected to trigger?
2. Obstacles to mass adoption
The recent approval of a Bitcoin ETF undeniably 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 with a thriving asset class. While this increases the legitimacy of the crypto space, it also raises concerns about Bitcoin’s status as a viable alternative monetary system.
Meanwhile, Bitcoin’s blockchain has revealed its limited capacity to handle transactions as the network grows and usage increases. The Proof-of-Work (PoW) mechanism is the most significant constraint for Bitcoin, indicating the need for a new Layer 1 solution. This process consumes a significant amount of energy and manpower, slowing down transaction execution. Its high energy dependence raises concerns about its environmental impact.
Ethereum initially sought to address Bitcoin’s shortcomings by using smart contracts to execute programmable money. Despite its good intentions, 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 established to solve Ethereum’s scalability issues. However, they are ultimately temporary solutions that introduce more fragmentation and fragility. It is worth noting that developing DeFi applications requires a high level of technical knowledge that goes beyond typical developers. The Solidity language, specifically designed for Ethereum smart contracts, is known for its steep learning curve. These entry barriers hinder higher levels of growth and competition between dApps, which are necessary for mainstream adoption.
What is more concerning is that despite the Ethereum community having highly skilled developers, security remains a persistent issue, with billions of dollars’ worth of vulnerabilities and security flaws emerging within the ecosystem. From the DAO’s initial attack in 2016 to the annual losses of billions of dollars, Ethereum has repeatedly proven itself unsuitable for developers to create secure DeFi applications that users can confidently participate in.
3. The way forward
The expansion of other networks based on the Bitcoin concept demonstrates that the goal of becoming a monetary system is being achieved. However, to truly realize the widespread adoption of cryptocurrencies and stay true to Satoshi Nakamoto’s original vision, blockchains must possess scalability and programmability.
While Ethereum and its range of Layer 2 solutions attempt to address some of these challenges, they also bring new problems. Early networks like Solana have made comparable progress in certain aspects but have yet to reach the level required to build a global asset layer.
As the next generation of Layer 1 networks challenge Bitcoin and Ethereum, end-users and developers are gradually equipping themselves with the necessary tools to build and use intuitive, secure, and powerful Web3 applications, providing a viable path forward.
In summary, some may argue that Satoshi Nakamoto’s envisioned future for Bitcoin can only be achieved in the absence of Bitcoin.
