Title: Insights on the Future of Cryptocurrency: Developer Activity, Crypto Social, and NFTs
Introduction:
In this interview, we delve into the perspectives of Avichal Garg and Maria Shen from Electric Capital on the future of cryptocurrency. The discussion covers three main topics: developer activity, crypto social, and NFTs. Through these insights, we gain a better understanding of the trends shaping the cryptocurrency landscape in the coming years.
Developer Activity:
Electric Capital releases an annual Developer Report, which attracts hundreds of thousands of readers seeking crucial insights into cryptocurrency developer activity. To compile this report, Electric analyzes over 480 million cryptocurrency-related code commits across more than 800,000 code repositories. This comprehensive analysis provides valuable insights into developer activity in the cryptocurrency space. Additionally, Electric maintains an open-source taxonomy of the crypto ecosystem, allowing users to contribute and collaborate with major foundations like Optimism, NEAR, and Solana to include the latest chain and ecosystem data.
Why publish a Developer Report? The Developer Report was launched in 2018, following the ICO frenzy of 2017, with the aim of cutting through the noise in the crypto space. Given the extreme volatility of cryptocurrencies, people often focus too much on misleading quantitative metrics like price trends to measure progress. However, this approach is misleading. If we believe that cryptocurrencies are a fundamentally transformative technology on which developers can build entirely new applications, then the key metric is not price but developer engagement. We should focus on those who are committed to long-term investment in cryptocurrencies, dedicating their time to building infrastructure and applications for users.
Separating signal from noise: Developer count continues to rise despite price drops
Which ecosystems are developers choosing to build on? How is the United States performing in terms of cryptocurrency developer activity? What infrastructure and applications are developers currently most interested in? By answering these questions, the annual Developer Report provides powerful information to help new developers decide which blockchain to build on, guide governments in formulating better cryptocurrency policies, and direct investors’ attention to the most vibrant areas of innovation.
Here are three favorite insights derived from Electric’s developer data:
Insight 1: The future is multi-chain
The future is clearly multi-chain. Currently, over 30% of developers support multiple chains, compared to only 3% in 2015, marking a tenfold increase. Furthermore, developers supporting three or more chains have grown to 17% of all developers in 2023, reaching an all-time high.
Growth of multi-chain developers
With Electric’s Developer Report, one can gain deeper insights into developer behavior. The 2023 network graph reveals which crypto ecosystems have overlapping developers. It’s not surprising to see significant developer overlap between Ethereum and Layer 2 solutions like Optimism and Polygon, as well as EVM-compatible chains like BNB and Avalanche. However, it’s interesting to note the overlap between Polkadot and Cosmos developers or the fact that many Solana developers are also involved in Bitcoin work.
2023 Network Graph of overlapping developer ecosystems
These insights are powerful for various use cases. Teams can leverage this information to identify the next chain to expand their developer infrastructure. Ecosystem teams can identify the types of developers building on their chain, and investors can concentrate their attention on specific subsets of the crypto ecosystem.
Insight 2: Decreasing share of developers in the United States
By analyzing self-reported location data from GitHub and its contributions to code repositories, it is easier to understand developer activity across different regions. According to 2023 data, Europe and Central Asia accounted for the majority of developer activity (36%), followed by North America (28%). While France and Germany each have over 5% of the crypto developer share, India held 12% of the crypto developers in 2023.
Electric not only extracts insights from regional developer data for the current year but also provides insights on regional behavior over time. One of the most interesting findings is that while the overall developer ecosystem is growing, the share of developers in the United States is decreasing. Cryptocurrency innovation is increasingly concentrated outside the United States.
Changing share of US developers over time
This data highlights the apparent issue of innovation moving away from the United States and has been cited by policymakers in the House to push for regulatory clarity for US developers and crypto companies.
Insight 3: Emergence of Bitcoin Layer 2 and Base
Electric’s data showcases the growth of two major ecosystems: Bitcoin and Base.
Bitcoin serves as a prime example of how Electric identifies meaningful signals amidst the noise when assessing crypto progress. Despite extreme volatility, Bitcoin development has remained strong. Since 2017, over a thousand new developers join the Bitcoin ecosystem each year. Additionally, with the growth of Bitcoin’s Layer 2 solutions such as Ordinals, which led to a surge in transaction volume, and the rise of innovative proposals like Fraud Proofs and OP_CAT, there has been a significant increase in developer activity focused on Bitcoin’s scalability solutions.
Bitcoin scaling solution work has grown over time
Another ecosystem worth noting is Base. Since its launch over a year ago, Base has evolved to have over a thousand active monthly developers, which is unprecedented for a new crypto ecosystem.
Overall, the cryptocurrency space is experiencing fragmentation in the developer ecosystem. The emergence of Bitcoin Layer 2 and Base suggests that there will be a multitude of experiments taking place. Fragmentation seems likely to persist until developers find what truly works, eventually concentrating their efforts on more specific subsets of chains.
Crypto Social:
With improvements in crypto infrastructure, the possibilities for users have significantly expanded. While in 2021, a transaction to purchase an NFT on Ethereum L1 could cost hundreds of dollars in gas fees, the emergence of Layer 2 solutions like Base with low gas fees and higher throughput has made new experiments possible, especially for social use cases.
As cryptocurrencies now offer a better user experience for applications requiring more on-chain interactions, social applications have gained widespread adoption in the crypto space. Friendtech, a social app that allows creators to create exclusive chat rooms for fans, and Farcaster, a decentralized social media protocol that allows building clients on top of it, are examples of such popular applications.
BasePaint
However, crypto social is still in its early stages, resembling the social media landscape of 2003—a period of large-scale experimentation. Interesting applications like Basepaint, a shared pixel canvas app, have emerged. In Basepaint, users can mint brushes to contribute to the canvas, and after 24 hours, a cast is made of an open version. The profits from this open version are distributed proportionally based on the number of pixels contributed by artists.
Source: Metaversal.banklesshq.com/p/basepaint
WorldPvP
Another example is WorldPvP, a social app and experiment on Base where 221 countries, represented by their ERC-20 tokens, compete to achieve the highest market cap and control nuclear weapons. Players increase the market value of their tokens through strategic trading and alliances to avoid being nuked.
The liquidity in the ERC-20 pool of the nuked country is used to buy back half of the tokens from the nuclear nations, with the remaining portion distributed to randomly selected countries. This game lasts for 30 days until one country emerges as the ultimate winner.
WorldPvP: Highest market cap ERC-20 wins the nuke
Observing experiments like Basepaint, it seems that fewer iterations are needed, and the success of Friendtech and Farcaster indicates that applications are becoming more mature. On-chain experiments like WorldPvP suggest that the next generation of social applications may be more gamified than their Web2 predecessors.
NFTs:
Electric, as one of the main investors in MagicEden, offers several insights into the NFT ecosystem. Here are two discussions we had:
NFTs are multi-chain:
NFTPulse, developed by Electric, is a tool that quantifies and showcases the latest NFT-related data across various ecosystems, revealing the increasing multi-chain nature of NFT trading volume. While Ethereum has dominated NFT trading volume in 2021 and 2022, the rise of Solana and Bitcoin Ordinals challenges the notion that Ethereum will continue to maintain its dominance by the end of 2023. At times, the weekly NFT trading volume for Bitcoin Ordinals even surpasses Ethereum.
Until the fall of 2023, Ethereum’s weekly trading volume often exceeded 90%
Although the user experience of purchasing NFTs on different blockchains varies, NFTs represent digital culture. With the emergence of Ordinals, those who prefer to support and be a part of the Bitcoin ecosystem can trade Bitcoin NFTs. With the growth of Solana and the development of its unique culture, Solana NFTs are becoming increasingly popular within the Solana community.
It is challenging to be bearish on NFTs:
Being bearish on NFTs becomes increasingly difficult. As we move towards a more digital world, the demand for ownership of digital items becomes crucial. We are in the early stages of EU laws that require all fashion goods and consumer products to have a “digital product passport” or NFT for authenticity and ownership verification by 2026. Additionally, despite market cyclicality, NFTs, due to their nature as digital assets, will serve as the foundation for digital music, real estate, collectibles, and luxury goods.
Despite a gradual decline in NFT activity throughout the bear market, trading volume has started to increase again
Emotional connection:
NFTs differ from fungible tokens as they can establish a deep emotional connection with their holders. A used teddy bear bought for $20 may not be worth $20 to most people, but for the owner, that specific teddy bear may hold greater value. NFTs, including digital art and avatar collections, have a similar effect on their owners.
NFT owners often form emotional bonds with their possessions. Avichal and Maria, both NFT enthusiasts, are well aware of this. They see NFTs as more than just tradable financial assets. Avichal co-owns several Fidenzas with artist Tyler Hobbs and proudly displays physical prints at home. Maria owns a Milady and even commissioned a custom portrait, highlighting the personal significance of these digital assets.
Maria’s commissioned portrait
Conclusion:
Many of the payment systems we use today, such as automated clearinghouses and credit card systems, were established in the 1960s and 1970s. Cryptocurrencies have fundamentally reimagined these systems, allowing people to solve new problems and opening doors to entirely new application spaces.
With the emergence of low gas fee and high throughput blockchains like Base, we are witnessing an exciting wave of experiments in the crypto social space. Early successes like Friendtech and Farcaster, as well as innovative experiments like Basepaint and WorldPvP, make this period feel reminiscent of the social networking era in 2003. NFTs seem inevitable in an increasingly digital world. It is an exciting era for cryptocurrency, and Electric looks forward to seeing how it all unfolds.
