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What Can We Expect from the Cryptocurrency Industry in 2023? (Year in Review Part 3 of 3)

Lincoln Murr

Summary: The cryptocurrency market had its ups and downs in 2022, but bad news, black swan events, and bearish trends dominated the latter half of the year. With 2023 right around the corner, let’s look at what the year could hold for the industry and determine whether or not 2023 will be any better than this ...

The cryptocurrency market had its ups and downs in 2022, but bad news, black swan events, and bearish trends dominated the latter half of the year. With 2023 right around the corner, let’s look at what the year could hold for the industry and determine whether or not 2023 will be any better than this year.

Read the rest of the Year in Review Series, where we cover the best parts of 2022 and the worst parts of 2022 for the crypto industry!

One of the main narratives that will likely dominate the first half of 2023 is the fallout of the FTX saga. The crypto exchange went bankrupt in late 2022 after revealing itself to be a massive scheme by founder Sam Bankman-Fried. Currently, Bankman-Fried is awaiting a presentation in front of a federal court, with the date set for Jan 3rd. Not only will this be an exciting story to follow but it could also have wide-ranging consequences for the market. For example, FTX’s collapse has already caused the bankruptcy of BlockFi, a crypto lending platform that was bailed out by FTX this past summer. With how many investments FTX has made into both coins and companies, it is unlikely that BlockFi will be the last entity unable to continue without their funding.

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Similarly, we can expect more market regulation as a direct result of this year’s events. Specifically, the collapse of Terra Luna will lead to more stablecoin law, and FTX’s fraud will cause regulators to focus on consumer protection and custody. While these regulations may be in the best interest of consumers and stability, they could be devastating to the market if implemented incorrectly or without expert assistance. In the worst-case scenario, we could see more sanctioning of smart contracts as was seen with Tornado Cash, or possibly a bill requiring all stablecoins to be centralized and giving the government the ability to freeze transactions involving coins like USDC and USDT. If laws like this were to be passed, it would be a massive blow to the DeFi industry, which is presently built upon smart contracts and stablecoins. However, this is the absolute worst-case scenario. More likely, regulation will hopefully provide enough protections to keep users from losing their money to fraudsters while supporting innovation in the blockchain industry.

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One of the most significant technological developments 2023 will bring is implementing zero knowledge technology into blockchain. Zero Knowledge is a revolutionary cryptographic scheme that allows someone to prove that they know a secret without revealing it. In the real world, this means that someone could prove that they are a certain age without showing anyone their driver's license, prove their citizenship without sharing their passport, or prove they have a specific role in a company without sharing their identity. These use cases will likely integrate blockchain, as it is a source of truth and combats fraud. Additionally, zero knowledge rollups, like ZkSync, Starkware, and Polygon’s zkEVM are expected to release next year. These rollups are expected to be the future of Ethereum staking and provide the same security benefits as mainnet Ethereum while drastically reducing fees and transaction times. There are also rumors that new projects like ZkSync and Starkware may airdrop a token to their users, providing a much-needed stimulus and morale boost to the market.

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Ethereum has a few updates slated for 2023. The first is the Shanghai upgrade, which will finally allow Ethereum validators to withdraw their staked ETH. Up until now, depositing 32 ETH to run a node required that it stay locked for an indefinite period. This was done to help ensure the security and stability of the proof of stake chain. Opening withdrawals will signal that the proof of stake blockchain can deliver on its promises and is stable. Additionally, the beginning of a sharding implementation may be adopted this year. Sharding is another type of Ethereum scaling that splits, or shards, the blockchain into several smaller chains, which increases transaction throughput by allowing for parallel processing. Neither of these upgrades are as significant as 2022’s Merge or EIP-1559 but are nonetheless optimistic.

Unfortunately, we may not see any relief from this current bear market. As I said in last year’s 2022 predictions article, the cryptocurrency market appears to work in 4-year cycles, with three years of a bear market and one year of a bull market. 2022 marked the end of the 2021 bull market and the potential beginning of another of these cycles, meaning that we may not see relief until 2025. However, this is not guaranteed, and nobody knows what the future holds.

Overall, 2023 is shaping to be a year of development and building for the crypto space. After a year of price decreases and a drop in reputation for the industry, it is essential to step back and focus on creating products and experiences that will be useful and understandable to the average person. It may not be the year of hype and skyrocketing prices, but it will nonetheless be a critical year for the continued growth of the blockchain and Web3 industry.

By Lincoln Murr

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