2023 Cryptocurrency Year in Review

Learning from the past is the best way to anticipate the future, especially in the fast-moving blockchain industry. Though the first half of 2023 was relatively quiet, the second half was filled with excitement and had the makings of the beginning of a potential bull market. In this article, we’ll reflect on the past twelve months, particularly the institutional interest in Bitcoin, the narrative shift of Ethereum, the rise of Solana, data availability, and L2s, and some of the tech upgrades and infrastructure improvements making blockchain more accessible to everyone. 

Though Bitcoin is usually the most boring yet stable cryptocurrency, this year saw several significant technological and cultural shifts that will have ripple effects for years to come. First, the introduction of Ordinal Theory, the concept of individually numbering each satoshi to make each a non-fungible token, led to a booming NFT market based primarily on Bitcoin. This was followed shortly after by using Ordinals for BRC-20 tokens, which kicked off the inscriptions movement that’s still responsible for a significant portion of transactions on L1 chains. Though this has been controversial in the Bitcoin community, as some believe that Ordinals are against the vision of the Bitcoin blockchain being used solely as digital cash, groups like the Taproot Wizards are capitalizing on this nascent movement to promote greater technological advancement on the original blockchain. 

Additionally, Bitcoin received much attention from institutional investors, as big names like BlackRock filed a Bitcoin ETF that’s likely to be accepted sometime in 2024. The acceptance of Bitcoin by the world’s largest asset manager is a massive vote of confidence from the traditional finance world and signals a shift in the perception of cryptocurrencies by the financial sector from an unproven experiment to a legitimate asset class. The introduction of a Bitcoin ETF might be the most significant moment in the recent history of cryptocurrencies and could signal a new era of acceptance and adoption by the general public and institutions.

Solana’s revival from the ashes of the FTX debacle has been an impressive feat to observe. After falling as low as $10 from $250, developers and consumers alike rebuilt the ecosystem to be stronger than ever. Though most of its recent volume is fueled by memecoins and airdrop speculation, similar to BSC chain in 2021, its incredibly fast speeds with near-0 transaction costs have made it a favorite for retail investors and users. In fact, it surpassed Ethereum in 24-hour DEX volume for the first time a few days ago. Moreover, its monolithic architecture and emhpasis on simplicity are much different than the Ethereum ecosystem’s complex web of L2s and modular components, making it a compelling hedge against fractionalization and the current market leader. 

One of the most interesting developments was Ethereum’s shift from a smart contract platform to a data availability solution and settlement layer for L2s. Before Layer 2s became the de facto approach for scaling, mainnet Ethereum was primarily used for directly executing transactions and transferring value. This trend is now shifting towards Ethereum being the bulletin board of the internet, where L2s store their transaction data and post proofs of valid execution. This shift has also introduced more competitors to Ethereum, particularly in the data availability space, like Celestia, which offers significantly cheaper storage, making them a compelling cost-saving alternative to Ethereum. 

Even though Ethereum is trending towards losing market dominance due to competitors and the modularization of Layer 2 components, one protocol provides even greater value to the network: EigenLayer. Since it introduced re-staking in June, over 500,000 ETH, over $2 billion, has been re-staked on the platform and is intended to secure other protocols, primitives, and chains. By creating a marketplace for Ethereum’s multi-billion dollar network of trust-providing validators, ETH could be the asset securing the future of the internet in an array of far-ranging applications. With the introduction of ETH staking withdrawals in mid-2023 via the Shanghai upgrade, Ethereum’s staking mechanism is nearing its endgame.

Zero knowledge technology also debuted, as the much-anticipated release of zero knowledge rollups like Polygon’s zkEVM and ZKSync introduced cryptographically secure rollups secured by cutting-edge cryptography.

Along with these shifts and upgrades, we’ve seen smaller quality-of-life improvements that could make all of the difference to how we interact with blockchain going forward. The concept of account abstraction, or making each wallet a smart contract to allow for a user experience similar to current Web2 systems, has made onboarding to and interacting with dApps much easier. NEAR’s KAI-CHING dApp is a prime example, where millions of users interact with the blockchain without even realizing it. Additionally, Coinbase releasing their own L2, Base, is a significant step towards creating a fully open financial system, as the tens of millions of Coinbase users can now easily migrate to on-chain solutions with support from the most trusted company in cryptocurrency. 

The years primarily marked by bear markets are usually those with the most significant developments and cultural shifts, and this year is no different. As the bull market appears to be in its beginning, we’ve seen the ideas and concepts birthed over the past couple of years become mainstream narratives that will shape the future of blockchain growth and adoption. Though we can only speculate where we can go from here, the future seems brighter than ever before for the blockchain and cryptocurrency industry.

By Lincoln Murr

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