2024 Crypto Narratives: Looking Ahead

2023, particularly the second half, was an exciting time for the cryptocurrency industry. The resurgence of Solana, the release and proliferation of the L2 ecosystem, the impending release of a Bitcoin ETF and the asset class’ legitimization by BlackRock and other big financial institutions all signal that 2024 will be an exciting and voluminous year. To get ahead of market trends and movements, let’s look at some of the narratives that will shape the crypto industry in 2024.

With the likely introduction of the Bitcoin ETF in early 2024, potentially by January 10th, mainstream media and institutions will be focused on the original cryptocurrency as a massive opportunity to get exposure to the blockchain space and hedge with “digital gold.” We may see companies and individuals begin to gain more exposure to digital assets through their traditional investing portfolio, which will serve to legitimize the asset class to the general public and increase volumes and potentially market capitalizations to new highs. The ease with which institutions can buy and hold crypto will mark a new chapter in the general adoption and growth of Bitcoin.

Along with Bitcoin, the real-world asset narrative will be shaped and emphasized by traditional financial institutions. Having traditional assets, like bonds and real estate, held and traded on a blockchain offers numerous benefits over the traditional model, including fractionalization, greater monetization opportunities, and improved transparency and efficiency. Coinbase’s recently announced Project Diamond is the first time a large cryptocurrency company has thrown their hat into the RWA ring, joining existing DeFi protocols like Ondo Finance and Goldfinch Protocol. MakerDAO is also in the RWA sphere and is earning tens of millions of dollars for its treasury from RWAs like bonds and T-bills. The main obstacle to RWA adoption is regulatory hurdles, which may become clearer with the passage of the Bitcoin ETF and more acceptance from the general public and therefore legislators.

An analysis of 2024 trends would not be complete without discussing the integrated vs modular debate, which describes two architectures for blockchain solutions and is primarily represented by Solana and Ethereum. Solana is the best example of a monolithic chain design, in which all of the activity is handled by the L1 with fast speeds and low fees, but at the cost of a lower degree of decentralization. Ethereum, on the other hand, has taken a different approach, where its ecosystem has been fractionalized into Layer 2s where execution takes place, data availability layers where the L2 data is stored, and settlement layers where transactions are verified and the de facto “hub” of several L2s. Ethereum used to serve all of these purposes, but Layer 2s like Optimism and Arbitrum have moved the expensive execution to an off-chain environment and use proofs to still get blockchain-level security guarantees. Originally, all L2s posted their data to Ethereum as well, but now data availability layers like Celestia, Near DA, and EigenDA propose cheaper alternatives more suited for the task, which may threaten Ethereum’s fee-generation ability. As a consequence, Ethereum is introducing EIP-4844 sometime in H1 2024, which will introduce a new storage type in Ethereum blocks specifically designed for Layer 2 data. Whether or not this will be cheap and performant enough to attract and keep rollups on Ethereum remains to be seen. We may even see the monolithic/integrated architecture emerge as the winner since it can provide a more straightforward user experience. Regardless, this will certainly be a pivotal year for blockchain infrastructure adoption - the technology is here, now it is a matter of what gets adopted and by whom.

An incredibly exciting cryptographic primitive is finally seeing some adoption, and that trend will likely continue into 2024 and beyond. Zero-knowledge proofs, a type of cryptographic construction that allows for proving that information is known without revealing the information, have numerous applications within the blockchain space. For example, ZK rollups can execute transactions off-chain and then prove with a succinct cryptographic hash that everything was done correctly. Instead of having to re-execute an entire sequence of transactions, something as simple as a mobile phone can easily verify the validity of the data. It also has promising applications in the privacy space, and projects like Aztec and Aleo are preparing to release platforms that can deploy private smart contracts. These features could finally make blockchain-based accounts and payments normal, as they preserve user privacy in a way that is not currently feasible. Retaining privacy while still enjoying the trustlessness, decentralization, and security of blockchain is an ideal situation that has only been enabled through the rapid advancement of ZK proofs, and their implementations are only just getting started.

With all these technological advancements and integrations coming in 2024, it is also critical that we do not lose sight of the main mission of blockchain and cryptocurrencies: create a trustless, secure platform for global interaction and computation. Though we may have the technology, the user experience is still seriously lacking, and the average person would have no idea how to onboard into a wallet and interact with a dApp. As we started to see in 2023, that trend is changing, and concepts like account abstraction and embedded wallets are becoming the norm, especially in consumer-facing apps. For example, Daimo introduced a Venmo-like user interface that anyone can download from the Apple App Store and sign into with their Google Account, then experience a similar UX to Venmo but with a blockchain-integrated backend. These types of solutions, where a user doesn’t even realize they’re interacting with blockchain, are the ones that will bring the billion-user products and apps to life, and will hopefully become the norm in 2024.

Every year, the growth of the blockchain industry does not disappoint, and 2024 feels no different. With a renewed sense of optimism stemming from this mini-bull market and the legitimization of the asset class by institutional investors, we are sure to see more blockchain and cryptocurrency adoption in 2024. Whether that comes from exciting new L1/L2 architectures, ZK apps, or a killer consumer product we can’t predict, but the proliferation of all of these narratives should be exciting to watch unfold.

By Lincoln Murr

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