Happy new year!
We take a look back at the past year and hope that 2023 brings more joy and positivity to all people!
The FTX scandal
This year's biggest news is without a doubt the FTX scandal and the question is whether or not Sam Bankman-Fried and FTX can admit guilt to the largest scandal in the crypto world ever. The story never ends and the incredibly bizarre details of the information that comes out point to a story worthy of at least a couple of Hollywood movies.
Sam B-F is now arrested in the Bahamas but is extradited to the US authorities, which will probably give SBF a room in a prison for a very long time if the prosecutor gets his way.
It has now been seen that both accounting and reporting have been incredibly unserious and bordering on nonexistent when compared to the rules that banks and investment companies must follow today. The total lack of accounting and total control over liquidity has now shown that Sam B-F and FTX co-founder Gary Wang through Alameda were able to borrow $546 million to buy 7% of the shareholding in RobinHood and these shares were then used by Alameda as collateral to borrow more capital.
A company that has claimed these shares is the actor BlockFi, which went bankrupt after the FTX crash as it had lent $600 million to Alameda research, but it remains to be seen how many other companies will also sue FTX/Alameda/SBF to seek compensation.
One point that the SEC also raises is FTX's urging of its customers to send money to a very suspicious electronics retailer on the internet. The website is now offline but contains a lot of spelling mistakes and incredibly strange prices, which is usually a clear warning sign that something may not be right. The capital that was sent to the website was then used in Alameda's trading. It is also believed that $8 billion in debt has been concealed by FTX executives. It is suspected that it concerns a customer account that Sam B-F personally referred to as "our Korean friends' account". The SEC also claims that FTX used $200 million of its customers' capital to invest half in fintech company Dave and the other half in Web3 company Mysten Labs.
Sam Bankman Fried has denied all allegations of the long-term fraud he has committed according to the US SEC and the trial is expected to begin on January 3, 2023 and it is likely that it will be a very long and drawn-out process.
A so-called algorithmic stablecoin called Terra UST crashed completely and lost its peg to USD. Simply put, it based its "stable" value on burning coins of a cryptocurrency called Terra LUNA when the value of Terra UST falls below $1 and doing the opposite and minting Terra LUNA when the value of UST exceeds $1.
There was a large dump to a value of $285 million which then spread to social media and caused a lot of disposals and shorting of the respective currencies. To preserve the stability of its platforms, the creators of Terra through the organization Terra Form decided to sell all their assets in bitcoin reserves which then contained 40,000 BTC. All the chaos led to the cryptocurrencies being delisted from most major exchanges and the subsequent hyperinflation meant that the value dropped to more or less $0 after having a value of nearly $40 billion at its peak. South Korean authorities who are pursuing the founder Do Kwon now believe that he is hiding somewhere in Siberia after fleeing through several countries including Dubai, Singapore, and Serbia.
A historic point in the history of the Ethereum platform occurred during the year. They made an update to the chain and the change meant that the Ethereum mainnet and execution layer merged with the so-called "Beacon Chain". This means that the ETH chain switched from the energy-intensive consensus mechanism Proof of Work (PoW) to the more energy-efficient method Proof of Stake (PoS). More practically, it means that Ethereum will use about 99.95% less energy than when the chain used PoW and that you can also use the stake function for your Ether.
The upgrade is one of the first steps towards a faster and cheaper block chain without losing its technical decentralization and we can expect some really exciting years ahead for Ethereum when functions such as sharding are introduced.
It is easy to speculate on what will be big but difficult to determine what will really break through. The FTX scandal will certainly be behind a number of trends in the coming years and we have already seen the birth of Proof of Reserves, a newly started process that will surely become standard in various forms in the future for both large and small players where they publicly show their liquid assets and assets in order to gain their customers' full trust. You can say that it will work as a quality assurance for customers to use their platform without having to worry about their investments and assets being mishandled or lost because they can see the "accounting" themselves.
SSI, or Self-Sovereign-Identity, is a solution that allows individuals to identify themselves through their cryptocurrency wallet, similar to using Facebook, Google, or Apple IDs to identify oneself online. Currently, this information is held by large companies rather than individuals owning their own identities for use with applications and services. In the future, as web3 becomes more mature for use in healthcare, banking and finance, insurance, and ownership, reliable systems for identification will be necessary for web3 to become widely adopted by the general population.
Web3 is currently growing rapidly and is expected to continue to do so, driven by Metaverse, GameFi, and NFT technology, which are producing a flood of new applications. While no breakthrough applications for those outside the cryptocurrency world have emerged yet, there are many advanced games being developed using blockchain technology, and it is only a matter of time before one becomes successful. NFT technology offers many new possibilities for games, and it is expected to be the most developed functionality in 2023. Metaverse is expected to make progress, particularly in gaming, but the major breakthrough is still expected to be several years away.
New blockchain platforms are still struggling to attract developers from the larger chains, but new, interesting alternatives are emerging, such as Aptos and Telos, that focus on web3. NEAR is a blockchain that has had some success with the popular app SWEAT and could potentially be a future challenger if it can prove to be stable. Often, new products promise high levels of transactions per second, scalability, security, and accessibility, but reality can be different, even for established platforms.
Lager 2 scaling
With the growth of Web3 driven by Metaverse and gaming, scaling becomes an increasingly important issue. Will 2023 be the year of a stable layer 2 solution? Currently, Matic (previously Polygon) is the largest layer 2 solution on top of Ethereum and is used by many large protocols, but it has shown itself to be unstable during high-stress periods, causing problems for platforms using the solution. For example, OpenSea has had numerous problems when it cannot perform transactions through Matic when buying or selling NFTs, and user frustration has been high, damaging confidence in the technology. A good solution needs to be functioning within a few years to make it commercially viable at high levels. Another question is what happens to specific layer 2 solutions when and if Ethereum gets its upgrades for transaction fees and scaling with the future introduction of sharding and rollups? For example, will Matic play out its role and lose all value, or will it be forced to become its own chain? Regardless, we will surely see an indication of where things are heading within a year or two.
NFT is a market that has taken a beating in the bear year of 2022 after its record year in 2021, with trading down about 97% compared to the 2021 peak. Celebrities such as Justin Bieber, Snoop Dogg, Madonna, Gwyneth Paltrow, and Eminem have lost large amounts on their purchases of NFTs, and some of the celebrities may actually be sued for promoting famous NFT collections such as Bored Apes. It is believed that they advertised on social media to raise the price of their own NFTs and attract more purchases. Yuga Labs, the organization responsible for Bored Apes, denies any involvement.
NFT is just starting its journey and appears to be following the same pattern as cryptocurrencies around 2013, except that this time, many developers and entrepreneurs are ready to build on the existing infrastructure, which is only growing stronger in functionality. The path forward is not straight, but very winding, so you never know where you will end up when creative people develop new technology. One thing is certain, 2023 will be a critical year for many of the legs of the cryptocurrency world, and it will be interesting to see how they develop.
Writer for Goobit and founder of Kryptoguiden.info