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The passing year may very well be considered groundbreaking when it comes to the evolution of cryptocurrencies And Web3 in general. Numerous events around the world, some tragic, have brought digital assets into the scope of financial regulators like never before, leading many to conclude that the industry has finally gotten “serious” this year.
At the same time, the mass adoption of cryptocurrencies continues unabated among mainstream users and institutions alike, and this trend will only grow in 2023 and beyond.
Lessons learned hard
The most significant event that has hit crypto — and the whole world — in the past year is undoubtedly the war in Ukraine. When it started, governments around the world realized it was possible to send millions of dollars worth of digital assets to a country to buy weapons – without any oversight. While the Western world agreed that this was acceptable in the case of Ukraine, it dawned on policymakers that the same could be done for any terrorist organization.
As a result, the German Federal Intelligence Service (Bundesnachrichtendienst) and the FBI began to employ technical specialists a lot of to reduce the risk of Russia undermining sanctions via crypto.
This is where Western law enforcement agencies began to pay more attention to regulation.
In turn, and in what was crypto’s second biggest event, came the Queen’s Speech in the UK, outlining the government’s plans to introduce legislation to reduce economic crime and help crypto businesses grow. Accordingly, the European Parliament has one legal framework for crypto assets in the EU in March 2022 to “amplify the benefits and curb threats” of crypto. In addition, the US Securities and Exchange Commission recently announced that it would be focusing on cryptocurrencies in the future and outlined plans to establish its own regulations.
While heated debates over crypto regulation have been going on for years, we now know that regulators are in favor of championing new technologies while ensuring consumers are protected and criminal elements removed. This represents a turning point for crypto — the point where the industry grew up.
Crypto Technology Must “Disappear”
As for where we’re going, when it comes to the mass adoption of cryptocurrencies, we really need the technology to “disappear”. In other words, it shouldn’t be visible to regular retail users, nor should they have a degree in it cybersecurity to interact with it. This starts with the basics, namely the user experience. You can’t expect people to remember very complex addresses or write 12 random words on a piece of paper.
In addition, the idea of decentralized finance (DeFi) and “Not your keys, not your coins” is a misconception – more money has been lost from people misplacing their keys than through any exchange hack ever. DeFi is a great tool if you know exactly what you’re doing, but that can’t be applied to the vast majority of users, especially those who aren’t crypto-native.
Most people don’t care if they spend crypto or fiat currency when they swipe their phone to a supermarket. To become truly useful, these intricacies need to go ‘under the hood’ so that users are not inundated with unnecessary technological challenges.
Institutional involvement in 2023
Meanwhile, not only retail users can benefit from crypto’s seamless integration into traditional financial systems. In recent years, many institutional firms and brands have begun to dip their toes into decentralized technologies, and this trend will gain momentum in 2023.
For example, brokerage giant Fidelity Investments recently launched a new one crypto trading product for private investors. Meanwhile, many more non-crypto-native companies and even family offices have been actively looking for new ways to get involved in digital assets.
In particular, some of them got into crypto through prominent and respected, at least at the time, crypto platforms – some of which have not fared so well. In the future, these companies will therefore focus even more on due diligence, which is why the regulatory frameworks will have to evolve further.
Companies need to be able to find out their crypto partners’ background, where the assets are, how they are stored, and whether they are compliant – essentially everything you expect to learn about your bank.
Furthermore, more non-crypto platforms are likely to start offering digital products in 2023. This is likely to result in an ecosystem where financial services tend to merge. Instead of different apps for insurance, savings, bank accounts or crypto, we will see the concentration of different trading options and savings and retirement plans in the fintech space.
However, for this to happen, certain elements must be anchored in authority. Even DeFi platforms still rely on centralized operators, such as stablecoin issuers, so there is no such thing as “absolute” decentralization.
Eventually, digital assets will become “the norm” and so ingrained in our daily lives that even the term “crypto” itself will disappear in a few years. Web3 will become an inseparable part of the global financial system and services in the future.
Larry Fink, CEO of investment monolith Blackrock, already nodded towards this future, noticing that “the next generation for markets, the next generation for securities, will be tokenization of securities.”
Of block chain tech with lower costs, reduced reliance on intermediaries and instant settlement, introducing it to the traditional financial system is a no-brainer. This, in turn, will give the industry much-needed legitimacy, further validate existing products and promote greater adoption.
“Crypto winter” is a time to build
As for the current ‘crypto winter’, it could have a net positive effect on the industry in the long run. While many refer to this period as the toughest crypto winter in the industry’s history, the builders and developers have not hibernated.
Instead, the industry is working hard to bring better products and services to the market. Algorand improved its performance by more than five times via a network upgrade in September. And the Ethereum Merge – which saw the network transition to the more efficient proof-of-stake mechanism – went smoothly, extending Ethereum’s sustainability credentials and paving the way for greater scalability in 2023.
So while some projects have fallen this year and some have gone out of business, the industry hasn’t stalled. Valuable lessons have been learned this year and will in turn create better, more reliable and safer services as we move into 2023. As crypto gets serious, so will considerations of adoption by mainstream businesses and audiences.
Martin Hiesboeck, Ph.D. is head of research at Uphold and a consultant on data analytics, blockchain and crypto implementation, tokenization, DeFi, web3, stablecoins and CBDCs.
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