Blockchain technologies have become mainstream. Yet the field is full of innovations, such as crypto assets, DeFi and NFTs. Ten predictions for 2022 highlight what developments we might expect to see.
Last year, the market capitalization of cryptocurrencies reached USD 3 trillion for the first time. At the beginning of the year, it was less than USD 800 billion. DeFi now has a Total Value Locked of USD 100 billion on Ethereum alone. But NFTs have been the most surprising, flanked by complementary areas like Metaverse and GameFi.
Can anyone claim to have foreseen these developments? Looking into the future is notoriously difficult. Nevertheless, we dare to make predictions for the year 2022, and it remains exciting to see whether they will come true. Below are ten trend predictions for the development of blockchain technologies in 2022, such as blockchain, crypto assets, DeFi and NFTs:
1. Bitcoin price rises to $100,000 and crypto assets market grows in breadth and depth
Rising inflation rates are making scarce assets like Bitcoins (BTCs) increasingly attractive. Bitcoin is not only the oldest, most decentralized, and best-known cryptocurrency – a distinctive feature compared to other cryptocurrencies is its limited supply of 21 million BTCs. Against the backdrop of Bitcoin’s institutional adoption and the greater demand that comes with it, it is very much within the realm of possibility that the BTC price will rise to more than USD 100,000 this year.
But the overall crypto asset market will also grow. Since the beginning of 2021, the USD prices of the largest 20 cryptocurrencies listed on CoinMarketCap by market cap have increased by triple digits. It is noticeable that many native cryptocurrencies from alternative Layer-1 blockchain protocols (Alt-L1s), which are traded as potential Ethereum killers (such as Solana, Binance Smart Chain, Cardano, Polkadot, Avalanche), are among the top 20. Of course, investments in the crypto asset market are riskier than traditional investment opportunities, partly due to higher price volatility. Nevertheless, it should be allowed to contrast the price performance of cryptocurrencies with those of well-known market indices. For example, the MSCI World Index is only 17 percent higher than it was at the beginning of 2021, and the gold price trend is currently negative. Also, the increasing number of wallet addresses, for example, measured by monthly active users of the MetaMask wallet (10 million active monthly users currently), indicate that demand for crypto investment opportunities will continue: DeFi offers double-digit interest rates through Liquidity Provision, Lending, and Staking, whereas banks in developed countries quite often offer less than 2 percent on savings.
2. Ethereum undergoes upgrade and remains dominant smart contract platform
Ethereum is now expected to complete its transition to a proof-of-stake consensus mechanism this summer. Financial institutions from the TradFi space are also expected to enter the staking business. Staking rewards could thus become a kind of “prime rate” of the crypto asset market, as one can rarely invest in this market in a more risk-free way than through ETH staking. Here, one has the option to set up one’s own staking infrastructure or to resort to staking services such as those of Coinbase or Blockdaemon, for example. In terms of price development, ETH continues to have great potential, as do other Alt-L1 tokens. Although the share of those protocols and tokens that are mapped on an Ethereum basis in the DeFi and NFT area is decreasing, Ethereum still carries the largest transaction volume.
3. crypto investments become more sustainable
Issuers of ETPs, crypto exchanges, mining companies and financial institutions are interested in offering green products and services to their customers. To date, many potential crypto investors have been reluctant to invest in Bitcoins due to the relatively high carbon footprint of Bitcoin mining. Often, interested companies are also subject to ESG regulations that they must follow.
However, there are models that allow crypto investment providers to calculate the required climate offset for Bitcoin-based products. For example, a recent study by the Frankfurt School Blockchain Center found that a Bitcoin transaction, as well as holding Bitcoins, can be offset by purchases of emission allowances from the European Emissions Trading Scheme. In the former case, 18 USD is required to offset CO2 emissions. In the latter case, emission allowances must be purchased for 100 USD under the assumption that one holds a Bitcoin for a period of one year. CO2 emission prices are expected to increase significantly in 2022.
Overall, the energy mix used for blockchain network operations is becoming greener. Not only have mining companies pulled out of China after the crackdown on the country’s mining industry. Mining companies are increasingly tapping renewable energy sources, such as geothermal or solar energy, because such energy sources have good cost structures.
4. Web3 infrastructures pave the way for Internet decentralization
Web3 represents a novel approach to potentially delivering the Internet architecture in a decentralized and autonomous manner using blockchain technology. At its core, the idea is to reduce dependency on large “big tech” network and IT service providers, such as cloud or Internet providers, as they are often opaque about the data they collect, represent a “single point of failure,” and can have sometimes arbitrary product and pricing policies due to an oligopolistic market environment.
Web3, on the other hand, is based on the idea of putting the users of the Internet back in control of data and infrastructure. From decentralized data storage using blockchains such as Arweave or Filecoin, decentralized wireless networks such as the Helium network, tokenized platforms, and projects where all decisions are made by the community, to completely new ways of identity management – Web3 offers a wide range of possibilities.
Cryptocurrencies are particularly important in this context because they can provide a sustainable incentive system that encourages network participants to provide the required infrastructure over the long term.
5. NFTs and blockchain-based gaming become a source of income.
The metaverse is a virtual platform on which people can collaborate and trade economically. These digital economies are hard to imagine without NFTs and blockchain-based infrastructures. The year 2021 represented a turning point in “GameFi” with Axie Infinity and the launch of the Ronin sidechain, which created the throughput necessary to allow one million active players to participate in the Axie Infinity universe in August 2021. Especially in the Philippines, Axie Infinity, developed by Sky Mavis, has become a source of income for many
Microsoft and Facebook have announced plans to build their own approaches to digital worlds, or “metaverses.” It can be assumed that a largely centralized, partly closed system will be developed by these Internet giants, so that value transfers to other digital ecosystems will be made more difficult or even impossible. However, this is diametrically opposed to the philosophy of Web3, which focuses on individuals with clearly defined property rights and freedom of action with the help of blockchain technologies.
It remains exciting to wait for the dawn of the multi-chain world. Once value transfers are seamless across different crypto-universes, this could spur a new wave of adoption, and the NFT and Blockchain-based gaming economy could receive a further boost. In emerging economies, the employment sector could undergo structural change. Such an interconnected economy could arguably be called a “meta-metaverse.” What sounds like it is a long way off could become reality quite quickly, i.e., in 2022, especially in certain areas of gaming.
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