After the boom year of 2021, the crypto world was brought down to earth again in 2022. Hundreds of tokens have lost over 95 percent of their market value and many projects have failed. Still, there are some bright spots – these five developments may have growth potential in 2023.
1. DeFi Adoption
The collapse of the crypto exchange FTX has once again shown why blindly trusting centralized crypto companies can be so dangerous. The fallout from this event will likely keep the crypto world busy for months, if not years, to come. But there is also light at the end of the tunnel.
Decentralized finance (DeFi) has already seen and will likely see even more adoption as a result of the FTX debacle in 2023. Since November 4, 2022 alone, investors have withdrawn over $4.7 billion from crypto exchanges – nearly 12 percent of all stablecoins -holdings on crypto exchanges.
In short, the principles and structures of DeFi platforms do not lead to the same centralization and risks that led to the demise of FTX. Given the failure of FTX and other centralized crypto companies, the case for DeFi in 2023 is stronger than ever.
You can find out what DeFi trends investors can expect in 2023 and which projects can benefit in the January issue of BTC-ECHO Magazine.
2. Crypto games
The crypto gaming sector has faced harsh realities during the year after surging in 2021. Former crypto gaming pioneers such as Axie Infinity (AXS) or Stepn (GMT) have seen a massive drop in players. Many play-to-earn game models proved unsustainable and not a single crypto game managed to break through into the mainstream – could that change in 2023?
According to investment bank Drake Star Partners, investors invested over $3.4 billion in NFT and blockchain gaming companies in 2022. Crypto gaming companies thus account for around 40 percent of all private equity investments in the gaming sector.
It is therefore within the realm of possibility that these investments can bear fruit in the coming year. And with the upcoming release of several triple-A crypto games such as Illuvium (ILV), Guild of Guardians (GOG) and Ember Sword (EMBER), it is very possible that one of these games will succeed in attracting a larger number of players to get excited about yourself.
3. Ethereum Layer 2s
Due to the bear market, Ethereum transaction costs have fallen sharply. Currently, a simple ETH transaction costs less than $1, while a token swap on Uniswap costs around $3. Although transactions on the Ethereum main chain are currently significantly cheaper than a year ago, they are still too high for most users and applications.
The situation is different with Ethereum scaling solutions like Optimism, ImmutableX, StarkWare, Polygon or Arbitrum. Transactions there usually cost only a few cents and their ecosystem has developed brilliantly in the last 12 months alone. According to it Harvard grad and DeFi expert Patrick Dynamo the two scaling solutions Arbitrum and Optimism alone now process the same number of transactions as the Ethereum main chain – and the trend is increasing.
In 2023, the number of transactions settling ETH-L2s may continue to grow. With the Ethereum Shanghai upgrade and the EIP-4844 it contains, proto-thanksharding should be introduced in the first or second quarter of the new year. The upgrade will further scale the Ethereum main chain and further reduce transaction fees on Layer 2 networks.
It is therefore likely that layer 2 networks will continue to gain prominence in the crypto year 2023 as a host of new projects and users can settle on them. In particular, decentralized applications from the social media, gaming and metaverse sectors that prioritize fast and cheap transactions will keep a close eye on Layer 2s and could roll out their products there.
Many are unhappy with the companies behind social media platforms. Elon Musk’s Twitter in particular currently illustrates this trend very well. Users are turning their backs on the platform and switching to Web 3 social media platforms like Lens or Minds – but what are decentralized social media platforms really?
Decentralized social media uses blockchain networks to create censorship-resistant platforms that prioritize free expression and protection of user data. They therefore differ from traditional social media platforms primarily in that they run on separate servers or nodes, as opposed to centralized servers controlled by a single entity.
They also often use NFTs and crypto-tokens as innovative methods of content monetization and reputation systems.
On decentralized social media platforms like Lens or Minds, users get an on-chain reputation, which can indicate, among other things, how trustworthy a user is, or whether there is a real person or a bot behind a specific account.
It is true that decentralized social media platforms are still small compared to Instagram, WhatsApp and Co. Nevertheless, the progressive scaling of blockchain networks like Ethereum, combined with the increasingly dissatisfied users of conventional social media platforms, could mean decentralized social media in Let the year 2023 grow.
5. Cosmos ecosystem
The Cosmos ecosystem is another area of the crypto sector that could grow in the new year. Compared to smart contract platforms like Ethereum or Cardano, Cosmos is not a single blockchain, but a network of interconnected blockchain networks.
The great advantage of this ecosystem is that each blockchain or decentralized application in the Cosmos ecosystem can be designed individually and tokens can be exchanged between the different protocols without often insecure blockchain bridges.
Why is Cosmos interesting for developers?
Cosmos is therefore primarily interesting for developers in the crypto space for two reasons. On the one hand, because developers can build more adaptable, decentralized applications. For developers of decentralized applications, this allows them to customize their products in ways that other smart contract platforms cannot support.
On the other hand, because they can still communicate with other blockchain networks in a secure way without relying on blockchain bridges. For hackers, blockchain bridges have been one of the most lucrative attack vectors in the entire crypto sector since the beginning of 2020. So they were able to steal as much as 2.5 billion US dollars from them. Given this fact, the Cosmos ecosystem offers developers benefits that other blockchain networks cannot currently offer.
This is why 2023 could be bullish for Cosmos (ATOM).
However, a big problem for many projects in the Cosmos ecosystem is that they themselves have to make sure that their applications are sufficiently secure and decentralized in order not to fall victim to 51 percent attacks or the like. This is not the case on other Layer 1 networks like Ethereum or Layer 2 scaling solutions. The downside to this is that Cosmos projects often have to spend a lot of capital to run staking validators themselves, which they could otherwise use to develop their project.
However, this problem can be solved in 2023. With the so-called interchain security model, it could be possible for projects in the Cosmos ecosystem to outsource their security authority to CosmosHub (ATOM) at low cost. When exactly the upgrade will go live and whether it really works is so far unclear.
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