Onwards to 2023

Ok so I could write a whole post about Sam Bankman-Fried and FTX (well actually I did) but honestly that’s just such low hanging fruit with little to no real value for my readers looking to hear where blockchain TECHNOLOGY is heading. Bottom line SBF and Alameda Research did some shady stuff (luckily on-chain transactions are fully transparent/auditable), temporarily hurt the mainstream image of the “crypto industry”, and broke the trust of millions of CRYPTO EXCHANGE clients. Not to mention all the companies they invested in who are now in the ditch because of poor investment practices. It all goes to prove how important understanding blockchain technology is when entering the crypto/blockchain industry. First and foremost, Bitcoin and Ether are better TOOLS than investments, even though they both are some of the best (if not best) performing assets over the past decade! The Bitcoin and Ethereum Blockchains continue to operate as normal, blockchain developers are still writing/maintaining code and millions of people around the globe are still using smart contracts/cyrptocurrency (especially in developing countries).

As I have a better understanding of where the Ethereum blockchain and community is heading I will stick to that for this post. In my view the biggest design spaces for Ethereum are 1. Scalability 2. Privacy 3. Censorship Resistance 4. Identification Systems 5. Tokenization/DeFi/NFTs/DAOs.

Let’s start with scalability. As some may know, a common yet valid criticism of Ethereum and Bitcoin are how expensive it is to use the blockchain. For example it may cost $2-$5 per transaction whether you send $1 or $1M. This is because both blockchains optimize for security and censorship resistance rather than scalability on the base layer. However, both blockchains have layer 2 networks which inherit the security of the base blockchain while upping transaction capacity and decreasing cost per transaction. Bitcoin has Lightning Network, Ethereum however, has a rollup-centric roadmap consisting currently of optimistic rollups (Optimism and Arbitrum) and ZK Rollups (ZkSync, Polygon Hermez, Aztec, and StarkNet). Optimistic Rollups were the first to launch but have 7 day wait periods when it comes to withdrawing funds back to Ethereum mainnet. There are bridge solutions such as Hop Protocol which utilize liquidity on both layers to make near instant withdraws possible. ZK Rollups will launch in force in 2023 and have been considered as the “End Game” solution for Ethereum. ZkSync 2.0 for example touts EVM compatibility, solidity as primary smart contract language, and open source code.?

Censorship Resistance has come to the forefront of conversation after Ethereum’s switch to Proof of Stake saw an increasing number of validators primarily validating OFAC compliant blocks. Most of this issue resides in the block builders themselves prioritizing OFAC compliant blocks to pass on to the validators. This instance has since peaked and seems to be heading back in the right direction thanks to tools created by teams like Flashbots such as SUAVE. The argument comes down to the fact the base layer of Ethereum should provide the right economic incentives for block builders and validators to include any transaction willing to pay a competitive gas fee. For blockchains to be credibly neutral and censorship resistant, there can’t be centralized points of failure where global businesses are forced to adhere to a single country’s rules/regulations. This is a battle the Ethereum community will continue to fight until the relay process from the block builder to a validator is completely decentralized.

Privacy on blockchains is an interesting topic because inherently a blockchain is completely transparent and auditable. So how does a blockchain inherit privacy? From a basic level of understanding a blockchain can have base layer privacy, privacy enabling smart contracts/applications, and/or layer 2/3 privacy preserving implementations. Base layer privacy blockchains like Monero and Zcash use ring signatures and zero knowledge proofs respectively but without a virtual machine built on chain to enable applications, these chains don’t have as many users compared to virtual machine chains like Ethereum. Smart contract applications like Tornado Cash and other application-based solutions work well to create anonymity on virtual machine chains but are subject to government intervention (not completely censorship resistant when it comes to accessing these apps). Layer 2 and 3 solutions can build with privacy in mind while inheriting security from the base chain. This could end up being the ultimate solution as certain applications will choose whether this attribute is necessary for their specific use case or not.

Identification systems on blockchains are of course a touchy subject when it comes to privacy so it needs to be done correctly. Zero knowledge proofs seem to be the key to enabling blockchain privacy while digitizing our identity for easier use and integration in an ever growing digital age. Digital IDs could help digitize your ID just like everything else in your wallet. Just think about all the things a bartender sees when you show them your ID! All they really need to know is whether the person they are about to serve is over 21 or not (not their specific age/birdthday!). Definitely not a home address, last name, or driver license number! Blockchain ID systems can prove useful in national elections where a voter can utilize the blockchain to verify their vote counted for the right candidate and to verify that every citizen has only voted once. Identification systems may also help to prevent AI/bots from degrading experience on internet applications. Some automated accounts can prove to be useful on blockchains or social media but are often times used for spam and attacks. Some current solutions working toward this on Ethereum are Gitcoin Passport, BrightID, Proof of Humanity, and Ceramic. These services/applications will prove to be vital in the next wave of blockchain mainstream adoption and need to be built with user privacy in mind.

Finally, the slew of existing/prior hype trends such as Tokenization, DeFi, NFTs, and DAOs. Tokenization became famously popular during the ICO boom in 2016/2017 when projects found ways to get around crowdfunding regulations in order to build out Ethereum’s early app/protocol ecosystem. Tokenization moving forward will see Real World Assets (RWAs) such as real estate and income streams put on chain as collateral. DeFi brought forth a killer product - stablecoins (sometimes referred to as a digital dollar because is a dollar really stable relative to purchasing power??). Unfortunately today’s stablecoins either work in a very centralized bank-like manner (USDC) or in a very opaque and possibly fractional reserve-like manner (USDT). Soon we may see decentralized solutions that track a CPI metric rather than a fiat currency where the value floats rather than attempts to maintain a peg to a specific value. NFT’s brought a lot of new entrants with enthusiasm into the blockchain industry because finally you didn’t have to know how to write code or specialize in finance to use a blockchain app. In my opinion the best way NFTs can be used is as membership passes paired with Sign In With Ethereum (SIWE) as a way to replace traditional username/password login systems. This will hopefully replace the need for having to remember all those passwords you create! DAOs are a new form of business entity for people anywhere in the world to work toward accomplishing a common goal. A DAO shouldn’t be used for every business venture just like a S Corp shouldn’t be used for every traditional business venture. There are specific reasons to create and use a DAO which is being vigorously studied at the moment. For DAO’s to really make a difference, regulators around the world need to create legislation to protect DAO contributors/members while making it easy to conduct business activities globally.

All in all, crypto/blockchain is very much so alive and well. The media field day with FTX/SBF/Alameda is a huge distraction from what really matters. 2020-2022 was a cycle of large amounts of leverage and even though a good amount was over-collateralized, the collateral used turned out to be subject to large price manipulation on the upside and downside. Blockchains and their respective communities are very robust and distributed across the globe, this “episode” will only be a blip on the radar in 10 years from now just as the first major Bitcoin exchange hack of Mt. Gox has been.

And no I did not use ChatGPT to write this but it is a super cool tool :)