\n<\/p>\n
W<\/span>hen token markets plunged in 2018 following the initial coin offering (ICO) bubble, I wrote a column entitled \u201cCrypto Winter Is Here and We Only Have Ourselves to Blame.\u201d<\/a> It lamented the get-rich-quick schemes and \u201clambos\u201d that took precedence over the development of real solutions to real problems at that time.<\/p>\n Four years later, with crypto markets reeling from another sharp sell-off, I feel no compulsion to write such a self-flagellating piece on the industry\u2019s behalf.<\/p>\n Sure, last year\u2019s boom generated overblown prices for many tokens, both fungible and non-fungible, alongside a whole new set of bad-taste, wealth-flashing memes. (The phrase \u201chave fun staying poor\u201d surely took the prize as the worst.)<\/p>\n You\u2019re reading <\/i>Money Reimagined<\/b><\/i>, a weekly look at the technological, economic and social events and trends that are redefining our relationship with money and transforming the global financial system. Subscribe to get the full newsletter <\/i>here<\/i><\/a>.<\/i><\/p>\n But in many ways the building and problem solving that followed the 2018 meltdown has served us well. It meant the speculation behind the most recent boom was built on a more established foundation than in 2017.<\/p>\n Crypto is still far from going mainstream, both in terms of its technical capability and social acceptance. But there is a lot less \u201cvaporware\u201d now. It feels more \u201creal,\u201d established, here to stay \u2013 that it truly is building something transformative for the world. That\u2019s why this \u201cwinter\u201d feels less brutal.<\/p>\n So, with that in mind, here are my six main reasons to say \u201cthis time is different\u201d (which, I know, is always a dangerous thing to say).<\/p>\n Whether it\u2019s the Lightning Network<\/a> for low-cost bitcoin payments, the ZK-rollups<\/a> that power decentralized finance (DeFi) applications or multiparty computation<\/a> projects enabling secure online custody, cryptographic advances have over the past three years gone from concept to deployment.These innovations will lead to the network processing scalability that\u2019s needed for blockchain technology to go mainstream.<\/p>\n<\/p>\n Most of these are layer 2<\/a> or companion tools that address a core problem with multi-node blockchains: the need for a massive amount of duplicative computation to process transactions on chain. They represent decentralized alternatives to \u201cpermissioned\u201d blockchains where only a small set of approved actors would have the authority to validate transactions (thus improving efficiency). Instead, Layer 2 mechanisms use clever cryptography to enable off-chain computation that can\u2019t be gamed and which, after linking outcomes back to a \u201cpermissionless\u201d blockchain, don\u2019t undermine its decentralized consensus. If Ethereum developers can successfully migrate that blockchain to the full suite of 2.0 features, <\/a>even bigger scaling gains will soon be made by the crypto ecosystem.<\/p>\n Thanks partly to the technological improvements described above, recent crypto success stories are concentrated among permissionless projects open to any participants, rather than in the permissioned projects once favored by incumbent players. The money is being made in DeFi, non-fungible tokens (NFT) and decentralized autonomous organizations (DAO), not so much in IBM\u2019s once prominent \u201centerprise blockchain\u201d offerings<\/a>.<\/p>\n Users are finding value in blockchain technology\u2019s most disruptive, paradigm-changing promises rather than in incremental adjustments to existing business models. This reflects hope that it will unleash a truly transformative wave of innovation, something closer to what the internet achieved than most fintech ideas seem geared toward.<\/p>\n This preference for permissionless crypto projects is not just coming from crypto-native \u201cdegens.\u201d<\/a> It\u2019s also found among the same kinds of established companies that were earlier the target of permissioned enterprise blockchain ideas. Thousands of mainstream firms are experimenting with NFTs and social tokens, especially those in entertainment, fashion and media such Adidas<\/a>, Warner Brothers<\/a> and The New York Tiimes<\/a>. One mark of what this says about the sector\u2019s future growth came in separate earnings calls this week, when Satya Nadella and Tim Cook, the CEOs of Microsoft and Apple, respectively, both crowed over opportunities in the metaverse and pledged to invest forcefully in it.<\/p>\n Meanwhile, even though lots of institutional investors have no doubt pared down their bitcoin positions these past couple of weeks, the engagement in crypto among hedge funds, family offices and even pension funds surged last year \u2013 with the more adventurous of them dabbling in DeFi. Even if they\u2019ve sold a lot of crypto of late, institutions\u2019 investments in the technology, staff, processes and legal arrangements needed to enable those investments now stand as a base of established infrastructure for handling future transactions. The institutions aren\u2019t leaving.<\/p>\n While the crypto community was understandably upset by some poorly worded amendments to a U.S. infrastructure bill that resulted in overzealous tax surveillance of crypto service providers, the law also effectively legitimized the industry<\/a>. If a government wants to tax a sector, it won\u2019t kill it. It was also encouraging to see wide bipartisan support for the (ultimately failed) efforts to soften those amendments, along with other signs that lawmakers are becoming better informed<\/a>.<\/p>\n Regulation remains a barrier to innovation, adoption and growth, particularly the onerous nature of anti-money laundering rules and securities law enforcement. But it\u2019s also a framework for normalizing the industry and for making the general public feel more comfortable with it.<\/p>\nLayer 2 scaling systems: No longer just an idea<\/h2>\n
Permissionless models are winning<\/h2>\n
Corporates and financial institutions are here now<\/h2>\n
Regulation implies normalization<\/h2>\n