With bankruptcies, collapses and a long winter, 2022 has been one of the most turbulent years in crypto. According to Andrew Keys, venture capitalist and managing partner of DARMA Capital, we are probably experiencing the latest jolts of the burgeoning cryptocurrency ecosystem. We banish bad actors and bad practices through a dramatic but ultimately maturing process. Andrew Keys explains his cryptocurrency expectations and predictions for 2023.
Expert’s 2023 cryptocurrency expectations and predictions
1. Ethereum momentum
Looking back to 2022 10 years from now, we’ll see that the real news isn’t the stupidity of Sam Bankman-Fried and the Celsius Network. We will understand that Ethereum is a Proof-of-Stake (PoS) transition and remains the most common layer-1. A series of protocol-level developments have created a vortex of innovation, development, users, and capital. At Ethereum, we are witnessing the evolution of the bottom layer of humanity’s social, economic and political operating system.
Ethereum will remain the most widely adopted, widely developed and capital-heavy layer 1 blockchain in 2023. Merge was the biggest event in the industry since Satoshi’s Bitcoin Genesis Block in 2009. More nuanced but equally important developments will begin in Ethereum in 2023. It will also provide more adoption and capital in a flywheel effect that will position Ethereum as the leader in the next bull run.
The next Ethereum upgrade from Merge is Shanghai, scheduled for the second quarter of 2023. Among the many upgrades, Shanghai will enable withdrawals of ETH stakes that have been locked in the deposit contract since staking was enabled in December 2020. Following the Shanghai upgrade, EIP-4844 is another Ethereum innovation that will further position Ethereum as the ubiquitous layer-1. EIP-4844 will enable proto-danksharding. Although no longer included in the Shanghai update, I predict proto-danksharding will be adopted and implemented in 2023. This will lay the groundwork for rapid development towards full sharding and maximum Ethereum scalability.
2. Ethereum staking
Ethereum, which you follow from Kriptokoin.com, made a smooth transition to PoS. After that, Ethereum’s utility as a staking innovation platform will continue to expand. It will also create a new composite crypto yield curve. Following Ethereum’s successful transition to PoS in September, ETH has now become the largest staked capital base of any blockchain, with over $20 billion stakes.
In 2023, capital will seek safer forms of returns. Also, future updates will allow stakes to be withdrawn. This is why we will see continued innovation in ETH staking. The increase in ETH staking in 2023 will result in a more nuanced demand for benefits from validators, stakers and projects built on Ethereum. Using innovations like EigenLayer and others will continue to channel benefit and capital into the Ethereum base layer. It will also create an adoption and utility wheel that will continue to establish Ethereum as the global placement layer for Web3.
3. Fed view
The Fed will dovish, setting the stage for the next crypto bull market in the third quarter of 2023. I predict that the Fed will move away from its hawkish policy and stop raising interest rates until the second quarter of 2023. We see that credit card debt is remarkably high and savings are remarkably low. Indicators point to an economy in need of a bounce that will convince the Fed to ease rate hikes. This will create a risky environment that encourages capital flows into more innovative industries such as crypto. By now, I also anticipate that enough regulatory progress will be made in the crypto industry. This means that the risky environment will be accompanied by clearer policies. Altogether this will lead to the next bull run starting in Q3 of 2023.
4. Regulations in DC
Washington, DC will be a crypto hotspot in 2023 as regulatory innovation advances at unprecedented rates. The central financial disasters of 2022 were the result of poor risk management, inadequate governance, incomplete controls and potential fraud. All of this could happen in any industry. Consumer protection will be the first priority of policymakers in 2023. The majority of emerging policy will take place around centralized exchanges and stablecoins.
Exchanges like Coinbase may be forced to become G-SIFI-regulated institutions, which will increase regulatory compliance costs. Washington, DC will be the home of some of the most controversial and important conversations about crypto in 2023. During this surge in regulatory attention, the Securities and Exchange Commission will continue to declare that all tokens are unregistered securities, which is categorically untrue.
5. Contracted banks
Federal Reserve-approved banks will provide crypto services. The Financial Stability Oversight Council aims to further improve regulations to protect consumers and enable more technology innovation in an effort to create more robust and secure global platforms.
6. More NFT uses
As the collective ‘jpeg’ era passes, the use of NFT will become more sophisticated, personalized and commercial. At the same time, blue-chip “jpeg” NFTs will be a multi-billion dollar asset class. In 2023, the Web3 ecosystem will surpass the ‘jpeg’ era of NFTs, which has dominated over the past two years, represented by 10,000 pfp projects and zero utility art. The term ‘NFT’ will emerge in a variety of use cases, all using NFTs as the underlying technology. So it will no longer automatically mean ‘digital art’.
2023 will also be the rise of ‘phygital’, where a teenager purchasing a physical pair of Nike shoes will have a digital receipt of those sneakers to be worn digitally on their avatar in the metaverse. This rapid evolution in the true utility of NFTs will force the crypto community to look critically at 2021 and 2022 projects. The vast majority of remaining NFT projects will not have developed the benefit if they have not already failed. That means NFT cemetery. What remains will be the blue-chip NFTs, the CryptoPunks of the world, which were accepted but largely ignored last year.
7. Investment DAOs
Investment DAOs will stand out as decentralized, secure and transparent alternatives to investing through GP/LP venture structures. These organizations will grow in number and importance as transparent, auditable and collaborative tools for deploying and allocating capital. Investment DAOs will force a shift in the financial decision-making mindset. These DAOs will work based on the consensus of their global membership through the ‘wisdom of the organized crowd’ rather than relying on the opinions of a few experts. Tribute Labs will spawn more DAOs in 2023. It will also continue to establish best practices and increase the impact of investment DAOs.
8. The future of Filecoin
Filecoin will become a full-fledged layer-1 protocol in its own right. It will also pave the way for the world’s largest decentralized data economy. Filecoin’s vision has always been bigger than storage. FVM will increase the complexity of Filecoin’s storage services while unlocking a whole new universe of use cases for the Web3 space. I expect the web3 space to eagerly anticipate the ‘coming of age’ of Filecoin. Also, I hope next year he will explore developing on the protocol natively.
9. Web3 reputation
Reputation will re-emerge as a fundamental innovation in Web3 as multiple projects are launched. In 2023, years of progress on the decentralized identity and fame front will finally reach its climax. These systems will begin to be critical parts of the infrastructure that supports many of our interactions and operations, especially on Web3.
10. ‘ZK everything’
Prepare for the rise of ‘ZK everything’ as privacy tech evolves from academic proof-of-concepts to usable, scalable technology. Zero-knowledge proofs came to the fore last year with a use case, ZK-Rollups. Also, Ethereum gained visibility as the dominant tool for scaling. ZK-Rollups will begin to bridge the gap between Web2 and Web3. Moreover, it will enable new identity use cases, social networking, voting, games and zkML. Such developments from 2022 will mean that in 2023 ZK will move from the world of academia and test-nets to everyday Web3 life. The ZK market will be larger than Bitcoin’s Proof-of-Work (PoW) market by 2030.
11. Cosmic Cosmos
Cosmos is getting interesting as developers and users seek more customization. Appchains will also be published on Ethereum. In 2023, the ‘Cosmos vision’ will finally be adopted by the masses. Cosmos is not a Blockchain, but a “galaxy” of interconnected Blockchains. Also, as Blockchains mature in implementation, developers will be forced to welcome and own more Blockchain stacks. We will see a number of customizations. App-specific-rollups (RollApps) will take the best of both worlds and will be a big trend in 2023. However, alongside the growth in Cosmos, we will see the rise of application-specific Blockchains pegged by Ethereum.
12. It will be a tough year for the leading cryptocurrency
Bitcoin will face headwinds. Thus, it will continue to lose market share. Also, it will not lead the next bull market. Bitcoin will continue to lag behind in the market as it succumbs to the prevailing headwinds, notably the ‘pet rock’ syndrome, environmental concerns and failure as ‘digital gold’. As the rest of Web3 starts showing real-world use cases, Bitcoin’s lack of daily utility will start to work in its favour. With increasing commercial and institutional use, it will succumb to the ‘pet rock’ syndrome, where holding the asset will seem unattractive compared to directing capital into tokens and ecosystems.
Environmental, social and governance (ESG) concerns will only increase with the macro-political and macro-environmental movement. Businesses, individuals and governments will be under constant pressure to reduce unnecessary energy consumption. Also, the crypto is already under scrutiny. Bitcoin will not eventually switch to PoS. So its usefulness will be limited. Therefore, it will be the primary target of environmental criticism. Together, these headwinds will push Bitcoin further back into this bear market. Therefore, it will lay the groundwork for another tier 1 that will lead the next bull run.
13. Web3 games
Web3 gaming will outlive its flawed, early projects. Also, it will eventually start meeting players where they are. Web3 games have mostly lagged behind his vision so far. The most ‘successful’ Web3 games such as Axie Infinity and DeFi Kingdoms have been promoted as the future of gaming. However, it failed to make an impression among the 3 billion players worldwide. In 2023, Web3 games will break out of the habits of these early projects. Thus, projects that combine the usefulness of Web3 with traditional gaming aesthetics will begin to publish. The next wave of Web3 games will be nothing like the Axie-style games of the past two years. It will begin to resemble mainstream gaming aesthetics. Popular attention will shift from token-first projects like Axie to studios, companies, and games built with a game-first approach: Horizon, Animoca, and others.
14. Tier-2s
As layer-1 protocols continue to undergo fundamental improvements in scalability and privacy, layer-2s will support the next wave of consumer-friendly applications. The Tier 2 ecosystem has been growing steadily over the past 18 months, with generalized networks such as Arbitrum and Optimism, and industry-specific networks including ImmutableX. The Tier 2 ecosystem has had several false starts. But in 2023, we will see layer-2s come to the fore in crypto adoption. In particular, non-financial applications such as social media, games, and metaverse will be quickly launched in the market. Those too will look to layer-2s as the best solution.
15. DeSci
Decentralized science (DeSci), Web3, open source collaboration, and decentralized fundraising will take center stage as another key use case. DAOs will be at the forefront of the movement. In 2023, DeSci will transform scientific research into a Web3-native asset class through IP-NFTs (Intellectual Property NFTs). It will also usher in a new era of scientific discovery comparable to the enormous breakthroughs witnessed in open source software development in the early 2000s. Fields like biotechnology will shift from monopolistic innovation models to open-source, hyper-collaborative ecosystems where outcomes are more aligned with patients and researchers at the core.
16. Zombie Blockchains
The remaining vaporware blockchains will eventually lose their position as the ‘best’ blockchains as even speculative money leaves their ecosystem. For years, vaporware blockchains like EOS and Cardano have remained among the ‘best’ blockchains as measured by market cap. These projects have developed almost no ecosystems, despite the breakthrough innovations that have occurred in the rest of Web3. That’s why they still avoid exaggeration from their early days. In 2023, even the pre-launch cryptocurrency available to institutional investors and early retail investors will lose relevance. The death knells will ring for these vaporware blockchains.
17. Decentralized identity
Identity projects, social networks and the growth in decentralized identity will reduce AML/KYC solutions to the wallet level. This focus on reputation and identity, along with increased regulation and consumer protection for DeFi use, will increase in 2023. Verifiable credentials will become the data standard for off-chain credentials and attestations, with a focus on free, inexpensive, privacy-prioritizing options that can be selectively disclosed by users. Where will these solutions lead? We will see the first iteration of scalable reputation systems built using tools like MetaMask Snaps, DIDs and VCs.
18. The crypto epidemic is not over
Prepare for more fallout. The turmoil we have seen in crypto since May 2022 is not over. There are still buried corpses to be found from the excesses and impulses of past years. Many individuals and companies have managed to hide the information they have been exposed to. However, he will not be able to do this for much longer. Ultimately, that’s what’s good for the ecosystem. Unfortunately, more consumer money lost will mean more betrayal of trust and more external criticism. Keep building for the future. However, be prepared for more fallout in the near term.
19. Open source development
In 2023, leading open source development projects will be re-focused as a precaution against repeating past mistakes in crypto. 2022 was a largely formative year for open-source, internet-based organizations. In 2023, we will see more projects come to the conclusion that we need to take our own rhetoric seriously and start taking meaningful steps towards building open-source, community-owned infrastructure. Two projects in particular will continue to define open source funding and development models: Gitcoin and Tea.xyz.
20. No more god
The media will abandon the search for god and find sensible voices in crypto. While major central finance (CeFi) and DeFi projects collapsed last year, so did their founders and CEOs. They were greedily supported by the media, and mistrusted by investors, companies, and regulators. The media will need to confront their false obsession with crypto ‘gods’ and find restrained, rational voices in crypto. This will happen slowly but surely throughout 2023 as the true nature of more ‘gods’ is revealed.
21. Technical cryptocurrency
The ‘tech coin’ will be useful, replacing ‘money crypto’ and paving the way for the next bull market. The study of currency crypto will result in clarification of technology crypto as a related but separate field. In 2023, tech cryptocurrency will become increasingly useful through two trends:
1) Movement of capital from centralized to decentralized financial practices.
2) The rise of nonfinancial decentralized applications like DeSci, social media, consumer rewards, and more.
The result will be a growing foundation of Web3 (i.e. tech crypto) adoption, rather than just token (i.e. cryptocurrency) adoption. This will set the stage for the next bull market. Also, more capital is held in transparent financial practices rather than shady centralized alternatives. So, it will help protect against volatile market cycles in the future.
22. Institutional Ethereum
The ‘Great Divergence’ will gain momentum. Thus, it will pave the way for stronger institutional adoption of Ethereum. In 2023, we will see the “major divergence” and consequent acceleration of Ethereum business adoption. The focus on Ethereum’s enterprise service will unlock more enterprise innovations on Ethereum pioneered by organizations like EY Building Privacy Technology.
23. DEFI is different
The world will understand the difference between CEFI and DEFI. The macro outcome of the 2022 disasters for 2023 will be a greater understanding by individuals, financial institutions, investors and regulators of the difference between CEFI and DEFI. The first is where transactions are subjectively mediated by people who can improperly tamper with the database. The latter is where transactions occur safely and objectively by mathematics and computer science, without manipulation.