Since the EIP-1559 upgrade, also known as the London Hardfork went live in August last year, the Ethereum network and its underlying token have been operating as a deflationary protocol.
The implementation of the EIP 1559 upgrade stirred a number of changes in the Ethereum network, one of which is the burning of the transaction fees generated while miners are rewarded based on prioritized tipping paid by transaction initiators.
Since the upgrade went live, the Ether burn rate has hit a significant milestone, with over 2 million Ethereum coins burned thus far. In Accordance with data from Etherchain, exactly 2002146.0 ETH has been burnt, and this is worth approximately $5.87 billion based on the current price of ETH at $2,904.69, according to data from CoinMarketCap.
Per the Etherchain data, the Ethereum blockchain currently has a 50.9% block utilization time and a 2.71 ETH/Min burn rate. As reported by Blockchain.News, the protocol crossed the 1M burnt benchmark back in November of last year.
The London Hardfork was one of the many protocol upgrades that were generally targeted at reducing the pains of the Ethereum network users as congestion was climbing at an alarming rate with the accompanying inconvenience in the form of gas fees owing to bidding wars. With the hardfork going live, the network proposed a base network fee, cutting out the bidding wars.
While the EIP 1559 has contributed in no small measure to the growth and health of the network in terms of easing the usage costs, it has largely given more investors to consider a very bright future for Ethereum in the long run per the deflationary tendencies of the token. Despite the impressive strides of the London Hardfork and other upgrades the Ethereum network has recorded, the ultimate solution to the current scaling and high fees challenges of the protocol is Ethereum 2.0.
Until Ethereum 2.0, which has continued to gain steam per the total tokens staked, comes to life, the aftermaths of the EIP-1559 upgrade will continually be felt.
Since the EIP-1559 upgrade, also known as the London Hardfork went live in August last year, the Ethereum network and its underlying token have been operating as a deflationary protocol.
The implementation of the EIP 1559 upgrade stirred a number of changes in the Ethereum network, one of which is the burning of the transaction fees generated while miners are rewarded based on prioritized tipping paid by transaction initiators.
Since the upgrade went live, the Ether burn rate has hit a significant milestone, with over 2 million Ethereum coins burned thus far. In Accordance with data from Etherchain, exactly 2002146.0 ETH has been burnt, and this is worth approximately $5.87 billion based on the current price of ETH at $2,904.69, according to data from CoinMarketCap.
Per the Etherchain data, the Ethereum blockchain currently has a 50.9% block utilization time and a 2.71 ETH/Min burn rate. As reported by Blockchain.News, the protocol crossed the 1M burnt benchmark back in November of last year.
The London Hardfork was one of the many protocol upgrades that were generally targeted at reducing the pains of the Ethereum network users as congestion was climbing at an alarming rate with the accompanying inconvenience in the form of gas fees owing to bidding wars. With the hardfork going live, the network proposed a base network fee, cutting out the bidding wars.
While the EIP 1559 has contributed in no small measure to the growth and health of the network in terms of easing the usage costs, it has largely given more investors to consider a very bright future for Ethereum in the long run per the deflationary tendencies of the token. Despite the impressive strides of the London Hardfork and other upgrades the Ethereum network has recorded, the ultimate solution to the current scaling and high fees challenges of the protocol is Ethereum 2.0.
Until Ethereum 2.0, which has continued to gain steam per the total tokens staked, comes to life, the aftermaths of the EIP-1559 upgrade will continually be felt.
Polygon has launchedEIP-1559 to initiate the real-time burning of MATIC tokens.
EIP-1559 Goes Live on Polygon
Ethereum sidechain network, Polygon has initiated EIP-1559, also called “London Hardfork.”
The update was activated at block height 23850000 at 2:48 am UTC. It replaces Polygon’s previous fee system based on “auctions” with a model that relies on a base fee.
EIP-1559 on Polygon introduces the concept of base fee–an estimated amount of needed for a transaction to be accepted for block validation.
EIP-1559 makes the network fee system more predictable and stable against demand shocks. The base fee amount is adjusted up and down by the protocol based on how congested the network is. This also allows Web3 wallets to automatically adjust the gas fees for users in a reliable manner.
The Polygon team hopes EIP-1559 will address frequent fee spikes that may affect users’ ability to make transactions on the network.
Instead of paying fee to its validators, EIP-1559 enforces each transaction to burn the base fee paid in MATIC token. The new fee system compensates validators with small priority fee acting as an incentive for them.
EIP-1559 was launched first on Ethereum as part of the network’s London hardfork in August of last year. Besides achieving predictability in gas fees, EIP-1559 caused a fundamental shift in ETH’s monetary policy. The Ethereum gas fee burning mechanism has a significant effect on reducing the circulating supply of Ether.
In a Monday blog post, the Polygon team said that similar to Ethereum, EIP-1559 may also have a deflationary effect on MATIC due to its fixed token supply of 10 billion tokens. In an analysis, the team found that the EIP-1559 is estimated to burn 0.27% of the total MATIC supply in one year.
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The Ethereum upgrade that introduced a partial network fee burning mechanism in August last year has launched on the layer-two scaling network Polygon.
Ethereum’s EIP-1559 upgrade shipped with its London hard fork last summer and has been a success in terms of gas price predictability and network fee burning. The upgrade has now launched on the layer-two scaling network Polygon in an effort to improve “fee visibility”. It went live about an hour ago at block 23850000.
The Polygon team announced the upgrade date on Jan. 17, following its successful deployment on the Mumbai testnet.
The EIP-1559 upgrade introduces the same fee-burning mechanism to Polygon resulting in the destruction of MATIC tokens. It also removes the first-price auction method for calculating network fees which leads to better cost estimations but goes not reduce gas prices.
“The burning is a two-step affair that starts on the Polygon network and completes on the Ethereum network.”
The team stated that, just like Ethereum, the supply of MATIC is likely to become deflationary with 0.27% of the total supply being burnt every year according to estimations. There is a fixed supply of 10 billion MATIC tokens with 6.8 billion currently in circulation.
“Deflationary pressure will benefit both validators and delegators because their rewards for processing transactions are denominated in MATIC,” it added before stating that the upgrade would also reduce spam and network congestion.
Despite being a layer-two network, Polygon has suffered from its own gas crisis recently. Earlier this month, Polygon gas fees skyrocketed according to Dune Analytics resulting in some validators failing to submit blocks. The surge in demand was due to a DeFi yield farming game called Sunflower Land which rewarded early adopters before the degens lost interest.
Related:Here’s how Polygon is challenging the limitations of Ethereum
Since going live on Ethereum around six months ago, the upgrade has resulted in the burning of 1.54 million ETH to date according to the burn tracker. At current ETH prices, this works out at around $5 billion. The tracker also predicts that Ethereum issuance will become deflationary by -2.5% per year once “the merge” happens and proof-of-stake becomes the primary consensus mechanism for the network.
MATIC prices have dumped 9% on the day in a fall to $2.22 at the time of writing according to CoinGecko.
Polygon prices look poised to rise by at least 30% in the wake of a key Jan. 18 upgrade that would push a considerable portion of its native MATIC token out of circulation.
Dubbed EIP-1559, the improvement proposal originally came to light as part of Ethereum’s so-called London Hard Fork upgrade on Aug. 5. The proposal effectively started destroying, or “burning,” a part of the fees paid to miners via Ether (ETH).
Traders and investors raised their bids for Ether before and after the EIP-1559 upgrade, noting that it made Ether a deflationary asset for the first time in history. For example, a model created by Ethereum co-founder Justin Drake claimed that EIP-1559 would reduce Ether’s annual supply by 1.6 million ETH.
MATIC looks for new record highs
Polygon, which acts as a layer-2 protocol built to scale Ethereum’s prevailing scalability issues, rolled out a testing implementation of EIP-1559 on Dec. 14, 2021. After the test net launch, MATIC price rallied by almost 30% to $2.35, which includes a brief run-up to its record high near $3.
MATIC/USD daily price chart. Source: TradingView
In theory, a lower supply against a rising demand would make the asset more valuable in the eyes of its bidder.
This classic economic reference has assisted in boosting demand for cryptocurrencies like Bitcoin (BTC) before. Issuance would be halved every four years against a limited supply cap of 21 million units. This begs the question, could the MATIC price rally in the same way? Mineplex co-founder Alexander Mamasidikov thinks yes.
Mamasidikov told Cointelegraph that EIP-1559 would impact MATIC price positively, adding that it could easily rally toward its current record high following the technical upgrade.
“In periods of price recovery, investors are often on the lookout for both technical and fundamental features to hang onto in order to back a coin, and Polygon brandishes both,” he said, adding:
“While Polygon remains a better version of Ethereum in terms of lower transaction costs, it is also the delight of retail investors with respect to its low price at this time when compared with Ethereum or other smart contract networks.”
What do Polygon’s technicals say?
MATIC has been trending higher inside an ascending channel pattern since July 2021, confirmed by at least two reactive highs and two reactive lows.
The token recently retested the channel’s lower trendline around $1.89 as support, a move that was followed up with a bullish retracement toward $2.50. It now acting as resistance and the $2.50 level also turned out to be near the 1.00 Fib line near $2.44.
That being said, MATIC may attempt a break above the $2.44-resistance around the EIP-1559 upgrade on Jan. 18. The move would set itself on a course to test its interim upside target near $3, which is approximately a 30% jump.
Related: Polygon network activity spikes as NFT sales reach new height
Meanwhile, if the EIP-1559 factor plays out any longer than anticipated, MATIC price may even attempt an extended run-up toward the 1.618 Fib line around $3.52. Conversely, a rejection at $2.44 could have Polygon retest the ascending channel support for a negative breakout.
Such a move would risk invalidating the bullish setup, as discussed above. All of this is in conjunction with exposing MATIC to a correction toward $1.77 or lower.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Ethereum co-founder Vitalik Buterin has put his thinking cap on again in an attempt to improve the current fee structure for the network.
The proposal titled “Multidimensional EIP-1559” was laid out in a blog post on Jan. 5 in which Buterin noted that different resources in the Ethereum Virtual Machine (EVM) have different demands in terms of gas usage.
He added that there are different limits for short-term “burst” capacity as opposed to “sustained” capacity within the EVM citing examples of block data storage, witness data storage, and block state size changes.
“The scheme we have today, where all resources are combined together into a single multidimensional resource (‘gas’), does a poor job at handling these differences.”
The problem is that channeling all the different resources into a single one leads to “very sub-optimal gas costs” when these limits are misaligned, he added.
Buterin outlined his fairly complicated proposed changes with a lot of technical math, but in a nutshell, the proposal offered two potential solutions using “multidimensional” pricing.
The first option would calculate the gas cost for resources such as call data and storage by dividing the base fee for each unit of resource by the total base fee. The base fee is a fixed-per-block network fee included in the EIP-1559 algorithm.
The second more complex option sets a base fee for using resources but includes burst limits on each resource. There would also be “priority fees” which are set as a percentage and calculated by multiplying the percentage by the base fee.
He stated that the drawback to the multidimensional fee structure is that “block builders would not be able to simply accept transactions in high-to-low order of fee-per-gas.” They would have to balance the dimensions and solve additional mathematical problems.
Related:Ethereum supply flips briefly into deflation as gas fees spike
It remains to be seen whether the proposal will be passed since the priority at the moment is the next big upgrade. The Ethereum network is currently gearing up for “the merge” which will dock the Ethereum blockchain with the Beacon Chain and effectively end Proof-of-Work. Testing is already occurring on the Kintsugi testnet and full deployment is expected in the first quarter of this year.
EIP-1559 was deployed in August as part of the London upgrade to burn a portion of the transaction fees in order to make gas pricing more predictable. Since it went live, 1.36 million ETH worth approximately $4.7 billion at current prices has been destroyed according to the burn tracker.
Vitalik Buterin has shared a new proposal called “multidimensional EIP-1559.”
The update would affect Ethereum’s gas fee markets, and the base fee charged for different resources within the Ethereum Virtual Machine.
EIP-1559 was introduced in August to make Ethereum gas fees more predictable. It involves burning a portion of ETH with every transaction, in turn making the supply more scarce.
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Vitalik Buterin has published a new piece addressing Ethereum gas fee markets. Specifically, he discussed launching a new “multidimensional” EIP-1559 update.
Vitaik Buterin Makes New Ethereum Proposal
Vitalik Buterin has proposed a new update for Ethereum.
In a new blog post, Buterin haslaid outtwo options for the implementation of what he called “multidimensional EIP-1559.” In it, he discussed Ethereum’s gas fee markets with respect to different resources, making specific reference to usage of the Ethereum Virtual Machine, block data, witness data, and state size filling. Currently, Buterin pointed out, these resources are bundled into a “single multidimensional resource.”
The trouble, Buterin wrote, is that the current system does not handle differences in limits for the various resources in the Ethereum Virtual Machine efficiently. Buterin explained how transaction data plus calldata transaction consumes only 3% of the gas in a block as an example. Buterin added that some blocks could contain 67 times more data than an average block.
Buterin made reference to two limits in the Ethereum Virtual Machine as a solution to the problem: burst capacity and sustained capacity. While Buterin referred to burst capacity as the capacity that could be handled in “only one or a few blocks,” sustained capacity is the capacity that could be comfortably supported in the long term.
With multidimensional EIP-1559, Buterin has proposed introducing a “burst limit” and a “sustained target,” where the quantity of the resource in any given block would not exceed the burst limit, while also approaching an average long-term consumption equal to the sustained target. This would allow for distinct targeting EIP-1559 targeting schemes to be used for each distinct resource.
EIP-1559 is one of Ethereum’s most significant updates of recent years. It launched as part of the London hardfork in August and introduced a base fee on Ethereum transactions in order to make gas fees more predictable on the network (it previously used a bidding system). Crucially, the base fee also gets burned, which makes the supply of ETH more scarce. After the merge to Proof-of-Stake, ETH could potentially become a deflationary asset due to EIP-1559.
Buterin laid out two options for introducing multidimensional EIP-1559. In the first option, the gas price for resources such as calldata and storage use would be calculated from by dividing the base fee for one unit of resource by the base fee. The other more difficult option would involve setting the base fee for using resources at a price, such as 1 wei.In contrast to the first option, in this case there would be no block gas limit, but rather burst limits on each resource. Priority fees would also be different as they would be based on a percentage, where block producers would receive priority fee payments equal to the base fees multiplied by said percentage.
Buterin received mixed responses to the proposal. “I think this would be a reasonable suggestion although I imagine it would be a significant engineering undertaking,” Obel Network’s Oisin Kyne commented. Optimism’s Karl Floesch added that he was concerned about “EVM backwards compatibility” and thought the first option was more realistic, leading Buterin to respond that he agreed it would be “a less risky change.”
Either way, it’s unlikely that the change will be implemented on Ethereum anytime soon. The network is currently preparing to merge to Proof-of-Stake in what will be its most significant update to date. It’s scheduled to happen sometime in the first half of this year; the Kintsugi testnet is live now. After that, sharding will follow, so it could be some time before any further EIP-1559 adjustments are implemented.
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.
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The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.
You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.
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With an annual return rate of 399.2%, Ethereum (ETH) has scaled the heights in 2021 thanks to increased adoption and notable upgrades like the London Hard Fork.
Ethereum’s on-chain volume has witnessed a 36.4% surge on a year-to-date (YTD) basis. Market insight provider IntoTheBlock explained:
“Ethereum aggregate on-chain volume saw a 36.4% uptick YTD compared to 2020. As Ethereum remains the leader of TVL in DeFi protocols, the transactional volume saw a remarkable increase in 2021 with +2.142b ETH traded, despite the rise of other L1s.”
A recent IntoTheBlock study revealed that 82% of Ethereum holders were still in profitability, despite the price slipping below $4,000. The second-largest cryptocurrency was hovering around $3,750 during intraday trading, according to CoinGecko.
Ether worth approximately $5 billion has been burned
Ever since the burning mechanism was introduced on the Ethereum network following the launch of the London Hard Fork or EIP 1559 upgrade on August 5, nearly $5 billion Ether has been destroyed.
Therefore, in just four months, Ethereum has burned 1.2 million ETH, which has propelled scarcity on the network.
Scarcity was introduced every time Ether was burnt after being used in transactions. This feature was to eliminate the inflationary tendencies that the network was accustomed to before.
On the other hand, a transition to the proof of stake (PoS) consensus mechanism through Ethereum 2.0 scheduled for the second quarter of 2022 is expected to prompt a 1% annual deflation rate on the ETH network.
Meanwhile, institutional crypto custodians have flexed their muscles in the cryptocurrency ecosystem by raising at least $3 billion in 2021.
With an annual return rate of 399.2%, Ethereum (ETH) has scaled the heights in 2021 thanks to increased adoption and notable upgrades like the London Hard Fork.
Ethereum’s on-chain volume has witnessed a 36.4% surge on a year-to-date (YTD) basis. Market insight provider IntoTheBlock explained:
“Ethereum aggregate on-chain volume saw a 36.4% uptick YTD compared to 2020. As Ethereum remains the leader of TVL in DeFi protocols, the transactional volume saw a remarkable increase in 2021 with +2.142b ETH traded, despite the rise of other L1s.”
A recent IntoTheBlock study revealed that 82% of Ethereum holders were still in profitability, despite the price slipping below $4,000. The second-largest cryptocurrency was hovering around $3,750 during intraday trading, according to CoinGecko.
Ether worth approximately $5 billion has been burned
Ever since the burning mechanism was introduced on the Ethereum network following the launch of the London Hard Fork or EIP 1559 upgrade on August 5, nearly $5 billion Ether has been destroyed.
Therefore, in just four months, Ethereum has burned 1.2 million ETH, which has propelled scarcity on the network.
Scarcity was introduced every time Ether was burnt after being used in transactions. This feature was to eliminate the inflationary tendencies that the network was accustomed to before.
On the other hand, a transition to the proof of stake (PoS) consensus mechanism through Ethereum 2.0 scheduled for the second quarter of 2022 is expected to prompt a 1% annual deflation rate on the ETH network.
Meanwhile, institutional crypto custodians have flexed their muscles in the cryptocurrency ecosystem by raising at least $3 billion in 2021.
2021 was the most eventful year for the crypto industry to date.
Major events of the year included a boom in meme coins and NFTs, crypto adoption at a nation state level, and rising corporate interest in the Metaverse.
Mainstream adoption and the growth of the Metaverse look set to be major trends for the year ahead.
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From meme coins to the Metaverse, join Crypto Briefing as we look back on the top 10 moments that defined the crypto space this year.
2021 in Crypto
A lot can happen in a year, and 2021 was no exception. For crypto enthusiasts, it was full of surprises. The growing interest in digital assets saw the first nation state adopting Bitcoin as legal tender, dog coins taking center stage as retail joined the market, and major pop artists rushing to get to grips with Ethereum to mint their first NFTs. In fact, the NFT explosion might have been the biggest talking point of the year—and not only among crypto’s ardent believers. There were also plenty of skeptics who critiqued the environmental impact of Proof-of-Work blockchains and speculative nature of the market as digital rocks traded for millions of dollars and big companies like Discord and Twitter hinted at moves to adopt the technology. 2021 was also the year that regulators started to pay close attention to the industry. Binance suffered under the heat, while the SEC Chair and a select few members of the Senate did their best to hold the United States back from benefiting from crypto’s technological promise. Needless to say, picking the most notable moments out of a seemingly endless list of significant events is a challenging task. And yet, we did it. So follow the Crypto Briefing editorial team along as we look back on the 10 moments that defined crypto in 2021.
Elon Musk Helps Dogecoin Rally
It might be hard to remember as far back as January, but the original Shiba Inu-themed coin began the year trading at less than one-hundredth of a penny. Dogecoin’s rally to highs of $0.73 marked one of the year’s biggest and least expected trends: the meme coin frenzy.
Dogecoin lacks any sort of fundamental value proposition aside from its power as a meme, but this didn’t stop it from amassing a huge cult following, particularly after the WallStreetBets-led GameStop saga that unfolded in January. Eventually, Dogecoin attracted the attention of celebrities such as Gene Simmons and Snoop Dogg. However, it was Elon Musk who went above and beyond to take Dogecoin to the moon. The Tesla and SpaceX CEO actively endorsed the asset to more than 60 million Twitter followers and is regarded as the biggest driving force behind the coin’s unprecedented surge.
Throughout Q1, severaltweetsfrom Musk caused DOGE prices to spike as mainstream media outlets raised awareness by reporting on the situation. Soon, more big names such as Mark Cuban and Ellen DeGeneres fueled the rally by weighing in with their own takes.
The mania culminated in Musk’s highly-anticipatedappearanceon NBC’s Saturday Night Live, where he helped the bubble burst by describing Dogecoin as “a hustle,” bringing its months-long rally to an end. Dogecoin’s rise caught many people off guard, but it proved that the power of memes is a force to be reckoned with. While its price has slid lower throughout the rest of the year, copycat projects such as Shiba Inu have carried on Dogecoin’s meme-powered legacy.TC
Beeple Sells a $69.34 Million NFT
At the beginning of 2021 it was hard to find anyone outside of crypto who knew what the acronym “NFT” stood for. Now, non-fungible tokens are everywhere, thanks in large part to growing adoption among stars like Grimes and The Weeknd, and groundbreakingsalessuch as Beeple’s earth-shattering Christie’s auction for his “Everydays: The First 5000 Days” piece.
Described as Beeple’s magnum opus, “Everydays: The First 5000 Days” comprises 5,000 images taken from the first 5,000 days of Beeple’s “Everydays” project. It was also the first purely digital artwork to be sold at Christie’s. Like all of Beeple’searlier NFTs, it was minted on the Ethereum blockchain.
Bidding topped $1 million in the opening minutes, but it was in the final hours that the auction truly took off. A dramatic bidding war saw the auction close at $69,346,250, making it the third most expensive piece auctioned by a living artist. The winning bidder, MetaKovan, paid for the piece using Ethereum.
The Everydays sale arguably marked the beginning of a wider NFT boom that peaked over the summer. It showed that NFTs could receive equal, or sometimes even higher valuations than traditional art, opening the door to mainstream acceptance of NFTs as a medium for art.TC
Coinbase Goes Public
On Apr. 14, Coinbasebecamea publicly traded company on Nasdaq under the ticker COIN. Days before its direct listing, Coinbase had posted a record-breaking earnings report,revealingthat the company made $1.8 billion in the first quarter of 2021, more than its entire 2020 revenue. With such positive news, the exchange’s public offering received a great deal of hype, helping propel Bitcoin to a new all-time high. Meanwhile, the exchange’s valuation hit over $103 billion when trading started.
To mark the historic occasion, Coinbase posted a message on the Bitcoin blockchain in a nod to Satoshi Nakamoto’s Bitcoin genesis block. The exchange included a news headline from the day of its IPO, reading: “NYTimes 10/Mar/2021 House Gives Final Approval to Biden’s $1.9T Pandemic Relief Bill.”
In retrospect, many have called Coinbase’s public offering a “sell the news” event and a signal of the local market top. The day after the IPO marked the beginning of a downward trend in the cryptocurrency market that would eventually see Bitcoin test its February lows.
Regardless of the market’s short term price action, the Coinbase IPO was a landmark moment for the cryptocurrency space. It brought a heightened awareness of crypto markets to traditional financial institutions, while making significant ground for cryptocurrencies and the companies dealing with them to exist within the U.S.’ financial regulatory framework.TC
China Bans Crypto
While not technically tied to a single event, China’s increasing hostility towards digital assets and cryptocurrency mining has been a major theme throughout 2021. Signs started emerging that China was taking a harsher stance on cryptocurrency in May when state officialsvowedto curb the crypto mining business in the country, with full-blown bans enforced in certain provinces. The news sent Bitcoin and the wider crypto market tumbling, as China hosted the majority of the Bitcoin hashrate at that time (following the ban, many miners relocated their operations to places like Texas and Kazakhstan).
Following on in June, China’s central bankcalled fora crypto trading ban in the country, prohibiting its account holders from interacting with crypto trading platforms. Although the announcement was later removed, many saw the writing on the wall, expecting more extreme measures from the Chinese government in the future.
The Chinese government reiterated its crypto crackdowns for athird timethis year in September, declaring that almost all virtual currency-related activities were illegal and issuing harsher penalties for those found implicated in crypto trading and mining. As before, the market reacted negatively to the news, but by this point many had started to suspect China was manufacturing negative news, or “FUD” (fear, uncertainty, and doubt) to deliberately depress crypto asset prices. So far, China’s crypto bans appear to have had little lasting effect on the crypto industry as a whole.TC
NFT Summer
Bitcoin might still be the world’s best known cryptocurrency, but this year the mainstream couldn’t stop talking about another more recent innovation in blockchain technology: NFTs. Early in 2021, there was Beeple’s historic Christie’s sale, while major pop artists like Grimes and Kings of Leon announced their own collections of non-fungibles on Ethereum.As NFTs started to appear everywhere, so did the questionable criticisms from crypto skeptics. Still, NFT natives didn’t seem to care. By the middle of the year, NFT trading volumes were booming, helped by growing demand for avatar collections like CryptoPunks and Bored Ape Yacht Club. The interest in avatar projects and other nascent niches like generative art kickstarted what became known as “NFT summer,” a follow-on from last year’s DeFi summer in which the NFT market entered its first period of mania. At the height, the rarest JPEGs were trading for millions of dollars, and new projects were emerging on a daily basis. While the market soon got oversaturated and floor prices fell, NFT summer proved that digital collectibles had found a place at the heart of crypto, and that the space would only grow bigger over time.CW
Solana’s Meteoric Rise
“I’ll buy as much SOL has you have, right now, at $3. Sell me all you want. Then go fuck off.” Those were Sam Bankman-Fried’s now-legendary words to the crypto trader CoinMamba in aJan. 9 tweet, months before Solana would rise to become the fifth-largest cryptocurrency by market cap. While most onlookers didn’t buy into Bankman-Fried’s conviction in the high-speed blockchain, they likely regretted it once SOL topped $250 at the peak in November.
Bankman-Fried has been a huge driving force behind the Solana ecosystem’s rapid growth through FTX’s support of the network and Alameda Research’s investment portfolio, but there were a number of other important factors that contributed to its breakout year. As crypto prices have risen, Ethereum’s surging gas fees have driven many toward cheaper alternatives—and Solana’s high-speed, low-cost transactions have proven a hit.
It’s also attracted thousands of Rust developers, which has given the blockchain a moat effect against a sea of competitors optimizing for EVM compatibility. Solana also has wealthy investors backing it and a community of DeFi and NFT speculators, many of them newer crypto entrants hoping to make a dime after missing the boat on Bitcoin and Ethereum. The combination of these factors helped Solana rise and keep rising, even after it suffered from a not-insignificant 18-hour outage back in September. In the past, crypto has seen other Ethereum competitors come and go then fade into irrelevance. If things continue like they did in 2021, Solana could be one of the few that bucks the trend.CW
Ethereum Launches EIP-1559
In August, Ethereum upgraded to a new gas fee mechanism that created a fundamental shift in its monetary policy. EIP-1559 launched as part of the network’s London hardfork, and it introduced a gas fee burn that reduced the supply of ETH rather than paying additional fees to miners.
Before EIP-1559, Ethereum users would have to place a bid for gas fees in an auction format to compete to get their transactions added to blocks. This led to frequent fee spikes that affected users’ ability to make transactions.EIP-1559has made the fee system more predictable and stable against demand shocks.
However, the most impactful outcome of EIP-1559 has centered on Ethereum’s tokenomics. Since EIP-1559 shipped, over 1.2 million ETH worth$5 billionhas been burned and put the asset on a deflationary path similar to Bitcoin’s disinflationary properties. In 2022, Ethereum is expected to move from Proof-of-Work to Proof-of-Stake when the Beacon Chain merges with Ethereum mainnet. The switch should lead to a large reduction in token issuance. Various prominent figures have forecast that ETH could become“ultrasound money”—meaning the amount of ETH burned would surpass the amount issued, leading the supply to deflate over time.VC
Poly Network’s $611M DeFi Hack
Crypto hacks are nothing new, but this year brought more high-value attacks, exploits, and rug pulls than ever before. Many attackers targeted decentralized applications in the nascent DeFI space. The one that caught everyone’s attention affected Poly Network, a cross-chain bridge with contracts on Ethereum, Polygon, and Binance Smart Chain.
In August, an unknown hacker leveraged a smart contract vulnerability in one of its bridges to steal$611 millionin various crypto assets, making it the biggest crypto heist in history. Outrageously, the hacker decided to tell his side of the story to those watching by answering a Q&A discussion using Ethereum transactions following the attack. They said that they had attacked the project “for fun” and later returned the funds after negotiations with the Poly Network team. The team thanked the hacker, dubbed “Mr. Whitehack” for exposing the vulnerability, and even offered them a bounty reward for their work. VC
El Salvador Makes Bitcoin Legal Tender
Let’s be honest, 2021 wasn’t the best year for crypto naysayers. A common argument among crypto cynics is that governments would ban the asset class if it ever became too big. That argument lost its weight this year when El Salvador became the first country to introduce Bitcoin as a legal currency.
The crypto community was buzzed for weeks after President Nayib Bukele revealed his plans to make Bitcoin a national currency in El Salvador. Announcing the plans at Bitcoin 2021 in Miami, Bukele said that he hoped the move would “generate jobs and help provide financial inclusion to thousands outside the formal economy.” Bukele has since organized a $30 Bitcoin airdrop for El Salvador citizens, used the country’s abundance of volcanoes to mine Bitcoin, and bought the dip at every opportunity the market has presented.
El Salvador’s adoption was historic not only for Bitcoin but also the history of money. For millennia, countries have used legal tender laws to protect their own, state-issued currencies against competing, alternative forms of money. El Salvador broke that tradition as Bukele outlined his hopes to “push humanity, at least a tiny bit into the right direction.”
While the crypto community largely welcomed El Salvador’s move, the policy faced some opposition. Thousands of Salvadorans took to the streets to protest the policy, and officials like the International Monetary Fund and the World Bank issued several statements criticizing the decision. Meanwhile, Ethereum co-founder Vitalik Buterin slammed the country’s adoption policy in a Reddit post, describing it as “contrary to the ideals of freedom that are supposed to be so important to the crypto community” due to the ruling that stipulates that businesses must accept Bitcoin. How El Salvador’s crypto bet will pan out in the long term—and whether any other nation states will join them—remains to be seen.SS
Facebook Rebrands to Meta
If someone had told you that 2021 would see one of the FAANG giants change its name and focus to operate in a realm linked with crypto assets at the beginning of the year, you probably would have laughed at them. Except, thatactually happened. In October, Facebook CEO Mark Zuckerberg announced that his company would now be known as Meta, going as far as to say that the company would be “Metaverse first” rather than “Facebook first.” The firm also allocated $10 billion toward the Metaverse and made 10,000 new hires in the European Union to work on its new vision for the future of the Internet.
The announcement was met with skepticism from cryptocurrency proponents, who pointed out that the critical component of decentraliztion would likely be missing from Meta’s plans. Still, the impact of Facebook putting its flag in the ground to acknowledge the potential of crypto has been hard to overlook. Since the announcement, many other major brands like Adidas and Nike have rushed to embrace the Metaverse. Capital has also flooded into the space, with the likes of Enjin and KuCoin launching $100 million funds focusing on the Metaverse. The crypto market has seen the tokens for Metaverse games like Metaverse and The Sandbox soar, while digital plots of land have sold for millions of dollars (Adidas and other major brands have been snapping up plots too). While the Metaverse is yet to be defined, it’s become clear that it’s become a dominant theme in crypto and will likely only grow over time. Grayscale has predicted that the Metaverse will be a $1 trillion market, so it’s not surprising that the likes of Zuckerberg are hoping to jump in. Time will tell how it pans out.BB
Disclosure: At the time of writing, the authors of this feature owned BTC, ETH, MATIC, SOL, and several other cryptocurrencies.
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