The top developments in Blockchain in 2022
While the blockchain world saw a flurry of events in the past year, it was a mixed bag. On the one hand, crypto increasingly looked like an eyesore as the year went on. The finale culminated in an epic trash fire led by crypto celebrity and FTX founder and CEO, Sam Bankman-Fried, who swindled away $8 billion in funding. On the positive side, the regulatory landscape for cryptoassets looked brighter, and the merger reshaped Ethereum in what was the most significant software upgrade.
Let’s take a quick look at everything that made the news in the sector.
The merger
For crypto enthusiasts, the Ethereum merger was one of the most anticipated events of the year. On September 15, 2022, Ethereum, the world’s second most valuable cryptocurrency, completed a renewal of its blockchain mechanism from proof-of-work (PoW) to proof-of-stake (PoS) within 15 minutes. The transition caused a kind of fusion in society. But why was the merger considered so revolutionary? To put it simply, blockchain transactions will now be more sustainable.
The proof-of-work method that Bitcoin ran on relied on crypto-mining, which meant that an army of miners or validators would verify all transactions. The mechanism drained a lot of energy because it involved a network of computers trying to solve complicated puzzles encoded in the cryptography. (According to the Ethereum Energy Consumption Index run by Archive.today, the protocol consumed 113 terawatt-hours per year with each transaction burning enough to fuel an American household for nearly nine days before the merger.) The shift promised to cut Ethereum’s energy consumption with almost 99.95 percent according to the non-profit company Ethereum Foundation.
Apart from the direct benefit of reducing the carbon footprint, the merger had other invisible benefits such as increasing scalability and decentralization, and drawing in more investors thanks to its newfound sustainability.
Luna’s Fall
Crypto crash warning bells started in May with the collapse of terraUSD, a stablecoin that was pegged to an external traditional currency like the US dollar. The failure pulled down terraUSD’s sister token Luna and hit several cryptocurrency companies with an estimated loss of $300 billion.
The next casualty came with a major crypto hedge fund, Three Arrows Capital, filing for bankruptcy due to the terraUSD fallout. In June, US-Israeli business Celsius Network suspended withdrawals and transfers after firing a quarter of its workers. The company filed for bankruptcy in July.
On the India front, Singapore-based crypto lending firm Vauld unceremoniously suspended operations due to volatile market conditions.
The crypto winter
Bitcoin, the world’s most popular cryptocurrency, had seen a massive surge in recent times with experts predicting only a purple trajectory in the future. But the optimistic predictions fell apart this year. The overall price of the currency fell by over 60% in a drastic fall this year.
Since it hit an all-time high of nearly US$61,000 last November, roughly US$2 trillion had disappeared from the crypto market. Currently, Bitcoin prices are hovering around USD 17,000. Aside from the massive failures that have plagued the crypto world this year, the rise in interest rates put pressure on an asset as volatile as crypto.
Veteran investors like Mark Mobius, co-founder of Mobius Capital Partners, see worse days ahead. In a recent interview, Mobius stated that bitcoin would fall another 40% to USD 10,000.
Introduction of CBDCs
In September, the IMF released a report stating that “more than half of the world’s central banks are exploring or developing digital currencies.” While countries like China and the Marshall Islands already have plans to launch their own central bank digital currencies, or CBDCs, others like South Korea and Canada are still figuring out how to go about it. Unlike crypto-assets, CBDCs are much more secure, and inherently non-volatile.
In late November, India launched two pilots for its digital rupee – for the wholesale sector (e₹-W) and for the retail sector (e₹-R). The RBI started a trial run from early December in four major cities, including Mumbai, New Delhi, Bengaluru and Bhubaneswar, partnering with eight banks, including State Bank of India, ICICI Bank, Yes Bank and IDFC Bank.
Union Minister of State for Finance Pankaj Chaudhary shared more details about the CBDC, saying it will strengthen interbank market infrastructure and reduce transaction costs by eliminating middlemen similar to UPI transactions.
FTX crash
An exchange founded in 2019 by former Wall Street trader and 30-year-old crypto wunderkind, Sam Bankman-Fried and ex-Google employee Gary Wang, FTX’s rise had been synonymous with the rise of crypto. In July last year, the stock exchange was valued at 18 billion dollars. But it all unraveled in August this year after a US banking regulator ordered an investigation.
CoinDesk reported that a leaked balance sheet showed that Bankman-Fried’s crypto trading firm Alameda Research leaned heavily on FTX’s main token, FTT. The chain of events that followed was in rapid succession – Binance CEO Changpeng Zhao first announced that he planned to buy FTX on November 8th and then backed out of the deal on November 9th.
FTX filed for bankruptcy on Nov. 11 along with Alameda Research and about 130 of its affiliates. Bankman-Fried eventually admitted to illegally transferring funds from FTX to Alameda. The value of the fraud is linked to a whopping USD 8 billion.
SBF’s spectacular fall from grace has reduced its value from around $24 billion at the start of the year to almost nothing. Expert liquidator John Ray, who helped navigate Enron through the company’s bankruptcy, went on to call FTX’s mismanagement “unprecedented.” “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as occurred here,” he said.
The entire fiasco triggered instability in other crypto exchanges such as Bitfrost which closed shop in November.
