The next big breakthrough in blockchain: What we should be watching for

Every four years, a few months after the Bitcoin halving, the blockchain ecosystem comes under intense public scrutiny. This period, which typically lasts more than a year, is driven by a basic economic principle: when the supply of an asset decreases while demand remains stable or increases, its value generally rises. Historically, such supply shocks have sparked a Bitcoin-led market appreciation, sparking increased interest and engagement from users, developers, investors, and policymakers.

In these post-halving periods, the blockchain industry has demonstrated its projects, technological innovations, and potential utility. None of the previous cycles has produced a blockchain application that clearly surpasses existing technologies in any specific area. However, the core advantages of blockchain - immutability enabled by private key cryptography, data transparency, and user asset sovereignty - continue to attract innovators. These features have been creatively applied to a wide range of areas, including borderless payment systems, DeFi, NFTs, gaming systems with recorded in-game assets, fan and loyalty tokens, transparent grant and charity spending systems, agricultural subsidies, and loan tracking.

While past cycles have highlighted the potential of blockchain, the next period promises to pilot new use cases, as discussed below.

Lessons from past halving cycles

The period after the 2012 halving highlighted the potential of an unintermediated, borderless payment system. Before Bitcoin, intermediary payments and slow cross-border transactions were the norm — international transfers took days, and checks were equally slow to clear customs. Bitcoin hinted at a future of seamless payments, and early adopters tracked the number of businesses accepting Bitcoin. However, scalability issues and rising transaction costs limited this utility. Ironically, many blockchain networks have prevented their success through fee structures that hinder growth. The cycle ended with security breaches, most notably the Mt. Gox hack, which occurred 20 months after the halving.

The 2016 cycle sparked an explosion of initial coin offerings (ICOs), democratizing access to venture capital. Regular individuals could now invest in early-stage projects — an opportunity once reserved for large financial institutions. However, the market was flooded with tokens backed only by white papers. A lack of investor protection and accountability led to the rapid collapse of many ICOs. Most projects from that era are now obsolete, and even the largest ICOs are no longer ranked among the top 100 blockchain projects.

Three trends dominated 2020: DeFi initiatives, NFTs, and play-to-earn (P2E) games. DeFi projects promised unsustainable returns — sometimes over 100% — by minting more tokens without any economic activity to back them up. Similarly, NFTs were valued at sky-high valuations, with some being little more than pixel art that failed to hold value. Metaverse hype faded as expectations of mass virtual adoption failed to materialize. P2E games relied on inflationary token economics that collapsed when growth stalled, exposing the fragility of these models.

The post-halving cycle in 2024 kicks off with the approval of a Bitcoin ETF in the United States, formally integrating cryptocurrencies into traditional financial markets. This move, coupled with the blockchain community’s growing influence on the democratic process, marks a major shift.

This is the first time that crypto assets are inside the financial system rather than outside it, which has the potential to lead to balanced regulation rather than an outright hostility to the technology. People are essentially seeing its utility and discussing it. It’s a good sign that the U.S. is ready to take a leading role in the adoption of blockchain technology, especially given the role the U.S. has played in other prior technological innovations and advances. The next question is: how far will this integration go? Will we see more countries adding crypto assets to their national reserves, rather than just the one or two that already have them? In addition to regulatory progress, there are several blockchain applications ready for scrutiny this cycle.

Tokenizing real-world assets and decentralizing their financing has gained traction. RWA enables asset owners to directly benefit from blockchain-based financing. Key areas include real estate and housing financing, stocks, bonds, treasury bills, agricultural financing, DePIN and DePUT.

Blockchain-AI synergy

AI, combined with blockchain, is becoming a powerful force. Decentralized management and secure data processing of AI models offer new solutions, especially in terms of privacy. AI can go beyond solutions such as ZK-SNARK by managing encrypted data, disclosing data or proof of data only to its owner (upon the instruction of its owner) or to authorized law enforcement agencies under certain conditions (depending on the constitution of the blockchain).

Microtransactions

Traditional financial systems cannot support microtransactions due to high operating costs. With a low-cost transaction model, blockchain is a natural fit for micropayments, especially for content consumption. This could eliminate outdated bundling practices in media and drive a new era of seamless payments.

Memecoins and celebrity tokens

Memecoins have proliferated, with nearly 10 of the top 100 tokens by market cap now accounting for almost no real utility. Low-cost blockchains and user-friendly token creation tools have fueled this trend. Meme tokens launched by or around well-known public figures have also grown in popularity, but most similarly lack utility.

Stablecoins

Stablecoins continue to bridge traditional finance and blockchain. As faster and cheaper blockchains dominate the cycle, stablecoins are being widely used for payments, challenging traditional systems such as slow check clearing and expensive cross-border transfers. Regulatory clarity could drive stablecoins toward mainstream adoption.

What the early data reveals

Toronet Research tracked the performance of various token categories from January to May 2024 and predicted the trend in December. The research results:

Data sorted by price growth rate as of January 2025. Source: Toronet Research, January 2025.

The data shows that memecoin, AI-related tokens, and RWA tokens are the leaders in early growth. Other observations include that all categories have seen volume growth, which is common in periods when interest and participation in blockchain projects seem to increase every four years. DePIN projects may not experience much growth at the beginning of the cycle, although one or more innovative projects may have some breakthroughs. The growth of layer 2 projects exceeds the growth of layer 1 projects or absorbs most of the growth that the latter will experience. The results for January 2025 are presented in chart form below.

Bar chart of price growth trend in January 2025. Source: Toronet Research.

CoinGecko’s Q3 2024 Crypto Industry Report reviewed popular categories by web traffic, with similar findings for the top three categories. Another observation from the Toronet Research report is that, as we have seen in past cycles, application areas with little utility that sparked a frenzy in the previous cycle, such as ICOs in 2017 and NFTs in 2021, tend to be negated in the next cycle. Developers and industry leaders should work to guide new adopters toward sustainable, utility-driven projects to reduce market volatility and minimize investor disillusionment. This will reduce the intensity of the four-year boom-and-bust cycle as well as the extent and number of disillusioned investors, many of whom have lined up to chase memecoins and ultimately worthless airdrops.

Will we break this cycle?

The current cycle offers blockchain its most significant opportunity yet to make a lasting impact. With increasing institutional integration, more thoughtful regulatory commitment, and a shift toward real-world utility, the industry is poised for meaningful growth. The growing acceptance and integration of blockchain solutions in the broader economy, along with the potential for thoughtful regulatory regulation on the horizon, could lead to better outcomes in this cycle than before.