Crypto Market in 2022

2021 is a hot year for the crypto market, but what about 2022? No one can predict. Everyone has their own ideas. This article will just say a few words. However, I need to state that I am not a financial advisor and the article is only for technical exchange and entertainment purposes.

The past 2021 has been full of ups and downs, but the crypto market has continued to be hot, and it can be said that the fever has not subsided. In the past year, we have witnessed incredible growth and innovation. For example, the Bitcoin market has received attention and participation from institutional investors, the rise of the distributed storage sector, Ethereum's highly anticipated London hard fork, and the explosive expansion of the Solana ecosystem in the summer. We have seen DeFi expand to an industry worth more than $100 billion, Bitcoin reached a price peak of $69,000, and NFT sales exceeded $22 billion. At the same time, we have seen inefficiencies in crypto applications and a full-scale outbreak of vulnerabilities, from Ethereum's ridiculous gas fees to a $600 million exploit of the PolyNetwork smart contract.

It is indisputable that the crypto market has captured the public's attention like never before. Every day, thousands of users register addresses on the blockchain, search and trade NFTs on OpenSea, and invest more money in DeFi and web3.0. In particular, the participation of institutional investors has provided greater room for imagination for the development of this industry. As 2022 begins, I look forward to seeing how this mainstream trend will guide the direction and speed of crypto innovation - expanding the boundaries of what the crypto market can achieve; and hope to see greater investment to help achieve the decentralization of the Internet and open up the user-first Web3.0 ecosystem.

So in which directions will the development of the crypto market attract more attention in 2022? I think the market will continue under the current trend, which is specifically reflected in the following aspects.

Layer 2 war to improve TPS

At present, when we talk about L2, we are discussing how to implement Rollup, whether it is an Optimistic or ZKP (zero-knowledge proof) solution, and both aspects may develop. The reason why Layer2 is important is that Ethereum is currently the largest encryption community and platform, but it is criticized for its increasingly high gas fees, which are daunting. This inhibits the computing power of dapps and prevents users who lack a lot of funds. The second layer (L2) solution solves this problem by executing transactions off-chain (reducing the slow and expensive on-chain calculations) and then publishing batch transaction data on the chain (called "rollup"). This not only reduces gas fees, but also effectively improves TPS.

Optimistic and zkp Rollups have their own advantages. Arbitrum, as a highly anticipated project of Optimistic Rollup, was launched in September last year (2021). Its performance is acceptable, but it is still far from the expected goal. It will take time to form a complete ecosystem and system. ZK-based Rollups will be faster in transferring funds to the mainnet, but there are still many technical problems to be solved for the use of zero-knowledge proofs in conventional contracts, and efficiency is also an important aspect to consider. In 2022, this is still an important topic in the crypto market. It is too early to say who will win.

Composability and Web 3.0

"Web3.0" can be said to be one of the biggest buzzwords in 2021. Then there is the metaverse, which has also set off a climax. But there is no clear consensus in the industry on what Web3.0 is and how to define the metaverse. Its scope is very broad and difficult to explain. However, there are some aspects that are relatively consensus, that is, Web3.0 must be open and more decentralized, and users have clear and unified ownership and control over their data and assets. As we currently see in this ecosystem, we should see an open world and a composable application ecosystem.

2021 is a big year for digital ownership. NFTs now constitute a $7 billion industry and continue to grow as more and more artists and art consumers seek verifiable forms of ownership in the digital realm. Most NFT data is stored on the IPFS/Filecoin network, and the link between storage and contracts requires public interfaces and access methods.

The launch of DFinity provides possibilities for Web-level blockchain applications, but at the same time, DFinity is only a part of the blockchain world. How to use DFinity's unique features to improve the performance of applications in the crypto world also requires more open, more standardized interfaces and more links. We can imagine a scenario where the application logic is carried out in the DFinity subnet, while the data is stored in the IPFS/Filcoin network and accessed through the data's CID. At the same time, transactions can be placed on Ethereum's Layer2 to form a closed loop. This may be a model for decentralized applications in the future.

Content-based decentralized applications

Can the crypto world open up new areas in 2022, break through financial applications and expand to other aspects? It is possible. Some people may say that there are already such applications in 2021, such as GameFi, which is a game, not finance. However, at present, almost all GameFi applications are not decentralized, they are just Game+Token. The Game part is basically centralized, and the Tokens (including FT and NFT) in the Game are traded on the chain. This is a breakthrough, but it is not true decentralization, and the data is still centralized. In other words, it is not a decentralized application based on content.

There may be a breakthrough in this regard in 2022. One milestone to look forward to is the launch of Filecoin's virtual machine. This can naturally combine Filecoin's data and smart contracts, provide support for DataDao, and form a richer ecosystem. In Filecoin, content-heavy applications can be realized, which opens up a new path for the blockchain world.

NFT Expansion

NFTs are undoubtedly one of the hottest crypto trends of 2021. Digital asset marketplace OpenSea increased its trading volume from $1 billion to over $10 billion in just three months, showcasing the viral wave of adoption that NFTs have already begun. Other projects, such as NBA Top Shot and Bored Ape Yacht Club, have given NFTs a prominent platform in pop culture, so much so that NFTs became one of the top search queries on Google this year.

Looking ahead, it’s important to note that physical art represents a whopping $1.7 trillion asset class, meaning NFTs are only beginning to scratch the surface. As digital art grows in popularity and physical art continues to be tokenized to facilitate better verifiability and a more liquid market, NFTs will continue to surge in popularity in the coming year.

However, NFT is different from FT. NFT has poor liquidity, insufficient price discovery mechanism, and insufficient market sensitivity. In terms of improving the liquidity of NFT, securitization applications backed by NFT assets are gradually emerging. This is also called fragmentation or asset sharing by the market. There still needs to be a whole set of mechanisms to achieve this, but I believe that in 2022, attempts in this regard will attract widespread attention from the market.

DAO (Decentralized Autonomous Organization)

DAOs are also one of the hottest crypto trends of 2021, gaining a lot of attention for their promise as a tool for fair, decentralized collective action. We’ve seen DAOs launched around shared digital cultural identities (e.g., FWB and plesrDAO), around crowdfunding and capital allocation (e.g., BitDAO and ConstitutionDAO), and even around social impact causes (e.g., KlimaDAO to combat climate change). Given their prominence, I expect to see DAOs become a mainstream tool for online organizing and collective action, helping individuals around the world meaningfully participate in causes they care about.

In addition to the growing number of DAOs, the crypto space is also beginning to recognize (and address!) several gaps in DAO tooling, operations, and onboarding. Platforms like Syndicate, which simplifies the process of setting up a DAO for collaborative investing, and Station, which helps users onboard DAOs, make it easier than ever to get a functional DAO up and running in record time. As DAO operations become more sophisticated, I expect to see more projects building DAO tooling and infrastructure in 2022.

Privacy computing?

Privacy computing is a big topic, and it still relies on breakthroughs in zero-knowledge proofs. With the development of blockchain networks, theoretical and engineering breakthroughs in zero-knowledge proofs are also ongoing. We first saw ZCash use zero-knowledge proofs to ensure privacy in digital currency transactions. This is the first time that privacy protection for value transfer has been achieved in a public network while disclosing all data.

Then, Filecoin built the largest zero-knowledge proof network, using zero-knowledge proof to implement data replication proof and space-time proof, and implemented SnackPack in 2021 to greatly improve the aggregation of a large number of zero-knowledge proofs, thereby achieving the efficiency of zero-knowledge proofs, especially verification efficiency.

Another breakthrough in zero-knowledge proof is the emergence of ZEXE, which has made people see the engineering possibility of using zero-knowledge proof for general computing. In the second half of 2021, we have seen some teams begin to try to implement virtual machines based on zero-knowledge proof. This is a good start. Can it really go to the market and start the ecosystem in 2022? I think that in this crypto market, we may see more than one project using zero-knowledge proof for privacy computing in 2022, but at the same time, I also think that it is unlikely to see a large-scale outbreak of applications based on zero-knowledge proof virtual machines in 2022. However, the enthusiasm of the market may be ignited.

All in all, 2021 has seen tremendous growth and an incredible amount of innovation in the crypto space, from blockchain infrastructure to DeFi to NFTs and more. Crypto has clearly asserted itself as one of the most powerful technologies of our time, offering unparalleled privacy, trustlessness, composability, and decentralization, while the traditional web remains highly exploitative, monopolistic, and fragmented.

The public eye has never been as focused on the crypto market as it is today, and the increasing mainstream adoption of crypto technology is likely to shape and accelerate the pace of innovation in the coming year. I am very excited to see how crypto will launch the ecology and application of Web3.0 in 2022, and look forward to crypto technology occupying more mainstream financial and content fields and becoming a more powerful and secure platform to power our interaction with the Internet.