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7 Blockchain Megatrends You Should Know in 2023
The crypto industry is building more and faster than ever. In this article, we'll dive deep into 7 key trends you have to know about.
Bull markets attract millions of newcomers to the crypto industry. But where most investors leave during the inevitable bear market, developers tend to stick around and build new things. While most people stop paying attention, the most interesting innovations are being built, which tend to lay the foundation of the next uptrend. The essential building blocks for DeFi and NFTs were both built out during the 2018-2019 bear market and in turn led to the mania that followed.
With Bitcoin doing relatively well again, there are speculations that the crypto bear market could be behind us already. We might be ready to enter a new phase of growth and expansion that will bring more value and benefits to its users and stakeholders. Now that we have set the stage, let us explore some of the biggest trends blockchain developers are working on now.
Real World Assets
Real-world assets (RWAs) are physical assets that have value in the real world, such as real estate, art, and commodities. According to a report by Citigroup, the tokenization of RWAs is a $4 trillion to $5 trillion opportunity that could unlock new sources of capital and value creation. Tokenization is the process of converting these real world assets into digital tokens that can be traded on a blockchain. This allows for fractional ownership, increased liquidity, and lower transaction costs. The private equity market is expected to become the most "tokenized" asset class due to its liquidity and ability to be fractionalized.
While earlier attempts to develop tokenized assets based on the ERC-20 standard did not live up to the hype, increasing legal clarity in jurisdictions like Singapore, Dubai and Germany and the introduction of new token standards such as ERC-721 and ERC-4626 have brought about innovations and new possibilities in this field. This has led to the emergence of many different RWA projects such as Maple Finance, Goldfinch, Polytrade, Blocksquare and Centrifuge. These projects are leveraging blockchain technology to create new financial products and services that were previously impossible. Global firms such as Goldman Sachs, Boston Consulting Group, and Siemens are also exploring the potential of tokenized assets.
The tokenization of RWAs is still in its early stages, but the potential is significant as the addressable market is in the trillions. It has the potential to democratize access to investment opportunities, increase liquidity, and unlock new sources of value creation. As the technology continues to mature and new standards are developed, we can expect to see more innovative use cases emerge. The future of finance is tokenization, and those who embrace this trend will be well-positioned to benefit from the opportunities it presents.
For more on RWAs check out our primer or our list of RWA real estate projects
Ordinals are a new innovation powering Bitcoin NFTs and other digital artifacts. Bitcoin has been largely left out of the NFT craze due to its limited scripting capabilities and high transaction fees. However, the ordinals protocol, introduced by Casey Rodarmor in January 2023, has opened doors to a substantial, untapped market in the form of Bitcoin NFTs. The protocol is not based on smart contracts but on satoshi inscriptions through basic Bitcoin scripting features and standard P2TR transactions. In simple terms, people can now add digital files such as pictures or audio to a single satoshi. This makes the protocol simple, elegant, and efficient. The ordinals project is unique because it directly inscribes onto satoshis, the smallest denomination of bitcoin, without needing another chain or token.
The ordinals protocol has gained momentum over the past month, signaling a possible new frontier for the biggest cryptocurrency. The protocol allows for the Bitcoin version of NFTs, described as "digital artifacts" on the Bitcoin network. The process stays entirely on the Bitcoin network and does not require a sidechain or additional token. The ordinals project is not the first to try bringing NFTs onto the Bitcoin blockchain. Counterparty was the first platform to inscribe NFTs on Bitcoin's network with the Rare Pepe collection in 2014. However, Rare Pepe didn't do much to boost mass demand, but one of its NFTs from 2016 sold for $3.6 million at a Sotheby's auction about a year ago.
The ordinals protocol has sparked a debate over the place for NFTs in the Bitcoin ecosystem. Old school Bitcoiners consider ordinals a waste of block space that should be for transactions, whilst others think it actually makes Bitcoin more secure as it leads to more and higher transaction fees. Nonetheless, with over 1 million ordinals already in existence, the market seems to have decided that this is going to be a thing. As the technology continues to mature and new standards are developed, we can expect to see more innovative use cases emerge, for example ordinals for Real World Assets or new games leveraging the innovation.
The integration of DeFi and NFTs is a megatrend in blockchain that is creating new use cases, products, and services. DeFi and NFTs have largely operated in separate silos, with little interaction or synergy between them. However, this is changing as more projects and platforms are exploring the possibilities of combining DeFi and NFTs. The integration of DeFi and NFTs has the potential to unlock liquidity and expand accessibility to NFTs, most notably via fractionalization and pooling. This will democratize access to investment opportunities and increase liquidity.
NFTperp is one of the innovative projects in this area that allows users to trade perpetual futures. Yes, this means leveraged speculation on the future price of NFTs. The peer-to-peer liquidity protocol, NFTFi (NFT Finance), is another project that is exploring the possibilities of combining DeFi and NFTs. NFTFi allows users to pool NFTs and lend them out to earn interest. This creates a new source of value creation for NFT holders and expands the use cases for NFTs beyond just collectibles.
Zero Knowledge Proofs (ZKPs)
Zero Knowledge Proofs (ZKPs) are a cutting-edge technology that is gaining attention in various fields, particularly in the area of blockchain. ZKPs allow for the verification of information without revealing the underlying data, providing a high level of security and privacy. Most blockchains are public ledgers, making them transparent at the cost of privacy. Institutions need privacy and seem especially interested in this technology.
ZKPs can help improve the scalability of blockchain networks by allowing for the verification of transactions without the need to store and process all the transactions in the network. This lowers the transaction costs, latency, and congestion of the network. ZKPs can also enable off-chain computation and verification, which, in turn, enhances the throughput and performance of the network.
These valuable properties have led to substantial capital flows to the leading projects building out ZK technology such as new Ethereum layer 2's like ZKsync, Zk-Starks, Aztec Network and Polygon's zkEVM and various other projects like DeGate and zkRouter.
Decentralized social media
Decentralized social media is a new paradigm that aspires to challenge the dominance of centralized platforms like Facebook, Twitter, and YouTube. Decentralized social media platforms bring social media onto the blockchain, giving users more control over their data, content, and interactions, as well as more freedom of expression and diversity of opinions. And of course there are entirely new monetization options for both creators and consumers through tokens and NFTs.
As of late, decentralized social media platforms are gaining market share in the broader blockchain ecosystem. These platforms are more resistant to censorship than traditional centralized ones and offer users greater control over their data. Decentralized social media platforms operate in a system of governance instead of the word of a few individuals to make decisions. DeSo, Nostr, Lens Protocol, and Steemit are some of the platforms that are leading the way in decentralized social media.
On Steemit, users are incentivized to share quality content through rewards of tokens which could be used to access premium features, tip other creators, or exchange for other goods and services. DeSo is a decentralized social media platform that aims to give users more control over their data, content, and interactions. DeSo is built on a blockchain that allows users to own their data and content, and to monetize their content directly from followers and fans without relying on ads or third-party platforms.
Interoperability is a trend in blockchain that is key to its mass adoption. Most current blockchains operate as isolated islands, with separate protocols, consensus mechanisms, and native tokens. This creates a lot of friction and inefficiency for users who want to move across different chains or use applications that require multiple blockchains. Interoperability offers the solution to this problem and enables seamless cross-chain communication between blockchains, making the technology more accessible and user-friendly.
Cross-chain protocols such as Stargate, ThorChain, LayerZero, Axelar, Hera Finance, and MultiChain allow blockchains to interact directly with each other, without intermediaries or trust assumptions. Users would be able to choose the best blockchain for their needs and seamlessly move assets and data across different chains. In a not-too-distant future, constantly switching blockchains, dealing with many different wallets and holding dozens of tokens to pay for fees will be a relic of the past.
AI-generated content and web3
The convergence of AI with games, metaverses, and NFTs is a brand new trend in blockchain that has the potential to revolutionize the gaming industry and the metaverse as a whole. The rise of generative visual AI models such as Midjourney and Dall-E raises optimism for future virtual worlds entirely developed by AI and which can be owned and monetized by users through tokens and NFTs. AI-generated games would be decentralized and trustless gaming environments, where players can own their assets and identities, and participate in governance and economy. This extends into broader metaverses and would be a key feature of Web3 entertainment. Solutions such as IMGNai, which, though still an image generation tool, aims to be a platform for creating AI-generated games, are leading the way in this area.
The metaverse is a convergence of digital technology to combine and extend the reach and use of cryptocurrency, artificial intelligence (AI), and blockchain. The fully realized metaverse won’t be just for gaming. It will be a digital playground for friends and a commercial space for companies and customers. The metaverse will contain a vast amount of data generated by AI. By combining AI with other technologies like AR/VR and blockchain, the metaverse will become a more immersive and interactive experience. We're just getting started and the possibilites are endless, think games that are completely personalized, intelligent NFTs, characters with profound personalities and many things we just can't imagine yet.
The 7 key trends discussed here showcase the level of innovation, and sometimes pure genious, present in this industry. Blockchains and crypto are still in their infancy and knowing these trends in 2023 can help you be early to the next big thing. At Flagship, we'll be paying close attention to these megatrends over the next months and years! Don't forget to subscribe to our newsletter if you'd like to receive updates on these trends and much more directly in your inbox.
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