We’ve been standing at the precipice of Web3 for several years.
And while the innovations within the sector – from smart contracts to stable coins
and beyond – are flying out of the gates faster each year, the first 6 months of 2022 have flipped the script.
For the first time ever investments in web3 are stalling, the inexorable rise of cryptocurrency value has slowed (then completely reversed course), crypto-hacking isn’t abating, and venture-led tech companies and unicorns are haemorrhaging staff.
So what’s gone wrong? Are these issues solvable, and what does the
future hold for distributed ledger tech, blockchain and the future of web3?
Inflation and blockchain.
“Cryptocurrency and inflation. These two were supposed to have a close relationship — when inflation got hot, crypto was supposed to get hotter. The result being potential protection for the buying power of your money.
What we’ve learned over the past few months is that big swings in crypto mean it lacks the consistency needed to outpace inflation”.
It’s problematic to lay the cause of faulting cryptocurrency at the door of one particular economic movement or change, but it’s worthwhile looking at the big picture moral and mental aspects of blockchain tech – Crypto and blockchain are designed to be more private, more protected spaces in which to exchange money, assets, and digital real estate. However, the macroeconomic protections crypto were meant to support and uphold have proved, in reality, to be more tied to inflation than previously thought. We discuss cryptocurrencies’ recent failings in more detail below.
Hacking, Hacking, Hacking.
“Hackers” have stolen nearly $2 billion worth of cryptocurrency since 2017”.
There are, contrary to positive crypto PR, multiple ways blockchains can be hacked, from 51% attacks to smart contract augmentation to creation errors. These sorts of security flaws often result in hacked assets being recognised by the blockchain and rendered completely irretrievable.
But the foundation of blockchain ledger tech comes down to trust – in the system, in the security apparatus and in the people who “monitor” public and private blockchains. If they are seen to lose that trust, and without governmental oversight, the edifice crumbles.
Fear.
“The crypto fear and greed index, a popular indicator of the mood of crypto investors created by the crypto analytics website Alternative.me, slipped into the “extreme fear” range (in April 2022)”.
Crypto-fans have decried negative months as outlier events and many blockchain acolytes still see crypto as potentially a replacement for the dollar as the global stable currency.
But as some of the above points indicate, for all the novel tech and security, a distinctly human issue could scupper the entire blockchain programme – fear.
The problem with scalability and energy consumption.
One of the perennial issues with blockchain tech (and crypto specifically) is node capacity – this refers to the space within connected, distributed networks to hold all the “blocks” in a blockchain. The bigger the chain, the more space required to hold it.
Also, energy use is fast rising as the main issue with crypto and wide blockchain tech.
“Crypto has a dirty little secret that is very relevant to the real world: it uses a lot of energy.
How much energy? Bitcoin, the world’s largest cryptocurrency, currently consumes an estimated 150 terawatt-hours of electricity annually — more than the entire country of Argentina”.
As green investment rises and major corporations drive effort into ESG commitments, companies that want to incorporate blockchain tech into their stack will have to consider just how and where the energy is needed to fuel their own private networks.
So where does that leave Blockchain tech?
Blockchain tech and crypto aren’t going anywhere. But beyond the novel tech efficiencies and distributed freedoms lie real-world problems: fiat currency and the mechanisations of centralised money management do have an impact on cryptomarkets; tangible feelings of fear and investment trust are making themselves felt, and green credentials really matter in the long term.