“Last winter, I attended a city dinner party amidst a diverse crowd—some familiar with my work, others not, and a few skeptical individuals. As a crypto lawyer and policy advocate, I often encounter questions like, ‘Are you a Bitcoin lawyer?’ and ‘Do you use a bank?’
Recalling the challenges faced by the crypto industry at the close of 2022, I found myself addressing more inquiries than usual. A friend, at one point, approached me with concerns, asking, ‘Is this the end of crypto? Are you okay?”
A year later, I confidently affirm: 2023 was positive for crypto, strengthening my commitment. Looking to 2024, I’m convinced that despite challenges, the technology will endure — crypto is here to stay.
The optimistic stance on crypto is straightforward: Technical maturity is progressing alongside regulatory advancements and broader adoption.
However, in the world of crypto optimism, realism is crucial. It involves recognizing both the exciting developments entering 2024 and the challenges we must confront in the coming year. I term this perspective “crypto optimist realism”: recognizing both our accomplishments and the hurdles we still face.
While 2023 exceeded optimistic expectations, it doesn’t guarantee an effortless 2024. Specifically, concerning the three critical aspects for crypto — technical advancement, regulatory progress, and adoption — the favorable conditions guiding us into 2024 will encounter persistent challenges that demand our attention for the industry to mature further.
The technology advanced faster than anyone imagined. Now we need to show why that matters.
Following the collapse of centralized “crypto-in-name-only” financial systems, 2023 witnessed a renewed commitment to advancing sustainable and decentralized networks. Technology across diverse platforms has reached a stage where it adeptly fulfills the expectations of the general public in financial, social, communication/messaging, and informational applications. These strides signify a substantial shift towards more resilient and user-friendly decentralized systems, underscoring the maturation of technology in the crypto space.
In the previous year, the industry was captivated by zero-knowledge technology, zkEVMs, and scaling solutions, and rightfully so. Remarkable technological advancements materialized on a large scale, surpassing the expectations of those who thought that realizing such technology beyond mathematical theorems would take decades, if ever.
Today, there exist swifter, more cost-effective, and efficient methods for transactions and interactions on the internet. These are safeguarded by decentralized databases hosted globally, allowing individuals to safeguard and manage their own data, value, and content. The current landscape of blockchain technology resembles something out of “Neuromancer,” a reality we find ourselves living in now.
Yet, the next challenge lies in ensuring that millions worldwide can also embrace this futuristic reality.
The initial hurdle involves articulating in a user-friendly manner what blockchains truly accomplish and why, for certain applications, they outperform existing systems. The use of insider terms such as “rollups,” “smart contracts,” and “oracles” with the traditional world often proves counterproductive. Jargon renders the technology and the industry esoteric, isolating, and inaccessible. Much of the blockchain lexicon was initially tailored for a small developer audience. To evolve alongside the expanding reach of the technology, we must alter how we communicate about it.
While some technical challenges are well on their way to resolution at scale, a fundamental barrier remains: making the benefits of blockchain widely understood. This involves elucidating how the technology offers tangible advantages that can be easily comprehended on a global scale, appealing to tech enthusiasts, the general public, and various industries alike.
“Regulatory clarity” advanced in unexpected ways, but the AML quicksand requires a solution
Engaging in policy matters at the close of 2022 felt existential for those involved. It was challenging to envision how regulators and policymakers could meaningfully participate after the industry faced integrity issues from the downfall of certain unnamed businesses, as you are likely aware by now. To my pleasant surprise, the last year witnessed substantial global engagement by policymakers on crypto matters, exceeding my expectations. Notable developments from 2023 include:
Japan:
Japanese lawmakers published a “Cool Japan” whitepaper in April, proposing a law for decentralized autonomous organizations (DAOs) to engage less-connected towns and communities with the government. It also considered the use of non-yen-backed stablecoins with stringent regulation.
European Union (EU):
The EU formally passed and began implementing the Markets in Crypto-Assets regulation (MiCA). This comprehensive legislation focuses on centralized businesses and service providers in the crypto space, setting stringent requirements while allowing room for continued innovation.
United Kingdom:
The U.K.’s Treasury Department issued a comprehensive proposal for crypto regulation.
France:
Policymakers in France began contemplating frameworks for decentralized finance (DeFi), showing a serious approach to regulations that balance innovation, consumer protection, and market integrity.
Hong Kong and the UAE:
Hong Kong and the UAE introduced crypto licensing regimes for centralized crypto businesses and service providers, including a proposed regime for the issuance of stablecoins in Hong Kong.
United States:
In the U.S., two major pieces of proposed legislation, the Financial Innovation and Technology for the 21st Century Act (FIT Act) and the Clarity for Payment Stablecoins Act, made bipartisan progress. The U.S. House Committee on Energy and Commerce conducted a major hearing on nonfinancial use cases for blockchain, indicating policymakers’ growing understanding of blockchain’s potential.
Federal judges in the U.S. demonstrated an understanding of technology nuances in cases involving Ripple, Grayscale, and Uniswap. These decisions acknowledged arguments around decentralization and self-custody, emphasizing the need for regulators to adapt to the unique characteristics of the crypto industry.
The decision in Risley v. Uniswap Labs et al. delved into decentralized finance technology, recognizing that software developers cannot be held liable for the actions of third parties using the software. It also acknowledged the uncertainty about whether crypto assets are securities, commodities, or something else — a decision Congress needs to make.
Despite these advancements, the industry still lacks the sought-after regulatory clarity. The challenge for 2024 is significant: How can the industry collaborate with regulators and policymakers globally to address the issue of bad actors using crypto for illicit means, particularly in the context of anti-money laundering (AML)? The industry needs to unite to provide viable solutions aligned with regulatory goals for the detection and deterrence of illicit activities.
Broader use cases now abound, but we need to make them more useful
In my perspective, 2023 earned the title of “the Year of the Use Case.” During this time, I played a role in launching The Value Prop (thevalueprop.io), an open and interactive website designed to showcase global use cases for blockchain technology. The platform aggregates a variety of novel blockchain-based applications that are already operational.
Consider avatars on Reddit, digital shoes on Nike, or loyalty NFT reward programs with Starbucks. Major brands are experimenting with relinquishing control over loyalty programs and points, entrusting users with custody and ownership. Notable instances include the California DMV exploring tokenizing car titles, experiments with on-chain land registration in Peru, and several Indian states incorporating blockchain across various services, including police complaints.
Think about the tokenization of off-chain assets, where financial giants like JPMorgan, Franklin Templeton, BNY Mellon, Mirae Asset Securities, and others have begun tokenizing assets, estimated to already total around $3 billion. Projects like Courtyard and Regen Network enable tokenization of assets such as Pokémon cards and carbon credits.
While the former group accelerates our current financial system’s efficiency, the latter transforms economic participation and dynamics.
Blockchain has started making an impact across nearly every imaginable vertical. Although a growing number of people interact with blockchain elements daily, many do so unknowingly. The current challenge is to focus the industry on the most impactful and game-changing use cases. While builders continue their work, they must ensure their innovations have powerful appeal, moving beyond the traditional narrative of “banking the unbanked,” which, whether for better or worse, has become a story of the past.
To drive widespread adoption and acceptance of blockchain technology, especially in the face of vocal crypto pessimists, builders need to embrace strong product-market fit (PMF) already seen in certain crypto use cases, such as stablecoins. Overcoming this challenge involves thinking beyond old narratives while keeping PMF in mind. This shift will be challenging, as much of the industry has been fixated on price and volume indicators for years, often seen as markers of adoption.
This winter, I chose to forgo dinner parties, focusing on work and planning to address the challenges discussed earlier. The momentum gained in 2023 has created a growing sense, even among friends and acquaintances who don’t closely follow the space, that both the industry and I are in a stable position, reaffirming the enduring presence of crypto.
Despite the challenges that lie ahead in 2024, my optimism remains unwavering. The individuals still dedicated to building within this space are among the best and most passionate, poised to propel the industry and the technology to its full potential.