Crypto Innovation Advances Despite Market Slowdown

By Alex Benfield

So, 2022 hasn’t been a great year for crypto … or most markets, for that matter. Prices across the board have slid from their bull market highs of last year.

To be precise, both Bitcoin (BTC, Tech/Adoption Grade “A-”) and Ethereum (ETH, Tech/Adoption Grade “A-”) are down about 72% from their November 2021 highs.

But on the bright side, both market leaders have been trading sideways for the past month or so, and volatility in the crypto market has been dwindling down.

And just because price action hasn’t been the best doesn’t mean crypto has stopped evolving. On the contrary, there have still been major strides on the technology and innovation front of the crypto industry.

Sometimes people forget crypto stems from a massive tech innovation: the blockchain. And innovation tends to attract investors.

During the past three or four years, a massive migration has taken place as great minds, innovative thinkers and the best coders have moved on from the tech and finance industries over to web3 and crypto.

This talent migration started in tech-savvy places like Silicon Valley and Manhattan and has now transitioned to college campuses across America. Many of the most talented young thinkers now want to work in what they see as the most interesting and exciting industry around.

Finance and tech companies have both increased their entry-level salaries to attract and retain talented workers … but despite their efforts, this shift is inevitable.

The money always follows the talent, and the talent will always generate value.

This influx of new and innovative thinkers in the cryptocurrency, blockchain and web3 industry has sparked massive growth and innovation over the past year.

But if you weren’t paying close attention, these innovations might have been drowned out by the noise of unhappy investors as markets panicked and retreated in recent months.

The most obvious innovation of the year — and perhaps the biggest technological feat since the creation of the Bitcoin blockchain — was the Ethereum Merge.

As you have likely heard from our previous coverage, the Ethereum Merge took place on Sept. 15 of this year and marked Ethereum's transition from a proof-of-work consensus to proof-of-stake.

The Merge reduced Ethereum’s energy consumption by an estimated 99.95% — which means ETH now meets most environmental, social and governance mandates.

But perhaps the biggest effect of the Merge is the reduction in issuance of ETH tokens, as ETH issuance has decreased by somewhere around 95% since the Merge. If the burn rate of ETH tokens increases, it’s possible for ETH to become a deflationary asset in the future.

This marks a drastic shift from its previous inflation rate of around 4.2%.

However, the Merge wasn’t the only big tech innovation in the space over the past year.

And there’s one in particular that deserves more attention: We know that perhaps one of the biggest surprises of the last bull market was the rise and success of non-fungible tokens.

While NFTs existed in the previous bull market, they were relatively unknown. But that all changed in 2020.

NFTs went mainstream with projects like NBA TopShot, which sparked massive interest. That was followed up by the explosion in profile photo projects like CryptoPunks and Bored Ape Yacht Club that culminated in real-world events, including art galleries, club parties and even NFT-invite-only concerts.

Now, the team behind the PFP project Azuki have announced a Physical Backed Token.

The Azuki team is selling a limited release of physical items related to the Azuki universe. Users can scan these items using a bean chip — a physical cryptographic chip — that will mint a digital version of the item as a PBT.

This allows the current user of the physical item to verify and authenticate ownership on the blockchain and ties the item to a digital wallet.

While that might sound confusing now, it’s a breakthrough innovation that ties the digital and physical world together, allowing for cross-ownership of items. Rest assured this is just the first of many implementations of PBTs.

It’s easy to get caught up in just the price action of the crypto market and forget about all the new and exciting innovations taking place right under your nose.

Especially during times as crazy and volatile as these, it can be difficult to think about anything else beyond the dollar amount in your portfolio.

But I’d argue that this is precisely the time to focus on the speed and quality of innovation of this cutting-edge technology and to harden your investment thesis moving forward.

Tech stocks have been some of the best investments over the past two decades for this same reason — the money always follows talent and innovation.

But now that talent and innovation have migrated here to the crypto industry, I’m placing my bets accordingly … and I hope you do, too.

Best,

Alex