How Crypto Can Overcome Its Obstacles
|By Jurica Dujmovic|
In today’s shaky economy, factors such as sky-high inflation and the inevitable rise of central bank digital currencies — the digital form of a country’s fiat currency, created by a central bank — have sucker punched the proliferation and prices of cryptocurrencies.
However, while macroeconomic conditions may be taking their toll on crypto right now, the future still looks promising.
With the Ethereum (ETH, Tech/Adoption Grade “A”) Merge completing without a hitch, the long-term impacts should be favorable.
The upgrade was able to reduce ETH’s carbon footprint by 99.9% overnight, which could make ETH attractive to institutions looking to get into the space because of its improved environmental, social and governance profile. Not to mention its deflationary effects and improved scalability.
Unfortunately, despite this historic upgrade, the current bear market and the Federal Reserve’s aggressive interest rate hikes are driving institutions away from crypto ... and risk assets altogether.
Even with increased public adoption and understanding of what crypto is and what it stands for, there are still roadblocks stopping crypto from achieving the universal adoption it’s aiming for.
To discuss the current issues plaguing crypto, as well as the light at the end of the proverbial tunnel, I've reached out to Dominic Williams. He’s the founder of DFINITY Foundation and the chief scientist responsible for building the Internet Computer blockchain — a public network launched by the DFINITY Foundation that aims to create a limitless environment for smart contracts.
Jurica Dujmović: Dominic, what would you say is the biggest challenge the crypto industry as a whole is currently facing?
Dominic Williams: I’d say hacks. Definitely. Let me explain.
Blockchain bridges lock crypto assets on a source blockchain, and then project a “wrapped” copy onto a destination blockchain, which can then be used in decentralized finance services on the destination blockchain. Bridges are vulnerable because companies and other trusted intermediaries act as custodians for the assets involved. If they make a technical mistake, hackers can steal the locked assets, and the intermediary must also be trusted not to steal the assets themselves. Owing to such flaws in the design of bridges, more than a billion dollars has been stolen from bridges in 2022 already.
There are two primary ways in which a trusted bridge can lose the assets they project from one blockchain to another:
First, since they’re systems, they may contain an implementation error or security flaw that allows a hacker to steal the assets.
Second, the operator of the bridge, or one of their employees, might be malicious and steal the assets.
Jurica: Is there a way around these structural flaws?
Dominic: The only solution to the problem is to remove the need for trust using advanced cryptography. A team of famous cryptographers working at the DFINITY Foundation has developed such a solution. And systems currently in public beta already make it possible for DeFi systems to directly access crypto assets on another blockchain without a trusted intermediary and without risk. Cryptography cannot be hacked because its security depends on immutable laws of mathematics.
Jurica: In my introduction, I mentioned the economic headwinds currently pushing back on crypto. How have they affected various projects?
Dominic: Some blockchain tokens — such as Filecoin (FIL, Tech/Adoption Grade “E+”) and the Internet Computer’s ICP — have chalked up significant gains, while the Flow (FLOW, Unrated) token jumped dramatically after Instagram said it was going to integrate Flow non-fungible tokens.
Bitcoin (BTC, Tech/Adoption Grade “A-”) and Ethereum both fell somewhat over the week, even despite ETH’s Merge. Meanwhile, Solana (SOL, Tech/Adoption Grade “D”) tokens fell significantly after a hack.
Jurica: These are short-term reactions, though. What about the long-term effects the current macro situation could have?
Dominic: The macro outlook for crypto markets is hostile. But arguably, a global recession and tightening monetary policy have already been priced in.
If markets hit their bottom, there’s room for crypto assets to grow again in value and to recover where they were oversold, but for now, the bull market frenzy that floated all boats is over.
This means that investors are making greater efforts to pick value and potential. And crypto asset price moves are becoming far less correlated than they once were, which can only be a good thing for the industry as it matures.
Jurica: What about Fed rate hikes and their effect on crypto prices?
Dominic: As I’ve mentioned before, it’s important to remember that crypto has already priced in an expected global recession and tightening monetary policies due to inflation, so future rate rises may not affect crypto prices as negatively as they once did.
Jurica: Thank you for joining me, Dominic. Great talking to you.
Dominic: Thank you for having me.
There you have it.
While crypto is still facing its fair share of challenges — from weaknesses in its design to economic factors outside of its control — it has battened down the hatches to prepare for these difficulties.
Through constant innovation and preparation for tough times ahead, crypto seems ready to weather any storm that comes its way.
And to help you do the same, Dr. Martin Weiss and our crypto analyst team will be hosting a forum on Wednesday, Sept 28, at 2 p.m. Eastern to help you catch the single best time to prepare for the next bull run and potentially outperform Bitcoin by as much as 27-to-1.
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