After 2021, we have entered a period in the cryptocurrency industry where the focus has shifted from solely discussing financial decentralization to a broader conversation about the tokenization of various assets. This shift has been largely influenced by the rise of nonfungible tokens (NFTs).
This change in perspective holds immense significance and will guide three key principles in the upcoming bullish market. To fully comprehend these principles, it is essential to acknowledge that everything can be represented as data. Money, your interactions with a brand, your credentials, and even the ticket to your favorite show, are all forms of data.
Since 2021, the ecosystem has increasingly adopted the practice of storing a significant portion of this data in the form of fungible tokens, NFTs, and timestamps on the blockchain. The blockchain serves as a data repository in this context.
While not all data needs to be stored on the blockchain, the ability to place data on it has the potential to revolutionize how we store, share, and utilize data for automated and secure instructions and transactions.
The concept of tokenizing everything is now being applied to Bitcoin, leading to the first thesis.
As ordinals and similar protocols continue to grow, Bitcoin is evolving into a network that supports multiple assets and data types.
In January 2023, Casey Rodamor publicly introduced the Ordinals protocol, which allows for the permanent insertion of any file type into the Bitcoin blockchain.
In less than a year, various experiments have been conducted by the community, involving the inscription of music, artwork, journalistic articles, and video games onto the world’s leading blockchain.
While the Ordinals protocol was not the first to enable this functionality, it has gained significant traction and shows no signs of fading away.
Beyond being just a technical protocol, the Bitcoin community has fostered a culture and mindset where builders increasingly view Bitcoin as a platform for creating other projects and applications, representing an unstoppable cultural movement.
However, it is important to note that not everything needs to be stored completely on-chain due to the high cost and inefficiency associated with it.
Protocols like Taproot Assets, which allow for the creation of other assets on the Bitcoin network while keeping most of the information off-chain, will play a crucial role.
When considering the storage costs on layer-1 blockchains, it becomes evident that layer-2 blockchains are poised to excel.
Layer-2 blockchains will enable cryptocurrency to break free from its bubble and reach the general public.
Those who were active during the 2021 bull market will remember that transaction fees of $50 on Ethereum were quite common, especially during spikes like the minting of Otherside NFTs by Yuga Labs, where users paid up to six Ether per transaction.
In order for blockchain technology to become mainstream, it must be invisible to users. Expensive and slow transactions make the blockchain more noticeable, hindering its adoption.
This is why layer-2 blockchains, designed to enhance the scalability of layer-1 blockchains, will be crucial in the next bull market.
Although layer-2 blockchains have been around for years, both the technology and the market were not mature enough to fully utilize them in the previous cycle. Many companies and developers were skeptical about the stability of layer-2s in handling a significant influx of mainstream users. Additionally, the excitement of the moment led to hasty decisions without proper study and understanding.
During that time, there was a significant number of projects on Ethereum that did not necessarily need to be there. Various reasons contributed to this, including cultural factors, lack of knowledge about secondary layers among companies, and the popularity of Ethereum as a development platform.
Now, with the lessons learned and a more mature building mentality, the value proposition of blockchains has become clearer to those involved in development.
Furthermore, the implementation of EIP-4844 on the Ethereum network, expected in a few months, will further reduce transaction costs on layer-2 networks, making them even more inconspicuous and robust, thus attracting and retaining the mainstream audience.
However, having an invisible infrastructure is futile if people cannot connect to it and companies cannot build on it. Fortunately, the solution is already available.
Abstraction solutions will serve as the primary means for users and large traditional companies to access and retain their presence on Web3. However, in some instances, decentralization can hinder rather than assist due to the tokenization of everything.
When discussing Bitcoin custody, decentralization is relevant. However, when it comes to tokenized tickets or a company’s loyalty credentials, the value does not lie in the decentralized system. Therefore, simplifying the user experience by abstracting complex processes, such as creating a semi-custodial wallet with social login or eliminating concerns about gas fees, is necessary.
Abstraction solutions were the missing link that allowed the crypto universe to transcend being a technical environment exclusively for skilled individuals willing to face numerous challenges. Now, these solutions are ready to shine!
The goal is not to eliminate decentralization, but to provide an option. Those who wish to remain completely decentralized can do so, but those who don’t now have a choice. This prevents the crypto ecosystem from dying in the innovation chasm. Magnificent infrastructures are meaningless if people cannot easily connect to and navigate them in their daily lives.
One aspect often overlooked is the importance of these abstraction solutions for traditional companies to effectively join Web3 as well. How many companies currently have a team of developers proficient in blockchain languages like Solidity? Facilitating an easier entry for builders into this space is crucial.
Breaking down the blockchain journey into four phases, we can say that the account abstraction solutions, along with the advancements mentioned in the second thesis, will drive Web3 into its penultimate phase. This phase will feature improved infrastructure, fewer technical builders, increased participation from brands, and a multiplication of applications, projects, and use cases, attracting mainstream attention.
Currently, it appears that major blockchains will increasingly be seen as platforms for multi-asset consensus in the next market cycle, rather than just currencies. The ultimate achievement will be scalability, which will make the layers more seamless and less complicated for users to navigate and for businesses to integrate. Welcome to Ethereum and phase 2 of Bitcoin.