In 2022, Blockchain is Here to Stay

The view and expressions on this post are my own and do not necessarily represent the postings, strategies or opinions of my employer. [Disclaimer]

TL;DR #

• The crypto industry faced significant challenges in 2022, including breaches on cross-chain bridges, crashes, bankruptcies, and distrust among users. However, blockchain technology remains strong and transformative across various industries.

• The vulnerabilities and attacks in the crypto space are often due to the implementation and security measures surrounding cryptocurrencies and decentralized finance platforms, not the blockchain technology itself.

• To avoid risks, users should be cautious of projects with red flags, conduct thorough research on a project’s true utility, and evaluate its potential impact and long-term viability before making investment decisions.

Reality Check #

Year 2022 is a reality check for everybody involved in the crypto space. According to Chainalysis, around US$1.4 billion were lost to breaches on cross-chain bridges this year. With several detrimental events piling up, starting from May: LUNA crash, cross-chain bridges getting hacked (e.g. Ronin, Harmony, Nomad etc.), centralized finance (Ce-Fi) services going bankrupt (e.g. Celsius), crypto VC Firms going bankrupt (e.g. 3AC), it is apparent that the crypto industry is facing significant challenges. However, amidst these setbacks, one thing remains certain: blockchain technology is here to stay in 2022 and beyond.

Despite the negative headlines and market volatility, it is important to recognize that blockchain technology itself is not the cause of these issues. Instead, it is the implementation and security measures surrounding cryptocurrencies and decentralized finance (DeFi) platforms that have been vulnerable to attacks.

We need to ask the question: Why do these scenarios keep happening? The repeated mistakes being made during the lifecycle of crypto products put users’ funds at great risk. These blatant rug-pulls, ‘accidental’ hacks, insolvencies, incompetencies of company leaders in the space, and the distrust among users are obvious red flags the average crypto user should avoid.

Blockchain technology, at its core, offers unparalleled transparency, security, and decentralization. These qualities make it a transformative force across various industries, including finance, supply chain management, healthcare, and more. As we move forward, it is crucial to focus on strengthening the infrastructure and security surrounding blockchain-based systems.

From a product development perspective, crypto products in general have a much shorter feature-to-market cycle. New features get shipped within weeks rather than months, compared to the much longer cycle of Web 2.0 products. Also, there aren’t many tooling around to properly test and QC features before they get pushed to production. The revenue brought by running these quick product iterations outweigh the cost of implementing proper checks. For example, the Harmoney Bridge is designed such that only 2 addresses from the multisig wallet are needed to approve transactions. That means, a malicious actor only has to gain access to 2 addresses to launch an attack on the 330M funds entrusted on the bridge. If they had conducted bug bounty programmes or have thoroughly audited the security design of their product, the attack vector could have be minimized.

From a business development perspective, as more and more native blockchains emerge, the need to provide interopability among multiple chains propells developers to rely on cross-chain bridges. Users that are provided with more liquidity and flexibility on their tokens, however, are also faced with more risk. This opens up the attack vector for hackers to compromise bridges and put users’ funds in harms way. The eventual merging of multichain into a single chain will sure be a long-winded progress and for crypto product teams this is has always been a choice between security and scalability (see more on The Blockchain Trilemma by Certik).

True Utility & Perceived Value #

Distinguishing between true utility and perceived value is crucial for builders and investors. 2022 has seen a surge in cashgrab crypto projects (cashgrabs) that often end in rug-pulls, leaving investors high and dry. These projects are well-promoted, causing token prices to skyrocket before crashing. In contrast, during the Crypto Winter, there is less motivation to quickly launch products due to the lowered value of tokens.

For cashgrabs operators, it becomes more expensive to hype token prices during a bull run. This provides an opportunity for average crypto investors to evaluate the true utility of a product in these market conditions. It becomes easier to separate the muck (true utility) from the mire (perceived value of the token).

True utility refers to the practical benefits and functionality a crypto project offers, solving real-world problems or providing innovative solutions. Perceived value, on the other hand, is often influenced by hype, marketing tactics, and speculative behavior in the market. It can lead to inflated token prices not necessarily backed by the project’s substance or long-term viability.

To make informed investment decisions, crypto investors should carefully evaluate a project’s true utility. Thorough research, analysis of the whitepaper, assessment of the team’s expertise, and considering the project’s potential impact are essential. Investors should be wary of projects relying solely on hype and marketing buzz without offering substantial utility. By focusing on technology, real-world use cases, and the project’s ability to deliver tangible value, investors can mitigate risks associated with cashgrabs and make more informed choices.