Arbitrum’s fraud proofs haven’t been used in the two years since it launched

September 11, 2023 Coin Telegraph

Offchain Labs co-founder Ed Felten said there were one or two fraud challenges submitted on a version of Arbitrum running on the Ethereum proof-of-work fork after the Merge, which was defeated.

Not a single fraud proof has been submitted on Arbitrum since it first launched its mainnet with the built-in security feature in August 2021, according to Ed Felten, co-founder and chief scientist of the Arbitrum-building Offchain Labs.

Operating as an Ethereum layer-2, Arbitrum’s interactive, multi-round fraud proofs work by allowing a layer-1 verifier contract to decide whether the challenger’s fraud-proof submission is valid. If so, the fraudulent validator’s stake is slashed.

Fraud proofs are submitted by challenging validators when it considers another validator to have fraudulently or otherwise incorrectly assembled an incoming batch of transactions into the next block.

However, Arbitrum’s mainnet is yet to see a fraud-proof attempt let alone a successful challenge, Felten told Cointelegraph at Korean Blockchain Week on Sept. 4:

“Not on mainnet. We did have one or two on Ethereum proof-of-work (POW). After the Merge, [...] there was a version of Arbitrum running on the Ethereum POW fork and somebody did try to steal all the data and there was a successful challenge which defeated that.”

Felten said few fraud proof attempts have been made because malicious-intended validators are risk losing their entire stake.

“If any one person notices it and disputes your claim then you will surely lose your stake, so there’s a stronger disincentive to try,” Felten added.

Both Arbitrum and Optimism operate as optimistic rollups!

However, Optimism and Arbitrum differ in their approaches to fraud-proof mechanisms.

Arbitrum: multi-round → longer confirmation times, more secure
Optimism: single-round → faster

4/ pic.twitter.com/mp0Nj86Fxz
— The Smart Ape (@the_smart_ape) September 1, 2023

Felten said there’s currently a permission set of validators — roughly 12 — that participate in the fraud proof game.

He also added that Arbitrum is rolling out a new iteration of the fraud proofs called “BOLD” protocol — (Bounded Liquidity Delay) which he says gives Arbitrum a faster guarantee for challenges.

“In the current version [...] an adversary who's willing to sacrifice multiple stakes can arrange to cause “N” weeks of delay if they're willing to sacrifice “N” stakes [...] But the BOLD protocol says no matter how many stakes they sacrifice, they'll be defeated in about eight days.”

Arbitrum’s BOLD protocol was rolled out by Offchain Labs on Aug. 4.

After months in dev, we’re announcing BOLD (Bounded Liquidity Delay), a new dispute protocol that enables permissionless validation for Arbitrum chains, potentially removing the need for permissioned validation, dramatically improving decentralization. https://t.co/SHegVRGqXf
— Offchain Labs (@OffchainLabs) August 3, 2023

Felten said Arbitrum’s fraud proof feature will soon be permissionless, allowing anyone to push towards ensuring the correctness of the chain when challenges are made.

Magazine: DeFi Dad, Hall of Flame: Ethereum is ‘woefully undervalued’ but growing more powerful

Matter Labs co-founder proposes ‘Ethereum Supreme Court’ for on-chain disputes

September 4, 2023 Coin Telegraph

Alex Gluchowski

The crypto entrepreneur believes it would scare off bad actors and strengthen the state of the Ethereum network.

Matter Labs co-founder and CEO Alex Gluchowski has proposed an Ethereum court system resembling a hierarchical court system similar to the real world.

In a Sept. 2 post on X (Twitter), Gluchowski floated the idea for an “Ethereum Supreme Court” — which would work similar to the United States Supreme Court — serving as a final stop for parties to dispute smart contract issues rather than needing to take matters to a traditional lawyer or court.

“The most important function of such a system will be to protect protocols against political inference from the outside. It will serve as a great deterrence mechanism, and will elevate the role of Ethereum as a powerful network state,” said Gluchowski.

Smart contract implementation risks remain the biggest unsolved problem of Defi. L2s are equally affected.

Let me pitch an idea: L1 Fork as the Court of Final Appeal.

First, why existing solutions don't work:

1) Time-locked upgrades are great for scheduled changes, but… pic.twitter.com/EcaogkZBH9
— Alex G. ∎ (@gluk64) September 2, 2023

According to Gluchowski’s concept, disputes and emergency upgrades would be handled by a hierarchical system of on-chain courts. The final stop, however, would be an Ethereum layer-1 soft fork as the “Court of Final Appeal.”

Gluchowski said that in this system, every protocol would have its own governance with normal and emergency upgrade mechanisms, and would also designate a special contract which can trigger an appeal.

When there is an emergency upgrade to a protocol, there would be an appeal period, during which any user can submit a challenge to the higher court. However, they’ll have to put up a pre-defined bail deposit.

Each court specifies the higher court to appeal to, with the Ethereum Supreme Court serving as the final destination for challengers, Gluchowski said.

Let's chat. The main idea of the post: no human-driven court should be able to say the last word. The final appeal must always be an L1 fork.
— Alex G. ∎ (@gluk64) September 2, 2023

An example court heirachy would see protocols like Aave and Uniswap would contest matters in a court such as CourtUnchained or JusticeDAO. After those courts reach a decision, a party can appeal to the Ethereum Supreme Court.

However, there would need to be a strong social consensus for the on-chain court system to work, Gluchowski acknowledged.

He added that it would be expensive so that only “truly extraordinary” cases will be brought before it.

“[It will need to be] worthy of the attention of the entire Layer-0 (the social consensus) of Ethereum. Think of a bug in @Uniswap, a major L2, a Defi protocol with a systemic risk, etc.”

Gluchowski noted there were several existing solutions to such disputes already, but argued that they aren’t effective.

For example, enabling time-locked features on smart contracts isn’t suitable in emergency situations and introducing a security council can mitigate the problem, but won’t solve it, while carrying its own risks.

“A security council could only freeze the contract temporarily, requiring a token governance approval for an emergency upgrade. But now a malicious majority of undercollaterized stakers could perform an evil take-over upgrade and steal all the assets,” he explained.

Gluchowski said he and the team at zkSync — an Ethereum layer 2 scaling solution created by Matter Labs — will happily fund research into the proposal.

Magazine: ‘Moral responsibility’ — Can blockchain really improve trust in AI?

Ethereum price metrics hint that ETH might not sell-off after the Shapella hardfork

April 12, 2023 Coin Telegraph

Coin Telegraph

ETH traders are exercising caution ahead of the April 12 Shapella hardfork, but the signal to watch is staking unlock requests.

Ether (ETH) price has increased by 58% year to date, but it has far underperformed the market leader Bitcoin (BTC). In fact, the ETH/BTC price ratio has dropped to 0.063, its lowest level in 9 months.

Analysts believe that the majority of the movement can be attributed to the Ethereum network's upcoming Shapella hard fork, which is scheduled for April 12 at 10:27 p.m. UTC.

*Ether / Bitcoin price ratio at Binance. Source: TradingView*

The Ethereum network upgrade will allow stakers to unlock their Ether rewards or stop staking entirely. By April 11, over 170,000 ETH withdrawals were requested, according to the analytics firm Glassnode. However, the total staked on the Beacon Chain exceeds 18.1 million ETH, which has traders fearful until more information on ETH’s potential selling pressure becomes available.

Is the price impact of the Shapella fork already priced in?

The staking unlock was widely known and expected, so traders could have anticipated the movement. Some analysts have gone so far as to call the hard fork a "buy the news" event.

Literally everyone: “Ethereum Shanghai is a buy the news event because everyone thinks it is a sell the news event” pic.twitter.com/TpyL1TDnPj
— HORSE (@CanteringClark) April 9, 2023

Using a meme, trader @CanteringClark is likely expressing dissatisfaction with the theory, but to invalidate the hypothesis, one must investigate potential reasons for ETH’s underperformance other than the much anticipated hard fork.

For starters, the Ethereum network's average transaction fee has been above $5 for the past five weeks and the Shapella fork does not address the issue, despite minor improvements. This alone lowers the chances of a bullish breakout following the upgrade, as most decentralized applications (Dapps) and projects will continue to prefer second layer and competing networks.

Furthermore, volume at Ethereum-based decentralized exchanges (DEX) have fallen by 84% since a weekly peak of $38.2 billion on March 5. The most recent data for the week ending April 2 was $6.4 billion, according to DeFiLlama. In the same period, competing blockchains saw 60% lower volumes on average, a sign that Ethereum lost market share.

According to Paul Brody, EY's global blockchain leader, one reason for Ether's price underperformance relative to Bitcoin could be "the battle to keep Ethereum sufficiently and properly decentralized." Brody cites exchanges as highly centralized custodial validators, as well as some semi-centralized players and staking pool operations that invest funds from tens of thousands of individual crypto wallets.

Ether derivatives display balanced bets between bulls and bears

Let's examine Ether derivatives metrics to determine the current market position of professional traders. For example, the open interest in Ether options for the weekly expiry on April 14 is $510 million, with neutral-to-bullish call instruments outnumbering protective put options by 36%.

Those ETH options bulls could come up empty-handed because 60% of their bets were placed at $2,000 or higher. As a result, if Ether's price remains between $1,800 and $1,900 on April 14 at 8:00 a.m. UTC, the outcome is balanced between call and put options. Furthermore, an expiry price between $1,900 and $2,000 represents a mere $100 million advantage for bulls, which is unlikely to justify the cost of a price pump.

Futures markets should also be examined to determine whether the Shapella hard fork has caused investors to become more risk-averse. Ether quarterly futures are popular among whales and arbitrage desks, and they typically trade at a slight premium to spot markets, indicating that sellers are requesting more money to postpone settlement.

As a result, futures contracts in healthy markets should trade at a 5% to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Ether 3-month futures annualized premium. Source: Laevitas.ch*

The premium on Ether futures is currently 2%, down from 4% the previous week. Despite being below the 5% neutral threshold, it shows no excessive short demand.

Traders should monitor staking unlock requests

Based on Ether derivatives, there is no reason to believe professional traders expect a significant price correction as a result of the staking unlock. Nonetheless, given the high transaction fees and declining DEX activity, the chances of a "buy the news" event are slim.

Professional traders would have used derivatives instruments to bet against Ether's price because the event was widely publicized, which hasn't happened given the ETH futures' premium. There are no obvious reasons for a rally, but derivatives traders do not anticipate any panic selling. So, unless the number of staking unlock requests significantly increases, Ether should remain near $1,900 for the foreseeable future.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

3 key Ethereum price metrics cast doubt on the strength of ETH’s recent rally

April 5, 2023 Coin Telegraph

Bots

ETH’s price is showing strength, but network and derivatives data suggest that ETH will struggle to hold the $1,850 price level.

Ether’s (ETH) price had been battling the $1,850 resistance level, but it broke through on April 4 when Ether rallied to a seven-month high above $1,900. Recently there has been a lot of speculation on Ether price catalysts. Let’s see if it’s possible to identify any fundamental factors behind the price movement.

The upcoming Shanghai hard fork could be one factor in Ether’s recent bullish momentum. On April 12, the ability for validators to withdraw their deposits opens, giving staking participants freedom of movement but also creating a sell-off risk for Ether.

There are now 17.81 million ETH staked on the Beacon Chain, though some safeguards have been put in place to prevent a flood of Ether from disrupting the market. For example, because there is a daily limit of 2,200 withdrawals, the maximum daily unlocks are 70,000 ETH.

Scalability and selfish validator risks are still present

The upcoming Shanghai fork, however, does not address some of the most pressing issues currently plaguing the Ethereum network. Scalability continues to be a major issue for most users, as the average transaction fee has hovered around $5 in recent weeks, driving users away from decentralized applications (DApps).

Furthermore, the current consensus mechanism favors rogue miners who outperform other network participants, a phenomenon known as miner extractable value (MEV). They can quickly duplicate all winning deals from the mempool and execute their transactions ahead of others by ultimately deciding which transactions are completed in the block.

A recent example, highlighted on April 3 by security firm CertiK, resulted in $25 million in losses to arbitrage bots that were attempting to purchase and flip tokens in a short period of time for a profit as a selfish validator replaced the transactions.

Over the last 30 days, the top 10 DApps running on the Ethereum network saw an 18% drop in active addresses, possibly reflecting investor dissatisfaction with the ongoing issues with miners front-running and high transaction costs.

*30-day Dapp activity. Source: DappRadar*

Let’s look at Ether derivatives data to understand if the $1,850 level can effectively become a support according to ETH investors’ sentiment.

ETH derivatives show no improvement despite the price rally

The annualized three-month futures premium should trade between 5% and 10% in healthy markets to cover costs and associated risks. However, when the contract trades at a discount (backwardation) versus traditional spot markets, it shows a lack of confidence from traders and is deemed a bearish indicator.

Despite ETH’s 35% rally in 25 days, the Ether futures premium has been unable to break above the 5% neutral threshold. However, the absence of leverage longs demand does not always imply an expectation of negative price action. As a result, traders should examine Ether’s options markets to understand how whales and market makers price the likelihood of future price movements.

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection. For instance, in bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 8%. On the other hand, bullish markets tend to drive the skew metric below -8%, meaning bearish put options are in less demand.

*Ether 60-day options 25% delta skew: Source: Laevitas.ch*

Since April 1, the delta skew has been close to zero, indicating a similar demand for protective put options and neutral-to-bearish call instruments. Since March 22, when Ether options last showed extreme optimism, this has been the norm.

Even after adjusting for the additional negative pressure from the Shanghai hard fork token unlock, Ether faces serious problems due to scalability and transaction front-runs. As a result, derivatives and on-chain DApp metrics increase the likelihood of ETH falling below $1,850.

Magazine: ‘Account abstraction’ supercharges Ethereum wallets: Dummies guide

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Ethereum bulls ignore regulatory action against exchanges by preparing for the Shapella hard fork

March 29, 2023 Coin Telegraph

Binance

ETH investors appear unconcerned about the regulatory challenges facing the crypto market and are instead selecting to focus on the network’s next upgrade.

For the past twelve days, the price of Ether (ETH) has been trading in a narrow descending range. Surprisingly, not even the news of Binance and Changpeng "CZ" Zhao being sued by the Commodity Futures Trading Commission (CFTC) was enough to break the support level.

*Ether (ETH) price index in USD, 12-hour. Source: TradingView*

The lawsuit, filed on March 27, claimed that Binance provided derivatives trading services to U.S.-based customers without first obtaining a derivatives license. Additionally, the US Securities and Exchange Commission served Coinbase with a Wells notice on March 22.

Even if traders saw no reason to reduce their Ether positions due to increased regulatory risk, Binance holds 35% of the open interest in Ether futures. Therefore, if traders are suddenly compelled to liquidate their positions or if there is a sudden reduction in liquidity after U.S. entities are effectively barred from Binance's markets, one should anticipate a significant impact on Ether derivatives markets.

One could point to the market's resiliency after BitMEX derivatives exchange lost its longtime market share advantage following a 30-minute outage in March 2020 during a Bitcoin crash. However, there is no way to predict the outcome of the regulators' case against Binance, so it would be naive to assume that there is a zero percent chance of a service interruption — even if it means clients can close positions and withdraw assets.

Instead of focusing solely on the ETH price, it is essential to closely monitor Ether derivatives to understand how professional traders will react.

ETH derivatives show increased demand for longs

In healthy markets, the annualized two-month futures premium should trade between 5% and 10% to cover associated costs and risks. However, when the contract trades at a discount (backwardation) relative to traditional spot markets, it indicates traders' lack of confidence and is regarded as a bearish indicator.

*Ether 2-month futures annualized premium. Source: Laevitas.ch*

On March 29, derivatives traders using futures contracts became slightly more bullish as the indicator moved to 4%. The futures premium reached its highest level in four weeks, despite remaining below the 5% neutral threshold. Those traders became even more confident that the market structure would remain stable.

Still, the increasing demand for leverage longs (bulls) does not necessarily translate to an expectation of positive price action. Consequently, traders should analyze Ether's options markets to understand how whales and market makers are pricing the odds of future price movements.

Option traders are unfazed by regulators’ actions

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 8%. On the other hand, bullish markets tend to drive the skew metric below -8%, meaning the bearish put options are in less demand.

The delta skew indicator has been neutral since March 22, indicating similar pricing for upside and downside options. However, given that Ether’s price is nearing its highest level in seven months, at $1,800, one would expect the protective put options to trade at a premium — which is not the case.

Given the increased regulatory pressure on Coinbase and Binance, it is clear that the derivatives markets are signaling confidence. The bullish momentum for Ether could also be linked to the Shapella fork being confirmed for April 12. Validators will be able to withdraw their ETH coins from the Beacon Chain once the Ethereum Improvement Proposal EIP-4895 becomes active.

Options and futures markets indicate that professional traders are unconcerned about regulators' actions against Binance and Coinbase. Those who believe the descending channel pattern will break to the upside have a solid claim.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

DefiLlama forked as internal dispute unfolds

March 19, 2023 Coin Telegraph

Coin Telegraph

A disagreement over the launch of a LLAMA token led core employees to fork DefiLlama blockchain on March 19.

A dispute has taken place within the decentralized finance (DeFi) analytics dashboard DefiLlama, leading the platform to be forked by one of its employees over the weekend.

The dispute centers on the company's plans to launch a token. On March 19, pseudonymous developer at DefiLlama 0xngmi announced the firm's team was forking the platform, which was "undergoing a hostile takeover", accusing DefiLlama's founders of launching a token without its employees' support.

The DefiLlama team is forking Defillama@Defillama is undergoing a hostile takeover

There is an ongoing attempt to launch a token that does not represent us. We don't want to be associated with it

Use https://t.co/G0h4uBo2mL and @llamadotfi instead!
— 0xngmi (llamazip arc) (@0xngmi) March 19, 2023

According to 0xngmi, a person controlling both defillama's Twitter and domain decided to launch a token "despite everybody in the team not wanting it," said the developer before adding that "the DefiLlama team who have built the site [...] for the past three years have decided to fork Defillama and start fresh on llama.fi."

"Long story short, there was someone planning to launch a LLAMA token without approval of a single person on the defillama team," said on Twitter pseudonymous user Tendeeno, claiming to be a contributor on several Llama Corp. projects, the parent company of DefiLlama.

Cointelegraph reached out to 0xngmi and Llama Corp., but did not receive immediate responses. In a Telegram channel, Llama Corp. said:

"0xngmi and a few team members have gone rogue, they are actively looking to seize DefiLlama IP and community while inaccurately claiming the rightful owner to be doing a hostile takeover."

Some Twitter users are showing support for DefiLlama co-founders Charlie Watkins and Ben Hauser. DeFi architect and Yearn.finance founder Andre Cronje said:

"Easy to be ideological when you aren't paying the bills. Charlie has been out of pocket funding all of defillamas expenses for years, it isn't cheap. Watching everyone turn on everything he has done is disgusting. Him trying to stop the bleeding isn't greed, it's sustainability. Let's see how long they last without his "free money". They'll be raising or adding ads or a token soon enough."

Solana faces slowdown in block production, network restarted

February 25, 2023 Coin Telegraph

Coin Telegraph

The issue is linked to the recent network upgrade from 1.13 to 1.14, which slowed block finalization.

Solana network faced a slowdown in block production on Fev. 25 following the upgrade in the validator software. The incident resulted in disruptions to transactions and led validators to downgrade the software in an attempt to restore network performance.

The technical issue started around 6:00 AM (UTC), leading validators to downgrade to version 1.13 in an effort to restore transactions in the network. The downgrade, however, was not enough to restore Solana to normal operations, forcing the decision to restart the network on v1.13.6.

The Solana network is currently restarting after an issue during the upgrade from 1.13 to 1.14 that slowed block finalization

Once validators with 80% of stake have restarted the network will resume

You can track the progress of the restart here:https://t.co/HclrUqWQ2y
— Solana Compass (@SolanaCompass) February 25, 2023

"The network experienced a significant slowdown in block production that coincided with an upgrade to validator software. Engineers are still conducting a root cause analysis," noted Solana's compass website.

The issue is linked to the upgrade from 1.13 to 1.14, which slowed block finalization. The Solana network is currently restarting, and to resume operations is necessary 80% of active stake online:

"As more validators complete their restart this number will rise in line with the amount of stake they have delegated: this means larger validators such as CEX have an outsized impact on restart times."

A solution to the incident was discussed among Solana's validators during a few hours following the issue. Infrastructure provider Chorus One noted in a Tweeter that the incident "demonstrated how genuinely decentralized the network is." Chorus One continued:

"Without all these debates, we would be back up in an hour. But, every decision along the way - whether to downgrade, whether to restart, when to switch from downgrade approach to restart approach - is debated. Voting happens. We end up taking 8-10 hours to recovery, instead of 1."

Solana is an open source layer-1 blockchain. Its third-generation network architecture is designed to facilitate smart contracts and decentralized application (DApp) creation. The Solana blockchain was launched during the ICO boom of 2017. The internal testnet of the project was released in 2018, followed by several testnet phases before the main network was officially launched in 2020.

Ethereum’s Shapella transition is “on the horizon”

February 10, 2023 Coin Telegraph

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Ethereum's Shapella transition is "on the horizon"

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Coin Telegraph

The milestone is another step on the road to the Shanghai upgrade, which remains scheduled for March.

The Ethereum Foundation team announced another milestone on the road to the Shanghai upgrade, with the Shapella fork on the Zhejiang testnet moving into the final pre-launch sequence, according to a blog post on Feb 10.

The Shapella transition includes "many features," and "most importantly to stakers and the consensus-layer, is the enabling of withdrawals," notes the post, adding that:

"Full withdrawals will be available for exited validators, whereas partial withdrawals will be available for active validator balances in excess of 32 ETH."

As per the announcement, validators to participate in withdrawals must have a 0x01 execution-layer withdrawal credential. "If a validator currently has a 0x00 BLS withdrawal credential, they must sign a change operation to 0x01 to enable withdrawals," notes the Ethereum team.

Shapella refers to two Ethereum' upgrades — "Shanghai" and "Capella" — allowing withdrawals on the execution layer, as well as the enhancement of the Beacon chain consensus layer. The move is especially helpful for ETH (ETH) stakers interested in understanding how withdrawals will work, since full withdrawals on the consensus layer require interaction.

The Zhejiang test network, which launched on Feb. 1, is the first of three testnets that simulate Shanghai, which is expected to be live in March, although a specific date has not been released. The Sepolia testnet is scheduled to go through the upgrade on Feb. 28, followed by the Goerli testnet. The Ethereum team noted:

"If you are an Ethereum staker, node operator, infrastructure provider, or otherwise, now is the time to get up to speed on the coming Shapella upgrade, test your software, and pay attention. From here, each public testnet will be upgraded, and if all goes according to plan, mainnet will soon follow."

Ethereum’s roadmap has several updates coming after Shanghai, known as the “Surge,” “Verge,” “Purge” and “Splurge”. Ethereum switched to proof-of-stake (PoS) consensus in September 2022, following by the United States Securities and Exchange Commission (SEC) Chairman Gary Gensler suggested that the blockchain’s transition to PoS might have brought ETH under the regulators’ radar.

Recently, Ethereum co-founder and crypto entrepreneur Joseph Lubin claimed to be confident that Ether won’t be classified as a security in the United States. “I think it's as likely, and would have the same impact, as if Uber was made illegal,” Lubin said.

FTX’s Exchange Token FTT Sees Mysterious Pump Amid Bankruptcy Case, SBF Fraud Charges

January 11, 2023 Bitcoin.com

Rewind 2022: A crypto roundup of the year and stepping into 2023

January 1, 2023 Coin Telegraph

Coin Telegraph

While 2022 proved catastrophic for investors across traditional and crypto markets, the crypto ecosystem’s potential has shined through the cracks of inflation and centralized custody of assets.

Stepping into the year 2023, it's time to pause and reflect on the accomplishments and struggles the global crypto community witnessed over the last 365 days. Starting from the very beginning of 2022, no investment strategy could help recover the falling portfolios across traditional and crypto ecosystems. January 2022 inherited a slightly collapsing market, wherein investments made on 2021 all-time high prices resulted in immediate losses.

For many, especially the new entrants, falling crypto prices were perceived as an end game. But what went widely unnoticed was the community’s resilience and accomplishments against a global recession, orchestrated attacks and scams and an unforgiving bear market.

As a result of falling prices, 2022 also inherited the 2021 hype around nonfungible tokens (NFTs), the Metaverse, iconic all-time highs for Bitcoin (BTC) and other cryptocurrencies.

Economies worldwide suffered massive inflation as the most influential fiat currencies succumbed to the ongoing geopolitical pressures. The fall of investor confidence in traditional markets seeped into crypto and the fall of ecosystems only aided the sour sentiments.

A year full of disruption

Amid poor market performance, the crypto community focused on strengthening its core. This meant releasing blockchain upgrades and introducing faster, cheaper and more secure features and capabilities — all driven by the consensus of the respective communities. As a result, 2022 was a milestone year for leading crypto ecosystems.

Bitcoin received a highly requested improvement for its layer-2 protocol Lightning Network (LN) protocol. The LN got improved privacy and efficiency thanks to a November 2021 upgrade called Taproot. Bitcoin’s Taproot upgrade saw various protocol-level implementations for improved privacy and efficiency. It also helped lower the database sizes, an essential factor in slowing down the exploding Bitcoin ledger size.

Announcing lnd 0.15 beta: To Taproot and Beyond! ♾️

Featuring:
Taproot + Musig2 support for better privacy + efficiency, Taro soon™
~95% database space reduction for new data
️ New pathfinding tool to choose speed vs. cost of payments

Read more: https://t.co/5pavMcpxBg
— Lightning Labs⚡️ (@lightning) June 28, 2022

By May 2022, Bitcoin was already halfway to the next halving, an event that reduces the mining rewards by half, the only way new Bitcoin gets released into supply. The reward for confirming Bitcoin transactions gets slashed by half every 210,00 blocks. The last Bitcoin halving event occurred on May 11, 2020, back when it traded at the $9,200 mark.

The total supply of Bitcoin is limited to 21 million by design. Therefore, a halving event further reduces the amount of Bitcoin that gets released into the market. A resultant scarcity due to the halving event historical worked in favor of Bitcoin price.

Adhering to the expectations of industry experts, Bitcoin rallied for several months to mark its all-time high by Nov 2021 and was able to retain its value well above $15,000 until the end of 2022, confirms data from Cointelegraph Markets Pro.

*Bitcoin price during the last halving event. Source: CoinMarketCap*

The Ethereum community welcomed the highly anticipated Merge upgrade, which saw the Ethereum blockchain’s transition from proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism. The upgrade's most significant impact was a drastic energy consumption reduction. The wider crypto community counts on this lower energy usage to reignite the interest in Ether-power sub-ecosystems, such as NFTs.

Crypto resilience vs. traditional markets

History proves that two factors play a crucial role in crypto market performance — the price of Bitcoin and investor sentiment. Both factors seemed to lack throughout the year.

*Crypto events timeline against market capitalization. Source: CoinGecko*

The crypto ecosystem was plagued with a series of attacks, unprecedented sanctions and bankruptcy filings, which multiplied the impact of the global recession on the market. In addition to poor price performance, some of the most prominent scars for 2022 investors include the fall of FTX, 3AC, Voyager, BlockFi and Terraform Labs, wherein investors lost access to all their funds overnight.

Amid this commotion, entrepreneurs once loved by the masses ended up breaking the trust of millions, namely former FTX CEO Sam Bankman-Fried and Terra co-founder and CEO Do Kwon.

Despite the added hurdles, the Bitcoin and crypto ecosystem not only survived but also displayed a never-seen-before resilience. Traditional store-of-value investments such as gold and stocks too suffered a similar fate. Between January-December 2022, gold investors realized a net loss of 0.3%.

Major company stocks also performed poorly this year, which includes Apple (-25%), Microsoft (-29%), Google (-38%), Amazon (-49%), Netflix (-51%), Meta (-65%) and Tesla (-65%).

*Yearly performance of traditional market goliaths. Source: LinkedIn*

Bitcoin started strong with a $47,680 price point in Jan. 2022, but dwindling investor sentiment — driven by year-long rising inflation, energy prices and market uncertainties — managed to bring the prices down by over 60% by December.

Setting the stage for a stronger foundation

Time after time, bear markets have taken the responsibility of weeding out bad actors and offering a chance for promising crypto projects to display their true value to investors beyond the price point.

The noise around price fluctuations could not stop the Bitcoin network from strengthening its core against double-spending attempts, i.e., 51% attacks. Thanks to the widespread mining community, hash rate and network difficulty — two important computational power-based security metrics — reassured Bitcoiners that the blockchain network was well-protected. Throughout the year, the Bitcoin network consistently recorded new hash rate all-time highs and ended the year between the 250-300 Exahashes per second (EH/s) range.

*Click “Collect” below the illustration at the top of the page or follow this link.*

Other prominent players in the crypto ecosystem also released the system and feature upgrades as they gear up for 2023. For Polygon Technology, an Ethereum-based Web3 infrastructure, it was the launch of zkEVM or zero-knowledge Ethereum Virtual Machine, a layer-2 scaling solution aimed at reducing transaction costs and improving scalability. Decentralized finance (DeFi) aggregator 1inch Network launched the Fusion upgrade for delivering cost-efficient, secure and profitable swaps for crypto investors.

El Salvador’s legalization of Bitcoin did not go unnoticed, especially considering that the country’s Bitcoin procurement from 2021 shared the same fate as other crypto investors. Regardless, El Salvador President Nayib Bukele doubled down on this decision as the country announced purchasing BTC on a daily basis from Nov.17.

We are buying one #Bitcoin every day starting tomorrow.
— Nayib Bukele (@nayibbukele) November 17, 2022

One of the immediate impacts of this move is a reduction in El Salvador’s average buying price. A planned purchase of Bitcoin dips combined with a subsequent market recovery makes the country well-positioned to offset the unrealized losses.

In countries with high inflation, Bitcoin helped numerous individuals retain their purchasing power.

Expect a return of the hype

While 2023 will not be fortunate enough to witness the upcoming Bitcoin halving, it will play a crucial role in the crypto ecosystem’s comeback. With aggressive blockchain upgrades, updated business strategies and investors’ attentiveness back on the menu, the ecosystem is now gearing up for the next wave of disruption.

For investors, 2023 will be a year of recovery — from losses and mistrust to self-custody and informed investments. “Making it” in crypto is no longer just about becoming an overnight millionaire; it is about creating, supporting and preaching a fresh take on the future of money.

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