2022 will probably be mostly remembered for the collapse of FTX, the centralized crypto exchange, and the arrest of its founder and ex-CEO, Sam Bankman-Fried (aka SBF) for fraud. SBF was arrested on December 13 in the Bahamas, after the Southern District of New York (SDNY) filed criminal charges against him.
Shortly after the SDNY confirmed his arrest, the Securities and Exchange Commission said it had authorized separate charges relating to SBF’s “violations of securities laws,” which were filed publicly on December 14. It’s unclear what charges await SBF, the crypto celebrity who became an outcast overnight when his company suffered a liquidity crisis and filed for bankruptcy, leaving at least a million depositors unable to access their funds.
John Ray III, the new CEO of the bankrupt FTX, who handled the bankruptcy of Enron, says that FTX is even worse, describing what he calls a “complete failure of corporate controls.”
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
The full circumstances that led to this calamity and the extent of the damage to consumers and the overall industry – both in crypto and traditional finance — will unfold in the years to come. This followed other events earlier in the year: the fiasco of Terra (Luna) becoming worthless, the bankruptcy of Voyager and Celsius, and the contagion risk that spread throughout the crypto market.
All these events made people doubt the value of blockchain technology, Web3 and the economic use cases of cryptocurrency and their benefits.
But we must differentiate between cryptocurrency as an asset class trading on a platform such as FTX, and the technology that underpins cryptocurrency; specifically, blockchain technology and Web3. The two are separate concepts and should not be confused.
Trading, especially in the crypto space, is mainly based on speculation, hype, and influencers, not much on merit or value.
Technology, on the other hand, is about building applications and implementing it for valuable business use cases that can benefit the global economy and society. The developments of blockchain and Web3 applications – across all industries – are still forcefully ongoing!
There is no doubt that the benefits of blockchain technology and Web3 are immense. Jamie Dimon, CEO of JPMorgan, who has bashed bitcoin, has always been one of the great supporters of blockchain technology. JPMorgan is one of the leading companies in Web3 and has made significant investments in blockchain technology, Web3 and the Metaverse since 2015.
Furthermore, in relation to FTX, we should put things in the right context. FTX was a centralized crypto exchange – a centralized trading platform, providing trading services to customers, similar to centralized stock exchanges. The difference between FTX (and other centralized crypto exchanges) and stock exchanges is that the latter are regulated and abide by very strict rules of consumer and investor protection, while FTX and the likes are not regulated. It is very likely that had FTX been regulated, it would not have been in this predicament.
It is also important to bear in mind that FTX was simply a trading platform and does not represent Web3 technology or the benefits of cryptocurrencies (which we’ll discuss below). If something good can come from this, is that regulations are coming for centralized crypto exchanges, and that stricter rules on investor protection in the crypto trading space will be enacted.
This is quite overdue – I have advocated for regulating centralized crypto exchanges since 2017, but better late than never.
Beyond FTX, other major events happened throughout the year while companies and significant institutions continued to invest in Web3, build applications, examine, and experiment. Let’s remember some of these events.
The Russia-Ukraine war
The Russia-Ukraine war has provided a demonstration of the vital need and benefits of cryptocurrencies and blockchain, the technology that underlies cryptocurrency, especially to underserved communities on a global scale. Among other examples, we’ve seen the Ukrainian government asking for donations in cryptocurrency and Ukrainians adopting crypto as their main currency as their lives have been uprooted due to the Russian invasion.
These instances underscore the promise of blockchain when Bitcoin, the first blockchain, was launched in January 2009, that a decentralized, peer-to-peer system, accessed by everyone, with no need for intermediaries, can empower everyday people: a system that is for the people, by the people.
Uprooted Ukrainians, with no access to banks or any traditional financial services, turned to cryptocurrencies for all of their financial needs, from payments to savings. This is, in fact, the main benefit of cryptocurrency – providing accessibility to anyone from anywhere to financial services, which could democratize society and level the playing field for the underserved communities – nationally and internationally.
Ethereum’s successful merge
The long anticipated (and delayed) Merge has finally happened on September 14 -15. It was the second phase of a Ethereum 2.0 or ETH2 multi-phased upgrade that attempts to improve the Ethereum network’s scalability and security by making infrastructure modifications, specifically moving from Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS) consensus mechanism.
The move to PoS from PoW will make the Ethereum blockchain not only more scalable but also more energy efficient.
Vitalik Buterin, the founder and the brain behind Ethereum wrote a blog in December titled “What in the Ethereum application ecosystem excites me.” Among other things, some of the ideas that excite him are:
- The use of cryptocurrency as a mode of payment, especially in countries with hyperinflation and for underserved communities
- Decentralized Autonomous Organizations (DAOs) to build more democratic, resilient and efficient forms of governance
- The identity ecosystem
On the last point, digital identity privacy and security is a crucial component of Web3 and of special importance for applications built for the metaverse and immersive interactions.
2022: The year institutions focused on Web3
Here is a month-by-month recap of the investments into Web3 technology:
- Cash App started offering lighting network access to users
- Twitter launched NFT integrations
- Robinhood started crypto wallet testing
- KPMG Canada added BTC/ETH to its balance sheet
- Twitter added ETH tipping
- GameStop partnered with ImmutableX, a Web3 gaming platform, to launch a $100 million gaming fund
- ConocoPhillips launched a Bitcoin mining operation
- BNY partnered with Chainanalysis to track and analyze crypto products
- Intel launched a crypto mining initiative
- JPMorgan unveiled research on Quantum key Distribution blockchain network
- Sling partnered with Bitpay for crypto payments
- Rakuten launched an NFT trading platform
- CVS filed a trademark application for NFTs and VR
- State Street partnered with Copper, a crypto custody service, to offer digital assets custody
- JPMorgan partnered with TRM, a blockchain analytics service, to use its analytics for compliance tech for securing blockchain transactions
- Billboard partnered with Universal to launch an NFT-based project
- Tencent filed a patent for metaverse concerts
- Misfit gaming revealed partnership with Tezos, a decentralized blockchain platform
- Fidelity allowed 401K accounts to hold BTC
- Robinhood integrated lightning Network
- Tesla partnered with Blockstream, a bitcoin and digital assets infrastructure, and Block, a mobile payment service, to launch a solar-powered bitcoin mining facility in Texas
- Stripe enabled USDC stablecoin payments
- LBMA started using blockchain for supply chain management and fraud prevention
- Mastercard partnered with di Pocket to launch a crypto card
- Commerzbank applied for local crypto license
- Stripe partnered with Polygon, a decentralized blockchain platform, to allow customers to make payments in USDC stablecoin
- Meta partnered with Polygon to integrate NFTs
- Instagram started to support NFTs built on Ethereum, Flow or Polygon
- Cloudflare started staking ETH
- LGT bank started offering crypto
- De Beers launched an NFT-based project
- Stripe partnered with Opennode, a bitcoin payment processor, to allow fiat-to-bitcoin conversions
- MoneyGram partnered with Stellar, a decentralized blockchain platform, to allow users to send and convert stablecoins
- PayPal started enabling transfer of BTC, ETH and LTC to external wallets
- Citadel partnered with Virtu financial to build a crypto trading marketplace
- American Express launched a product allowing users to earn crypto rewards
- Chipotle partnered with Flexa, a digital payment service, to accept cryptocurrency payment in U.S. stores
- Apple partnered with Block and Square to integrate “tap to pay” on iPhone
- com started offering merchants instant fiat-to-stablecoin conversion
- Binance Pay partnered with Splyt to help Binance users in 70+ countries to book ride-hailing travel and shopping experience
- Shell partnered with Accenture and American Express and announced the launch of Avelia, a blockchain-powered digital sustainable aviation fuel SAF book-and-claim solution
- Christie’s launched a Web3 venture fund
- GameStop released a public beta NFT marketplace
- Dubai’s Crown prince laid out the region’s most ambitious metaverse strategy
- BNP Paribas partnered with Metaco to custody crypto
- SMBC to work with Hashpyrt to develop Web3 projects
- Barclays took up a stake in $2bn cryptocurrency from Copper, a crypto custody service
- BlackRock started offering crypto to its institutional clients
- OTCC released its own blockchain
- Meta launched an NFT integration through multiple wallets
- Binance partnered with Mastercard to launch crypto-to-fiat card in Argentina
- Tiffany &Co. announced the sale of 250 pendants for CryptoPunk NFT holders
- PayPal started offering crypto support
- Grand Prix filed crypto trademarks for 2023 Las Vegas Strip Circuit Grand Prix
- Nasdaq announced a crypto custody service
- Nova Labs and T-Mobile signed an exclusive 5-year agreement for the launch of a Helium Mobile commercial service that will leverage T-Mobile’s macro network and Nova Labs’ CBRS network
- Citadel, Charles Schwab and Fidelity announced a joint crypto exchange EDX Markets
- Swift partnered with Symbiont and announced a corporate data blockchain pilot
- The Bank of China extended a trial of e-CNY Central Bank Digital Currency (CBDC)
- Norges Bank, Riksbank and the Bank of Israel team up to explore a retail CBDC
- Google Cloud partnered with Coinbase to allow Web3 companies to make crypto payments
- McDonalds started accepting Tezos and BTC in the Swiss town of Lugano
- Mastercard partnered with Paxos to provide crypto trading capabilities to banks
- Mastercard extended its capabilities deep into the field of digital assets with an agreement to acquire CipherTrace, a leading cryptocurrency intelligence company with insight into more than 900 cryptocurrencies
- Fidelity added an Ethereum index fund
- JPMorgan and Visa teamed up to streamline cross-border payments using LINK and B2B Connect
- BNY Mellon enables customers to custody bitcoin and ether alongside traditional investments
- Rio de Janeiro to accept crypto payments for property taxes
- Google launched a cloud-based node engine service for Ethereum developers and projects
- Hong Kong unveils completed retail CBDC project with CBDC-backed stablecoin
- Arweave partnered with Meta to store non-fungible tokens (NFTs) on Instagram
- The Monetary Authority of Singapore (MAS) announced that the first industry pilot under MAS’ Project Guardian that explores potential decentralized finance (DeFi) applications in wholesale funding markets has completed its first live trades. Under the first industry pilot, DBS Bank, JPMorgan and SBI Digital Asset Holdings conducted foreign exchange and government bond transactions against liquidity pools comprising of tokenized Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY) and Singapore Dollar (SGD)
- Sony started exploring NFTs and blockchain for gaming
- Nike launched a new Web3 platform called Swoosh that will offer Polygon-based NFT products
- Nike acquired Web3 studio RTFKT in 2021 and released digital Nike sneakers as Ethereum NFTs in April
With December still ongoing, we have just seen exciting news from Warner Music and Starbucks as they make their investments toward the emergence of the metaverse.
E-commerce and interactive platform builder LGND announced in December a multiyear partnership with blockchain network developer Polygon and global entertainment company Warner Music Group to create a Web3 music platform called LGND Music. LGND Music, scheduled to launch in January 2023, is designed to be a music and collectibles platform that supports “digital collectibles from any blockchain in a proprietary player,” thereby making it possible for users to play their digital collectibles on the go. Creators will also be able to interact with their fanbase via special content and curated experiences.
Starbucks Odyssey launched in beta to the first Starbucks Rewards members and partners (employees) in the U.S. Starbucks Odyssey is an extension of Starbucks Rewards, powered by Web3 technology, that unlocks access to new benefits and experiences for members. The experience allows members to participate in a series of interactive activities called “Journeys.”
Once a “Journey” is complete, members will earn collectible “Journey Stamps” (NFTs) and Odyssey Points that will open access to new benefits and immersive coffee experiences that they cannot get anywhere else.
As one of the first companies to integrate Web3 technology and NFTs with an industry-leading loyalty program at scale, and grounding the experience in coffee, connection, and community, Starbucks is entering the Web3 space differently than any other brand. Starbucks Odyssey is an experience, surrounded by a digital community, where members can come together, interact, and share their love of coffee.
Starbucks and Warner Music’s Web3 projects, with the use of NFTs and rewards to engage communities, is a growing trend in Web3, and it sets the foundations for the full experience in the metaverse when it is completely developed.
And speaking of the metaverse…
Times Square and Piccadilly Circus transformed, on December 17 and 18, respectively, into live stages for ground-breaking performances set to revolutionize the concept of music performance. Both locations became first-of-a-kind immersive stages for performances by the award-winning virtual band Gorillaz for their new track, Skinny Ape.
A great way to end the year – the metaverse is going to take place in the real world too!
A lot has happened in 2022, much more than just the collapse of FTX. Most events did not make headlines, as the media tends to chase drama rather than the steady progression of innovative technology.
The developments of blockchain and Web3 applications – across all industries – are still going on strong, and there is much to look for in the year 2023 and beyond.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.