Coinbase stock price rose almost 5% in the pre-market session as Bitcoin and other altcoins bounced back.
The stock was trading at $242, up 15% from this month’s low of $210. Other crypto-related stocks, such as Marathon Digital, Riot Platforms, MicroStrategy, and Core Scientific, rose by over 4%.
Coinbase stock price chart | Source: TradingView
Cryptocurrencies are bouncing back
The recovery happened as Bitcoin (BTC) rose by 4%, reaching an intraday high of $67,240. Other top gainers were cryptocurrencies like SATS, Aave (AAVE), and Mog Coin (MOG). In most cases, Coinbase and other stocks in the industry rise when cryptocurrencies are recovering.
Still, despite its rebound, Coinbase stock remains in a technical correction, having dropped by over 15% from its highest level this year.
Also, this recovery is happening in a low-volume environment. Data shows that the 24-hour volume in centralized and decentralized exchanges dropped by 5.4% to $80.6 billion.
Coinbase earnings ahead
The next important catalyst for Coinbase stock will be the company’s quarterly results on Aug. 1.
According to Yahoo Finance, the average estimate among 17 analysts is that the company made $1.41 billion in the second quarter. The highest estimate is $1.73 billion while the lowest one is $1.23 billion.
If the average estimate is correct, it will represent a 98% year-on-year growth rate and a drop from the $1.64 billion it made in the first quarter. The drop will happen because cryptocurrencies were muted in the second quarter after soaring in Q1.
Data by DefiLlama shows that the volume in the DEX market peaked at $288 billion in March and has dropped to $157 billion this month. Centralized Exchanges (CEX) have also seen a similar drop in volume.
Wall Street analysts also expect that its forward guidance will point to an annual revenue of $5.94 billion, a 91% increase from the same period in 2023.
The bullish case for Coinbase stock
Most analysts have a buy or neutral rating on Coinbase stock. The average COIN stock target is $267, up from the current $231. In a recent note, crypto.news pointed to an analyst who predicted that the shares would jump to $1,700 in the long term. Citigroup upgraded the stock from neutral to buy this week.
Bulls note that Coinbase is the biggest crypto exchange in the United States, is audited by Deloitte, and is under the supervision of the Securities and Exchange Commission since it is a publicly traded company.
Additionally, Coinbase has diversified its business and is making money from different sources. For example, it has become the biggest custodian of Bitcoin and Ethereum (ETH) ETFs. It is also one of the biggest Bitcoin holders in corporate America with 9,480 coins.
However, shorts believe that the company is highly overvalued. It has a market cap of over $60 billion, annual revenues of $2.92 billion, and a forward price-to-sales ratio of 34. The industry has also become highly competitive, and Coinbase has lost market share to Bybit.
Therefore, Aug. 1 will be important as its earnings will provide investors with more details about its operations, especially its ETF custody business.
In the decade since Ethereum co-founder Gavin Wood first coined the term “web3,” we’ve seen the promise of a new digital empire rise into reality. Cryptocurrency has become a trillion-dollar mainstain of the global economy; NFTs have entrenched themselves in high-stakes art and investment trades; blockchain-based financial services have transitioned from novelty to normal.
For all the above, we can thank the dreamers and developers who took it upon themselves to create solutions that consumers didn’t even know they needed. It’s not a stretch to say that their creative determination built our nascent web3 empire; today, the ecosystem encompasses tens of thousands of dApps and an expansive variety of defi services.
The question is, will that same creativity topple it, too?
Web3 proliferation is undercutting user adoption
In theory, web3’s innovative explosion should accelerate user adoption. As offerings multiply and diversify, the ecosystem naturally becomes more intriguing. However, while user adoption has been respectable enough in recent years, the rates we see today are far disproportionate to web3’s apparent value proposition.
Why? We have a chain fragmentation problem. According to a report from CoinPaper, over 1,000 distinct blockchains were operational as of January 2024. The Ethereum ecosystem features over 50 L2s today, with another 50-plus anticipated to go live soon, all competing for users and liquidity.
This fragmentation has an intense impact on experience. Users often need to manually switch between networks within their wallets or interfaces, which can be confusing and lead to frustrating (or even costly) errors. L2, L2, and L3 chain proliferation forces users to keep their available assets and gas tokens in their wallets if they want to sample emerging applications built on those chains. And when they do, they face a learning curve: each blockchain poses its own set of rules, transaction fees, and functionalities.
Given these challenges, is it any wonder that mainstream consumers have hesitated to leap into web3? To unlock widespread user adoption among mainstream consumers, we must deliver more seamless, intuitive user experiences.
The intuitive answer would seem to be to encourage developers to improve cross-chain compatibility and interoperability. However, relying on individual developers to provide global interoperability is a bit like asking someone to empty the ocean with a bucket: the scale of the challenge renders the request laughable.
Chain fragmentation is constraining blockchain developers
Today, the web3 ecosystem features a thousand active blockchains; we could see ten times more in five years. Blockchains are proliferating at an exponential rate as innovators build chains that cater to particular industries, interests, or business use cases—and given the early success and adoption of the blockchain modularity thesis, this fragmentation will likely intensify.
But even if chain proliferation was a tenth as quick as it is today, developers could never keep up. Unlike web2, where innovators can build once and attract users from across the internet with few limitations, web3 developers typically need to deploy instances of their apps on multiple chains to chase users and liquidity. As a result, developers need to spend their time building insecure, inefficient, and inelegant cross-chain messaging solutions rather than elevating their core value proposition.
To return to our empire metaphor: instead of expanding web3’s reach and resources, architects and builders are reduced to patching cracks and digging connective tunnels between city sections, exhausting themselves with work that most denizens will never see or appreciate.
So, how do we alleviate web3’s user experience problems and give developers more time for value-adding innovation? The answer lies in chain abstraction.
Chain abstraction is a necessity for users, developers, and web3 overall
Imagine a world where our fragmented chains were abstracted away. Developers might build a single instance of their app on the chain of their choosing and attract users across any chain without interruption or inconvenience; users would not need to know which chain that app was built on or worry whether their assets and gas tokens are compatible.
To build this functionally abstracted ecosystem, web3 advocates would need to meet several requirements. First, user balances would need to be unified, aggregated, and accountable across all chains to ensure that users could spend their balances freely without hassle while preventing intentional or accidental overdrafts. Additionally, developers should not need to incorporate complex integrations into their solutions to facilitate cross-chain accessibility.
Much like Rome, an abstracted web3 empire won’t be built in a day—but there’s little doubt that we need to start building today. Unless there is an ecosystem-wide effort to prioritize abstraction, we won’t have the opportunity to unlock mainstream adoption. We owe it to the web3 architects and innovators to ensure that their visionary work receives the acclaim, appreciation, and utilization it deserves.
Last month, rumors swirled that Nike might shut down RTFKT, the innovative digital sneaker brand it acquired for a staggering billion in 2021. Although the speculation turned out to be unfounded, it triggered a deeper contemplation: Has web3, with its promises of decentralization and digital ownership, truly delivered for consumer brands? My answer is a resounding no.
Large consumer brands are simply too rigid and risk-averse to innovate effectively within this new paradigm. They have adopted web3 mechanics superficially, driven by short-term financial gains rather than genuine technological integration. Consequently, they’ve failed to find meaningful product-market fit.
The failure of large brands to innovate
Large consumer brands are notoriously slow to adapt to new technologies. Kodak, a pioneer in digital photography, clung to its film business and missed the digital revolution. Blockbuster ignored the rise of online streaming and paid the ultimate price. Similarly, big brands today are repeating these mistakes with web3. They dabble in NFTs and blockchain not out of a genuine desire to innovate but as a reactionary move to market trends. This superficial adoption lacks the depth and understanding necessary to leverage web3’s full potential.
From a philosophical perspective, this failure to innovate stems from the very nature of large corporations. They are, by design, hierarchical and centralized structures that prioritize stability and predictability over experimentation and risk-taking. In a Deleuzian sense, they are striated spaces that are rigidly organized and resistant to change. Web3, on the other hand, represents a smooth space, a realm of decentralization and fluidity. The inability of large brands to navigate this space is not surprising; it goes against their very essence.
The superficial adoption of web3
Nike’s acquisition of RTFKT was heralded as a bold move into the digital realm. Yet, despite the initial excitement, Nike has struggled to integrate its innovative spirit into its broader strategy. The recent shutdown rumors underscore the broader issue: large brands adopt web3 technologies for their financial potential, not for genuine innovation. The result is a series of half-hearted projects that fail to resonate with consumers.
This superficiality extends beyond Nike. Louis Vuitton’s foray into blockchain for product authentication, while aligning with the brand’s emphasis on luxury and authenticity, has not significantly impacted consumer engagement. The use of blockchain here is more of a marketing gimmick than a transformative tool. It’s a simulacrum of innovation, a hollow signifier devoid of true meaning.
Louis Vuitton’s NFT ventures
Louis Vuitton has launched several notable NFT initiatives, most prominently the “Louis: The Game” mobile app, which celebrated the brand’s 200th anniversary. In this game, players help the mascot, Vivienne, collect NFTs designed by renowned artist Beeple. The game aimed to educate and entertain while connecting players with the brand’s rich history. Despite achieving over two million downloads, the impact on consumer engagement remains questionable, as the NFTs are non-transferable and primarily serve as collectibles without broader utility.
In a more recent venture, Louis Vuitton introduced the “VIA Treasure Trunk” NFTs, each priced at approximately ,000. These NFTs, tied to physical trunks, offer exclusive access to customizable products and early releases, targeting the brand’s elite clientele. However, this approach highlights the brand’s focus on exclusivity rather than democratizing access to digital ownership.
The true potential of web3
Web3’s promise lies in its ability to democratize digital interactions and ownership. However, this potential remains largely untapped by big brands. The true pioneers of web3 are smaller, more agile companies that can take risks and innovate without the burden of bureaucratic inertia. Brands like 9dcc and RTFKT (in their original form) are at the forefront of this innovation. 9dcc, founded by crypto entrepreneur Gmoney, integrates NFTs into high-end fashion, creating a seamless blend of digital and physical experiences that genuinely resonate with consumers. These companies are experimenting with new models of ownership, community engagement, and digital experiences that large brands can’t or won’t pursue.
In a sense, these smaller players are the nomads of the digital realm, traversing the smooth space of web3 with ease. They are not bound by the striations of corporate structure and can thus explore the full potential of this new frontier. They embody the Deleuzian concept of the rhizome, a decentralized, non-hierarchical system that can grow and adapt in any direction.
The future of web3 and consumer brands
For web3 to reach its full potential in consumer applications, the lead must come from these smaller innovators. They are the ones pushing the boundaries, experimenting with new technologies, and finding genuine ways to engage with consumers. Large brands, on the other hand, need to recognize their limitations and perhaps look to these smaller players for inspiration.
Web3 is not just about slapping an NFT on a product and calling it a day. It’s about rethinking the entire consumer experience, from ownership to engagement to value creation. Until large brands understand this, they will continue to miss the mark, and the true potential of web3 will remain unrealized.
The philosophical implications are clear: the future belongs to those who can navigate the smooth space of web3, not those who cling to the striated structures of the past. It belongs to the nomads, the rhizomes, and the innovators who are not afraid to experiment and fail. It belongs to those who understand that true innovation is not about financial gain but about pushing the boundaries of what’s possible.
In conclusion, the failure of large consumer brands to drive web3 adoption highlights a fundamental truth: innovation requires more than just financial investment. It requires a willingness to take risks, to experiment, and to truly understand the technology. Until big brands embrace this mindset, the future of web3 will be shaped by the bold, the nimble, and the genuinely innovative.
The question is not whether web3 will transform consumer experiences but who will be at the forefront of this transformation. The answer, I believe, lies in the decentralized, fluid, and endlessly creative realm of the small and agile. The future is theirs to seize.
Few platforms have faced as much skepticism as Solana. Critics often portray it as a centralized network plagued by frequent outages. However, such a narrative does not align with the actual data and progress witnessed within the Solana ecosystem. This article seeks to debunk these misconceptions by comprehensively analyzing Solana’s key metrics.
Contrary to the prevailing negative perception, Solana showcases remarkable growth and innovation across several fronts. The increasing volumes of stablecoins transacted on its network, and the higher decentralized exchange (DEX) volumes compared to Ethereum highlight Solana’s expanding utility. Furthermore, the platform’s superior data throughput showcases its technical capabilities and resilience. Additionally, the surge in new addresses and daily active users further reflects the growing confidence and adoption among the broader crypto community.
By examining these metrics, this article aims to provide a balanced and data-driven perspective on why Solana represents an undervalued asset in the cryptocurrency market as of June 2024.
Table of Contents
Centralization
The decentralization of a blockchain network is complex and cannot be evaluated simply on one metric. A deep dive into which network is truly decentralized based on every detail could fill an entire article. Therefore, we will focus on the Nakamoto coefficient. The Nakamoto coefficient measures the minimum number of entities in a network required to collude to disrupt the system. For proof-of-stake networks like Solana and Ethereum, a 33% stake is significant, while for proof-of-work networks like Bitcoin, 51% control is crucial.
As of June 20, 2024, Solana has 1,525 active validators, with 20 holding more than 33% of the stake. On the other hand, Ethereum has 1,024,619 active validators, with just two entities controlling more than 33% of the stake. A validator must stake 32 ETH to become a node on the Ethereum network. The issue here is that one entity can control multiple validators, masking the actual level of decentralization.
Active Validators and Nakamoto Coefficient, June 20, 2024
According to Dune, Lido and Coinbase hold more than 33% of the stake in Ethereum. If each node holds 32 ETH, then out of the 1,024,629 active nodes, these two entities potentially control 432,389 unique validators. This concentration of control under two entities compromises the decentralization ethos.
ETH Stakers Pie Chart, June 20, 2024
For Bitcoin, the network has 17,692 full nodes that have not been pruned, with 7,516 capable of disrupting the network. Unfortunately, no information exists on each node’s individual hashrate. The calculation of this number used the Peer Index (PIX). The PIX value, ranging from 0.0 to 10.0, updates every 24 hours based on a node’s properties and network metrics, with 10.0 being the most desirable. Nodes with a PIX value of 5 or more were considered.
Some may argue that Bitcoin’s decentralization should be evaluated through hashrate distribution. Currently, two mining pools, Foundry USA and Antpool, control more than 51% of the network’s hashrate.
Bitcoin Mining Pools Pie Chart, June 20, 2024
However, it is incorrect to consider these pools as the network’s controllers because they are pools of individual miners. Mining pools allow miners to combine their computational resources to increase their chances of solving blocks and earning rewards. If a pool begins to act maliciously, individual miners can simply switch to a different pool, maintaining the network’s decentralization.
While the decentralization of blockchain networks is multifaceted and cannot be accurately assessed by a single metric, the Nakamoto coefficient provides a useful lens for comparison. Solana’s position is not as concerning as it may initially seem. With a Nakamoto coefficient indicating that 20 validators hold more than 33% of the stake, Solana appears more decentralized than Ethereum, where just two entities hold more than 33% of the stake. Moreover, even though Solana is not as decentralized as Bitcoin, it still maintains a robust decentralization level, contributing to its security and reliability.
Stability
Solana, known for its high-speed transactions and low fees, has faced scrutiny regarding its network stability due to several outages it has experienced in recent years. However, a closer look reveals that the situation might be overblown. The network’s stability becomes apparent despite the occasional hiccup when examining Solana’s uptime history.
In 2021, Solana experienced no outages and demonstrated a full year of uninterrupted service. However, 2022 saw a significant increase, with 27 outages totaling 108 hours. Moving forward, 2023 showed considerable improvement, with only two outages totaling 19 hours. In 2024, up until June 19, the network had just one outage lasting five hours. These numbers, while notable, tell only part of the story.
Solana’s Uptime History, 2021-2024
When considering uptime, these outages represent a tiny fraction of the total operational hours. For instance, in 2022, despite 27 outages, the network maintained functionality for 99.47% of the year. Similarly, the 19 hours of downtime in 2023 and 5 hours in 2024 up to mid-June account for negligible interruptions in an otherwise stable performance.
The main culprit of these outages is Solana’s design. The network prioritizes speed and low costs, which attract heavy usage. This high traffic can lead to congestion and instability. For example, Solana produces a block every 400 ms, much faster than other blockchains. Due to the rapid production rate, when block creation halts for an hour or two, it appears more severe. However, other blockchains, even Bitcoin, also face downtime. For instance, it took over two hours to mine block 689301 following block 689300.
Solana’s strategy of pushing its performance boundaries allows it to encounter and resolve real-world challenges that theoretical models and simulations cannot foresee. This approach resembles SpaceX’s iterative process of learning from failures to achieve rapid innovation. Although some critics view Solana’s historical downtimes as a liability, this rigorous testing and problem-solving phase ultimately provides a significant competitive advantage.
Solana by the Numbers
Daily active wallets
Solana currently has 1,600,000 daily active wallets, significantly higher than Ethereum’s 367,000 daily active wallets.
Daily Active Addresses, January 2024 – June 2024
Inflows and outflows
Additionally, between April 2023 and June 2024, Solana had 1.73 million in inflows and 4.21 million in outflows. In contrast, Ethereum had 4.17 million in inflows and 4.1 million in outflows. This results in a net inflow of about 0 million for Solana, compared to Ethereum’s net inflow of approximately ,000.
Total Transferred Amount Between Bridges, April 2023 – June 2024
DEX volumes
In terms of DEX volumes, Solana has also performed excellently. It has begun to match or exceed Ethereum’s trading volumes on several occasions. This is significant because Solana’s market cap is about billion, much smaller than Ethereum’s 0 billion. Additionally, Solana’s token was launched only four years ago, compared to Ethereum’s nine years in the market. Despite being newer and smaller, Solana’s ability to compete with Ethereum in DEX volumes showcases its potential.
DEX Trading Volumes, January 2024 – June 2024
Stablecoin transfer volumes
Solana’s high stablecoin transfer volumes stem from its fast transaction speeds and low fees, making it attractive to users. The network’s ability to process many transactions efficiently supports high-volume activity. Additionally, Solana’s focus on scalability and user-friendly experience further drives its dominance in stablecoin transfers.
Stablecoin Transfer Volumes, January 2024 – June 2024
Revenue
Solana’s revenue has surged to 50% of Ethereum’s in mid 2024, an unprecedented high. Historically, during the peak activity periods of 2021 and 2022, Solana’s revenue was less than 1% of Ethereum’s. At the beginning of 2024, this figure was approximately 10%. This dramatic increase in revenue ratio indicates Solana’s growing usage and economic activity on the network.
Solana’s Revenue, April 2020 – June 2024
Conclusion
Solana’s narrative as a centralized and unreliable network does not hold up against the actual data. With its robust technical capabilities and growing adoption, Solana demonstrates significant progress and resilience. The Nakamoto coefficient shows Solana’s decentralization is more favorable than Ethereum’s, with fewer entities required to collude to disrupt the network. Although not as decentralized as Bitcoin, Solana still maintains a substantial level of decentralization, which contributes to its security and reliability.
Network stability, often criticized due to past outages, shows marked improvement, with substantial uptime and continuous enhancements. Solana’s strategic focus on high performance and scalability results in occasional instability but also rapid innovation and resilience akin to iterative development seen in other cutting-edge tech fields.
Metrics such as daily active wallets, inflows and outflows, decentralized exchange volumes, and revenue indicate Solana’s rising prominence in the cryptocurrency ecosystem. Despite its smaller market cap and younger age, the network’s ability to handle high transaction volumes at low costs positions it as a formidable competitor to Ethereum.
Overall, Solana’s performance and growth reflect a platform that is not only maturing but also setting new standards in the industry, challenging prevailing negative perceptions and establishing itself as a valuable asset in the market.
Artificial intelligence (AI) is rapidly advancing, yet its development and deployment are largely controlled by a few powerful entities. This concentration of power raises significant concerns about privacy, security, and fairness. As AI continues to transform industries and societies, it is crucial to explore solutions that can democratize its benefits and mitigate its risks. Blockchain technology offers a promising path forward by enabling decentralized, transparent, and secure AI systems.
Large corporations with access to vast amounts of data and computational power dominate the current AI landscape. This centralization presents several problems. Privacy concerns arise as users’ personal data is often collected and used without explicit consent, leading to potential misuse and breaches. Monopolization of power by a few entities stifles innovation and limits diverse contributions. Additionally, centralized AI systems are vulnerable to being manipulated for harmful purposes, such as spreading misinformation or conducting surveillance.
The reality of AI development today is that it is not solely the result of autonomous machine learning but rather a blend of reinforcement learning and human intelligence. A striking example of this was when details of Amazon’s “Just Walk Out” technology came to light. Instead of technology alone tallying customers’ purchases, about 1,000 real people manually checked the sales. This collaboration between human intelligence and AI systems is often overlooked, but it underscores the significant human element in AI processes.
Decentralized artificial intelligence
Blockchain technology, with its decentralized and transparent nature, can address these challenges effectively. It enhances security and privacy by enabling secure data sharing and storage through cryptographic techniques, ensuring that users maintain control over their information. By distributing power across a network, blockchain reduces the risk of monopolization and fosters a more collaborative AI development environment. It can also track the provenance of data, ensuring its integrity and legitimacy, which is crucial for training reliable AI models.
Decentralization in AI can mitigate several risks associated with the current centralized model. The Center for Safe AI identifies four broad categories of AI risk: malicious use, AI race, organizational risks, and rogue AI. Malicious use includes intentionally harnessing powerful AIs to cause widespread harm, such as engineering new pandemics or using AI for propaganda, censorship, and surveillance. The AI race risk involves corporations or nation-states competing to quickly build more powerful systems, taking unacceptable risks in the process. Organizational risks encompass serious industrial accidents and the potential for powerful programs to be stolen or copied by malicious actors. Finally, there is the risk of rogue AI, where systems might optimize flawed objectives, drift from their original goals, become power-seeking, resist shutdown, or engage in deception.
Regulation and good governance can contain many of these risks. Malicious use can be addressed by restricting queries and access to various features, and the court system can hold developers accountable. Risks of rogue AI and organizational issues can be mitigated by common sense and fostering a safety-conscious approach to using AI. However, these approaches do not address some of the second-order effects of AI, such as centralization and the perverse incentives remaining from legacy web2 companies.
Own your data
For too long, we have traded our private information for access to tools. While opting out is possible, it is often inconvenient for most users. AI, like any other algorithm, produces results directly tied to the data it is trained on. Massive resources are already devoted to cleaning and preparing data for AI. For example, OpenAI’s ChatGPT is trained on hundreds of billions of lines of text from various sources but also relies on human input and smaller, more customized databases to fine-tune its output.
Creating a blockchain layer in a decentralized AI network could mitigate these problems. We can build AI systems that track the provenance of data, maintain confidentiality, and allow individuals and enterprises to charge for access to their specialized data using decentralized identities, validation staking, consensus, and roll-up technologies like optimistic and zero-knowledge proofs. This could shift the balance away from large, opaque, centralized institutions and provide individuals and enterprises with an entirely new economic system.
On the technological front, ensuring the integrity, ownership, and legitimacy of data (model auditing) is crucial. Blockchain can provide an immutable audit trail for data, ensuring its authenticity and enabling fair compensation for data providers. Techniques such as zero-knowledge proofs and decentralized identities allow users to contribute data without compromising their confidentiality. Decentralized AI networks enable diverse stakeholders to participate in AI development, from data providers to infrastructure operators, creating a more equitable ecosystem.
A better solution
In addition to enhancing data integrity, decentralized AI systems offer improved security. Cryptographic techniques and security protection certification systems ensure that users can secure their data on their devices and control access to their data, including the ability to revoke access. This is a significant advancement from the existing system, where valuable information is merely collected and sold to centralized AI companies. Instead, it enables broad participation in AI development.
Individuals can engage in various roles, such as creating AI agents, supplying specialized data, or offering intermediary services like data labeling. Others might contribute by managing infrastructure, operating nodes, or providing validation services. This inclusive approach allows for a more diversified and collaborative AI ecosystem.
Decentralized AI also addresses the issue of job displacement caused by AI advancements. As AI systems become more capable, they are likely to impact the labor market significantly. By incorporating blockchain technology, we can create a system that benefits everyone, from data providers to developers. This inclusive model can help distribute the economic benefits of AI more equitably, preventing the concentration of wealth and power in the hands of a few large corporations.
Furthermore, the integration of blockchain and AI can foster innovation by promoting open-source development and collaboration. Decentralized platforms can serve as a foundation for developing new AI applications and services, encouraging a diverse range of contributors to participate in the AI ecosystem. This collaborative environment can lead to the creation of more robust and innovative AI solutions, benefiting society as a whole.
In conclusion, the fusion of blockchain and AI represents a significant advancement in how we approach technology development. It shifts the balance of power away from centralized entities and towards a more distributed and collaborative model. This transition is essential for ensuring that AI serves the broader interests of humanity rather than the narrow goals of a few powerful organizations. The future of AI lies in its decentralization, and blockchain is the key to unlocking this potential. By leveraging the inherent security, transparency, and trustlessness of blockchain technology, we can build a more equitable, secure, and innovative AI ecosystem that benefits everyone.
Blockchain is a cutting-edge technology in today’s digital world. It secures online ledgers for cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) across industries. Its global market is projected to soar from .88 billion in 2021 to ,314.03 billion by 2030 at an 82.4% compound annual growth rate (CAGR).
Enter application-specific blockchains. These platforms excel in performance, scalability, security, cost-efficiency, and governance compared to general-purpose applications, shaping the future of decentralization. As this industry segment expands, these specialized blockchains hold immense promise.
This page explores the impact of application-specific blockchains. Read on to find out why they are the future of decentralization.
Top reasons why it is the application-specific blockchains
Application-specific blockchains are the type of blockchains designed to operate a single application instead of building an app from an existing blockchain. They are new platforms created from the ground up with distinctive attributes, such as custom virtual machines and consensus processes. In short, they aren’t codes written on a general-purpose blockchain platform.
Evidently, application-specific blockchains are designed for individual decentralized applications (dApps). DApps are software programs running on a blockchain or peer-to-peer network of computers instead of on a single computer.
There are two types of blockchains you can distinguish: layer-1 (L1 coordinating consensus and execution on the same layer) and layer-2 (L2 separating execution from consensus). Avalanche Subnets, Polygon Supernets, and Cosmos Zones are a few examples of how you can utilize these customized blockchains to advance decentralization.
What’s great is that the blockchain industry has a long history of internal support among industry players and key developers. These internal blockchain investments provide talented developers with key opportunities to create application-specific platforms. They can seek blockchain funding in various practical ways, whether through bootstrapping, venture capital, or crowdfunding.
Application-specific blockchains can be instrumental to more decentralized networks. Here’s why they are the future of decentralization:
1. They allow for platform customization and optimization
As web3 technologies become more widespread, application-specific blockchains enable developers to customize blockchain characteristics for specific use cases. This customization is particularly beneficial for business applications. Companies might have specialized chain needs with particular attributes that these platforms can help optimize.
For example, Re.al has launched blockchain platforms for real-world assets (RWAs). They address long-term challenges in decentralized finance by providing a tailored solution for managing assets like properties and commodities. By developing its own blockchain platform, Re.al improves infrastructure, making assets more accessible for trading while maintaining fluidity and compatibility.
2. They enable you to scale applications up and down
Application-specific blockchains allow flexible scalability for platforms, allowing them to adjust capacity in response to demand. For example, EY’s Ethereum-based blockchain solution, the EY OpsChain Contract Manager (OCM), simplifies complex agreements, reduces costs, and improves security.
Application-specific blockchains differ from smart contracts, self-executing codes written on general-purpose blockchains. Smart contracts automate and enforce agreements between parties without changing the blockchains’ attributes. However, a smart contract audit process is critical for reviewing codes to detect and correct security flaws or problems.
According to Grand View Research, the global smart contracts market will grow from 4.3 million in 2022 to ,773.0 million at an 82.2% CAGR. While this market growth could pave the way for future scalability in blockchain technology, the application-specific blockchain can offer more.
3. They guarantee network security and data privacy on the platform
Application-specific blockchains promote network security and data privacy. Thanks to artificial intelligence (AI) and blockchain integration, they are capable of securing networks and safeguarding information. While AI provides sophisticated data processing capabilities, blockchain maintains data integrity and transparency via a secure, decentralized ledger.
In logistics and supply chain management, protecting AI information on a blockchain provides data validity and accuracy across the supply chain. This eliminates tampering while also ensuring compliance and traceability.
The same technology applies to the media and entertainment industries. Decentralized AI networks on blockchain allow producers and consumers to communicate directly for guaranteed privacy and security.
4. They offer low transactional fees without compromising efficiency
Application-specific blockchains provide economic benefits by lowering transaction fees while maintaining efficiency. They also reduce costs by eliminating extraneous features and focusing resources on critical functions.
In web3, validators on platforms like ETC receive a significant percentage of the transaction fees and revenue generated by interactions with defi apps. However, defi apps on native chains can keep 100% of protocol costs, allowing them to extract greater value from their activities.
Further, application-specific blockchains allow applications to match token pricing to the underlying blockchain’s token value. For example, if an app chain asks users to pay transaction fees in the application’s token, its market value will increase. This business model benefits the application and its user base, establishing a symbiotic relationship.
5. They let you gain full governance and control of the application
In contrast to decentralized apps on general-purpose blockchains, application-specific blockchains provide full governance and control over infrastructure. They enable stakeholders to manage their own chain compared to shared blockchains from a broader, separate community.
Single-application blockchains align the interests of both the protocol and the application. They make it easier to adopt beneficial improvements tailored to specific needs, such as solving common problems with Apple screen time.
In industries such as automotive, blockchain securely logs sensor and operational data for AI-driven performance improvements. Blockchain’s openness assures audit records and adherence to safety rules, increasing accountability for AI decisions.
To the bright, decentralized future
Blockchain technology undeniably shapes the future of decentralization, especially through application-specific blockchain platforms that promote decentralized networks. These platforms offer potential benefits, such as:
Customization and optimization
Flexibility and scalability
Privacy and security
Cost-efficiency
Governance and control
Whether you’re a developer, entrepreneur, or consumer, capitalizing on blockchain technology is essential. Utilizing application-specific applications can significantly impact your transactions. The ongoing technological progress and development in this field will further drive innovation, leading to more decentralized networks.
Application-specific blockchains are the future of decentralization—and we’ve only just begun!
“The Times They Are-A Changin”—this classic opening line from one of Bob Dylan’s most endearing songs has become the most appropriate statement when discussing contemporary asset-holding patterns.
A detailed market study conducted by one of the Big Four accounting firms, Ernst&Young (E&Y), last year pointed towards a significant increase in allocation to digital assets and interest in tokenization. The report revealed that institutional investors were becoming increasingly confident of the long-term value of blockchain and digital assets. According to the E&Y survey, 57% of institutional investors expressed interest in investing in tokenized assets, with 93% of respondents believing in the long-term value of blockchain or digital technology and digital assets.
Interestingly, not only were they keen to tokenize assets, but most had a clear strategy on how to proceed. For instance, 71% of the institutional asset managers surveyed intended to tokenize their assets via partnerships with digital native or tokenization firms. Meanwhile, 21% planned to build infrastructure internally, and 5% looked forward to acquiring a tokenization startup.
What benefits do these seasoned fund managers see that compel them to plan so meticulously for tokenization?
The empowering potential of tokenization
In one of their explainers, McKinsey & Company defines tokenization as the “process of issuing a digital, unique, and anonymous representation of a real thing.” On a practical level, tokenization requires a blockchain on which the process has to be carried out. Institutional investors show a marked preference for public-permissioned blockchains for the tokenization of their assets, followed by private chains (40%) and public chains (22%).
One of the most enticing aspects of tokenization is its inclusivity, allowing for a wide array of assets to be tokenized. These include real estate, art, bonds and equities, intellectual properties, and even identity and data.
There are ample examples of real-world assets getting tokenized and becoming available to an expanded base of new customers and investors. Consider Gold, for instance, which has long been one of the most trustworthy assets throughout human history. Last year, the combined market capitalization of tokenized gold assets surpassed billion.
Tokenized gold involves the physical gold bullion whose ownership rights are stored as digital tokens on a blockchain. While the physical gold remains in secure custody off-chain, protected by financial institutions, those who offer tokenized gold mint digital tokens on a blockchain to signify ownership rights of physical gold bullion or coins. The equivalency—such as one on-chain token representing one gram of physical gold stored off-chain—is determined by the issuing company.
Multiple companies now offer such tokenized gold coins. For example, the New York-based fintech firm Paxos Trust Company offers Pax gold (PAXG) coins, while the well-known blockchain entity Tether offers Tether gold (XAUT).
Like gold, art is another class of asset that has enthusiastically embraced tokenization. For instance, in April 2023, a soon-to-be-launched blockchain platform, Freeport, declared that it had completed its SEC review and was set to launch its tokenized art platform with four iconic Warhols from collectors, including the legendary Baby Jane Holzer. While the platform did not sustain, it made a useful observation in its press release; it said:
“Blockchain technology has opened up access to exclusive investment opportunities that were once out of the reach of the average retail investor, especially today’s younger generation. However, in the case of fine art, the entry bar remains too high for everyday retail investors, leaving them unable to participate in an investment class that has outperformed the S&P 500 over the last 25 years and is often insulated from wider market conditions.”
Freeport was right on target. The world has already witnessed Sygnum Bank’s tokenization of Pablo Picasso’s 1964 masterpiece, Fillette au Beret, which allowed 50 investors to collectively own the artwork through 4,000 tokens. Further exemplifying this shift, renowned artists like Damien Hirst and the celebrated digital artist Beeple have joined the growing chorus of successful painters to embrace tokenization.
As this trend accelerates, the tokenization of real-world assets is transforming several other asset classes. According to the Boston Consulting Group, the total size of tokenized assets, including the ones considered less liquid, like real estate and natural resources, could cross trillion by 2030.
But what underlies this massive surge in value? How is it becoming possible for such a new technology like blockchain to unlock trillions in untapped liquidity? Several factors are driving growth in this market.
The factors that make asset tokenization a winner
One of the primary factors that makes asset tokenization an instant winner is its potential to make asset holding more democratic, equitable, and inclusive. These are the inherent properties of blockchain, which envisions a world free of cost-bearing, prohibitive intermediaries. This vision seamlessly extends into the field of real-world asset tokenization.
Take, for example, high-value art precious metals or real estate, which are typically out of reach for the average retail investor. Thanks to fractionalized ownership via digital tokens, investing in such assets has become more accessible. Imagine 50 investors collectively buying a Picasso masterpiece or shares in a luxury property. Tokenization democratizes the process, allowing buyers to own a slice of something extraordinary.
This innovative approach operates through automated smart contracts within the systematic framework of blockchain protocols, enhanced by cryptographically secure tokens. It effectively dismantles the monopoly of brokers—from local real estate agents to investment honchos sitting and dictating the market from their swanky Wall Street offices. Now, retail investors no longer need their services. They can invest from the comfort of their homes, equipped with just a digital wallet and an internet connection.
Tokenized assets and the potential for democratic ownership also lead to improved price discovery and lowered costs. In return, the market can reach out to a whole new bunch of investors who hesitated to invest in asset classes such as art or luxury real estate. As a result, liquidity increases manifolds.
Asset holding, particularly in categories like real estate, has often been plagued by fraud. Statistically speaking, one in ten Americans has been a target of real estate fraud, with half of these victims even suffering financial losses. Such a scale of real estate fraud is alarming. After all, it results in annual financial losses worth 6 million, with median consumer losses in real estate fraud reaching as high as ,000 per incident.
Asset tokenization brings enhanced transparency and far tighter security to the system. The confluence of blockchains, smart contracts, and decentralized oracle networks reduces dependency on intermediaries. It becomes much easier to verify the authenticity of the tokenized property as it comes with immutable ownership records stored on a blockchain ledger. These ledgers make provenance tracking possible and come with auditable data trails.
Investing in tokenized assets is also more efficient. Programmable smart contracts help streamline the backend and make the process free from potential administrative lapses. Therefore, it is no wonder that tokenization has been on the rise. Who would not want a more democratic, efficient, inclusive, and cost-efficient investment environment?
The future of tokenization: Innovation and ingenuity
As the market is projected to grow to multi-trillion dollars in the coming years, it will attract innovation and inventive solutions. Interoperability plays a crucial role, bringing isolated systems together under a singular operational paradigm, enhancing scale, transparency and efficiency with enterprise-grade infrastructure and programmable logic.
Tokenization is spreading fast to several areas, including the financial service sector, where cash tokenization is gaining momentum. McKinsey & Company estimates that 0 billion of tokenized cash is in circulation in the form of fully reserved stablecoins. In a world grappling with climate change and global warming, the tokenization of carbon credits offers an innovative solution. These tokens hold all the information and functionality of the credits within them.
Carbon credits can now be issued natively on-chain, making their attributes public. This transparency encourages greater acceptability and adoption, and these credits are transferable onto the blockchain via carbon bridges. These bridges can eventually be connected to traditional registries like Verra and Gold Standard.
The potential of tokenization goes beyond empowerment. Anyone with a digital wallet can participate, regardless of their financial status. Tokenization has democratized access to high-value assets that were once only aspirational—such as a lucrative piece of real estate or an art masterpiece.
Previously, such assets were only available for most investors to admire from afar. Now, through tokenization, investors can own a piece of these assets, even if only partially, and tap into their exceptional growth potential.
What this means is an intermediary-free empowered investor class can now optimize their returns and explore their opportunities as widely as possible, depending on the asset classes they are interested in.
