The 2024 State of Cryptocurrency Report indicates that cryptocurrency activity has reached historic highs, stablecoins have become key applications, blockchain infrastructure improvements have reduced transaction costs, and cryptocurrency is intersecting with emerging fields like artificial intelligence and social networks, showing strong growth potential.
Author: a16z Crypto
Translation: Everyday blockchain
Two years ago, when we released our first annual State of Cryptocurrency Report, the world looked very different than it does today. Cryptocurrency had not become a priority for policymakers, and Bitcoin and Ethereum exchange-traded products (ETPs) had not yet received approval from the SEC. Ethereum had not yet switched to the energy-efficient proof-of-stake (PoS) mechanism, and layer 2 (L2) networks were largely stagnant, with occasional transactions occurring, but their transaction fees were far higher than today.
However, with the release of our newly published 2024 State of Cryptocurrency Report, the situation has changed. The report covers the rise of cryptocurrency as a hot policy topic, many technological advancements in blockchain networks, and the latest trends between builders and users in the crypto industry. The report also:
Delved into the emergence of key applications such as stablecoins — one of the 'killer applications' of cryptocurrency;
Explored the intersection between cryptocurrency and other key technological trends such as artificial intelligence, social networks, and gaming.
Shared new data on swing states' interest in cryptocurrency ahead of the U.S. elections, etc.
The 2024 State of Cryptocurrency Report also reveals a historic high in crypto activity and analyzes the maturation process of blockchain infrastructure — particularly how recent scaling upgrades have significantly reduced on-chain transaction costs, while the rise of Ethereum L2 and other high-throughput blockchains has had a huge impact.
This year, we also launched a new tool: the a16z Cryptocurrency Builders Vitality Dashboard. For the first time, we will share proprietary data based on our unique perspective, including the distribution of 'Builder Vitality.' This dashboard aggregates thousands of data points from investment team research, our CSX startup accelerator program, and other industry tracking efforts, all of which are aggregated and anonymized. Through this tool, anyone can explore how crypto builders view their activities and interests — from the blockchains they build on to the types of applications they create, as well as the technologies they use and the regions they are in. We plan to update this data annually as part of our annual State of Cryptocurrency Report.
Next are the key findings from our 2024 State of Cryptocurrency Report.
7 key takeaways:
Cryptocurrency activity and usage have reached historic highs.
Cryptocurrency has become an important political issue ahead of the U.S. elections.
Stablecoins have found product-market fit.
Infrastructure improvements have increased capacity and significantly reduced transaction costs.
Decentralized finance (DeFi) remains popular and is growing.
Cryptocurrency is expected to address some urgent challenges in artificial intelligence.
1. Cryptocurrency activity and usage have reached historic highs.
The number of active cryptocurrency addresses has never been so high. In September 2023, there were 220 million addresses that interacted with the blockchain at least once, more than three times the number at the end of 2023. (As a measure, active addresses are easier to manipulate than other metrics. For more details, see here.)
The surge in activity is primarily attributed to Solana, which accounts for about 100 million active addresses. Following are NEAR (31 million active addresses), Coinbase's popular L2 network Base (22 million), Tron (14 million), and Bitcoin (11 million). Among EVM chains, the second most active after Base is Binance's BNB chain (10 million), followed closely by Ethereum (6 million). (Note: To calculate the total of 220 million, addresses on EVM chains were deduplicated through public keys.)
These trends are also reflected in our Builder Vitality Dashboard. Overall, Solana has seen the most significant change in market share of builder interest. Specifically, the total share of founders identifying as currently building or interested in building on Solana increased from 5.1% last year to 11.2% this year. Following closely is Base, with its total share rising from 7.8% last year to 10.7%, then Bitcoin, with its total share increasing from 2.6% last year to 4.2%.
In absolute numbers, Ethereum still attracts the largest share of builder interest, reaching 20.8%, followed by Solana and Base. Then comes Polygon (7.9%), Optimism (6.7%), Arbitrum (6.2%), Avalanche (4.2%), and Bitcoin (4.2%).
Meanwhile, as of June 2024, the number of monthly mobile crypto wallet users reached a historic high of 29 million. Although the U.S. holds the largest share of monthly mobile wallet users (12%), its share of the total global mobile wallet user base has declined in recent years as cryptocurrency has gained popularity worldwide, and more projects have sought compliance by geofencing out U.S. users.
The influence of cryptocurrency continues to expand overseas. Following the U.S., the countries with the most mobile wallet users include Nigeria (which is committed to providing regulatory transparency, including through regulatory incubation projects, and has seen significant growth in consumer use cases such as bill payments and retail shopping), India (due to its large population and smartphone penetration), and Argentina (where many residents have turned to cryptocurrency — especially stablecoins — amid currency devaluation).
While the number of active addresses and monthly mobile wallet users is easy to measure, measuring the actual number of active cryptocurrency users is much more complex. However, by combining various methods, we estimate that there are approximately 30 million to 60 million active cryptocurrency users globally each month, accounting for 5% to 10% of the estimated 617 million global cryptocurrency holders as of June 2024 according to Crypto.com. (For more details on our estimation methods, see here.)
This disparity highlights the significant opportunity to attract — and re-attract — passive cryptocurrency holders. As major infrastructure improvements enable new and appealing applications and consumer experiences, more dormant cryptocurrency holders may become active on-chain users.
2. Cryptocurrency has become an important political issue ahead of the U.S. elections.
Cryptocurrency has broken into the national discourse of this election cycle.
Therefore, we measured the level of cryptocurrency interest in swing states. The two key states expected to see the fiercest competition in November — Pennsylvania and Wisconsin — ranked fourth and fifth, respectively, in cryptocurrency search interest since the last election in 2020, according to the total proportion of Google Trends search volume. Michigan ranked eighth, showing a significant increase in search interest, while Georgia remained unchanged. Meanwhile, interest in Arizona and Nevada has declined since 2020.
One factor that may spark increased interest in cryptocurrency this year is the listing of Bitcoin and Ethereum exchange-traded products (ETPs). With the emergence of these ETPs, the number of Americans holding cryptocurrency is expected to rise. The total assets of Bitcoin and Ethereum ETPs have reached $65 billion. (Note: Although these products are commonly referred to as ETFs, they are actually registered as ETPs, using the SEC's S-1 form, indicating that their underlying portfolios do not consist of securities.)
The SEC's approval of ETPs marks a significant advancement in cryptocurrency policy. Regardless of which party wins the election in November, many politicians expect momentum to further increase with bipartisan support for cryptocurrency legislation.
This year, the crypto industry has also driven other significant changes at the policy level. At the federal level, the U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21) with bipartisan support, with 208 Republicans and 71 Democrats voting in favor. If passed by the Senate, this legislation could provide much-needed regulatory clarity for crypto entrepreneurs.
Equally important, at the state level, Wyoming passed the Decentralized Non-Profit Corporation Act (DUNA Act), which provides legal recognition for decentralized autonomous organizations (DAOs) and allows blockchain networks to operate legally without compromising decentralization principles.
The EU and the UK have been the most proactive in engaging with the public on cryptocurrency policy and regulation. Compared to agencies like the SEC, several European institutions have issued more consultation notices. Meanwhile, the EU's Markets in Crypto-Assets Regulation (MiCA) is the first comprehensive legislative framework for cryptocurrency-related policy, expected to come into full effect by the end of the year.
Stablecoins — now one of the most popular crypto products — have become a major topic in policy discussions, with several related bills currently being debated in Congress. In the U.S., one driving factor is the recognition that stablecoins can enhance the dollar's status globally, even as the dollar's position as the world's reserve currency is declining. Currently, over 99% of stablecoins are denominated in dollars, far exceeding the second-largest currency denomination: the euro, which accounts for only 0.20%.
In addition to enhancing the U.S. dollar's influence globally, stablecoins may also strengthen the country's financial foundation domestically. Despite only having a ten-year history, they have already surged to become one of the top 20 holders of U.S. debt, surpassing countries like Germany.
While some countries are exploring Central Bank Digital Currencies (CBDCs), the opportunity for stablecoins in the U.S. has matured and is ready to be seized. Against the backdrop of these discussions, and with many important political figures now commenting on cryptocurrency, we expect more countries to begin seriously developing and refining their cryptocurrency policies and strategies.
3. Stablecoins have found product-market fit.
By enabling fast and inexpensive global payments, stablecoins have become one of the most apparent 'killer applications' in cryptocurrency. As New York Democratic Congressman Ritchie Torres wrote in a September op-ed for the New York Daily News: 'The adoption of dollar stablecoins — fueled by the proliferation of smartphones and blockchain cryptography — could become the largest financial empowerment experiment in human history.'
Major scaling upgrades have drastically reduced the costs of crypto transactions, including those involving stablecoins, with costs in some cases dropping by over 99%. On the Ethereum network, the average gas fee for transactions involving USDC (a popular dollar-pegged stablecoin) this month was $1, significantly down from an average of $12 in 2021. On Coinbase's popular L2 network Base, the average cost of sending USDC is less than 1 cent. (Note: These figures may not include some onboarding and exit costs.)
The difference becomes even more pronounced when compared to the average cost of an international wire transfer, which is $44.
Stablecoins have made value transfer more convenient. In the second quarter of 2024 (ending June 30), the transaction volume of stablecoins reached $8.5 trillion, completing 1.1 billion transactions. The transaction volume of stablecoins is more than twice that of Visa's $3.9 trillion during the same period. Stablecoins have entered discussions alongside well-known and established payment services like Visa, PayPal, ACH, and Fedwire, which is undoubtedly a significant testament to their practicality.
Stablecoins are not just a passing trend. When comparing stablecoin activity to the volatility cycles of the cryptocurrency market, the two seem to have no correlation. In fact, even as spot cryptocurrency trading volumes have declined, the monthly number of addresses sending stablecoins continues to rise. In other words, people seem to be using stablecoins for more than just trading.
All of this activity is reflected in usage statistics. Stablecoins account for nearly one-third of daily cryptocurrency usage, at 32%, second only to decentralized finance (DeFi) at 34%, measured by the share of daily active addresses. The remaining cryptocurrency usage is distributed across infrastructure (such as bridging, oracles, maximum extractable value, account abstraction, etc.), token transfers, and other areas, including emerging applications like gaming, NFTs, and social networks.
4. Infrastructure improvements have increased capacity and significantly reduced transaction costs.
Stablecoins have become so popular and easy to use in part due to the infrastructure advancements behind them. First, blockchain processing capacity is increasing. Thanks to the rise of Ethereum L2 networks and other high-throughput blockchains, the number of transactions processed by blockchains per second has increased more than 50 times compared to four years ago.
Even more astonishingly, Ethereum's biggest upgrade this year — 'Dencun', also known as 'protodanksharding' or EIP-4844 — is set to implement in March 2024, significantly lowering fees on L2 networks. Since then, despite the continuously rising value of ETH priced on L2, payment fees on L2 have sharply declined. In other words, not only have blockchain networks become more popular, but they have also become more efficient.
Zero-knowledge proofs (ZK proofs) are similar in this regard, as this technology is significant for blockchain scalability, privacy, and interoperability. Even as monthly expenses for verifying ZK proofs on Ethereum have decreased, the ETH value associated with ZK aggregated chains has increased. In other words, ZK proofs have become cheaper while also becoming more popular. (The 'zero-knowledge' referred to here is a broad cryptographic technique that can succinctly prove that computations transferred to aggregated chain networks have been executed correctly.)
Zero-knowledge technology holds great promise as it opens up new avenues for developers to achieve inexpensive and verifiable blockchain computing. However, ZK-based virtual machines (zkVMs) still have a long way to go in terms of performance and have yet to catch up with traditional computers — a humbling observation to consider.
With all these infrastructure improvements, it is easy to understand why blockchain infrastructure remains one of the most popular areas for builders and why L2 networks have become one of the top five hottest builder subcategories we track.
5. Decentralized finance (DeFi) remains popular — and is growing.
In the areas attracting builders, the only one surpassing blockchain infrastructure is decentralized finance (DeFi) (which also accounts for the most cryptocurrency usage in daily active addresses, reaching 34%). Since the summer of 2020 when DeFi surged, decentralized exchanges (DEXs) have captured 10% of spot cryptocurrency trading activity, whereas all of these trades were happening on centralized exchanges just four years ago.
Currently, over $169 billion is locked in thousands of DeFi protocols. Some major DeFi subcategories include staking and borrowing.
It has been just over two years since Ethereum completed its transition to proof-of-stake (PoS), a change that greatly reduced the network's energy consumption and environmental footprint. Since then, the share of staked Ethereum has risen from 11% two years ago to 29%, greatly enhancing the network's security.
Although still in its early stages, DeFi offers a hopeful alternative to the increasingly serious trends of centralization and power concentration in the U.S. financial system. In the U.S., the number of banks has decreased by two-thirds since 1990, while a handful of large banks dominate an increasingly smaller share of assets.
6. Cryptocurrency may address some urgent challenges in artificial intelligence.
Artificial intelligence (AI) is one of this year's hottest trends, attracting widespread attention not only in the tech field but also in the cryptocurrency space.
AI is one of the most discussed trends in the cryptocurrency social media sphere. Perhaps more surprisingly, there is a significant overlap between visitors to chatgpt.com and those of top crypto sites, indicating a close connection between cryptocurrency and AI users.
Cryptocurrency builders also have a close connection with artificial intelligence. According to our Builder Energy Dashboard, about one-third of crypto projects (34%) report that they are using AI, a figure that has risen from 27% last year, regardless of the categories they are building in. The categories where AI technology is most popular are blockchain infrastructure projects.
Given that the costs of training cutting-edge AI models have increased fourfold each year over the past decade, we believe that AI may tend to increase the concentration of power on the internet. Without proper controls, only the largest tech companies may have enough resources to train the latest AI models.
The challenges associated with AI centralization are almost entirely opposite to the decentralization opportunities presented by blockchain networks. Crypto projects are already attempting to address some of these challenges, including Gensyn (democratizing access to AI computing resources), Story (helping compensate creators by tracking intellectual property), Near (running AI on open-source, user-owned protocols), and Starling Labs (helping verify the authenticity and provenance of digital media), among others.
The intersection of cryptocurrency and artificial intelligence may strengthen in the coming years.
7. More scalable infrastructure unlocks new on-chain applications.
As transaction costs decline and blockchain capacity increases, many other potential crypto consumer applications become possible.
Take NFTs as an example. When crypto transaction costs were high a few years ago, people traded NFTs on secondary markets, with total trading volumes reaching billions of dollars. Since then, this activity has decreased, replaced by a new consumption behavior: minting low-cost NFT collections on social applications like Zora and Rodeo. This represents a significant shift in the NFT market, a change that was nearly unimaginable before transaction fees dropped drastically.
Social networks are another example. Although they currently account for only a small portion of daily on-chain activity, they attract a significant amount of builder activity: according to our Builder Energy Dashboard, 10.3% of crypto projects in 2024 are related to social applications. In fact, social-related projects, such as those associated with Farcaster, are among the top five hottest builder subcategories this year.
As builders and consumers explore more social experiences, on-chain gaming is pushing the limits of blockchain scalability. Rollups used in games like Pirate Nation by Proof Of Play consistently consume the most gas of all Ethereum Rollups.
As the November elections approach, crypto-based prediction markets are experiencing a surge — even though they are illegal in the U.S. — overall, the momentum for prediction markets is gradually increasing. So much so that the non-crypto prediction market Kalshi won a victory in a preliminary ruling last month, and it is pursuing federal litigation around listing election contracts. (Currently, registered trading platforms are allowed to offer traditional futures contracts based on elections.)
The dawn of new consumption behaviors is beginning to emerge. When blockchain infrastructure was cumbersome and transaction costs were high, these emerging experiences were nearly impossible to achieve. As blockchain technology continues to advance along the classic technological cost-performance curve, these applications are expected to flourish.
Where does this lead us? Over the past year, cryptocurrency has made significant progress in policy, technology, consumer adoption, and more. In terms of policy, milestone events have occurred, including the sudden approval and listing of Bitcoin and Ethereum ETPs, as well as the passage of significant bipartisan cryptocurrency legislation. In terms of infrastructure, significant progress has been made, from scaling upgrades to the rise of Ethereum L2 networks and other high-throughput blockchains. Moreover, new applications continue to be built and used, from the growth of mainstream applications like stablecoins to the exploration of emerging categories like AI, social networks, and games.
As for whether we have entered the fifth wave of the price-innovation cycle (which is our framework for understanding the cyclical ups and downs of the crypto market), it remains to be seen. Nonetheless, as an industry, cryptocurrency has undeniably made progress over the past year. As ChatGPT has demonstrated, a breakthrough product can change an entire industry.
Article link: https://www.hellobtc.com/kp/du/11/5528.html
Source: https://a16zcrypto.com/posts/article/state-of-crypto-report-2024/
