作者:Daren Matsuoka & Robert Hackett & Eddy Lazzarin
Compiled by: TechFlow
Two years ago, when we published our first annual (State of Cryptocurrency Report), the world was very different than it is today. Cryptocurrencies were not a priority for policymakers. Exchange-traded products (ETPs) for Bitcoin and Ethereum had not yet been approved by the SEC, and Ethereum had not yet switched to the more energy-efficient proof-of-stake. Second-layer (L2) networks, designed to increase capacity and reduce transaction costs, were largely inactive, and transaction fees on them were much higher than they are today.
Today, the landscape has changed, as our newly released 2024 (State of Cryptocurrency) report shows. Our report covers the rise of cryptocurrency as a hot policy topic, the numerous technical improvements to blockchain networks, and the latest trends among cryptocurrency builders and users. The report also:
It delves into the emergence of key applications such as stablecoins – considered one of the “killer apps” of cryptocurrency;
Explores where cryptocurrencies meet other technology trends like AI, social networking, and gaming;
New data provided on cryptocurrency interest in swing states ahead of the U.S. election, and more.
2024 (State of Cryptocurrency Report) also reveals all-time highs in crypto activity and analyzes the maturation of blockchain infrastructure, particularly the rise of Ethereum L2 and other high-throughput blockchains after recent scaling upgrades drastically reduced on-chain transaction costs.
This year, we also launched a new tool: the a16z Crypto Builder Energy Dashboard. For the first time, we’re sharing proprietary data based on our unique perspective, including where “builder energy” is. The dashboard combines thousands of data points, aggregated and anonymized, from investment team research, our CSX Startup Accelerator program, and other industry tracking. With this tool, anyone can understand the activity and interest of crypto builders—from which blockchains they’re building on, to the types of applications they’re developing, and the technologies they’re using and where they’re located. We plan to update this data annually as an important part of our annual (State of Crypto) report.
7 Key Takeaways
Cryptocurrency activity and usage hit all-time highs
Cryptocurrency has become a key political issue ahead of the US election
Stablecoins have found product-market fit
Improvements in infrastructure have increased capacity and significantly reduced transaction costs
Decentralized Finance (DeFi) Remains Popular and Growing
Cryptocurrencies could solve some of AI’s most pressing challenges
More scalable infrastructure unlocks new on-chain applications
Cryptocurrency activity and usage hit all-time highs
The number of active cryptocurrency addresses reached an all-time high in September, with 220 million addresses interacting with the blockchain at least once, a number that has more than tripled since the end of 2023. (As a metric, active addresses are more easily manipulated than other metrics. For more on this point, see here.)
This surge in activity is largely due to Solana, which has around 100 million active addresses. It is followed by NEAR (31 million active addresses), Coinbase’s popular L2 network Base (22 million), Tron (14 million), and Bitcoin (11 million). Among Ethereum Virtual Machine (EVM) chains, the most active after Base is Binance’s BNB chain (10 million), followed by Ethereum (6 million). (Note: EVM chains are deduplicated by public key to calculate the 220 million total.)
These trends are also reflected in our Builder Energy Dashboard. The largest increase in total share of builder interest was for Solana. Specifically, the total share of founders who indicated they are building or interested in building on Solana grew from 5.1% last year to 11.2% this year. Base grew its total share from 7.8% last year to 10.7%, followed by Bitcoin, which grew its total share from 2.6% last year to 4.2%.
In terms of absolute numbers, Ethereum still attracts the most interest from builders, accounting for 20.8%, followed by Solana and Base. Then there are Polygon (7.9%), Optimism (6.7%), Arbitrum (6.2%), Avalanche (4.2%), Bitcoin (4.2%), etc.
Meanwhile, the number of monthly mobile crypto wallet users reached an all-time high of 29 million in June 2024. The United States accounts for 12% of monthly mobile wallet users and is the largest market, but its share has declined in recent years due to the growth of global cryptocurrency adoption and more projects excluding the United States through geo-fencing in pursuit of compliance.
Cryptocurrency usage and influence continues to expand across the globe. Outside the United States, the countries with the largest mobile wallet users include Nigeria, which has provided a clearer regulatory environment through regulatory incubation programs and has seen significant growth in areas such as bill payments and retail purchases. India is another important market due to its large population and mobile phone penetration, while in Argentina, many residents have turned to cryptocurrencies, especially stablecoins, due to currency devaluation.
While active addresses and monthly mobile wallet users are easy to count, accurately measuring the number of active cryptocurrency users is more complicated. Using multiple methods, we estimate that there are approximately 30 million to 60 million monthly active cryptocurrency users worldwide, which is only 5-10% of the 617 million global cryptocurrency holders estimated by Crypto.com in June 2024. (For more information on the methodology behind our estimates, see here.)
This gap shows the huge potential for engaging passive cryptocurrency holders. As major improvements in infrastructure lead to new and compelling applications and user experiences, more dormant cryptocurrency holders may become active.
Cryptocurrency becomes a key political issue ahead of US election
Cryptocurrency has become a focal point of national discussion during this election cycle.
We measured the level of interest in cryptocurrencies in swing states. Pennsylvania and Wisconsin, two key states expected to be closely contested in November, saw the fourth and fifth highest cryptocurrency search interest, respectively, since the last election in 2020, as measured by share of total searches in Google Trends. Michigan saw the eighth-largest increase, while Georgia remained the same. Meanwhile, Arizona and Nevada saw a slight decline in interest since 2020.
The launch of Bitcoin and Ethereum exchange-traded products (ETPs) may have boosted interest in cryptocurrencies this year. These ETPs expand investor participation and could increase the number of people holding cryptocurrencies in the U.S. Currently, Bitcoin and Ethereum ETPs already hold $65 billion in on-chain assets. (Note: Although often referred to as ETFs, these products are actually registered as ETPs using SEC Form S-1, indicating that the underlying portfolio does not contain securities.)
The SEC's approval of the ETP marks an important milestone for cryptocurrency policy. Regardless of which party wins the election in November, many politicians expect bipartisan cryptocurrency legislation to make progress. An increasing number of policymakers and politicians in both parties have a positive attitude toward cryptocurrencies.
The cryptocurrency industry has also sparked other important moves on the policy front this year. At the federal level, the House of Representatives passed the Financial Innovation and Technology for the 21st Century (FIT21) Act with bipartisan support, including 208 Republicans and 71 Democrats voting in favor. If approved by the Senate, the bill could provide much-needed regulatory clarity for cryptocurrency entrepreneurs.
At the state level, Wyoming passed the Decentralized Unincorporated Nonprofit (DUNA) Act, a law that grants legal status to decentralized autonomous organizations (DAOs), allowing blockchain networks to legally operate while remaining decentralized.
The European Union and the United Kingdom have been the most active in engaging with the public on cryptocurrency policy and regulation. European agencies have issued more requests for comment than the U.S. Securities and Exchange Commission. Meanwhile, the EU’s (Markets in Cryptocurrency Act (MiCA)) is the first comprehensive cryptocurrency-related policy to be passed through legislation and is expected to take full effect by the end of the year.
Stablecoins have become one of the most popular cryptocurrency products and a hot topic of policy discussion. Several bills are already under discussion in Congress. In the United States, one of the factors driving this trend is that stablecoins can consolidate the international status of the US dollar, even if the US dollar's global reserve currency status declines. Currently, more than 99% of stablecoins are denominated in US dollars, far more than the second largest denominated currency, the euro, which accounts for only 0.20%.
In addition to flexing the dollar’s muscle globally, stablecoins could also bolster the country’s financial foundations at home. Despite being only a decade old, stablecoins have become a top 20 holder of U.S. debt, ahead of countries like Germany.
While some countries are exploring central bank digital currencies (CBDCs), the stablecoin opportunity is ripe for the U.S. Between these discussions and the number of prominent politicians currently speaking out on the subject of cryptocurrency, we expect more countries to begin refining their cryptocurrency policies and strategies in earnest.
Stablecoins have found product-market fit
Stablecoins have become one of the most notable “killer apps” in the cryptocurrency space by enabling fast, cheap global payments. As New York State Rep. Ritchie Torres stated in September (New York Daily News) https://www.nydailynews.com/2024/09/22/op-ed-for-the-ny-daily-news-by-congressman -ritchie-torres-ny-15/
As stated in the article, the popularization of US dollar stablecoins may become humanity’s biggest experiment in financial empowerment, thanks to the popularity of smartphones and blockchain encryption technology.
Major scaling upgrades have drastically reduced the cost of cryptocurrency transactions, especially stablecoin transactions, by more than 99% in some cases. On Ethereum, for example, the average gas fee for a USDC (popular dollar-pegged stablecoin) transaction this month was $1, compared to $12 in 2021. On Coinbase’s L2 network Base, the average cost of sending USDC is less than a cent.
By comparison, the average cost of sending an international wire is $44
Stablecoins simplify the process of transferring value. In the second quarter of 2024 (ending June 30), their transaction volume reached $8.5 trillion, involving 1.1 billion transactions. Stablecoin transaction volume is more than double Visa's $3.9 trillion transaction volume in the same period. Stablecoins are listed alongside well-known payment services such as Visa, PayPal, ACH and Fedwire, which proves their practicality.
Stablecoins are more than just a passing fad. Comparing stablecoin activity to the volatile market cycles of cryptocurrencies, the two appear to be uncorrelated. In fact, even as spot cryptocurrency trading volumes have fallen, the number of addresses sending stablecoins has continued to increase each month. In other words, people appear to be using stablecoins for more than just trading.
The results of these activities are reflected in usage statistics. Stablecoins account for nearly a third of daily cryptocurrency usage, reaching 32%, second only to decentralized finance (DeFi) at 34%, as measured by daily active address share. The rest of cryptocurrency usage is distributed across infrastructure (such as bridges, oracles, maximum extractable value, account abstraction, etc.), token transfers, and a number of other areas, including emerging applications such as games, NFTs, and social networks.
Improvements in infrastructure not only increase capacity but also significantly reduce transaction costs
One reason stablecoins have become so popular and easy to use is due to advances in infrastructure. First, blockchain capacity is growing. Thanks to the rise of the Ethereum L2 network and other high-throughput blockchains, blockchains can process more than 50 times the number of transactions per second than they did four years ago.
Ethereum’s most notable upgrade of the year, “Dencun,” also known as “protodanksharding” or EIP-4844, significantly reduced fees on the L2 network when implemented in March 2024. Since then, the fees paid by L2 on Ethereum have dropped significantly even as the value denominated in ETH on L2 has continued to rise. This means that blockchain networks are not only becoming more popular, they are also becoming more efficient.
A similar trend is occurring with zero-knowledge (ZK) proofs, a technology with important implications for blockchain scaling, privacy, and interoperability. While the monthly fees for verifying ZK proofs on Ethereum are falling, the value of ZK rollups denominated in ETH is increasing. In other words, ZK proofs are falling in cost and rising in popularity. (Herein, we use zero-knowledge as an umbrella term for cryptographic techniques that can succinctly prove that computations offloaded to a rollup network were executed correctly.)
ZK technology has great potential, providing developers with a new way to perform cheap, verifiable blockchain computations. However, it is humbling to observe that ZK-based virtual machines (zkVMs) still have a long way to go before they can match the performance of traditional computers.
As infrastructure improves, blockchain infrastructure becomes one of the most popular categories for developers, and L2 has become one of the top 5 popular development subcategories we track.
DeFi’s popularity continues to grow
The only category attracting more developers than blockchain infrastructure is decentralized finance (DeFi), which also accounts for the largest share of cryptocurrency usage, accounting for 34% of daily active addresses. Since the emergence of DeFi in the summer of 2020, decentralized exchanges (DEXs) have accounted for 10% of spot cryptocurrency trading activity, which four years ago occurred entirely on centralized exchanges.
Currently, there is over $169 billion locked in thousands of DeFi protocols, with some of the main DeFi subcategories including staking and lending.
In just over two years since Ethereum completed its transition to Proof of Stake, the network’s energy consumption and environmental footprint have been drastically reduced. Since then, the share of ETH staked has risen to 29%, up from 11% two years ago, greatly enhancing the network’s security.
While still in its early stages, DeFi offers a promising alternative to the trend toward centralization and concentration of power in the U.S. financial system, which has seen the number of banks fall by two-thirds since 1990 and a smaller number of large banks dominate assets.
Cryptocurrencies could solve some of AI’s most pressing challenges
AI is one of the hottest trends this year, not only in the broad technology space, but also in the cryptocurrency space.
AI is one of the most widely discussed trends on social media by cryptocurrency influencers. More surprisingly, chatgpt.com has a high overlap with visitors to top cryptocurrency websites, indicating a close connection between cryptocurrency and AI users.
Crypto developers are also strongly tied to AI. According to our Builder Energy dashboard, about a third of cryptocurrency projects — 34% — say they are using AI, regardless of the category they’re building, up from 27% a year ago. The most popular category for applying AI technology is blockchain infrastructure projects.
Given that the cost of training cutting-edge AI models has quadrupled annually over the past decade, we believe AI could lead to further concentration of power on the Internet. If left unchecked, only the largest tech companies may be able to train the latest AI models.
The centralized challenges facing AI are almost the opposite of the decentralized opportunities offered by blockchain. Currently, a number of cryptocurrency projects are attempting to address these challenges, such as Gensyn (by democratizing access to AI computing), Story (compensating creators through intellectual property tracking), Near (running AI on an open-source, user-owned protocol), and Starling Labs (verifying the authenticity and provenance of digital media).
In the coming years, the integration of cryptocurrency and AI is likely to become even closer.
More scalable infrastructure unlocks new on-chain applications
As transaction costs decrease and blockchain capacity increases, many potential consumer applications of cryptocurrency become possible.
For example, the NFT market has changed significantly. A few years ago, people were trading NFTs for billions of dollars on the secondary market due to high cryptocurrency transaction fees. As transaction fees have fallen, this activity has decreased, and instead there has been a new trend of minting low-cost NFT collectibles on social apps like Zora and Rodeo.
Social networks are another example. While they currently only account for a small portion of daily on-chain activity, they attract a lot of developer attention. According to our Builder Energy dashboard, 10.3% of cryptocurrency projects in 2024 will be social-related. In fact, social network-related projects, such as those associated with Farcaster, are one of the top five most popular developer subcategories this year.
As developers and consumers explore more social experiences, on-chain games are challenging the blockchain’s ability to scale. For example, the Rollups used by Proof Of Play’s sea adventure role-playing game Pirate Nation consistently consume the most gas among Ethereum Rollups.
As the November election approaches, cryptocurrency-based prediction markets are on the rise, despite being illegal in the U.S., while prediction markets overall are gaining momentum. For example, Kalshi, a non-crypto prediction market registered with the U.S. Commodity Futures Trading Commission, recently won lower court support in a federal lawsuit seeking to list election contracts. (As of now, registered exchanges are allowed to offer traditional election-based futures contracts.)
Consumers are beginning to exhibit new behavior patterns. These emerging experiences were difficult to achieve when blockchain infrastructure was cumbersome and transaction costs were high. As blockchain improves on the price-performance curve of classic technologies, these applications are expected to flourish.
Where does this leave us? Over the past year, cryptocurrencies have made significant progress in policy, technology, consumer adoption, and more. Policy developments include the rapid approval and listing of Bitcoin and Ethereum ETPs, as well as the passage of important bipartisan crypto legislation. Major improvements in infrastructure include scaling upgrades and the rise of Ethereum L2 and other high-throughput blockchains. New applications are also constantly being developed and used, from the growth of mainstream products such as stablecoins to the exploration of emerging areas such as AI, social networks and games.
Whether we have entered the fifth wave of the price-innovation cycle remains to be seen. Regardless, as an industry, cryptocurrencies have made undeniable progress over the past year. As ChatGPT demonstrates, it only takes one breakthrough product to change an entire industry.
