作者:Daren Matsuoka,Robert Hackett & Eddy Lazzarin
Compiled by: TechFlow
Two years ago, when we first launched our annual State of Crypto report, global interest in cryptocurrencies was relatively low. Exchange-traded products (ETPs) for Bitcoin and Ethereum had not yet been approved by the U.S. Securities and Exchange Commission (SEC), and Ethereum had not yet switched to an energy-efficient proof-of-stake mechanism. Second-layer (L2) networks designed to increase transaction capacity and reduce costs were barely used, and when they were, fees were much higher than they are today.
Today, as we release our 2024 (State of Cryptocurrency Report), we see the situation changing significantly. The report discusses in detail how cryptocurrencies have become a hot policy topic, recent advances in blockchain technology, and emerging trends among cryptocurrency developers and users. The report also includes:
In-depth analysis of key applications such as stablecoins, which are considered one of the “killer applications” of cryptocurrency;
Explore the intersection of cryptocurrency with other technology trends such as artificial intelligence, social networking, and gaming;
New data on cryptocurrency interest in swing states ahead of the U.S. election, plus more.
The 2024 report also shows that cryptocurrency activity has reached an all-time high. The report analyzes the maturity of blockchain infrastructure, especially the rise of Ethereum L2 and other high-throughput blockchains on the back of recent scaling upgrades that have significantly reduced on-chain transaction costs.
This year, we launched a new tool: the a16z Crypto Developer Energy Dashboard. For the first time, we’re sharing our unique perspective on the crypto space with the public, showing the distribution of “builder energy.” The dashboard combines thousands of aggregated and anonymized data points from research by the investment team, our CSX Startup Accelerator program, and other industry tracking tools. With this tool, anyone can understand the activities and interests of crypto builders, including the blockchains they use, the types of applications they build, the technologies they adopt, and their geographic locations. We plan to update this data annually as part of our annual State of Crypto report.
Next, let’s look at some of the findings from the 2024 State of Cryptocurrency report.
7 key takeaways:
Cryptocurrency activity and usage reaches all-time highs
Cryptocurrency has become a major political issue ahead of the US election
Stablecoins have found product-market fit
Improvements in infrastructure have increased capacity and significantly reduced transaction costs
DeFi remains popular and growing
Cryptocurrencies may solve some of AI’s most pressing challenges
More scalable infrastructure opens up new on-chain applications
1. Cryptocurrency activity and usage reached all-time highs
The number of monthly active crypto addresses has reached an all-time high. In September, 220 million addresses interacted with the blockchain at least once, a number that has more than tripled since the end of 2023. (It should be noted that active addresses, as a metric, are more easily manipulated than other metrics. For more information on this, please see the relevant information.)
The surge in activity was mainly due to Solana, which contributed about 100 million active addresses. It was 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: The total number of 220 million active addresses for EVM chains is calculated by deduplicating public keys.)
These trends are also reflected in our Developer Energy Dashboard. Solana is the blockchain that has seen the largest increase in builder interest this year. Specifically, the percentage of founders who indicated they are currently developing or interested in developing on Solana has increased from 5.1% last year to 11.2% this year. Base had the second largest increase, increasing from 7.8% to 10.7%, followed by Bitcoin, which increased from 2.6% to 4.2%.
In terms of absolute numbers, Ethereum is still the blockchain that attracts the most interest from builders, accounting for 20.8%, followed by Solana and Base. Next in order are Polygon (7.9%), Optimism (6.7%), Arbitrum (6.2%), Avalanche (4.2%) and Bitcoin (4.2%).
Meanwhile, the number of monthly mobile crypto wallet users hit a new high of 29 million in June 2024. Although the United States has the largest share of monthly mobile wallet users at 12%, its share of total users has declined in recent years as cryptocurrencies have become more popular around the world and more projects have excluded the United States through geographic restrictions to achieve compliance.
The influence of cryptocurrencies is continuing to expand overseas. After the United States, the countries with the most mobile wallet users include Nigeria, which has sought regulatory clarity through initiatives such as regulatory incubation programs and has seen significant growth in areas such as bill payments and retail purchases, and India, driven by its large population and mobile phone penetration. high rates), as well as Argentina (where many residents turned to cryptocurrencies, especially stablecoins, due to currency depreciation). While the number of active addresses and monthly mobile wallet users is easy to count, the actual number of active crypto users is difficult to determine. Across multiple methods, we estimate that there are approximately 30 million to 60 million monthly active crypto users worldwide, which represents only 5% to 10% of the total number of global cryptocurrency holders estimated by Crypto.com in June 2024 of 617 million. (For details on our estimation methods, see Related Materials.)
This gap shows great potential to engage and re-engage passive cryptocurrency holders. As major infrastructure improvements enable new and compelling applications and consumer experiences, more previously inactive cryptocurrency holders may be converted into active on-chain users.
2. Cryptocurrency becomes an important political issue before the US election
Cryptocurrency has become a focal point of national discussion during this election cycle.
Therefore, we measured the level of cryptocurrency interest in swing states. Pennsylvania and Wisconsin, two key states expected to be closely contested in November, have risen to fourth and fifth place, respectively, in cryptocurrency search interest on Google Trends since the last election in 2020. Michigan ranks eighth in cryptocurrency search interest, while Georgia remains unchanged. Meanwhile, Arizona and Nevada have seen a decline in interest since 2020.
The launch of Bitcoin and Ethereum exchange-traded products (ETPs) this year could be a significant factor in boosting interest in cryptocurrencies. As these ETPs provide investors with a wider range of investment channels, the number of people holding cryptocurrencies in the United States may increase. Currently, Bitcoin and Ethereum ETPs already have $65 billion worth of on-chain assets. (Note: Although often referred to as ETFs, these products are actually ETPs registered through SEC Form S-1, indicating that their underlying asset portfolio does not contain securities.)
The SEC's approval of ETP marks a significant development for crypto policy. Regardless of which party wins the election in November, many politicians expect the passage of bipartisan crypto legislation to further this trend. More and more policymakers and politicians in both parties have a positive attitude towards cryptocurrencies.
The industry has also made other important policy advances 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, with 208 Republicans and 71 Democrats voting in favor. If passed by the Senate, the bill could provide much-needed regulatory clarity for crypto entrepreneurs.
Just as importantly, at the state level, Wyoming passed the Decentralized Unincorporated Nonprofit Association (DUNA) Act, a law that grants legal status to decentralized autonomous organizations (DAOs) and allows blockchain networks to operate legally without compromising decentralization.
The European Union and the United Kingdom have been the most active in engaging with the public on cryptocurrency policy and regulation. In contrast, European agencies have issued more drafts for comment than the U.S. Securities and Exchange Commission. Meanwhile, the EU's Markets in Crypto-Assets Act (MiCA) has become the first comprehensive crypto policy system to be legislated and is expected to be fully effective by the end of the year.
As one of the most popular crypto products, stablecoins are a hot topic of policy discussion, and several related bills have been discussed in the US Congress. In the United States, one of the factors driving this discussion is the recognition that stablecoins can strengthen the international influence of the US dollar even as the US dollar's status as a global reserve currency declines. Currently, more than 99% of stablecoins are denominated in US dollars, which far exceeds the second largest denominated currency: the euro, which only accounts for 0.20%.
In addition to strengthening the dollar’s influence internationally, stablecoins could also strengthen America’s financial foundation domestically. Despite being only a decade old, stablecoins have become one of the top 20 holders of U.S. Treasuries, surpassing countries like Germany.
While some countries are exploring central bank digital currencies (CBDCs), the stablecoin opportunity is ripe for the U.S. Against the backdrop of these discussions and the growing number of high-profile politicians speaking out about cryptocurrencies, we expect more countries to begin seriously developing their crypto policies and strategies.
3. Stablecoins have found product-market fit
Stablecoins have become one of the most attractive “killer apps” in the cryptocurrency space because of their fast, low-cost global payment capabilities. As New York Congressman Ritchie Torres said in a September column for the New York Daily News, “The widespread use of dollar stablecoins—driven by the ubiquity of smartphones and the encryption technology of blockchain—could become humanity’s greatest experiment in financial empowerment.”
Through major scaling upgrades, the cost of performing crypto transactions has dropped significantly, especially stablecoin transactions, with costs reduced by more than 99% in some cases. On the Ethereum network, the average fee for transactions using USDC, a popular dollar-pegged stablecoin, has dropped from $12 in 2021 to $1 this month. And sending USDC on Coinbase's popular L2 network Base costs less than a penny on average. (Note that these data may not include some initial and exit costs.)
Compared to the average international wire transfer fee of $44, stablecoin fees are extremely cheap.
Stablecoins greatly simplify the transfer of value. In the second quarter of 2024, stablecoin transaction volume reached $8.5 trillion, involving 1.1 billion transactions. This transaction volume is more than double Visa's $3.9 trillion transaction volume in the same period. The fact that stablecoins can be compared with well-known payment services such as Visa, PayPal, ACH and Fedwire fully demonstrates their practicality.
Stablecoins are more than just a fad. Even during periods of crypto market volatility, stablecoin usage has not been significantly correlated with market cycles. In fact, even as spot crypto trading volumes have declined, the number of monthly stablecoin sending addresses has continued to increase. In other words, people are using stablecoins for more than just trading.
All of this activity is reflected in usage statistics. Stablecoins account for nearly a third of daily cryptocurrency usage, at 32%, second only to decentralized finance (DeFi) at 34%, as measured by the proportion of daily active addresses. The rest of cryptocurrency usage is spread across infrastructure (such as bridges, oracles, maximum extractable value, account abstraction, etc.), token transfers, and other emerging application areas such as games, NFTs, and social networks.
4. Infrastructure improvements have increased capacity and significantly reduced transaction costs
Part of the reason why stablecoins are so popular and easy to use is due to the progress of the underlying infrastructure. First, the processing power of blockchain is constantly improving. Thanks to the rise of Ethereum L2 network and other high-throughput blockchains, the number of transactions processed per second by blockchain is more than 50 times that of four years ago.
What’s even more surprising is that Ethereum’s major annual upgrade, Dencun, launched in March 2024, also known as “protodanksharding” or EIP-4844, significantly reduced the fees on the L2 network. Since then, while the value of Ethereum on L2 has continued to rise, the fees L2 pays on Ethereum have dropped significantly. In other words, blockchain networks are becoming more popular and more efficient at the same time.
A similar trend is happening with zero-knowledge (ZK) proofs, which have important implications for blockchain scalability, privacy, and interoperability. Even as the monthly fees for verifying ZK proofs on Ethereum decrease, the value of Ethereum on ZK rollups increases. In other words, the cost of ZK proofs is decreasing while their popularity is increasing. (We use zero-knowledge as an umbrella term here to refer to cryptographic techniques that can succinctly prove that a computation performed on a rollup network is correct.)
ZK technology holds great promise, providing developers with a new path toward cheap and verifiable blockchain computation. However, ZK-based virtual machines (zkVMs) still have a long way to go in terms of performance to catch up with traditional computers — a humbling observation.
With these infrastructure improvements, it’s easy to see why blockchain infrastructure remains one of the most popular areas for developers, and why L2 is one of the top five popular development subcategories we track.
5. DeFi remains popular and continues to grow
The only area more attractive to developers than blockchain infrastructure is decentralized finance (DeFi), which also accounts for the largest share of cryptocurrency usage, with 34% of daily active addresses related to DeFi. Since the rise of DeFi in the summer of 2020, decentralized exchanges (DEXs) have grown to account for 10% of spot crypto trading activity, which was conducted on centralized exchanges four years ago.
Currently, there is more than $169 billion in funds locked in thousands of DeFi protocols. Among them, staking and lending are some of the main DeFi subcategories.
It’s been more than two years since Ethereum completed its transition to a proof-of-stake mechanism, which significantly reduced the network’s energy consumption and environmental impact. Since then, the staked percentage of Ethereum has risen to 29%, up from 11% two years ago, which has greatly enhanced the security of the network.
Although still in its early stages, DeFi offers a viable alternative to the growing problems of centralization and concentration of power in the U.S. financial system. The number of banks in the U.S. has fallen by two-thirds since 1990, with assets increasingly concentrated in a small number of large banks.
6. Cryptocurrency may solve some of AI’s pressing challenges
Artificial intelligence is one of the hottest trends this year, not only in the tech world, but also in the cryptocurrency world.
On social media, AI is one of the hot topics discussed by influencers in the cryptocurrency space. More surprisingly, there is a large overlap between users visiting chatgpt.com and those visiting top cryptocurrency websites, showing a strong connection between cryptocurrency and AI users.
Crypto developers also have a strong connection with AI. According to our Developer Energy Dashboard, approximately 34% of cryptocurrency projects say they are using AI, an increase from 27% a year ago. The most common area of application of AI technology is blockchain infrastructure projects.
Considering 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 of AI are almost in stark contrast to the decentralized opportunities offered by blockchain networks. Cryptocurrency projects are already working to address these challenges, such as Gensyn by democratizing access to AI computing, Story by tracking intellectual property to help compensate creators, Near by running AI on an open-source, user-owned protocol, and Starling Labs by helping verify the authenticity and provenance of digital media.
The combination of cryptocurrency and AI is likely to intensify further in the coming years.
7. More efficient infrastructure drives new on-chain applications
As transaction costs decrease and blockchain capacity increases, many potential consumer applications for cryptocurrencies become possible.
Take NFTs, for example. A few years ago, people were trading NFTs for billions of dollars on the secondary market due to high crypto transaction fees. Today, this phenomenon has subsided, replaced by a new trend of low-cost NFT collections minted on social applications such as Zora and Rodeo. This marks a major shift in the NFT market, which would have been unimaginable before transaction fees were significantly reduced.
Social networks are another great example. Although they currently account for a small portion of daily on-chain activity, they are attracting a lot of developer attention: according to our Developer Energy Dashboard, 10.3% of crypto projects in 2024 will be social-related. In fact, social network-related projects like Farcaster have become one of the hottest developer subcategories this year.
As developers and consumers explore more social experiences, on-chain games are pushing the scalability of blockchain to its limits. Take Proof Of Play’s sea adventure role-playing game Pirate Nation, for example, which uses Rollups that consume the most gas per second on Ethereum.
As the November election approaches, cryptocurrency prediction markets are growing rapidly, even though they remain illegal in the U.S. Kalshi, a non-crypto prediction market registered with the U.S. Commodity Futures Trading Commission, won a lower court victory last month in its federal lawsuit surrounding election contracts. (Currently, registered exchanges are allowed to offer traditional election-based futures contracts.)
New consumer behaviors are beginning to emerge. All of these emerging experiences were difficult to achieve in the past when blockchain infrastructure was cumbersome and transaction costs were high. As blockchain technology continues to improve along the classic price-performance curve, more such applications are expected to flourish.
So, where do we stand now? Over the past year, cryptocurrency has made significant progress in policy, technology, consumer acceptance, and more. On the policy front, multiple milestones were achieved, including the surprise approval and listing of Bitcoin and Ethereum ETPs, as well as the passage of important bipartisan crypto legislation. Infrastructure-wise, there are also major improvements, from improvements in scaling capabilities to the rise of Ethereum L2 and other high-throughput blockchains. Additionally, there are new applications 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 and innovation cycle, a framework that helps us understand the ups and downs of the cryptocurrency market, remains to be seen. Regardless, as an industry, cryptocurrency has made indisputable progress over the past year. As ChatGPT shows, it only takes one breakthrough product to change an entire industry.
