Translation: Blockchain in Vernacular
When we published our first annual State of Crypto Report two years ago, the world looked very different. Cryptocurrency was not a priority for policymakers. Exchange-traded products (ETPs) for Bitcoin and Ethereum had not yet been approved by the SEC. Ethereum had not yet switched to energy-efficient proof-of-stake (PoS). Second-layer (L2) networks, designed to increase capacity and reduce transaction costs, were mostly idle — and transactions on them were much more expensive than they are today.
That has all changed with our new 2024 (State of Cryptocurrency) report. The report covers the rise of cryptocurrency as a hot policy issue, multiple technological advances in blockchain networks, and the latest trends among developers and users in the crypto space. The report also:
It explores in depth the emergence of key applications such as stablecoins – known as one of the “killer apps” of cryptocurrency;
Explores the intersection between cryptocurrency and other key technology trends such as artificial intelligence, social networking, and gaming;
New data on cryptocurrency interest in swing states ahead of the U.S. election was shared, and more.
2024 (State of Cryptocurrency Report) also reveals a new all-time high in crypto activity. At the same time, it analyzes the maturity of blockchain infrastructure, especially the recent scaling upgrades that have significantly reduced on-chain transaction costs, and the rise of Ethereum L2 and other high-throughput blockchains.
This year, we also launched a new tool: the a16z Crypto Developer Energy Dashboard. For the first time, we’re sharing proprietary data based on our unique perspective on the crypto ecosystem, including where “developer energy” is. The dashboard brings together thousands of data points from investment team research, our CSX startup accelerator program, and other industry tracking, all in aggregate and anonymized form. With this tool, anyone can explore crypto developers’ perspectives on their activity and interests — including which blockchains they’re building, what types of apps they’re building, what technologies they’re using, and where they’re based. We plan to update this data annually as part of our annual [State of Crypto Report].
7 key takeaways from this article:
Crypto activity and usage hit all-time highs
Cryptocurrency has become a major political issue ahead of the US election
Stablecoins have found product-market fit
Infrastructure improvements have increased capacity and significantly reduced transaction costs
Decentralized Finance (DeFi) remains popular and growing
Cryptocurrencies have the potential to solve some of AI’s pressing challenges
More scalable infrastructure unlocks new on-chain applications
1. Crypto activity and usage reached an all-time high
The number of active crypto addresses has never been higher. In September, 2.2 million addresses interacted 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. More on this here.)
The surge in activity is largely due to Solana, which accounts for about 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: The calculation for EVM chains is based on public key deduplication to arrive at a total of 220 million.)
These trends are also reflected in our Developer Vitality Dashboard. The project that saw the biggest change in total share of builder interest was Solana. This year, the total share of founders who said they were building or intending to build on Solana rose to 11.2%, up from 5.1% last year. Close behind was Base, which grew to 10.7% from 7.8% last year; Bitcoin also saw its total share rise to 4.2%, up from 2.6% last year.
In absolute numbers, Ethereum still attracts the largest share of builder interest, reaching 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 active mobile crypto wallet users reached an all-time high of 29 million in June 2024. While the United States accounts for 12% of monthly active mobile wallet users, its share of the total mobile wallet user base has declined in recent years as global crypto adoption has grown and more projects have excluded the United States through geo-fencing in pursuit of compliance.
Cryptocurrency’s influence continues to grow overseas. After the United States, the countries with the largest number of mobile wallet users include Nigeria (which seeks regulatory clarity through regulatory incubation programs and has seen significant growth in areas such as bill payments and retail consumption), India (because of its rapidly growing population and mobile phone penetration), and Argentina (Many residents are turning to cryptocurrencies, especially stablecoins, due to currency depreciation).
While active addresses and monthly active mobile wallet users are relatively simple to measure, the number of actual active crypto users is more difficult to assess. By combining multiple methodologies, we estimate that there are between 30 million and 60 million monthly active crypto users worldwide, which would represent only 5% to 10% of the 617 million global crypto owners estimated by Crypto.com in June 2024. (For more information on our estimation methodology, see here.)
This gap highlights the huge opportunity to attract and re-engage passive crypto holders. As major infrastructure improvements enable new and compelling applications and consumer experiences, more dormant crypto holders are expected to transform into active on-chain users.
2. Cryptocurrency has become an important political issue before the US election
Cryptocurrency has entered the national discourse during this election cycle.
Therefore, we measured the relative levels of interest in cryptocurrencies in swing states. In Pennsylvania and Wisconsin, two states expected to be the most intense battlegrounds in November, crypto search interest has jumped to fourth and fifth place, respectively, as a percentage of total Google Trends searches since the last election in 2020. Michigan’s crypto search interest jumped to eighth place, while Georgia remained the same. Meanwhile, interest in Arizona and Nevada has declined since 2020.
One factor that could spark an uptick in interest in cryptocurrencies this year is the launch of exchange-traded products (ETPs) for Bitcoin and Ethereum. The launch of these ETPs could expand investor exposure, thereby increasing the number of Americans holding cryptocurrencies. Currently, Bitcoin and Ethereum ETPs have a cumulative on-chain holding of $65 billion. (Note: Although often referred to as ETFs, these products are actually ETPs registered using SEC Form S-1, indicating that their underlying portfolios are not composed of securities.)
The SEC's approval of the ETP marks an important milestone in crypto policy. Regardless of which party wins in November, many politicians expect that bipartisan cooperation on cryptocurrency legislation will drive momentum. An increasing number of policymakers and politicians in both parties have expressed positive views on cryptocurrencies.
The industry has also inspired other important movements in the policy space this year. At the federal level, the 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. Upon Senate review and approval, the bill is expected to provide much-needed regulatory clarity for crypto entrepreneurs.
Equally important, at the state level, Wyoming passed the Decentralized Nonprofit Associations Act (DUNA), a law that provides legal recognition for decentralized autonomous organizations (DAOs), allowing blockchain networks to operate legally without hindering the principles of decentralization.
The European Union and the United Kingdom have been the most active in engaging with the public on crypto 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 Crypto Act) (MiCA), the first comprehensive crypto-related policy regulation, is expected to take full effect by the end of the year.
Stablecoins — which have become one of the most popular crypto products — are one of the biggest topics in policy discussions, with several bills currently in the works in Congress. In the U.S., stablecoins are seen as a way to shore up the dollar’s position abroad, even as it declines as a global reserve currency. Currently, more than 99% of stablecoins are denominated in dollars, far more than the second-largest denominated currency: the euro, which accounts for just 0.20%.
In addition to showcasing the U.S. dollar’s global influence, stablecoins have the potential to strengthen the nation’s financial foundation domestically. Despite being only a decade old, stablecoins have become a top 20 holder of U.S. debt, surpassing countries like Germany.
While some countries are exploring central bank digital currencies (CBDC), the stablecoin opportunity in front of the United States is ripe for the taking. Against the backdrop of these discussions and the growing number of prominent political figures expressing their views on cryptocurrencies, we expect more countries to begin developing their crypto policies and strategies in earnest.
3. Stablecoins have found product-market fit
Stablecoins have become one of the most obvious “killer apps” for cryptocurrencies by enabling a variety of uses, including fast, low-cost global payments. As New York Congressman Ritchie Torres wrote in an opinion piece for the New York Daily News: “The spread of dollar stablecoins — fueled by the ubiquity of smartphones and the cryptographic power of blockchain — could become the greatest experiment in financial empowerment ever attempted by humankind.”
Major scaling upgrades have slashed the cost of performing crypto transactions, including stablecoin trades, sometimes by more than 99%. On Ethereum, transactions involving USDC, a popular dollar-pegged stablecoin, had an average gas fee of $1 this month, compared with an average of $12 in 2021. On Coinbase’s popular L2 network, Base, sending USDC costs less than a penny on average. (Note that these figures may not include certain entry and exit fees.)
By comparison, the average cost of an international wire transfer is $44.
Stablecoins make value transfers a breeze. By the end of the second quarter of 2024 (June 30), stablecoin volume reached $8.5 trillion across 1.1 billion transactions. During the same period, stablecoin volume was more than double Visa’s $3.9 trillion. The fact that stablecoins can talk on the same level as well-known and entrenched payment services such as Visa, PayPal, ACH, and Fedwire is a testament to their usefulness.
Stablecoins are more than just a fad. If you compare stablecoin activity to the volatility cycles of the crypto market, the two appear to be uncorrelated. In fact, the number of monthly active addresses sending stablecoins continues to rise despite a drop in spot crypto trading volumes. In other words, people appear to be using stablecoins for more than just transactions.
All of this activity is reflected in usage statistics. Stablecoins account for nearly a third of daily crypto usage at 32%, second only to decentralized finance (DeFi) at 34%, as measured by the share of daily active addresses. The rest of crypto usage is spread across infrastructure (such as bridges, oracles, maximum extractable value, account abstraction, etc.), token transfers, and emerging applications including 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 the progress of the infrastructure behind them. First, the processing power of blockchain is growing. Thanks to the rise of Ethereum L2 network and other high-throughput blockchains, blockchains can process more than 50 times the number of transactions per second as they did four years ago.
Even more strikingly, Ethereum’s biggest upgrade of the year — “Dencun,” also known as “protodanksharding” or EIP-4844 — significantly reduces L2 network fees when implemented in March 2024. Since then, while the value of Ethereum on L2 has continued to rise, fees paid by L2 have dropped significantly. In other words, blockchain networks are becoming more popular and more efficient at the same time.
It’s a similar story for zero-knowledge (ZK) proofs, a technology with important implications for blockchain scaling, privacy, and interoperability. While the monthly cost of verifying ZK proofs on Ethereum has fallen, the value of Ethereum on ZK rollups has increased. In other words, ZK proofs are becoming more popular as they become cheaper. (Here, we use zero-knowledge as an umbrella term to describe cryptography that can concisely prove that a computation transferred to a rollup network was performed correctly.)
ZK technology has great potential because it opens up new avenues for developers to perform cheap and verifiable blockchain computations. However, ZK-based virtual machines (zkVMs) still have a long way to go before they can match the performance of traditional computers - this is worth pondering.
Given all of these infrastructure improvements, it’s easy to see why blockchain infrastructure remains one of the most popular categories for builders, and why L2 has become one of the top five popular subcategories we track.
5. Decentralized Finance (DeFi) remains popular and growing
The only category attracting more builders than blockchain infrastructure is decentralized finance (DeFi), which accounts for 34% of total crypto usage by daily active addresses. Since the emergence of DeFi in the summer of 2020, decentralized exchanges (DEXs) have accounted for 10% of spot crypto trading activity, while four years ago, all of this happened on centralized exchanges.
Currently, more than $169 billion is locked in thousands of DeFi protocols. Some of the main DeFi subcategories include staking and lending.
It’s been more than two years since Ethereum completed its transition to proof-of-stake, a shift that significantly reduced the network’s energy consumption and environmental impact. Since then, the percentage of Ethereum staked has risen to 29%, compared to just 11% two years ago, significantly increasing the security of the network.
Although still in its early stages, DeFi offers a promising alternative to the trend toward centralization and consolidation of power in the U.S. financial system. The number of banks has fallen by two-thirds since 1990, with fewer and fewer big banks dominating assets.
6. Cryptocurrency may solve some of AI’s pressing challenges
Artificial intelligence is the hottest trend this year, and it has attracted widespread attention not only in the technology field, but also in the crypto field.
Artificial intelligence became one of the most discussed trends among crypto influencers on social media. Perhaps more surprisingly, there was a large overlap between visitors to chatgpt.com and those to top crypto sites, showing a strong connection between crypto users and AI users.
Crypto builders are also very much connected to AI. According to our Builder Energy dashboard, about a third of crypto projects (34%) say they are using AI, regardless of the category they are 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 an increasing concentration of power on the Internet. If left unchecked, only the largest tech companies are likely to have the resources to train the latest AI models.
In almost complete contrast to the decentralized opportunities offered by blockchain networks, the challenges associated with centralization of AI are gaining traction. Many crypto projects are already attempting to address these challenges, such as Gensyn (by democratizing access to AI computing), Story (helping to compensate creators by tracking intellectual property), Near (running AI on an open-source, user-owned protocol), and Starling Labs (helping to verify the authenticity and provenance of digital media), to name a few.
The intersection between crypto and AI is likely to intensify further in the coming years.
7. More scalable infrastructure unlocks new on-chain applications
As transaction costs fall and blockchain capacity rises, many other potential consumer applications for crypto become possible.
Take NFTs as an example. A few years ago, when crypto transactions were expensive, people traded NFTs on secondary markets for billions of dollars. However, this activity subsequently subsided, replaced by a new consumption behavior: minting low-cost NFT series on social applications such as Zora and Rodeo. This marks a major shift in the NFT market, which was almost unthinkable before transaction fees were significantly reduced.
Social networks are another example that, while they currently represent only a small portion of daily on-chain activity, attract strong builder activity: according to our Builder Energy dashboard, 10.3% of crypto projects in 2024 are social related. In fact, social network related projects, such as those associated with Farcaster, are one of the top five most popular builder subcategories this year.
As builders and consumers explore more social experiences, on-chain games are pushing blockchain scalability to its limits. Rollups like the one used by Proof Of Play’s high-octane adventure role-playing game Pirate Nation have long been the Ethereum Rollups that consume the most gas per second.
As the November election approaches, crypto-based prediction markets are seeing a surge in popularity — despite them being illegal in the U.S. — and overall momentum is building. So much so that non-crypto prediction market Kalshi won a lower court victory last month and is moving forward with a federal lawsuit against listed election contracts. (Currently, registered exchanges can offer traditional election-based futures contracts.)
Signs of new consumer behaviors are beginning to emerge. All of these emerging experiences would have been difficult to achieve when blockchain infrastructure was cumbersome and transaction costs were high. As blockchain continues to improve on the price-performance curve of classic technologies, more of these applications are expected to flourish.
Where does this bring us? Over the past year, cryptocurrencies have made significant progress in terms of policy, technology, consumer adoption, and more. There have been policy milestones, including the sudden approval and listing of Bitcoin and Ethereum ETPs, as well as the passage of important bipartisan crypto legislation. There are also major improvements in infrastructure, from scaling upgrades to the rise of Ethereum L2 and other high-throughput blockchains. In addition, new applications are emerging, 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—a framework for understanding the multiple cycles of volatility in the crypto market—remains to be seen. Regardless, as an industry, cryptocurrencies have indisputably made progress over the past year. As ChatGPT has proven, it only takes one breakthrough product to change an entire industry.
