Top blockchain trends to watch in 2022 and beyond - Part 2
In part two of a three-part series on the biggest drivers that will shape the cryptocurrency and blockchain space in 2022 and beyond, we look at the rise of the metaverse, the concerns around bitcoin's power consumption, and the growing impact of blockchain-powered sustainability initiatives. Click here for Part 1 of our trends overview in which we discuss macro decoupling, institutional investment, and NFTs.
TREND #4: The Metaverse
Although those involved in the crypto space have been very much aware of the hype and activity building around the metaverse in 2021, it was the announcement of Facebook’s rebranding to ‘Meta’ that well and truly brought it to the wider public's attention. However, it is worth mentioning that Facebook’s metaverse plans have caused considerable discomfort in the crypto community due to fears that a centralised, big-tech, version of the metaverse could be fundamentally at odds with and negate the potential of the open, permissionless, blockchain architectures that have so much transformative potential.
Unsurprisingly, Facebook’s surprise announcement had a sudden and dramatic impact on the valuation of Decentraland, Sandbox, and other metaverse projects, as investors piled in on the news (Figure 1), with the former soaring over 500% in just three trading days.
So what is the metaverse and why is it so important?
Figure 1: Daily price action of Decentraland and Sandbox, October - December 2021
The Metaverse: Where crypto meets gaming
The metaverse is a simulated digital environment that uses augmented reality (AR), virtual reality (VR), and blockchain. Rather than construing it as a singular trend, the metaverse in many ways represents the sum total of the major developments that have occurred in cryptocurrencies and distributed technologies to date.
First, Bitcoin was introduced as the first distributed, peer-to-peer exchange of value and the genesis blockchain application, and this was followed by the DeFi revolution that enabled individuals to utilise staking/liquidity pools and have access to other decentralised financial products. Then came the sudden emergence of NFTs which further accelerated crypto adoption and represented the next evolution of the recognition of the value of the technology’s data structure to forge unique digital signatures that can be used to represent both tangible and intangible items in the art world and beyond.
Figure 2 : Forecast of video games revenue by segment in the World from 2017 to 2025
Not only is the metaverse an amalgamation and aggregation of these evolutionary steps, but these characteristics have also proven to be a natural symbiosis with what is arguably the world's fastest growing economic sector. Indeed, with the gaming industry currently estimated to be worth in excess of $180 billion and on track to become a $200 - $300 billion dollar industry by 2025 (Figure 2), it is the gamefi and play-to-earn elements that represent a significant departure from traditional AAA (triple-A) games that are so central to the growth of the metaverse trend.
Unlike traditional AAA games, blockchain-based NFT games also allow users to purchase virtual land and in-game items/collectibles to be traded on the open market. This means that players get actual ownership within the gaming industry via a unique NFT, and there is no equivalent mechanism for players to take real-world ownership of in-game objects or property in traditional games.
As an all-encompassing virtual reality simulation that allows people to experience both the mundane and the limitless, it will only grow in importance, particularly among the younger demographic as and more look for additional streams of income and are increasingly priced out of real-world assets such as real estate. For example, it is estimated that land sales in the metaverse saw a year-on-year increase of 114% to November 2021, with over $100 million invested in a single week in November, according to crypto analytics site DappRadar.
Now firmly sitting at the intersection between VR and Web 3.0, the metaverse has been established as one of the key trends for the future and is only in its infancy from an adoption standpoint. Additionally, there is no question that the Covid-19 pandemic hastened the rise of gaming in general, as lock-downs, travel restrictions, and social distancing measures forced greater numbers to live out more of their lives in the virtual space. With the broad acceptance that an open metaverse will not be possible without NFTs and blockchains, both will be inextricably linked with its long-term development and adoption.
TREND #5: Blockchain sustainability initiatives
In a year where Elon Musk was impelled to curb his bitcoin enthusiasm owing to a fundamental conflict between what is widely seen as a “dirty” asset and Tesla's sustainability mission, there was a growing interest throughout 2021 in the different ways to improve the environmental credentials of cryptocurrencies. While it is undoubtedly true that bitcoin’s electricity consumption is significant – in large part due to the energy-intensive proof-of-work consensus protocol it employs – many of the (often highly sensationalist) reports often fail to provide proper context around the power consumption data or explore the many solutions currently in development to make bitcoin more power effective.
Bitcoin’s power output relative to other assets
According to a report from Galaxy Digital, bitcoin’s electrical energy consumption stood at approximately 114 (TWh/yr) as of May 2021 and Figure 3 shows how this compares to gold and the banking system. As shown, the Bitcoin network’s consumption sits at just under half that of the gold market and the banking sector (shown as being comprised of banking data centres, branches, ATMs, and financial card networks). Other reports have also estimated the gaming industry’s power consumption at approximately 160 (TWh/yr) in 2020, so significantly more than bitcoin but without the media scrutiny. Not only are these relative comparisons important for providing additional context for bitcoin’s energy consumption it also underscores that, ultimately, the level of power consumption that is considered acceptable will depend on its perceived value therefore largely subjective.
Figure 3: Comparing the energy consumption of bitcoin to gold and the banking sector
Bitcoin's path to sustainability
Irrespective of one’s view on the power consumption of any of the aforementioned sectors, there is no question that greater efficiency is needed and this has spurred efforts to ‘greenify’ bitcoin. In addition to achieving more environmentally friendly transactions using the Lightning Network or sidechains such as Liquid and Drivechain, there are a rising number of initiatives that are looking into changing how the energy for bitcoin mining is sourced.
For example, in March 2022, Investment giant Aker ASA launched SeeTree, a venture dedicated to investing in the bitcoin ecosystem. Part of the goal is to establish mining operations that “transfer stranded or intermittent electricity without stable demand locally—wind, solar, hydropower to economic assets that can be used anywhere,” according to Seetee CEO, Snorre Lorgen. Although it remains to be seen exactly how bitcoin mining's constantly increasing energy demands can be effectively load balanced against other, higher-priority power demands for social or economic needs, situating bitcoin mines to maximise low-cost, zero-carbon zones means that mining operations increase clean energy consumption while providing economic benefits to wind or solar farms.
Blockchain has the potential to overcome sustainability challenges
Though progress is gradually being made to improve the Bitcoin network's scalability and carbon efficiency, this is only one small part of the wider drive towards sustainability in the digital assets space. Indeed, the potential of the underlying blockchain technology to provide a layer of trust, tracking, and data integrity within decentralised systems is why its capacity for positive environmental impact – from carbon capture to food supply chain tracking – will prove to be an enduring trend.
For example, with businesses under increasing pressure to improve existing methods of emissions reduction and implementing new ways of measuring carbon emissions, blockchain-based projects such as Nori have created carbon credit platforms where rewards are paid out for the removal of CO2 from the atmosphere and thus helping to eliminate the “double counting” that plagues the carbon offset market. Others such as Dovu are building a distributed audit trail for carbon offsetting, allowing for enhanced data security and integrity to be achieved for the carbon counting process in order to minimise data manipulations.
Figure 4: Three layers of blockchain application for Climate Change Adaptation & Mitigation
At the same time, blockchain is rapidly emerging as a key tool in Climate Change Adaptation and Mitigation (CCAM) in agriculture, and a recent study from FAO and Wageningen University identified three layers of blockchain application – activities aiming at reducing emissions and concentrations as climate mitigation and those aiming at addressing climate change impacts as climate adaptation. The DLT/blockchain layer sits at the centre of all applications where emissions and concentrations and climate change impacts are registered and monitored.
Outside of climate mitigation efforts, distributed technologies are increasingly being deployed to improve agricultural supply chains and circular economic systems. For example, it is estimated that some 4.8 million tonnes of food are wasted in the UK supply chain every year and as much as 1.4 billion tonnes globally. Here, blockchain could become a universal standard for providing agricultural supply chain transparency, traceability, and provenance/certification data, as well as a market platform linking producers with consumers. For example, Blockchain/DLT companies such as Agriledger both provide a complete framework of integrated services for tracking and monitoring transactions along the agricultural supply chain, but also deliver a more even playing field to farmers and co-ops.
Stay tuned for the third part of our top blockchain trends analysis, coming soon.
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