The Disrupt Weekend

As we look ahead to 2023, what crypto needs is applications that will encourage user adoption and pave the way for Web2’s transition to Web3. Given the development of key infrastructure in 2022, the opportunities for decentralized applications have greatly expanded, positioning 2023 as the year we will witness the actualization of dapp potential. And so, in 2023, we will see developers shift their focus away from building out infrastructure offerings and instead turn to the application layer.

Advancing Gaming

While blockchain gives users an upper hand when it comes to gaming, especially in terms of ownership, there is ample opportunity for developers to create applications that enhance the performance of those games. In Web2, the gaming skins industry alone is worth $50 billion, but players don’t actually own the assets outside of the games in which they are used.

The current Web3 gaming market is characterized by play-to-earn games. Play-to-earn allows players to make money as they play, opening up the opportunity for more individuals than ever to earn a living from gaming. At the same time, with the large amounts of investments into the blockchain gaming industry (more than $3 billion in 2022), we will see increasingly higher-quality gaming projects.

Enhancing Identity

Blockchain enables the creation of portable digital identities (DID), which allow users to effortlessly transfer information and assets across different networks and chains. Today, this technology empowers individuals by allowing them to truly own their own data and retain privacy while still meeting know-your-customer (KYC) and anti-money laundering (AML) requirements demanded by both Web2 and Web3 platforms.

Utilizing infrastructure now at their disposal, developers can build decentralized applications (dapp) that help users seamlessly move across different platforms while retaining sovereignty of their information and identities. The new wave of Web3 users will have DIDs and everything they offer at their fingertips.

Reimagining Web2

Many Web2 apps already have millions in both daily active users (DAU). By adding crypto and Web3 functionalities to these in-demand Web2 apps, developers can use decentralization and tokenization as avenues for increased growth and monetization.”

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Often, the blockchain community is portrayed as part of the problem, but this is largely a misrepresentation. This technology may actually assist in the global transition necessary for a sustainable future.

Today, prominent companies rush to declare that they are launching various programs to address sustainability. However, it is common for these businesses to hide behind opaque metrics and somewhat more interpretive goals. A lack of transparent oversight or explicit standards exacerbates this (eg. “greenwashing”).

With new green credentials, blockchain networks can be put to good use by improving tracking and verifiably proving emissions of a given organization or supply chain. Due to their inherent immutability, accountability and transparency, blockchain can track carbon balances and other environmental measures, holding to account companies that proclaim to be sustainable.

For example, implementing smart contracts can automate the process of tracking how much carbon is produced at every step of a business’s operations. This information could then be reported to various monitoring services and relayed to the public. The verifiable, cryptographically enforced nature of this data will guarantee that it cannot be falsified or obfuscated in any way.

Incidentally, that same cryptography will also protect the privacy of the company’s reporting. Thanks to zero-knowledge (ZK) technology, unfalsifiable proofs can be generated that confirm the underlying information without revealing it. In basic terms, a company could provide evidence that it met various energy usage or carbon emission standards without disclosing the underlying data – a current blocker to company transparency when reporting details on emissions producing activities.

Another way environmentally friendly blockchains can become a sustainability solution is through the tokenization and digital distribution of digital environmental assets. A recent example is the accelerated development of the carbon credit market. Even electrical grids can be managed via blockchains and smart contracts.

Blockchain’s role in helping the environment can go far beyond energy footprints and carbon credits as well. We expect to see an increasing number of sustainability-focused systems launching in 2023.”

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“Every new chain or rollup is a monolithic chain in itself with its own independent languages and design structures. The result? An asynchronous Web3 ecosystem. This is why we need something like Hop protocol to “hop” between rollup chains. If Web3 is after mainstream adoption, we need to say bye to this constant network switching. People don’t want to deal with fragmented, asynchronous chains.

If cross-chain bridges were one-off band-aid fixes, then modular rollups are beginning to pave the way for a more comprehensive solution. Today, most chains are pursuing their own modular strategies. Optimism, Arbitrum and Starknet differ on the execution layer, but they share the same settlement, consensus and data availability layers by outsourcing them to the Ethereum mainnet. Metis and Celestia are chains that opt for their own data availability layers, while still using Ethereum as their settlement and consensus layers. StarkEx-based validium chains such as Immutable X or perform something similar, by running their own relatively centralized data availability committees.

What if these chains share a standardized open source library of code, rather than the siloed chain/rollup system of today? That’s where Optimism’s OP Stack comes in: a set of modular, foundational lego bricks for building more expressive and precise rollup chains on Ethereum. OP Stack is a set of standardized, open source modules that can be assembled to build a custom chain – what Optimism calls “OP-chains” – to serve any specific blockchain use-case. Modules are bits of data any developer can plug into the OP Stack to create an L2, L3 or L4.

With OP Stack, you won’t be tied into one particular proof system or technology. Devs have the ability to pop modules in and out of the different execution, consensus, settlement and data availability layers of a chain, just like switching APIs. dYdX chose to leave Ethereum for a Cosmos appchain, because they desired greater modularity over the consensus layer of their chain. OP Stack solves this.

Maybe an Optimistic rollup wants to revamp itself into a ZK-rollup. No problem! Just switch out its fraud proof module for a validity proof module on the settlement layer. Maybe a chain wants to use Celestia for its data availability layer? No problem! Swap out Ethereum for Celestia as a data availability layer. Want to swap out the EVM for an alternate virtual machine like FuelVM on the execution layer? Swapping out the execution layer on a running chain is hard, but that’s a technical possibility with OP Stack.

Bedrock is the first implementation of the OP Stack, a collection of modules that Optimism uses. Bedrock uses the Ethereum Virtual Machine as the execution layer to make it EVM-equivalent. And more crazy forks are coming. 0xPARC built a Game Boy rollup by swapping out Bedrock’s execution engine with a Game Boy emulator. And it’s all on-chain. 🤯

All OP-chains can enjoy atomic cross-chain composability as long as OP-chains voluntarily opt into the same shared sequencer set, the sole entity that produces blocks on every OP-chain. Eventually, any user on Ethereum can send a transaction from any end of the ecosystem to one another. No more network switching or bridging! That vision gives birth to Optimism’s emergent structure of a “Superchain”, where hundreds/thousands of OP-chains will be fully interoperable on Optimism and connected by the same technical fabric.

Launching rollups will be no harder than spinning up an ERC20 token, speeding up the rate of Web3 experimentation and innovation.”

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“Rough market conditions largely became the standard for much of the year, but that didn’t stop crypto from many incredible technological achievements.

Improvements in the decentralized finance (DeFi) sector like the protocol Compound’s version (v)3 and the march of the zero-knowledge (ZK) ecosystem continued regardless. Institutional adoption of crypto has also occurred at a rapid pace, with Disney, Starbucks, Adidas and many other household brands quietly embracing blockchain. Large banks have also shown increasing interest in the sector: Fidelity launched a crypto service for investors, BlackRock partnered with Coinbase to bring its institutional clients crypto access and Goldman Sachs is creating a crypto data service.

One industry highlight this year was the Ethereum Merge in September, where the blockchain transitioned from proof-of-work to proof-of-stake, reducing Ethereum’s energy usage by an incredible 99.9%. Secondly, many amazing engineers continued to build through this bear market, and some of the strongest projects came out of it.

Another benefit for the industry, though rough in the moment, was the lessons learned from each of the disasters that 2022 brought. Many projects – and even entire categories in crypto – have shown their resiliency in light of these events. If crypto has proven anything through its existence, though, it has proven that it can survive unfavorable times. Because of this, the industry will enter 2023 with a level of strength and durability that 2022 has given it.”

“Crypto today is taking its first steps toward establishing institutions to promote systemic stability.

First, no single entity should supply or control the use of funds in the context of bailouts. It must be a consortium endeavor. Positioning any single entity – including Binance – as the crypto industry’s lender of last resort fails to reduce systemic risk and creates a host of new problems.

If an entity functioning as the lender of last resort in the crypto industry were a participant in such a complex interdependent network, a myriad of conflicts of interest would arise. For example, they could wield funds as anticompetitive weapons or use access to proprietary information to their own private benefit.

The obvious problem with a bailout fund that bails out each entity with sufficient systemic risk is that it’s too easy for firms to be careless with risk management and then turn to the fund for ex post relief. In order for crypto to have any hope of solving this same problem, the cost to individual project teams of needing bailouts must be severe.

Schemes for such punishments haven’t yet been developed, but could include a subset of the consortium members assuming immediate control over the project or taking board seats. Overall, the messaging from the lender(s) of last resort to the management of failed crypto firms must be swift and severe: We’ll help save your creditors and ensure you avoid collapse, but you are not going to enjoy it and your reputation will be severely damaged.

Letting any single entity, especially a crypto industry competitor, assume this role will ultimately increase crypto’s systemic risk and leave the industry vulnerable to yet another FTX-style collapse that hampers the industry’s growth and adoption.”