2024 Exploring Major Trends that Will Disrupt Web3

Introduction

Blockchain technology has been around for over a decade, and it has been making significant strides in various industries. The blockchain industry has been growing at an unprecedented rate, and it is expected to continue to grow in the coming years.

The MDRx report on the “State of blockchain in 2023” provides an in-depth analysis of the blockchain industry, including the trends, developments, and key sectors that have seen the most activity.

In this blog post, we will summarize the key elements of the report, including the main points from each chapter.

Brand Watch

Big brands have entered, exited, and doubled down on their use of blockchain technology through 2023. Many of that have been exploring blockchain technology, and some have even launched their own blockchain-based products.

According to the MDRx report on the state of blockchain in 2023, several big brands have entered, exited, and doubled down on their use of blockchain technology through 2023.

Entered:

• The Premier League has joined La Liga and Bundesliga in partnering with Sorare to provide NFT digital cards.
• Mastercard expanded on its earlier Web 3.0 interest with the introduction of an Artist Accelerator incubator that will prepare emerging artists to “build (and own) their brand through Web 3.0 experiences like minting NFTs”.
• Starbucks launched its NFT loyalty programme ‘Odyssey’ in December 2022 and has released a few thousand NFTs in 2023.

Exited:

• Chase UK, along with TSB and digital bank Starling, has prohibited the acquisition of crypto assets using their debit cards or by transferring funds to crypto-related websites from Chase accounts.

Doubling down:

• Reddit released the third and fourth generations of its collection of ‘avatars’.
• Nike has partnered with EA Sports to “build new immersive experiences and unlock brand new levels of customisation in the gaming company’s ecosystem”.
• Telegram has allowed The Open Network Foundation (TON Foundation) to take the lead in an ecosystem that supports a growing number of blockchain applications on Telegram.

Still working on it:

• Sony, the multinational technology group, announced its rather bold intention to develop “a blockchain that can become the backbone of global Web 3.0 infrastructure” through a joint venture with Startale Labs.
• The London Stock Exchange Group is ambitiously pursuing plans to become the first major exchange to facilitate extensive trading of traditional financial assets using blockchain technology.
• Blackrock, a major asset manager, has submitted an application to its regulator for a fund that holds bitcoin and tracks its price, known as a spot exchange-traded fund (ETF).

Trends and Developments

The blockchain industry has been plagued by legal dramas in 2023, with high-profile cases involving cryptocurrency scams, regulatory charges against major companies like Coinbase and Binance, and criminal charges against the founder and executives of FTX.

Private legal action has also been taken, including class actions and copyright infringement cases. However, the response to these issues is becoming more proactive and systemic, with new regulations and frameworks being implemented in the UK and EU.

As a result, compliance by design is no longer optional for organizations leveraging blockchain technology. The industry’s “Wild West” phase is coming to an end, and organizations must prioritize compliance moving forward.

NFT collectibles have been a popular topic in the blockchain industry, with many big brands creating or committing to creating NFT collections in 2023. However, many of these collections have failed to generate significant revenue, with most brands only reaching six figures in sales.

The success of NFTs is determined by engaging high-value consumers, and while some brands like Nike and Adidas have managed impressive sales volumes, most have languished in the low millions.

The overwhelming majority of NFT activity took place in 2021/22, with estimates suggesting that 79% of NFT collections have never sold anything, and 95% of NFT collections are worthless. To be sustainable, NFTs must carry some utility beyond just being collectibles.

Key Sectors

The third chapter of the report focuses on the key sectors that have seen the most activity in 2023, and it predicts the key sectors to watch in the year to come.

Retail

The retail sector has seen two distinct types of blockchain adoption in 2023:

1. consumer-facing marketing activations
2. back-office efficiency projects.

From a marketing perspective, the highest-profile example is Starbucks’ NFT-powered Odyssey loyalty scheme, which allows consumers to sell their loyalty rewards rather than use them themselves. However, this raises questions about the value of loyalty and the purpose of the scheme.

Many retailers are investing in new, engaging, and innovative experiences to maintain their service offering, such as Selfridges, which has defined a clear Web 3.0 strategy.

On the other hand, there is a resurgence of interest in back-office implementations of blockchain in the retail sector, particularly in supply chains. Blockchain provides a credible alternative to track and share changes of state across the supply chain, automate payment triggers, and provide reliable access to real-time records.

However, there are fundamental issues to overcome, such as coordinating a large number of counterparties with divergent interests, preventing certain actors from perpetually paying late, and executing digital transformation without readily available off-the-shelf products that integrate with existing systems.

The majority of activity in 2023 is taking place on public chains like Ethereum rather than closed enterprise blockchains, reflecting the industry’s recognition that private and permissioned implementations undermine the core value proposition of distributed systems.

Gaming

Blockchain gaming introduces the concept of NFTs associated with in-game assets, such as characters and items, which can be bought and sold independently from their parent games. This connection to the wider NFT marketplace allows for the creation of a secondary market for in-game assets, enabling players to trade and monetize their virtual possessions.

For games that are popular or likely to become popular, a much bigger marketplace than just players might be interested in having a stake. Desirable in-game assets that improve player performance could be valuable to a wide audience, making them assets worth owning even if the buyer doesn’t play the game.

Are games popular enough and are in-game assets useful enough in gameplay to warrant a separate trading market? The most popular blockchain games have a relatively small number of daily active users compared to non-blockchain games, which draw tens of millions of players each day. The long-term success of blockchain gaming, particularly for its unique asset trading features, may depend on game publishers who can attract tens of millions of players.

Interesting is the potential for partnerships between fashion brands and video game publishers, as well as the broader concept of ownership that blockchain technology enables. It suggests that blockchain technology provides the infrastructure for a broader conception of ownership, allowing players to monetize the time they’ve invested in leveling up their characters and even loan out their characters to others.

Fashion

The fashion industry has been exploring the potential of blockchain technology for some time, and MDRx has supported some of the world’s most prestigious fashion houses in their earliest forays into the blockchain market. By the end of 2022, many household names had launched their first collections using blockchain technology.

It worth to mention Gucci’s recent collaboration with Christie’s to launch a 21 NFT collection, as well as its collaboration with Yuga Labs, creators of the multi-million pound Bored Ape Yacht Club NFTs. NFT auctions can take place entirely digitally, and the art itself can be completely digital as well. The report notes that this draws on a set of technologies quite distinct from blockchain, to form experiences which MDRx describes as the Metaverse.

The report suggests that long-term success for Web 3.0 in the fashion industry is likely to be driven by hardware developments and improvements to premium virtual and augmented reality technologies, rather than developments in blockchain itself.

Real Estate

Tokenized real estate has been a topic of interest within the blockchain industry for years, with the goal of bringing accessibility and liquidity to the massive real estate investment market. Most implementations have failed due to a lack of well-researched design, best-in-class execution, or the absence of the real estate assets required to make them worthwhile. Additionally, the turbulent regulatory environment has been a hindrance to the success of tokenized real estate initiatives.

The report expresses optimism for the future, highlighting several factors that could contribute to a turning point in 2024. The blockchain industry has realized the importance of focusing on user benefits rather than just technology, and that the regulatory environment is gaining clarity. Furthermore, established incumbents are becoming more comfortable with a technology that is better proven and tested. These developments, along with industry expertise, are seen as signals of a potential turning point for tokenized real estate in 2024.

Crypto Markets

The report highlights that the crypto market has been volatile in 2023, with many cryptocurrencies experiencing significant price fluctuations.

It focuses on several important indicators to understand the health and dynamics of the crypto ecosystem.

Market Cap, Dominance, and TVL:

• Market capitalization: The report discusses the gradual increase in the market capitalization of crypto projects throughout 2023, with a particularly strong performance in Q4 as of November 2023.
• Dominance: It likely refers to Bitcoin dominance, which measures Bitcoin’s market capitalization as a percentage of the total cryptocurrency market capitalization. This metric provides insights into Bitcoin’s relative strength compared to other cryptocurrencies.
• TVL (Total Value Locked): This metric is commonly associated with decentralized finance (DeFi) and refers to the total value of assets locked in DeFi protocols. It provides insights into the adoption and utilization of DeFi platforms.

Market Performance:

• The report may also cover the performance of major cryptocurrencies, including Bitcoin, Ethereum, and other prominent digital assets. This analysis could include price movements, trading volumes, and volatility.

Year-to-Date (YTD) Performance:

• The report likely compares the performance of the crypto market over the year, highlighting the percentage change in market cap, prices, and other relevant metrics.

Comparison with Previous Years:

• The report may provide comparisons with previous years to illustrate the evolving nature of the crypto markets and to identify trends or patterns.

Insights and Interpretation:

• The analysis likely includes insights and interpretations of the observed trends, providing context for the market movements and potential implications for the broader blockchain and cryptocurrency industry.

Spotlight: Account Abstraction

Account abstraction is a tool to improve the user experience of using blockchain technology. Current user experience of blockchain technology carries significant friction, which can be addressed by account abstraction. Account abstraction allows users to program more security and better user experiences into their accounts, such as enabling externally owned accounts to be controlled by smart contracts and upgrading smart contracts to initiate transactions themselves. This reduces the need for manual individual signing and the need to maintain sufficient gas in a given wallet, which can improve the user experience.

ERC-4337 standard, published in 2023 as a means of achieving account abstraction features without needing to make changes to Ethereum, provides a mechanism to customize validation logic, with state changes and requests being made using a special type of transaction called UserOps. UserOps relies on third-party providers known as bundlers and paymasters to bundle requests and make payments on behalf of users while validating request logic.

There is a natural tension between the fully disintermediated ideological dream put forth by the blockchain community and the need to provide seamless and easy user experiences to onboard a billion users. However, the report expresses optimism that ease of access and use will ultimately win the day.

Barriers to Adoption

The MDRx report identifies several key barriers to adoption that are hindering the widespread mainstream adoption of blockchain technology. These barriers include:

1. User Experience: The user experience of using blockchain technology is still considered to be poor, with significant friction and complexity. This can be a major barrier to adoption, as users may be deterred by the difficulty of using blockchain applications.
2. Regulation: The regulatory environment surrounding blockchain technology is still uncertain and complex, which can create barriers to adoption. Companies may be hesitant to invest in blockchain technology due to regulatory uncertainty, and users may be deterred by the potential legal risks associated with using blockchain applications.
3. Interoperability: The lack of interoperability between different blockchain networks and protocols can be a significant barrier to adoption. This can limit the usefulness of blockchain technology and make it difficult for users to access the full range of benefits that it offers.
4. Scalability: The scalability of blockchain technology is still a major challenge, with many blockchain networks struggling to handle large volumes of transactions. This can limit the usefulness of blockchain technology in certain applications and industries.
5. Education and Awareness: There is still a lack of education and awareness surrounding blockchain technology, which can be a barrier to adoption. Many potential users may not fully understand the benefits and potential applications of blockchain technology, which can limit its adoption.

Look Ahead 2024

The report highlights that the blockchain industry is expected to continue to grow, and there will be more focus on the use of blockchain technology in the enterprise space.

The MDRx report provides several predictions for the year to come in the blockchain industry. These predictions include:

1. Terminology: The report predicts that major brands in the blockchain industry will continue to move away from using terms like “crypto,” “blockchain,” and “Web 3.0” in their marketing materials. Instead, they will focus on features and user benefits, while the underlying technologies used to provide them will be irrelevant.
2. Increasing Regulation: The report predicts that regulatory scrutiny of the blockchain industry will intensify in the coming year. Many jurisdictions are expected to follow the lead of England and Wales in expanding their regulatory perimeters to encompass all cryptoasset projects marketed within their borders, regardless of where these projects are incorporated and operated from.
3. Industry-wide Regulation: The report predicts that industry-wide regulation is not only inevitable but also beneficial. If blockchain is to onboard a billion users, it must have some protections. This goes against the blockchain purist sentiment that on-chain activity should be elevated above legal and regulatory enforcement.
4. Tokenisation: refers to the process of representing real-world assets, such as financial instruments or real estate, as digital tokens on a blockchain. Tokenisation will be a major area of growth and innovation in the blockchain industry in 2024, with major financial institutions like JP Morgan, BlackRock, and Barclays expected to continue to explore the use of tokenisation in financial markets.
5. Cross-chain protocols: refer to the development of technologies that allow different blockchain networks to communicate and interact with each other. The MDRx report predicts that interoperability will continue to be a major area of focus and innovation in the blockchain industry in 2024, with several projects, including Chainlink’s CCIP, Quant, LayerZero, Axelar, and Celer Network, expected to play a pivotal role in shaping the interoperability landscape.
6. Compliance by design: refers to the practice of building compliance into every phase of a product’s strategy and engineering. This will be a major area of focus in the blockchain industry in 2024, with many compliance-friendly and off-the-shelf tools available to help organizations meet their compliance obligations.

Conclusion

In conclusion, the MDRx report on the state of blockchain in 2023 provides an in-depth analysis of the blockchain industry, including the trends, developments, and key sectors that have seen the most activity.

The report highlights that the blockchain industry has been growing at an unprecedented rate, and it is expected to continue to grow in the coming years. However, the report also highlights that there are still key barriers to adoption that the blockchain industry needs to overcome, including the lack of understanding of blockchain technology among the general public and the evolving regulatory landscape.