Monolith Reflects: the 10 major events that defined 2021 in crypto
We’re fast approaching the end of the year, and it’s arguably been crypto’s busiest one to date. Growing interest in digital assets pushed the asset class into the mainstream spotlight in 2021, leading the market caps of Bitcoin, Ethereum, and — yes — Dogecoin, to soar. Besides the rising market prices, the space also saw several major developments that highlighted how fast the industry is growing, and all of the ways the world may start to adopt crypto over the coming years. It was also a significant year for us, as we turned our focus to launching a new product aimed at ushering in mass crypto adoption. Over the last year, it’s become clear that crypto has crossed the chasm; it’s no longer just a niche field, even if we’re still a way off hitting 1 billion users. In this feature, we highlight the 10 major crypto events that defined 2021.
Beeple’s $69 million NFT sale
While 2020 in crypto saw an explosion in DeFi with the emergence of yield farming, this year focused on another emerging technology within the space: NFTs. The world of non-fungible tokens took off early in the year, attracting digital artists, musicians and celebrities looking to mint their own digital collectibles on the blockchain. Superstars like Grimes, Eminem, and The Weeknd all released their own pieces in 2021, but it was a digital artist known as Beeple that dominated the headlines with a landmark sale in March.
Beeple, real name Mike Winkelman, sold an NFT called “Everydays: The First 5,000 Days” comprised of 5,000 individual works he’d created over the course of 5,000 days. It went on sale at the world-famous auction house Christie’s and rocked the art world when the auction closed at $69.34 million. The final price made Beeple the world’s third most valuable auctioned living artist. As the world tried to understand the value proposition of so-called tokenized “JPEGs”, it had become clear that NFTs had entered the mainstream.
Coinbase goes public on Nasdaq
Rumours that Coinbase was preparing to go public were abound throughout Q1, while Bitcoin, Ethereum and other assets rallied to record highs. The leading exchange then announced that it had filed a Form S-1 with the SEC, setting the path towards going public. In April, Coinbase announced that it would list on Nasdaq, opting for a direct listing over an initial public offering. In the lead-up to the event, many speculated that the listing would help push Bitcoin to new highs. Coinbase hit a $100 billion valuation on the first day of trading, and the event was described as a watershed moment for the industry. While the public listing highlighted the growing acceptance of digital assets, it didn’t immediately reflect in the crypto market as many had anticipated. Bitcoin tumbled from a high of $64,000 following the launch and struggled to hit new highs until five months later.
China’s mining ban
China has had a strict stance on crypto over the last few years. Many reports suggesting that the country has banned Bitcoin and other assets have surfaced in the past, but this year it made its clearest attempt yet to crack down on the space. China enforced a strict ban on Bitcoin mining in Sichuan, Xinjiang, and Inner Mongolia, which are its three main hubs for the industry. The move led many miners to move overseas to places like Kazakhstan and Texas.
While China’s move to curb mining was initially seen as a negative for the industry, contributing to a major market crash in May, others took a different view. Until this year, Bitcoin mining was largely centered in China, so the move away from the country arguably helped the network become more decentralised. Bitcoin’s hashrate initially dropped following the ban but has since picked up as miners move to alternative locations.
Ethereum launches EIP-1559
Ethereum had a big year as ETH rose to record highs, the total value locked in its DeFi ecosystem soared past $100 billion, and NFTs boomed. Besides the surge in activity in the market, the network also shipped an important update called EIP-1559.
Launched as part of the London hardfork in August, EIP-1559 introduces a fee burning mechanism. It was launched to make gas fees more predictable by setting a base fee rather than requiring users to place a bid to enter transactions into a block. The base fee is the minimum fee to add a transaction to a block, and users can also add a tip to miners if they want their transaction to be processed faster. A crucial change with EIP-1559 is that the base fee gets burned. This adds deflationary pressure on ETH; it’s estimated that the asset could become deflationary once the merge to Proof-of-Stake ships in 2022. To date, EIP-1559 has burned over 1.2 million ETH.
EIP-1559 was regarded as a major event for Ethereum, improving the network and drastically changing ETH’s economic policy by hardening the asset. It also marked the final major development before the network transitions from Proof-of-Work to Proof-of-Stake, which is scheduled for early next year.
After Beeple’s landmark NFT sale early in the year, the NFT space continued to attract a wave of new adopters. Many early collections such as CryptoPunks soared in value, hitting a floor price above $500,000 at their peak. The growing interest in NFTs turned into what crypto followers dubbed “NFT summer”, a follow-on from 2020’s fabled “DeFi summer.” Digital artists like FEWOCiOUS, XCOPY and Pak were picked up by Christie’s and Sotheby’s, their work fetching eye-watering sums courtesy of wealthy crypto art enthusiasts. Generative art also exploded on the Art Blocks platform. The most notable development of the summer, though, was the emergence of avatar-based projects that took inspiration from CryptoPunks.
The NFT space saw the release of countless collections of algorithmically generated character collections, which often featured animals and other figures bearing traits to denote differing levels of scarcity. Most of these collections were minted on Ethereum, though other chains like Solana also saw their NFT ecosystems expand. Crypto enthusiasts adopt avatar collections for their social media profile pictures, and the most successful collections have blossomed into thriving communities. Besides CryptoPunks, notable collections include Bored Ape Yacht Club, Cool Cats, and World of Women. During NFT summer, Visa announced it had bought a CryptoPunk for $150,000, while archive collections such as EtherRocks also gained traction; the floor price for one of the ultra-rare rocks is over $2 million today. While trading volumes and the price of many assets cooled off after the summer, NFTs have established their place at the forefront of the space. Many exchanges have also launched or plan to launch their own NFT marketplaces this year, which could usher in a new wave of users.
The Layer 1 boom
Ethereum usage continued to grow in 2021, as the number of unique addresses crossed 177 million. The Ethereum network, meanwhile, has consistently processed over 1 million transactions throughout the year. While growing adoption has been positive for Ethereum, the rising demand for block space has pushed gas fees to new highs. As the price of ETH has also increased, the cost of using the network has priced out many users.
While Ethereum has a number of scalability solutions in the pipeline, the rising gas fees helped other Layer 1 networks thrive. EVM-compatible blockchains like Avalanche and Fantom saw their DeFi ecosystems grow, while the Ethereum commit chain Polygon also successfully attracted many yield farmers after a host of leading Ethereum applications deployed their code on the network. Another notable riser in the Layer 1 boom was Solana, whose DeFi and NFT ecosystems have seen huge growth over the last year. Every major Layer 1 chain also has bridges to Ethereum, suggesting that the space could be moving closer towards facilitating cross-chain interoperability between networks.
Ethereum’s Layer 2 begins to roll out
Ethereum is aiming to solve what’s been dubbed “the blockchain trilemma” by offering security, scalability and decentralisation. Part of its efforts to achieve scalability include spreading the network across 64 new shard chains, which are due to go live at the completion of Ethereum 2.0. In the meantime, several Layer 2 solutions have also emerged to help the network scale. Layer 2 is a framework that gets built on top of the base chain to help the network scale; we’ve researched Layer 2 extensively for our own product, though none of the current solutions work for our offering due to the costs of moving funds back to mainnet.
Ethereum’s most important Layer 2 solutions come in two forms: Optimistic Rollups and ZK-Rollups. Optimistic Rollups send transactions to Ethereum mainnet as calldata to increase transactions speeds and lower costs, but there is a long withdrawal period for moving assets back to mainnet. ZK-Rollups, meanwhile, use ZK-SNARKs to bundle transactions together off-chain and send a proof to the main chain. This year, the Optimistic Rollup solutions Optimism and Arbitrum have made significant progress in their scaling efforts. Arbitrum holds over $2 billion in total value locked across various DeFi applications while Optimism is preparing to welcome some of Ethereum’s leading projects. The ZK-Rollup projects StarkWare, zkSync and Loopring have also gathered momentum. StarkWare, for example, is set to go live on mainnet in November and already powers applications like dYdX and Sorare.
Layer 2 is a vital component of Ethereum scaling, and adoption is growing fast. As Ethereum usage continues to grow, it’s likely that Layer 2 usage will also increase throughout 2022 and beyond.
El Salvador adopts Bitcoin as legal tender
One of the biggest crypto stories of the year was also one of the most surprising events: in June, El Salvador’s President Nayib Bukele announced his intentions to introduce a bill to make Bitcoin legal tender in his country at Bitcoin Miami 2021. Bukele said that he wanted to introduce Bitcoin as a currency to generate jobs and “improve the lives and the future of millions.”
The historic bill successfully passed and the country introduced the leading crypto asset as a legal tender alongside the US dollar in September. Bukele introduced a digital wallet and $30 airdrop for citizens and began using volcanoes to mine Bitcoin from renewable energy, but the path to adoption wasn’t all plain sailing. Many world organisations such as the IMF warned against the risks of adopting Bitcoin, while protests broke out across the country. Ethereum co-founder Vitalik Buterin also criticised the move, arguing that forcing businesses to accept Bitcoin as a currency was “reckless” and “contrary to the ideals of freedom that are supposed to be so important to the crypto community.”
While the long-term impact of El Salvador’s Bitcoin adoption policy is not yet known, it highlighted the broader acceptance of crypto assets in a mainstream context. While crypto remains divisive, many politicians expressed their support for Bitcoin throughout 2021. It is likely only a matter of time until they begin to take an interest in other crypto assets.
Dog coin mania
The rising interest in crypto brought many unexpected moments throughout the year. While Bitcoin and Ethereum both rose in value, they were outpaced in price performance by a different subsect of cryptocurrencies: dog coins. Led by Dogecoin and Shiba Inu, dog-themed tokens jumped in value in 2021, attracting the attention of the retail market. Elon Musk’s fierce support for Dogecoin helped shine the spotlight on the asset, and by the middle of the year, many clones had taken off. Both Dogecoin and Shiba Inu entered the top 10 cryptocurrencies by market cap this year, surprising many who had expected growth in the DeFi niche. Dog coins are characterised by their strong meme value and huge supply caps, which means that the price per token tends to be low relative to other assets. One DOGE is currently worth $0.22, while one SHIB goes for under a cent. While the fundamentals of many of these projects can be unclear, unit bias helped them thrive with newer entrants to the crypto space.
Facebook rebrands to Meta
There was one narrative that dominated the crypto space in the final stretch of the year. It quickly snowballed after Mark Zuckerberg appeared on a video announcing that Facebook would be rebranding to Meta as part of a plan to “bring the Metaverse to life.” The Metaverse refers to the next iteration of the Internet, where users will interact with one another in virtual worlds. It’s expected that the Metaverse will combine gaming and augmented reality. Crypto is also likely to underpin the Metaverse. NFTs are particularly relevant for the Metaverse as they could represent characters, in-game items and various other assets such as digital art and music, while users will be able to earn other types of crypto tokens when they use applications and communicate with others. Facebook’s decision to rebrand in anticipation of the Metaverse is significant because it highlights the Big Tech giant’s acknowledgement of where the Internet is headed. In other words, Web3 is inevitable, and Zuckerberg doesn’t want to miss out.
When Zuckerberg announced the transition, he also said that Facebook would be looking to integrate NFTs in the future. The company isn’t alone in adopting the technology: other major firms like Twitter, Nike, and Coca-Cola have all taken steps towards using NFTs in one way or another. Discord also suggested it was planning to integrate Ethereum in November, but it put its plans on hold after community members slammed its plans to support NFTs. The backlash highlighted that while the Metaverse is coming, it’s going to take time for the world to accept the huge promise of NFT technology.