In this newsletter
Blockchain Scalability
Cryptocurrency Video Games
Digital ID
Global Developments
Blockchain Scalability
The London Hard Fork, which was implemented in August, was supposed to relieve the Ethereum blockchain of its slow speeds and high transaction costs, but the average gas fee has remained consistently high at around $37, according to Decrypt. Despite recent drops in the gas price as Ether’s value has continued to climb, dramatic fluctuations remain a problem compared to Solana’s average transaction fee of less than $1.
This is where Andreessen Horowitz’s newest investment into Matter Labs comes in. Matter Labs is the company behind zxSync, which utilizes cryptography for its Layer 2 rollup protocol that optimizes smart contract execution to reduce congestion on the blockchain. In a blog post from earlier this year, Ethereum founder Vitalik Buterin describes rollup protocols as ways to verify transactions in an on-chain smart contract that holds funds but outsources computation off-chain. This is a fundamental application of layer 2 protocols, which are meant to help scale the blockchain by utilizing smart contracts to “[verify] proofs that everything happening off-chain is following the rules,” according to Buterin. All of this translates to a much more efficient process than using computing power to verify each transaction individually on-chain, which has contributed to difficulties in processing the over $30 billion in transactions occurring every day on the Ethereum blockchain.
Protocols like zxSync will be critical to countering declining user participation, along with the divergence between Ether price increases and daily trading volumes. According to CoinDesk, Ether’s daily active addresses have dropped since hitting a peak of 670,000 in October, a concerning signal for the native coin of the Ethereum blockchain.
Cryptocurrency Video Games
Facebook made big waves two weeks ago with the announcement that the company would now be known as Meta, a name change meant to reflect the company’s shift in focus to the metaverse, which has been succinctly described as the digital layer onto human life that transcends barriers between physical and virtual reality. While this may have been the first time many had heard of the word “metaverse,” the term has been consistently used within the digital assets ecosystem and is embodied in budding innovations like Axie Infinity, the cryptocurrency enabled video game that is changing our conventional view of gaming through the concept of “play to earn.” As reported by Cointelegraph, Axie Infinity is still a conventional video game in the sense that it allows players to duel against each other in battles and complete quests. The twist is that gamers can earn cryptocurrency through these activities and then use the earnings to purchase “Axies,” characters that can be used in duels that come in the form of non-fungible tokens (NFTs). As a result, these Axies can be traded on an NFT marketplace between gamers seeking to upgrade their characters for better prowess in various quests and duels.
On the surface, Axie Infinity seems like another video game with a cool twist, but the game is actually creating a whole new digital economy that generates serious income for gamers in developing nations. When the pandemic struck, many people in countries like the Philippines turned to Axie Infinity to generate income, essentially making the game their new daily job to put food on the table, according to CoinDesk. For nations like the Philippines that rely on remittances as a core part of their gross domestic product, the pandemic caused massive economic shifts as money stopped flowing in from abroad Axie Infinity emerged as a safety net for many and redefined the idea of “work” for those who lost their jobs.
Digital ID
As reported by CNBC, Apple’s recent work with state governments to digitize and store identification information in the Apple Wallet is tightly controlled by the company. The program aims to bring greater efficiency and security to things like airport checkpoints and age-restricted bars, and eight US states have already enrolled in the program. Under the program, residents of participating states will be able to present their state-issued driver’s licenses on their smartphones or watches. There are multiple benefits to this digital model. The biometric authentication required to show the ID can reduce fraud, and if a user were to lose their phone, they would be able to lock the feature remotely so that no one else would be able to misuse their identity. The “touchless” nature of this new mechanism is also an important but subtle feature. Users wouldn’t have to hand over their identification to an official because verification occurs directly between the digital wallet and the identity reader. However, Apple’s strict mandates over the project are evident, as contracts obtained by CNBC show the company requires states to dedicate marketing and customer support resources for the new service, all at state taxpayer expense. Apple is also controlling all aspects related to the timing of the rollout and device compatibility, yet is minimizing its responsibility for any potential issues with verification results. This seems to be a flipped relationship, as a private corporation ostensibly has complete control over a core function of the state. The dynamic between Apple and state governments in this program is exactly why there has been a push for decentralized identity standards from people like Peter Van Valkenburgh, the director of research at Coin Center. In a blog post, Van Valkenburgh writes: “Additionally, anyone should be able to build applications that can leverage portable and interoperable digital identity credentials without needing to buy access to an API or form an agreement with some dominant identity provider.”
Van Valkenburgh uses this statement as a jumping point for his main argument that our identity and the usage of our identity should not be owned and controlled by third parties, due to both cybersecurity and ethical concerns. With this kind of centralization, the use and cybersecurity of one’s identity are out of their control, leaving them susceptible to hacks and breaches. As such, Van Valkenburgh states that the only way around this issue is to move toward an open blockchain system that standardizes decentralized identifiers, which will give identity ownership back to those to whom it belongs.
Global Developments
JUMO, a FinTech geared toward supporting emerging entrepreneurs, recently raised USD $120 million to support the buildout of its financial products for small-and-medium-sized enterprises and budding entrepreneurs, according to PYMNTS. The company focuses primarily on connecting businesses in developing nations to rapid nano loans, even if founders are unbanked or don’t have any credit history. The core face of JUMO’s model is its mission to drive financial inclusion in emerging markets through its artificial intelligence platform, which connects growth equity, private equity, and venture capital partners to innovation in countries like Ghana and Pakistan. According to TechCrunch, JUMO has facilitated over $3.5 billion worth of loans in African and South Asian markets, with sights set on reaching its total addressable market of 150,000 customers through expansion to populous countries like Nigeria and Cameroon. Given its efforts to reduce costs to $1 per customer, JUMO is in a good position to scale quickly and take advantage of sub-Saharan Africa’s explosive growth in the FinTech space, as noted by the 44 percent year-over-year increase in tech startup equity rounds at a value of over $1.43 billion, according to Partech Partners. Services like JUMO will likely play an important role in expanding this funding through the debt market and finding innovation on the edges of society.