The State of Web3 2022: The Year in Review

The thing about cliche is that it always contains a grain of uninteresting yet important truth. The fact that the blueness of the sky is so common that it fades into the background of conscious everyday thought, for example, does nothing to negate its value to physics, biology, and beyond. When looking at the state of Web3 through the lens of 2022, the clichéd understatement that should come to mind is that progress is not linear. But only how progress makes its non-linear passage through history matter a lot. It’s a bumpy thing – the movement messy and unpredictable, even for those well used to the fleeting and sporadic.

There was a lot of frenetic movement in the crypto and NFT world in 2022. Even those outside the walls of Web3 are tired of hearing phrases like “bear market” and “crypto winter.” But just as the idea of ​​zooming out is critical to maintaining a balanced view of mental health in the NFT ecosystem, so is the idea of ​​placing 2022’s problems and successes in the context of the broader picture of where Web3 is headed. When we do, we find both things to be excited about and wary of in the coming year.

NFTs went green (sort of)

The conversation around NFTs and their impact on the environment developed in a primarily positive way this year. More and more people began to realize it the serious allegations made by the blockchain’s biggest critics were largely overblown and without proper framing.

The biggest event that influenced the environmental discussion was Ethereum’s merger in September. The second largest blockchain’s transition to a proof-of-stake (PoS) validation system meant it reduced energy consumption by an absurd 99.5 percent and served as the final stake in the coffin of the already dubious argument that NFTs were bad for the environment.

Beyond the environmental benefit, the merger helped set up Ethereum for future growth. Aside from the millions of NFTs the blockchain authenticates, countless other decentralized apps and decentralized financial systems depend on the blockchain to function. Additional upgrades enabled by the merger include what Ethereum co-founder Vitalik Buterin calls “swing, rand, purge and splurge.” These will ensure that the blockchain can scale better in the future and allow a process called “sharding”, which makes network nodes easier to service.

Another benefit of switching to a PoS system was lowering the barrier to entry for those wanting to participate in Ethereum’s staking community. Where crypto mining required users to own and operate expensive and cumbersome equipment, with the new version of Ethereum, even a dedicated laptop could do the job. Increasing the number of validators in Ethereum increases the network’s chances of becoming more decentralized.

Beyond all of this, the merger was a much-needed victory in a tough year for the crypto community. Ethereum has long been the poster child for NFTs, and that it performed an extremely complex feat of engineering so smoothly over the course of a crypto winter is nothing to scoff at. Like any industry, blockchain-based technology can do more to reduce its environmental footprint, but efforts like the merger have shown that it’s not impossible to do so.

The debate about royalties rages on

The discussion about creator fees/royalties in the NFT space flared up like never before in 2022. Although they have been an important feature of the NFT ecosystem for years, royalties are not hardcoded into the market or the individual smart contracts that make up the buying, selling and trading with NFTs possible. As conversations centered around the role of creator royalties can, should, and play in the NFT ecosystem began to heat up throughout the year, zero-royalty sites like sudoswap and X2Y2 appeared on the scene, becoming popular platforms in the process.

Also, several of the community’s largest marketplaces that support copyrights – including Magic Eden and OpenSea – went through an identity crisis as to whether they would respect and enforce them and to which collections these rules would apply. OpenSea stirred the pot more than any other platform, given its size and status in the industry. It initially laid out a plan to eliminate royalty enforcement for existing collections before facing severe community backlash and abandoning the idea.

Taken together, these events helped to catalyze a kind of trade union movement among artists and builders in Web3 that makes two main points. The first is that Web3 and the platforms that help sustain it today would not be what they are without royalties. Artists create the value from which the entire ecosystem thrives. Take away the royalties that enable them to keep creating and the whole setup is likely to falter. Second, one of the most crucial ideas on which Web3 is built is artist empowerment. The issue of royalties is a poignant stress test of that ethos and of the individuals and platforms that have achieved fame and fortune on the back of such creator royalties.

Redemption arcs aren’t just for fiction

Several NFT projects bounced back from tough situations this year that left them with a tarnished reputation and disgruntled or downright angry investors. The most serious offenses against NFT communities resulted in prosecution by the Ministry of Justice. Still, illegalities aside, a handful of communities once thought dead in the water made a surprising comeback in 2022. DeGods rise to fame, Pudgy Penguin’s clever strategy of leveraging their family-friendly IP to branch out beyond the Web3 world, and Pixelmon’s Lazarus tricks all falls under this category.

These projects are not only remarkable in their ability to turn around floor prices and investor attitudes; they show the NFT ecosystem that constant innovation, patience and commitment are still going on in the Web3 world. The world of crypto and NFTs is rife with scams, and to some extent, cynicism and skepticism are necessary tools to navigate a decentralized space where no third party has your back. But like all tools, they can be misused. In the context of a crypto winter, it was refreshing to see such redemption arcs. With any luck, 2023 will see more, and we shouldn’t envy them their flowers.

Crypto and NFT regulation is changing

The complicated relationship between regulatory bodies in the US and the crypto and NFT sphere became even more complicated in the wake of events such as the fall of the algorithmic stablecoin Terra USD and the catastrophic collapse of FTX this year.

While it’s too early to say exactly how these events will change regulatory efforts in the US and abroad, the pressure to rein in the crypto space to avoid such meltdowns in the future has only grown because of them. Speaking to nft this July, SEC Commissioner Hester Peirce expressed displeasure with how the organization and its chairman, Gary Gensler, had formulated a seemingly punitive relationship with the crypto world instead of a constructive one. 2022, she said, was shaping up to be the year to set a more collaborative foundation for future legislative and regulatory regulation in the space.

However, hope has dimmed in the wake of events such as the fall of FTX. Sentiment within and outside the Web3 sphere is divided, with individuals in both areas attributing FTX’s failure to either excessive or lack of decentralization and oversight. That picture is further complicated by accusations from people like Rep. Tom Emmer (R-MN), who have accused Gensler’s relationship with SBF and the crypto world to be problematically close to each other, a vision of things that stands in stark contrast to the SEC’s moves this year.

While the existence of such backdoor ties remains a possibility, Emmer’s positions are apparently contradictory, as he received donations from figures linked to SBF and FTX, helped write a letter in March urging the SEC to withdraw from investigating crypto exchanges (including FTX), and has a habit of refusing to comment when asked about the type and amount of donations he has received from the crypto exchange.

Emmer’s (and other regulatory skeptics’) goal may ultimately be to get federal institutions to cool oversight efforts in an emerging industry whose pockets run deep but whose reputation has taken a hit after hits in 2022. Either way, expect the ethos of decentralization in crypto to face a robust litmus test in 2023. Similarly, you can expect bad actors to use the upcoming (and necessary) conversation around the future of decentralization as a cover for shoehorning in politics that decide the best aspects of Web3 in the name of protecting the the traditional financial structures that stand to lose the most from continued growth.

Web3’s problems make the space stronger (eventually)

It was impossible for those in the room not to have Web3’s most proven lessons this year. Some of the space’s most significant carpet moves occurred in 2022, sharpening Web3 residents’ intuition for NFT red flags that we should all be well aware of by now.

The collapse of Three Arrows Capital, FTX and Luna and TerraUSD all showed how playing fast and loose with people’s money just isn’t going to turn out well, no matter how much Web3 evangelism is going on behind the scenes. It’s true that the space has a rough go of things, but like an immune system dealing with a particularly potent infection, Web3 is likely to emerge stronger from this year’s difficulties as a whole, precisely because of the challenges they presented it with.

Denounce the cliché all you like, but nothing worth doing ever comes easy to those who do it. If Web3 is as valuable and potentially revolutionary as its most prominent proponents say it is—and it may be, at least in some ways—then we should expect the difficulties to be on a scale commensurate with its ambitions. If they weren’t, that would probably be a sign that we’re not aiming high enough. And who will do that?