Why we have entered the greatest period of blockchain development

Cryptocurrency markets recently experienced a spectacular crash, with total market capitalization falling from around $3 trillion to just under $1tn today.

This is not an unprecedented situation in cryptocurrencies – we witnessed a similar event in 2018.

Back then, Bitcoin’s value collapsed by more than 80 percent after a stunning rally that saw prices rise from $900 to around $20,000, turning some of its early adopters into millionaires and billionaires in just one year.

_______________

The world’s 10 richest crypto-billionaires – in pictures

During that time, the cryptocurrency market established itself as a serious player in the financial ecosystem, so much so that Bitcoin attracted the attention of regulators, especially in the United States and China. This led to the famous crash of 2018 amid fears that central bank control would stifle the burgeoning cryptocurrency industry.

However, as we all know, Bitcoin was far from dead.

The birth of decentralized finance

In the 18 months leading up to the last cryptocurrency crash, we saw the cryptocurrency industry come of age.

There was an incredible amount of development that eventually led to the creation of the decentralized financial network and the 2020 boom.

Decentralized finance, commonly known as DeFi, was born in 2019 when a handful of organizations sought to challenge the status quo in financial services.

Their aim was to democratize finance, facilitating peer-to-peer lending, banking and investment services without the need for a centralized intermediary.

Transparency and financial inclusion were the slogans on the banners of this revolution.

The popularity of this idea quickly propelled the DeFi sector to dizzying heights. As of December 2021, the total value locked in DeFi protocols – an indicator of the size of this market segment – ​​was $247.96 billion.

Today, that value has fallen to $56.27 billion, while the price of Bitcoin has fallen more than 70 percent from its all-time high of $68,000.

The coming boom

However, as history has shown, it is only a matter of time before the next development period arrives. This time it will be bigger than anything we have witnessed so far.

This year’s cryptocurrency crash has taught the industry important lessons. The most important of these is that bringing traditional, centralized financial practices to the blockchain simply does not work.

Lessons from the great financial crisis

Former billion-dollar giants like Celsius and Voyager Digital marketed themselves as cryptobanks, enabling people to take their financial future into their own hands.

But while Celsius told customers to “opt out” of themselves, in reality they were simply replacing one type of centralized control with another.

As unsecured lenders, customers who chose to earn interest on their cryptocurrencies through Celsius never became custodians of their own assets. They gave up control in exchange for an attractive annual return, in the mistaken belief that their funds would be safe.

In a similar fashion to the Great Financial Crisis of 2008, this system worked until it didn’t – and then it failed spectacularly.

The downfall of these crypto banks was a little different than the fall of Lehman Brothers back in 2008. Excessive leverage and risk-taking was followed by a liquidity crisis and a domino effect across the entire market.