The State of Cryptocurrency 2021

Nearly one year ago to the day, we published our State of Cryptocurrency 2020 blog to provide a snapshot to show how far along the industry has come and what we need to do next. In this State of Cryptocurrency address for 2021, we’ll look again to the progress that has been made by the entire industry in 2021, which has proved to be an explosive year for crypto thus far.

To evaluate the progress of the industry, we posed a few questions to see how crypto’s biggest obstacles have been dealt with over the past year. These questions include:

• Can the average person use crypto with confidence?
• How safely can cryptocurrency be stored?
• Are crypto payments fast enough to complete an everyday purchase?

In this article, we will revisit each question and apply an answer based on the cryptocurrency industry of today to see how much progress has been made over the past year.

Can The Average Person Use Crypto With Confidence?

In 2020, we determined that usability was one of the biggest obstacles that hinder the ability of cryptocurrency to reach mass adoption. Due to the nature of digital assets existing on top of cryptographic technology, interacting with cryptocurrency is extremely complicated and requires a high level of knowledge. That being said, yearly advancements have been made in this regard and cryptocurrency is becoming easier to use every day.

Last year, we noted that applications like Cash App and Metal Pay had taken popular user interfaces similar to Venmo and applied them to cryptocurrency wallets and transfer services. This was a great leap forward and provided the first crypto-based UI’s that the average person could navigate. While this was undoubtedly a step forward, these services haven’t attracted a user base that is comparable to that of Venmo. For that reason, it was great to see that PayPal added support for cryptocurrency as they are one of the largest payment service providers in the world. Now, in 2021, Venmo is also enabling its 50 million + users to buy, send, or hold their crypto assets directly on the Venmo mobile app. This is truly a leap forward that can provide millions of people, with little to no crypto experience, with the ability to confidently use digital assets.

In 2021, we believe that usability, as it relates to simply buying, sending, or holding cryptocurrency has reached a point where the average internet user can do so without issue.

Next, we must look to bring the same level of simplicity and usability to the broader cryptocurrency ecosystem. Now that the average person can hold cryptocurrency, they will next need more straightforward products that enable them to interact with Defi, NFTs, trading, and more.

In our initial State of Cryptocurrency address, we determined that hardware wallets for cold storage that are made by companies like Trezor are a viable method that allows users with intermediate-level knowledge to safely store their cryptocurrency. In 2021, cold storage wallets are still too complex, and therefore risky, for the average newcomer. The penalty for human error when using a cold storage wallet is often an irreversible loss of funds. For this reason, we recommend that only those with at least intermediate knowledge of crypto and security use these products at this time. We will check back on cold storage wallets in 2022 to see if they are less complex and easier to safely navigate.

The best alternative for newcomers to store their cryptocurrency is with a reputable exchange. This practice is often shouted down by crypto experts due to the unsavory history of some cryptocurrency exchanges and the loss of funds that resulted from their collapse. However, in 2021, many cryptocurrency exchanges are operating within a regulatory framework and also carry an insurance policy to protect user’s funds that are held on the exchange. For this reason, we believe that the average newcomer can safely store their funds with reputable brands such as Beaxy Exchange or Gemini. This is an improvement versus 2020 as many exchanges have focused on compliance as the industry continues to grow.

Compared to this time last year, we believe that a few cryptocurrencies have made real progress in terms of speeding up transactions so that they can be used for everyday purchases at brick-and-mortar outlets. In our previous State of the Crypto article, we mentioned that there had been no material gains in transaction speeds from the last bull run in 2017 through Q2 of 2020.

In terms of progress, we are looking at blockchains like Solana and its native asset SOL. Like many projects that preceded it, Solana came out of the gate and announced that its blockchain could handle an impressive 65,000 transactions per second. Unlike many other projects, the Solana blockchain spurred real demand throughout the beginning of 2021 and has proven that it can process transactions in mere seconds. Solana transactions are instant even with a large amount of traffic on the network. This blockchain is one example that we will revisit in the 2022 address to see if retail vendors are accepting it as payment at their physical storefronts.

While some digital assets like SOL have achieved transaction per second (TPS) rates that make them viable for retail outlets, the most-used blockchains are still Bitcoin and Ethereum. At this point, it seems highly unlikely that either of these protocols will be able to increase the TPS on the base layer of the protocol to a point where they can be viable in a store. At least not in the next few years. But, there are many developments being made in the form of layer-2 solutions. The Lightning Network, for example, is a layer-2 solution for the bitcoin blockchain that enables instant transactions. As development and adoption for layer-2 solutions progress, the likelihood of Bitcoin and Ethereum being useful as a direct payment method also increases.

At this time, we think that while transaction speeds have certainly improved on some blockchains, they are not yet fast enough in a broad sense to make direct crypto expenditures a reliable form of payment. Throughout the remainder of 2021 and into 2022 we are looking forward to what layer-2 solutions for Bitcoin and Ethereum can achieve in terms of transaction speed on the world’s two most-used blockchain ecosystems.

We have determined that the cryptocurrency industry as a whole made legitimate progress in the past year that has resulted in: (1) Simplified user interfaces such as Venmo that give the average newcomer a chance to interact with cryptocurrency without having any expertise. (2) More reliable cryptocurrency exchanges that follow regulatory guidelines and carry insurance to protect user funds. (3) Blockchains like Solana that can rapidly process high volumes of transaction without the need for a layer-2 solution.

All in all, these are meaningful steps forward that bring cryptocurrency even closer to mainstream adoption. Keep these three questions in mind throughout the year to see how the industry continues to progress. We are looking forward to experimenting with the innovations that crypto has in store for the remainder of 2021.