12 key moments that fueled crypto’s record growth in 2021

It was a banner year for the cryptocurrency market, which briefly surpassed $ 3 trillion in November. Bitcoin, the largest cryptocurrency by market value, and ether, the second largest, have hit all-time highs, while altcoins, like the memes-inspired dogecoin, have grown in popularity.

Other digital assets, like non-fungible tokens, or NFTs, have sold for millions of dollars alongside artwork at big auction houses like Sotheby’s and Christie’s. In addition to art, NFTs representing game assets and digital lands have also soared in value.

Blockchain-based applications, including decentralized finance, or DeFi, have captured the interest of retail and institutional investors, driving the growth of Web3, which is the decentralized iteration of the Internet based on blockchain technology that powers NFTs and underlying cryptocurrencies.

All of this helped push cryptocurrency into the mainstream in 2021.

While there have been countless defining moments this year, here are 12 highlights.

1. Bitcoin topped $ 1 trillion in market value for the first time

2. Interest in NFTs exploded after the sale of Beeple for $ 69 million

3. Elon Musk contributed to the dogecoin record

4. El Salvador adopted bitcoin as legal tender

In June, El Salvador passed a new law to adopt bitcoin as legal tender, becoming the first country to do so.

The law allows the use of bitcoin to pay for goods and taxes in El Salvador. Businesses can price their goods in bitcoin and exchanges will not be subject to capital gains tax, CNBC reported.

5. Ethereum launched EIP-1559 and prepared for merger with Eth2

In August, a major Ethereum upgrade went live. The upgrade, called London, included the Ethereum Improvement Proposal (EIP) 1559, which changed the way transaction fees, or “gas fees,” are estimated. He also began reducing the supply of ether.

Additionally, Ethereum developers have prepared for the network’s next shift to a proof-of-stake model with a number of upgrades throughout the year.

Currently, Ethereum operates on a proof-of-work model, in which miners must compete against each other to solve complex puzzles in order to validate transactions. This model receives a lot of criticism for its environmental impact because it requires extreme computing power.

In 2022, Ethereum plans to move to a proof-of-stake model, where users can only validate transactions based on the number of coins they hold, rather than the power-hungry mining rigs currently in use. This move is part of the merger with Ethereum 2.0, or Eth2.

Eth2 will have a huge impact, as it will change Ethereum’s infrastructure and ultimately make mining obsolete.

6. Over $ 600 million was initially stolen in record breaking DeFi hack

In August, the DeFi Poly Network platform was hacked. Initially, over $ 600 million was stolen.

Experts said the hacker was able to exploit a glitch in the network code. Although the hacker eventually returned the stolen funds, it was one of the biggest cryptocurrency thefts on record.

This kind of fraud was not uncommon throughout the year. More than $ 7.7 billion was stolen from cryptocurrency scams around the world in 2021, according to a report by blockchain analysis firm Chainalysis. That’s an 81% increase from 2020.

Carpet draws, a type of scam where developers abandon a project and walk away with investor funds, has become the “go-to scam” of the DeFi ecosystem, Chainalysis wrote in its report. In 2021, carpet prints accounted for more than $ 2.8 billion stolen, or 37% of all cryptocurrency scam revenue, up from 1% in 2020.

7. China has banned cryptocurrency – again

In September, the People’s Bank of China confirmed its continued crackdown on cryptocurrency.

According to a question-and-answer session on its website, the PBOC said all crypto-related activities are illegal in China, including services such as digital asset trading, order matching, issuance of tokens and derivatives. In addition, overseas crypto exchanges providing services in mainland China are also illegal, the PBOC said.

China’s renewed crackdown on bitcoin mining throughout the year pushed the market elsewhere, and in October, data from the University of Cambridge showed the United States had become the No.1 destination. 1 bitcoin miners.

Data shows that 35.4% of bitcoin’s hashrate, which is the collective computing power of all miners, was in the United States in July, overtaking China for the first time. Cambridge also found that China’s average monthly share of the global hashrate in July was reduced to zero, which was a major reversal from September 2020, when China captured around 67% of the market.

8. Launch of the first US bitcoin ETF based on futures contracts

In October, the ProShares futures-based bitcoin ETF debuted on the New York Stock Exchange under the ticker “BITO”.

The bitcoin futures ETF tracks contracts that speculate on the future price of the digital asset, rather than the current price or “spot price” of the cryptocurrency itself. As a result, ETF and bitcoin prices do not necessarily match.

Nonetheless, the ProShares bitcoin futures ETF had one of the “most important early days on record for ETFs,” CNBC reported.

9. The first Bitcoin upgrade in four years activated

Taproot, a much-anticipated upgrade to Bitcoin, went into effect in November. This was Bitcoin’s first major upgrade since 2017.

Taproot introduced something called Schnorr signatures, which help bitcoin transactions to become more private and efficient, and cheaper. More importantly, the upgrade allows bitcoin to execute smart contracts or collections of code that execute a set of instructions on the blockchain.

10. Lawmakers focused on regulation as crypto lobbyists emerged

Over the past year, the focus has been on the regulation of cryptocurrencies.

Securities and Exchange Commission (SEC) Chairman Gary Gensler has been outspoken in his drive to create a regulatory framework for the cryptocurrency space. Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen have both repeatedly warned against cryptocurrency, especially stablecoins, labeling the entire asset class volatile and speculative.

In November, President Joe Biden enacted the bipartisan Infrastructure Bill, which includes tax reporting provisions that apply to digital assets like cryptocurrency and NFTs.

Cryptocurrency “brokers”, which are primarily exchanges, will be required to issue a 1099-type form disclosing who their clients are. Companies and exchanges will also be required to report whenever they receive more than $ 10,000 in cryptocurrency.

This caused an eruption of concern from the cryptocurrency community, and many lobbyists have emerged, pushing for more clarity in the definition of ‘broker’.

11. Ethereum’s Competitors Gain Market Share

As demand for Ethereum, the most widely used blockchain network, has increased this year, other projects have sprung up in an attempt to compete.

Two include Avalanche and Solana, both launched in 2020 as platforms for smart contracts and decentralized application building. Each of their tokens, AVAX and SOL, respectively, entered the top 10 cryptocurrency and gained market share among the rest.

Due to competitors such as these, the Total Locked-In Value (TVL) on DeFi has increased sevenfold year over year, topping $ 200 billion, DappRadar reported. However, almost 60% of TVL still stays on Ethereum.

12. DAOs enter the general public

Disclosure: “Saturday Night Live” is a television program from NBCUniversal, CNBC’s parent company.

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