Solana boosted by Bank of America

Alkesh Shah, a digital asset strategist at Bank of America, is sweet on Solana. This week in a research note he claimed that Solana, widely seen as a competitor to Ethereum, could become the “Visa of the digital asset ecosystem.”

Solana only launched in 2020, and since then has become the fifth largest cryptocurrency with a market cap of $47 billion. Its impressive growth spurt has outperformed that of Ethereum, and it has been used to settle over 50 billion transactions. It has also minted some 5.7 million NFTs.

Despite this performance, it still has its critics, and they argue that the speed at which it settles transactions comes at the cost of decentralization and reliability. Shah doesn’t buy this. He believes the benefits outweigh the drawbacks: Its ability to provide high throughput, low cost and ease of use creates a blockchain optimized for consumer use cases like micropayments, DeFi, NFTs, decentralized networks (Web3) and gaming.”

In his note, Shah also pointed out that he believes Solana will take market share from Ethereum, simply because it offers lower fees, is easier to use and has greater scalability. He told Business Insider, “Ethereum prioritizes decentralization and security, but at the expense of scalability, which has led to periods of network congestion and transaction fees that are occasionally larger than the value of the transaction being sent.”

Ultimately he thinks Solana may take over the transaction settlement side of the market, while Ethereum focuses on “high-value transaction and identity, storage and supply chain use cases.”

But perhaps the most surprising element of Shah’s note is the comparison of Solana with Visa. Visa processes an average of 1,700 transactions per second (TPS), although if pushed to the max it could do 24,000 TPS. By contrast Solana has an upper limit of 65,000 TPS. Ethereum handles about 12 TPS. The difference is striking.

However, as Solana followers will know, the network has suffered a number of problems recently, something that Shah acknowledges. Already in 2022 there have been withdrawal issues on both Binance and Coinbase and an alleged DDoS attack on 5th January, something the network denies. And in December of last year there was a DDoS attack, as well as reports of network congestion. This does not seem to have deterred investors this week. After several rough days, Solana (SOL) has bounced back to $151, an increase of 8.56% from a 52-week low of $130, although it has some way to go before it reaches its former ATH of $260.  But if Shah is right, and Solana becomes the “Visa of the digital asset ecosystem” who knows how high its price may go.

Why the Metaverse needs rules

A country’s constitution establishes the rights and responsibilities of citizens. Therefore it makes sense that the Metaverse, which is likely to be somewhat akin to a country, should have something similar. Otherwise, as Stephanie Hurlburt and Rich Geldreich say in an article on the topic, “we fear the metaverse will fail as a public, open system and only recreate social media’s glaring flaws with steroids.”

The two tech entrepreneurs and co-founders of Binomial, point out that the dangers we have already seen: Facebook was found to be shaping election results, and Twitter “was embroiled in scandals around its impact on public safety and censorship.”

If the Metaverse is uncontrolled, it is likely that we may find ourselves exploited by it. Just as we were by Facebook and Cambridge Analytica, perhaps in an even worse way.

Hurlburt and Geldreich say one way to ensure this doesn’t happen is by insisting that the Metaverse’s core building blocks are made of open standards and open source code. Furthermore, all data policies must be both transparent and understandable, and any research conducted in the Metaverse must be made instantly available to the public.

We must also establish what the Metaverse is and what it isn’t. In some ways the series of lockdowns most of us have been through in the last two years have normalised living virtually, so we’re prepared for a highly immersive virtual world where people gather to socialise, play, and work.

Neither should one company own the Metaverse. Most of you will be aware that Facebok has changed its name to Meta, which is a blatant attempt to co-opt and dominate the emergence of a Metaverse. The social media giant has already invested $10 billion in it this year, an eye-watering sum that points to their strategy.

Now we must ensure we learn from the mistakes of the past, i.e. the way in which the social media platforms have insinuated themselves into global politics for one. Hurlburt and Geldreich believe the best way to avoid this is by having some simple rules. These include establishing who can access its key building blocks, and the answer should be everyone. They give the example of the Internet. When Tim Berners-Lee created the Internet, he released key pieces as open source code that was free and accessible for everyone. The Metaverse and Web 3.0 must operate on the same principle.

Data policies are both transparent, and understandable. Facebook, Twitter and Co may have a data waiver policy, but few of us understand it. So we need policies that are clear to the majority, because if the Metaverse is left unchecked, personal data mining and extraction could become the single most powerful surveillance mechanism ever invented.

Governments can create rules and laws for the Metaverse. For example, a company’s earnings must be made public by law, so a company’s research in the Metaverse could easily follow a similar rule. More protection is also needed from algorithms that direct people to extremist sites. Research showed that 64% of people visiting such pages had been directed there by the Facebook algorithm, and there are strong arguments for making this information public, rather than allowing a company like Facebook to cover it up.

Companies also have a role to play. Whilst governments make laws, companies should agree “a set of baseline rules.” They must know by now that the court of public opinion is not often on their side these days, so they need to pay attention. Hulburt and Geldreich say, “If the public displays enough appetite for a Metaverse constitution, Big Tech’s hands will be tied.”

The future of the Metaverse is in your hands, just as much as it is in the hands of the tech companies. Make use of your power before others strip it away.

The Battle of Bitcoin versus Gold

The argument that Bitcoin has the potential to take over from the precious metal gold as a store of value continues to rumble on. Already this year, Goldman Sachs has weighed into the debate with Zach Pandl, Goldman’s co-head of foreign exchange strategy, sending a note to clients this week, saying Bitcoin can take market share from gold over time as a “byproduct” of more adoption, along with the potential from “Bitcoin-specific scaling solutions.”

Pandl also wrote, “Hypothetically, if Bitcoin’s share of the ‘store of value’ market were to rise to 50% over the next five years (with no growth in overall demand for stores of value) its price would increase to just over $100,000, for a compound annualized return of 17-18% (accounting for growth in Bitcoin supply over time).” 

It is estimated that public ownership of gold as an investment stands at around $2.6 trillion, Bitcoin’s market capitalization is currently just under $700 billion, and Pandl said that from these figures he concluded that Bitcoin currently commands an approximate 20% share of the “store of value” (gold and Bitcoin) market.

Bitcoin options

Goldman Sachs has been making quite bullish noises about Bitcoin and cryptocurrencies. In December last year it made a statement saying that the next major development for cryptocurrencies will be more liquid options markets as more traditional financial firms pile into the rapidly growing asset class. Andrei Kazantsev, Goldman’s global head of crypto trading, said, “We are seeing a lot of demand for more derivative-type hedging. The next big step that we are envisioning is the development of options markets.”

In December, open interest in bitcoin options, or the total value of outstanding contracts, stood at about $12 billion as of the latest data from Skew, a subsidiary of Coinbase that tracks data on cryptocurrency derivatives markets. This is a considerable increase over 2020 when the market rarely exceeded $2 billion. Kazantsev says the cryptocurrency derivatives market is still in its infancy, but that Bitcoin options were growing at speed. Essentially, options are a type of financial instrument called a “derivative,” which obtains its value from the price of another asset – in this case, the underlying cryptocurrency. Increasingly investors are using cryptocurrency options to hedge out existing risk or take on additional market exposure.

Bitcoin to $100k

But back to Bitcoin versus gold. It is interesting that in April of 2021, Goldman Sachs doubted Bitcoin could become a store of value, saying it had environmental problems, competition from other cryptocurrencies and “lack of real use.” Back then its top commodities strategist Jeffrey Currie said, “Traditional long-term stores of value such as gold, art, diamonds, wine and collectibles all have value and use beyond being stores of value,” and asserted, that Bitcoin’s lack of real uses and its environmental problems make it “vulnerable to losing store-of-value demand to another, better-designed cryptocurrency.”

It seems that after reinstating its Bitcoin trading desk and reporting huge institutional demand for BTC, the Wall Street giant has changed its tune about Bitcoin’s potential as a store of value and that this could send its value to $100,000.

Money in 2022

This coming year might see many changes in the financial world, especially in money itself. It’s difficult to predict how things might play out, although there have been predictions in the MSM that Bitcoin and crypto generally will crash and burn, but that seems unlikely for those of us that are more immersed in cryptocurrencies than MSM journalists and their readers.

One scenario revolves around central bank digital currencies (CBDCs). Will they be more influential this year as governments look to control digital currencies? Or will the stablecoins, such as Tether, issued by private companies rule the roost? Then there are the decentralised currencies, such as Bitcoin. Will they become the dominant force in finance?

Various factors are driving the debate around money. For example, China is rolling out its Digital Currency Electronic Payments (DCEP) project during the Winter Olympics in February. And the USA is developing regulations targeted at private issuers of stablecoins, whilst adoption of decentralized cryptocurrencies for payments continues to grow around the world.

The Regulations debate

In 2021, the US government debated crypto tax provisions in the infrastructure bill and the approval of a futures-based Bitcoin exchange-traded fund (ETF.) This year it is likely that the U.S. Securities and Exchange Commission will find ways to clarify its position on whether tokens are unregistered securities. At the same time, DeFi tokens may find themselves being included in this debate, which would be unwelcome.

The future of Ethereum

Although Ethereum still dominates DeFi, will its high gas fees for NFTs and other transactions become too expensive? It depends on the success of Ethereum 2.0. There are many big moves to be made before the full 2.0 project can be deemed a success. It has to merge its mainnet with the Beacon chain and that could disrupt token economics for miners and validators. And there are challenging upgrades within Eth 2.0, including sharding. The future of the dominant smart contracts platform depends on these going well.

Crypto and the climate

As climate change continues, crypto needs to shift the conversation away from how bad it is for the environment and towards one about mining-integrated energy systems that create incentives not only for miners to use renewable energy.

Web 3.0

Finally, there will be many discussions about Web 3. Jack Dorsey has been leading at least one discussion about its future, in which people will have greater control over their data and content. So far Web 3 is not really well defined, but there is a need to adjust our systems for managing digital property and for establishing users’ rights in this new era. We can expect this year to bring more clarity on Web 3 might be like and to get a better idea of the projects that will form part of it.