This is an excerpt from The Future of Digital Banking in North America 2024 report.
The collapse of the cryptocurrency platform FTX in late 2022 has sent waves through the industry that continue to linger. It triggered not only the loss of trust but also increased scrutiny for digital currencies and decentralised platforms by regulators.
While the EU is reacting by crafting new regulation for blockchain technology and cryptocurrencies, the US SEC has instead gone down the route of
increased enforcement of existing frameworks in order to increase oversight.
Yet experts are cautiously optimistic about a 2024 rebound in crypto investment.
Standard Chartered predicts an end to the ‘crypto winter’ and forecasts Bitcoin to reach $120,000 by the end of next year. The next Bitcoin halving, which will take place roughly around April 2024, adds merit to these predictions. Taking place circa every
four years (after 210,000 blocks are mined), the block reward given to miners for processing transactions is halved, which cuts in half the rate at which new bitcoins are released into circulation. There have only been three halvings since the advent of Bitcoin
which have each boosted demand and prices. Yet considering cryptocurrencies are highrisk assets in a current environment of market uncertainty, the 2024 halving is not guaranteed as a catalyst for Bitcoin prices.
The aftermath of the FTX collapse has sparked concern not just among consumers, but among investors as well. Adding to the complexity of the situation, the ripple effects were also felt beyond the realm of cryptocurrencies. When comparing the first half
of the year of 2022 with 2023, Crunchbase found that Web3 funding from venture capital funds has dropped by a stunning 78%. Metaverse property investments have experienced great losses over 2023 as well, and NFT collections are taking a similar hit, with some
projects losing up to 95% of their value in Ether.
Yet as uncertainty remains, Web3 continues to be banked on by many financial institutions. Sara Elinson of EY notes: “Not too long ago, cryptocurrency was viewed by many as an inflation hedge and an investment product to weather the storms of other asset
classes. While we’ve come to see the challenges of that point of view, interest in blockchain tech has shifted, particularly for financial institutions, who are now looking very closely at tokenization as a way to unlock markets and bring new investment capital
into markets.”
And while the adoption rate adoption rate of Web3, blockchain and crypto has so far averaged an
80% user growth rate per year (to compare, the average growth rate of internet users lies at 33%) and is expected to reach
$81.5 billion in value by 2030, these recent events have sparked conversations about the need of enhanced digital identity and privacy in order to prevent fraud and increase trust.
Ed McLaughlin, CTO at Mastercard, emphasises the need for such programs in the industry. “The reality is that that digital economy can thrive only when participants trust it — and trust each other. The ability to prove who you are online builds that trust.
Digital identify is one way to do just that, and it’s why we’re building a digital identity network that will instil confidence on both sides of the interaction.”
Web3 offers a new way for users to interact with digital assets, which requires the need for improved digital identity ownership and verification processes. Considering the pace of development, the potential need for digital identity and privacy services
to become a utility in our future economy is being considered. Prashant Kher of EY comments: “While digital identity and privacy services are not needed to drive initial adoption of Web3 technologies, as there are other solutions out there that can help address
identity and privacy needs, digital identity and privacy services will help with driving longer term adoption and scaling of Web3 technologies.”
As our digital presence grows, so does the number of identities we each hold. The risk lies in the web of identity becoming so convoluted that it opens the door for fraud.
Self-sovereign identities (SSIs) are one way to combat this. SSIs use digital wallets which contain identifiers that are claimed against a block in blockchain. This allows users (individuals or companies) more control over their digital identities in Web3
compared to web2, because personal identifiers and data do not need to be given to an intermediary and can be controlled by the owner of the SSI.
In this way, the Web3 could bring physical and digital identity together. Digital wallets could enable users to potentially link passport numbers, emails, medical records and biometric data to it and streamline their payments, subscriptions, and other digital
services. Having the power to choose which data to share with whom, when and where can enhance a user’s trust, help combat fraud and has the potential accelerate Web3 adoption.