“Web3 continues to be used”
A16z crypto, the crypto asset (virtual currency) division of major venture capital firm a16z, released a report on the latest situation in the cryptocurrency industry on the 11th. It reports that the speculation has calmed down and people are starting to use Web3 consistently.
First, he pointed out that the number of active addresses conducting transactions on the blockchain reached a record high. There were 15 million sending addresses in March, more than double the number from two years ago when cryptocurrency prices were soaring.
The reason for this is the increasing number of ways to use blockchain and Web3 apps, from DeFi (decentralized finance) to games. Another reason is the emergence of products equipped with a mechanism that can be used easily without having to download a wallet.
In addition, the improvement of various tools and the development of scaling solutions to solve scalability issues and lower fees are also contributing to the increase in transactions.
What is a scalability problem
Refers to “scalability” issues that slow transaction processing. Due to the nature of blockchain, the amount of transaction data that can be written in one block is limited, causing delays in processing. Transfers take longer, which can lead to higher transaction fees. Bitcoin, the first virtual currency, has been viewed as a problem, but efforts to solve the problem, such as utilizing other technologies such as the Lightning Network and developing new blockchains, have not been implemented. ing.
DeFi and NFTs are on the rise again
The report also reported that activity in DeFi and NFTs (non-fungible tokens) appears to be picking up again. Looking at the number of NFT purchasers, it surged in 2021, but the excitement subsided after that. However, from the beginning of 2023, an increasing trend can be seen again.
While speculative activities are cooling down, a16z is being used in various fields such as loans and remittances for DeFi, art, various NFT collections, and on-chain game items for NFT. was analyzed to be in
For the past two months, trading volume on decentralized exchange Uniswap has outstripped that of Coinbase, the largest U.S. centralized exchange. Expectations for DeFi innovation continue.
Development of scaling solutions
The report also noted that scaling solutions are being actively developed.
An Ethereum (ETH) L2 project is emerging that will lead to lower transaction fees. In 2022, L2 accounted for only 1.5% of fees paid across the Ethereum blockchain. Today, that percentage has reached 7%. It is a form that shows that the number of applications built on L2 is increasing.
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a16z also noted that Ethereum’s move from “proof of work” to “proof of stake” consensus mechanism with “The Merge” upgrade is also a momentous event. The environmental impact of Ethereum will be greatly reduced.
What is layer 2
A “second layer” blockchain. Writing all transaction histories to the main chain increases the load, slowing down processing speeds and increasing network fees. Therefore, by writing part of the transaction history in the off-chain or side-chain, it is possible to reduce the load on the main chain and improve the processing speed.
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The report also reported sustained developments across the cryptocurrency industry. Currently, the industry claims to have close to 30,000 monthly active developers. Note that active developers refer to the number of people who have contributed to cryptocurrency repositories on GitHub during the month. Since 2020, the number of such developers has increased by 60%.