The month of February witnessed notable advancements and developments for the crypto industry. Most notable was the recent introduction of Coinbase's layer 2 network on the Ethereum blockchain called Base. Coinbase's goal with the Base rollup is to launch a platform that makes it easy for developers to build decentralized apps. Base is built on Optimism’s open-source OP stack, which provides developers with development tools to build fast and cheap decentralized infrastructure. Base will also integrate with other Coinbase products such that developers get access to the 100 million plus users from the Coinbase platform. However, Base will start out centralized as Coinbase will be the sole sequencer for the chain. The sequencer plays a crucial role in ensuring the proper functioning of the network. As we are more keen on decentralization over centralisation we're looking forward to seeing the sequencer network become more decentralized in the future. This could potentially be through the integration of decentralized sequencer solutions from our portfolio company Astria.
At the beginning of February exciting news broke that streaming service Spotify is testing a new service called “token-enabled playlists”. This functionality allows the owners of certain non-fungible tokens (NFTs) to listen to curated playlists and early releases of songs. Spotify routinely conducts a number of tests in an effort to improve user experience. If the NFT experiment is successful, it could pave the way for introducing more than 489 million users to the world of NFTs.
Earlier this year, the Ordinals protocol launched which allows inscriptions (NFTs) on the Bitcoin blockchain. As a result, the Bitcoin inscriptions significantly increased the average network fee and block size. It will be interesting to monitor how the Ordinal inscriptions affect these metrics over the coming months as the hype subsides. There are concerns that if the block space is consistently used to its full extent it will add too much data to the blockchain which could make it less decentralized as concerns of insufficient bandwidth come into play. Meanwhile, Yuga Labs, the creator of the popular Bored Ape Yacht Club NFTs, announced the launch of TwelveFold, a collection of 300 generative art pieces inscribed onto the Bitcoin blockchain.
In last month’s update we shed light on Ethereum's important Shanghai Upgrade which is slated to take place in April. Over the past weeks, developers successfully launched the Shanghai upgrade on the Ethereum testnet. This development brings the long-awaited Ethereum withdrawals on mainnet a step closer, a topic that was discussed in great detail by our colleague Mathijs Van Esch on BNR's Cryptocast on February 28th. In addition to these developments, there was more significant news related to the Ethereum testnet. Earlier this month, a cross-chain liquidity pool was launched which allowed speculators to drive up the price of GoETH, which is the Goërli testnet version of Ethereum. However, this led to some unwanted consequences as testing new applications should be affordable. Hence, a few Ethereum core developers have proposed introducing Holli as a new testnet to address supply issues and provide a better environment for developers and validations.
Speculations suggest that Asia is propelling a new wave of enthusiasm in the cryptomarkets driven by easing of regulations and increased crypto trading activity. In particular, Hong Kong’s Securities and Futures Commission (SFC) published a set of rules for virtual asset trading to allow licensed platforms to serve retail investors. Under the new regime, crypto trading platforms need to apply for a license and can only offer tokens which satisfy the SFC’s criteria. Additionally, Hong Kong is planning to regulate stablecoins starting in June this year. As a consequence, several large Asian based exchanges have already applied for the required license. Justin Sun, founder of the Tron blockchain and owner of the Huobi exchange has opined that this development could improve the tumultuous relationship between China and Crypto. He stated that “Beijng sees Hong Kong as one of the experimental zones for cryptocurrency”.
This month saw more promising news out of Asia as Tencent Cloud, a subsidiary of Tencent announced its ambitious Web3 plans. Tencent is a major multinational conglomerate and one of the largest internet companies in the world. It has a large presence in Asia with its flagship product, WeChat. Tencent Cloud wants to target Web3 builders and provide tools such as metaverse-in-a-box which helps businesses develop metaverse applications and accelerate integration with Tencent Cloud’s infrastructure such as gaming, media and entertainment. Thereafter, Asian technology giant Huawei announced a partnership with multiple blockchain companies on the launch of its metaverse and Web3 Alliance project which aims to facilitate the speedy adoption of these technologies in Asia.