Crypto 2022: The Year In Review

Crypto 2022: The Year In Review

It has been quite a year for the crypto world. There are several words that could characterise 2022, but ‘trauma’ and ‘pain’ are two of the most apt, as the industry has endured a seemingly unending run of unpleasant surprises. 

For all that, though, there are plenty of good news stories hidden among the negative headlines that have piled up. As the year draws to a close, it’s worth sitting back to take stock of where we are, how we got here, and what might come next.

From Bull To Bear

Market tops are easy to spot with the benefit of hindsight, but much harder at the time. We now know that the cycle peaked in early November 2021, when bitcoin hit its all-time high of $69,000. 

As the new year got under way, a slew of concerns hit the global economy, and it wasn’t long before crypto – and everything else – started to feel the pressure. There were already serious concerns about rising inflation caused by money printing and COVID-related supply chain problems. Then, on 24 February, sabre-rattling on the Ukrainian border developed into a full-fledged war and suddenly, the picture grew dramatically more bleak.

Despite the threat of recession, central banks around the world began hiking rates to deal with double-digit inflation – including the Federal Reserve, which has moved further and faster than most other major economies. Between March and December, the Fed raised interest rates from their record low of 0.25% to 4.5%. The US dollar was the largest beneficiary of these moves, as traders pulled money from risk assets and parked them in the world’s largest reserve currency. Almost everything else fell significantly, with bitcoin crashing almost 80%, from its $69,000 high to a low of $15,479 in November 2022.

Hacks, Scandals and Bankruptcies

The year-long bear market has been punctuated by a series of high-profile mishaps, each of which served to further undermine confidence and drive a new wave of panic selling.

23 March: The Ronin Bridge Hack

One of the largest ever DeFi exploits took place when a hacker was able to gain access to five out of the nine private keys used to validate transactions on the cross-chain bridge for the Ronin Network – the dedicated sidechain solution used by the hugely popular P2E game Axie Infinity. The hacker transferred 173,600 ETH and 25 million USDC from the bridge, and laundered the funds by sending them through decentralised mixer Tornado Cash (remember that name, because it will become important later).

Vast though this $600 million hack was, it took almost a week for anyone to notice there was a problem. The culprit was later identified as the Lazarus Group, an organisation linked to the North Korean state (crypto hacks are one of North Korea’s major income streams). In September, work by blockchain forensics firm Chainalysis enabled law enforcement to recover tens of millions of dollars of the stolen crypto. 

Unfortunately, this episode – one of the largest hacks ever to take place in the crypto space – was just a warm-up for the scandals coming down the line.

7 May: Terra Collapses

The TerraUSD (UST) stablecoin lost its peg – likely as a result of aggressive short-selling by a well-funded attacker – and dropped to just a few cents over the course of the following week. LUNA, its companion token, which was used to stabilise the price of UST, also lost almost all of its value in the same period. Altogether, $60 billion were wiped from the market, destroying several prominent crypto hedge funds and lenders in the process, including 3AC and Celsius.

1 July: FTX Bails Out BlockFi

FTX US – the American arm of FTX, the second-largest crypto exchange in the world – rode to the rescue of BlockFi, a crypto lender that suffered serious losses in the bear market. The deal gave FTX the option to buy BlockFi, and provided $400 million in loans to the organisation to deal with a run on user withdrawals. BlockFi may have looked lucky at the time, since FTX had declined to help Celsius – a similar business that had been forced to declare bankruptcy. In the end, though, it didn’t make any difference.

11 November: FTX Files For Bankruptcy

On 2 November, a series of events was set in motion that would quickly lead to the collapse of crypto giant FTX. Rumours about the amount of FTT (the native token of FTX) used as collateral by Alameda, FTX’s trading arm, led to concerns about its solvency, since FTT could not easily be exchanged for cash. Changpeng ‘CZ’ Zhao, CEO of Binance, then stated that his exchange would be selling its holdings of FTT – which plunged sharply lower as a result. A run on FTX withdrawals soon showed the exchange was insolvent. It would later turn out that customer funds had likely been used by Alameda for high-risk trading. 

In a remarkable plot twist, CZ – who had precipitated the disaster – offered a lifeline to FTX in a deal that would have seen Binance acquire the exchange. After conducting due diligence and learning that the US authorities were investigating FTX, he pulled out. By 11 November, following CEO Sam Bankman-Fried’s failed attempts to attract alternative rescue funding, FTX filed for Chapter 11 Bankruptcy. John J. Ray III, the liquidator who had dealt with Enron, was installed in SBF’s place as the CEO of FTX, describing the situation at the exchange as the worst case he had ever seen. Large creditors, including crypto broker Genesis – the sister company of Grayscale, one of the largest BTC holders in the world – were left billions of dollars out of pocket.

12 December: Sam Bankman Fried Is Arrested

SBF is arrested in the Bahamas for ‘financial offences’ against that country and the US, and is set to be extradited to the US. FTX owes its largest 50 creditors alone more than $3 billion. The arrest was widely expected within the crypto community, and raises the possibility that – eventually – SBF may be held accountable for his actions.

Crypto has been rocked by these scandals through 2022, many of which can be directly or indirectly traced back to SBF, FTX, and Alameda. With the cancers of unscrupulous operators and poorly-designed protocols cut out of the ecosystem, there is a chance for recovery and the opportunity to move on to a new chapter in 2023.

Blockchain Technology And Integrations Plough Forwards

For all the doom and gloom, there have been many high points for blockchain adoption throughout 2022, as the technology continues to garner interest and gain traction.

20 January: Twitter Supports NFT Avatars

Twitter enables the first tranche of users to link their crypto wallets and display NFTs as their PFPs, a move trailed just four months earlier.

2 May: Litecoin Locks In Confidential Transactions

Litecoin, one of the oldest altcoins and often called ‘digital silver’ to bitcoin’s digital gold, integrated an ingenious privacy protocol called Mimblewimble (named after the tongue-tying spell from the Harry Potter books). Early in May, the network achieved 75% consensus for Mimblewimble Extension Blocks (MWEB), meaning that MWEB officially was locked in for activation at block height 2257920. Confidential transactions would become available to users on the Litecoin network later that month.

13 July: Disney (And Many Others) Choose Polygon

Scaling solution Polygon (previously known as Matic Network) has been one of the standout winners of the Layer 2 wars in 2022. Disney selected the project to join its 2022 Accelerator Programme, giving the blockchain platform a massive boost in profile. As different companies dipped their toes deeper into the crypto waters, Polygon gained backing from a number of huge commercial organisations – including Reddit, Stripe, Adidas, the NFL and Starbucks.

15 September: Ethereum’s Merge Completes

Arguably the biggest and most positive event in the crypto world in 2022 was the Merge, also known as Ethereum 2.0: a key moment in the development of the largest smart contracts platform that would see the network transition from proof-of-work to proof-of-stake. The Merge took place over the course of several days, culminating with the Beacon Chain (the PoS chain that had been operating since December 2020) taking over the job of consensus and ending Ethereum’s PoW days. In addition to cutting the network’s energy usage by around 99.95%, the Merge laid the foundations for further upgrades in the future, including sharding, which will ultimately help increase the capacity of the network.

22 September: Cardano’s Vasil Upgrade Finally Goes Live

Not to be outdone by Ethereum, Cardano completed its own major update a week later. Following months of delay, the Vasil Upgrade increased the network’s throughput capacity and reduced transaction costs. Input Output Global (IOG), Cardano’s developer company, called it the most ambitious Cardano upgrade to date due to its high level of complexity. Vasil was expected to result in a surge of new applications, since many developers were waiting on it before deploying new dApps.

29 September: Meta Rolls Out US Support For NFTs

Back in May, Instagram began to test NFT sharing for selected US users, and in August extended this to 100 countries and added support for Coinbase and Dapper wallets. Then in September, Meta opened up the ability to link wallets and display NFTs to all US users across Facebook and Instagram. In November, Instagram would enable a test group of US users to mint and sell NFT directly from the platform, supported by Polygon.

11 October: Google Announces Crypto Payments Via Coinbase Partnership

Google and Coinbase teamed up to enable customers to pay for cloud services using crypto, slated to begin early in the new year. Google will be making use of Coinbase Commerce, already one of the most widely-used crypto payment solutions, and Coinbase will be taking a commission from each transaction. As part of the deal, Coinbase will move some of its applications from Amazon Web Services to Google Cloud. 

12 October: The Binance Smart Chain Moran Hard Fork

At the beginning of October, a hacker was able to exploit Binance Smart Chain’s cross-chain bridge to steal over $100 million. Activity on the bridge was paused while the development team came up with a fix for the vulnerability. The ‘Moran’ hard fork was successfully carried out at block height 22,107,423, securing the chain and enabling bridge transactions to be restarted.

13 October: MetaMask Adds Instant Bank Deposits

MetaMask, the gateway to Web3 applications for tens of millions of users, added support for instant ACH bank transfers, enabling users to buy crypto quickly and easily. While users were already able to pay using a credit or debit card, instant ACH transfers are more reliable – MetaMask had reported that around 50% of card purchases were declined. Bank transfers take just ten minutes, with functionality provided by Sardine, a popular instant fiat and crypto settlement platform.

24 October: Apple Clarifies Its Stance On NFT Trading

Tech giant Apple prompted dismay from the crypto world when it stated it would allow NFTs to be purchased from within apps made for its mobile devices – but would take its standard 30% cut of transactions. In-app NFT purchases were also explicitly allowed, so long as they did not ‘unlock features or functionality within the app’. This effectively excluded NFTs used in blockchain games, and prevented users from trading their characters and in-game items.

26 October: Telegram Releases Its NFT Market

Telegram launched Fragment, a dedicated NFT marketplace for usernames, following the success of a wallet/domain name system released in June on the TON blockchain. NFT sales topped $50 million within the first month alone.

27 October: Twitter Unveils NFT Trading 

As social media platforms made moves into the NFT space through the year, Twitter sought to stay ahead of the competition with a new integration called Tweet Tiles. The new functionality would allow users to buy, sell and display NFTs through tweets. The blockchain-agnostic solution initially supported four specific marketplace partners: Solana-focused Magic Eden, multi-platform Rarible, Flow blockchain’s Dapper Labs, and the sports-oriented platform Jump.trade. Tweet Tiles displays the artwork of an NFT in a separate panel within a tweet and links through to a marketplace listing.

28 October: Elon Musk Buys Twitter

Following months of speculation and legal action, the world’s richest man ended up as the owner of Twitter, paying $44 billion for the privilege. To celebrate, he fired roughly 50% of staff. Perhaps half of remaining employees left voluntarily after choosing not to sign up to Musk’s ‘high intensity’ agreement, raising questions of whether the company could continue to operate in the near term.

19 November: Vitalik Sets Proof Of Solvency Standards

As the crypto community was still reeling from the FTX debacle, Ethereum co-creator Vitalik Buterin proposed a new way for centralised exchanges to prove their crypto reserves, using Merkle sum trees. The idea was immediately implemented by several major exchanges. Binance launched a new proof-of-reserves page on its website, showing that it held 101% of the bitcoin required to cover its liabilities to users, but the report was quickly criticised by leading figures in the industry. Overall, there was a strong movement towards self-custody and crypto was withdrawn from exchanges in large quantities over the course of the month.

24 November: ConsenSys Angers The Community

Web3 company ConsenSys made the headlines for all the wrong reasons when it updated its privacy policy. The organisation admitted that it routinely collects information including IP addresses and wallet addresses from users who access MetaMask via its blockchain infrastructure product Infura. The crypto community, who are fiercely protective of their privacy, reacted with anger. A week later, ConsenSys announced that, following an internal review, it would only hold user data for a week.

1 December: Coinbase Disables NFT Transfers On Its iOS Wallet

Apple’s policy concerning in-app NFT purchases comes back to bite it – and crypto users. Coinbase argued in a Twitter thread that Apple’s demands were not just greedy but nonsensical, since they applied to the gas fees paid by users. ‘Apple’s claim is that the gas fees required to send NFTs need to be paid through their In-App Purchase system, so that they can collect 30% of the gas fee. For anyone who understands how NFTs and blockchains work, this is clearly not possible. Apple’s proprietary In-App Purchase system does not support crypto so we couldn’t comply even if we tried. This is akin to Apple trying to take a cut of fees for every email that gets sent over open Internet protocols.’

Regulation And National Adoption Gain Pace

While the crypto world was being turned upside-down and shaken by market events, countries took the opportunity to set out their positions on various parts of the ecosystem – bringing much-needed clarity to the sector, even if it wasn’t always what was hoped for.

24 February: The Ukraine War Makes Crypto An Unlikely Hero

In the days following the Russian invasion of Ukraine, crypto became a critical tool for moving money into the country when the banks were out of action due to cyber attacks. In the first three weeks alone, more than $60 million was donated by the crypto community to support the military and humanitarian causes, including a $5.8 million donation by Polkadot founder Gavin Wood.

8 August: The US Sanctions A Piece Of Open Source Software

Seeking to stem the flow of illicit funds, the US Treasury Department made one of the most startling examples of overreach in its history by sanctioning Tornado Cash, the decentralised mixer that had been used by the Lazarus Group to launder the funds stolen in the Ronin bridge hack and other exploits. Unlike sanctioning a country, company or individual, the US was targeting software that anyone could access and use, for legitimate purposes as well as illegal ones – with serious implications for thousands of users. Encryption is supposedly protected under the First Amendment in the US, following a similar case concerning PGP in the 1990s.

22 September: Russia Approves Crypto For Cross-Border Payments

Having previously banned the use of crypto for payments, the Bank of Russia and the country’s Ministry of Finance agreed a framework to allow cross-border settlements using cryptocurrencies. The agreement recognised that many Russians already use crypto, and the loss of access to the financial system as a result of sanctions.

10 October: Brazilian Tax Authorities Reveal Over 12,000 Companies Hold Crypto

Brazilian businesses have become enthusiastic adopters of crypto in the face of high inflation. Receita Federal do Brasil (RFB), the country’s tax authority, recorded 12,053 businesses that had declared crypto on their balance sheets for August 2022, a 6% increase on July’s figures. Tether is the most popular cryptocurrency held by companies, followed by Bitcoin. Meanwhile, the number of individuals who held crypto had decreased month on month. Brazil’s inflation rate peaked at 12% in April, but remains high.

17 November: El Salvador DCAs Into The Dip

As the price of bitcoin crashed over the course of 2022, El Salvador – led by bitcoin evangelist Nayib Bukele – has often bought the dip. As prices fell further, Bukele announced that he would be buying 1 BTC per day to slowly increase El Salvador’s crypto holdings. To date, the country holds around 2,400 BTC.

23 November: Japan Announces CBDC Trials

Like many other countries, Japan has been mulling the pros and cons of launching a central bank digital currency (CBDC). In November, the Bank of Japan announced a pilot scheme with three major banks. The aim is to work with various private banks and other organisations to ensure that deposits and withdrawals take place smoothly, and to check that a CBDC continues to operate during natural disasters and in areas that lack internet access.  The BoJ will decide whether to move ahead with a CBDC by 2026.

30 November: Brazil Allows Crypto Payments

At the end of the month, Brazil legislated to allow the use of crypto as a means of payment. Unlike El Salvador, it did not make bitcoin legal tender. Nonetheless, it’s a great step forward for crypto, clarifying the position for the country's 200 million citizens.

Looking Ahead To 2023

As one year ends and the new one begins, there are many questions to be resolved in the crypto space. What will happen to Genesis and Grayscale? Is it possible that Alameda was responsible for attacking Terra, profiting in the short term but inadvertently causing collateral damage that led to its own collapse? What penalties will unscrupulous project founders face, and what regulatory backlash will there be from the FTX debacle? 

Traders, meanwhile, are eyeing the markets and wondering whether we truly have seen a cycle bottom, or whether more pain is to come.

Throughout it all, though, new projects are being launched and the community continues to BUIDL. Whatever 2023 brings, crypto’s future is bright. We look forward to the new year with a sense of optimism and excitement!