2021: What a year!
Let’s revisit some of the biggest stories of 2021 in the cryptocurrency and privacy worlds!
Institutional Adoption
This year saw almost every bank in the world get involved with cryptocurrency in some manner. Financial institutions such as Bank of America stated that the rise of Central Bank Digital Currencies (CBDCs) is inevitable, while payment agencies like VISA have thrown their hats into the ring to bridge the gap of interoperability between CBDCs and Stablecoins. Companies like Tesla and Microstrategy added a bunch of Bitcoin to their reserve assets, and heavyweight investors like Ray Dalio actually started praising crypto. The first Bitcoin ETF, Proshares (BITO), launched in October to wild success, amassing $1 billion in assets in its first two days. Coinbase officially went public with its IPO in April at $350 per share, and for the first time crept back above that price in November.
Binance’s 180
Binance, the largest cryptocurrency exchange in the world, did a complete 180 this year. Historically, Binance hasn’t been headquartered in any particular jurisdiction, so governments didn’t know how to handle them. This led to them being able to offer far more coin pairings than other exchanges, and that, along with the fact that they had no KYC, made them incredibly popular, resulting in huge liquidity on the platform.
This year their “move fast and break things” attitude began to change when they started offering tokenized stocks. Countless governments around the world systematically shut them down. Japan, Thailand, and the UK filed complaints, Malaysia ordered them to halt operations in the country. Binance wound down their futures and derivatives products across Europe, and removed the Norwegian Krone and South Korean Won trading pairs and payment options, and also removed South Korean language support. The crackdown led Binance to undergo a major shift in tone: They mandated KYC, became fully licensed in multiple jurisdictions, and decided to set up a centralized HQ. The mounting pressure prompted founder Changpeng "CZ" Zhao to search out former regulators to add to their team, including appointing a former US Treasury enforcer to oversee their anti-money laundering department, and naming former US Comptroller of the Currency as Binance.US CEO, although that only lasted a few months. CZ also announced plans to search for his own replacement amidst the chaos.
Sad to see this great product, providing tremendous value to consumers, be strangled by governments.
“It’s Transitory”
Inflation in the United States reached a record-breaking high this year of 6.8% — the highest since 1982. Bitcoin also set its own personal best, reaching nearly $69,000 in November. The timing of bitcoin’s price-hike made sense, as the debasement of the US dollar led many to search for assets in which to park their cash. Bitcoin has become a new favorite as a potential hedge against inflation.
Although the end of the year saw bitcoin “crash” to the $47,000 range (we started the year at $30,000), the all-time-high of this year is likely to be about as transitory as inflation right now. As long as the money printer keeps brrrring, people will keep looking for alternative stores of value.
Regulation
When Gary Gensler was appointed chair of the SEC this year, hopes started out high: At last someone in a regulatory capacity who understood crypto! Those hopes were immediately dashed when it became clear that he knew just enough to be dangerous.
While an inter-regulatory-agency war started brewing between the CFTC and the SEC about who would have more authority over crypto, Gensler was intent on asserting that his territory included… everything.
Some of his best hits of the year:
"SEC needs more authority over crypto"
"We must clean up crypto before there's a spill"
"Everything is a security"
"DeFi is not exempt from regulation"
Meanwhile, The Office of Foreign Assets Control (OFAC) sanctioned the entire Suex.io exchange for its alleged role in facilitating crypto transactions for ransomware hacks. Major crypto platforms Blockfi, Celsius, and Coinbase, were ordered to halt their loan programs by various federal and state regulatory agencies. There were also endless hearings about how to “reign in” crypto. At least these hearings gave the heads of major crypto companies a chance to educate regulators about the assets they are intent on regulating. As CEO of Bitfury, Brian Brooks, noted in the hearings:
The line between ‘not enough’ and ‘too much’ regulation is super clear. Other countries are approving products that we just don’t allow here, and it’s pushing innovation offshore.
Thank goodness for regulators like SEC Commissioner Hester Peirce, who strongly argued throughout the year (even against the decisions of her own agency!) that we can't let regulation stifle innovation. Perhaps 2022 will be the year that regulators embrace her "safe harbor" laws. She remains a refreshingly rational voice in a sea of overzealous, would-be tyrants.
Infrastructure Bill
President Biden signed the $1 trillion bipartisan infrastructure bill into law this year, complete with a controversial cryptocurrency provision. The language that is still in dispute vaguely broadens the term “broker” to “any service effectuating transfers of digital assets on behalf of other persons”. This could potentially apply to miners, coders, and other participants in the crypto economy, for whom compliance with the new provision would be impossible. While a “source” at the US Treasury assured the crypto community that the Treasury is not going to interpret the definition of broker too broadly, there are big questions about whether their definition of “too broadly” is the same as ours. There is also concern about whether future Treasuries will feel the same way — after all, laws outlast administrations.
There are many efforts to amend this language in the law itself, including a lawsuit arguing that reporting requirements for both crypto and cash payments are unconstitutional. The crypto provision doesn't come into effect until 2024, so the full effects on the industry won't be known until then, but let’s hope the efforts to change the law are successful.
Rise of CBDCs
This year marked the entrance of the Central Digital Bank Currency (CBDC) into the world’s collective financial vocabulary. Nigeria and China have both launched their own digital currencies, and the rest of the world is exploring the option. Nigeria’s eNaira is a push to reclaim control of the money supply from decentralized cryptocurrencies, as is China’s digital Yuan. There’s all kinds of research into how CBDCs can be used to further control the movement of money, including talk of programming money to expire if not spent fast enough. It’s not just China exploring this dystopian future: Tom Mutton, a director at the Bank of England, said programming could become a key feature of any future central bank digital currency, and could be used to restricting the purchasing choices on individuals.
CBDCs have all the makings of another oppressive tool for surveillance and control.
NFT boom
It wouldn’t be an article about the biggest stories of 2021 without mentioning NFTs — Non Fungible Tokens. This year's obsession over digital art collections broke massive records, with accumulated sales estimated at $18 Billion this year alone. It seemed that every sector was aiming to get on the NFT train. From Beeple’s $69M Christie’s Auction, to Macy’s Thanksgiving Day Parade, VISA purchasing a Cryptopunk, Messie, Aoki, Tom Brady, Burberry, Fortune, Time, Martha Stewart… the list is endless.
Ross Ulbricht’s original artwork was minted into an NFT collection, which was then sold to raise money to help continue his legal battle and support the families of the incarcerated.
While many considered NFTs at the start of the year to be a passing fad, it never seemed to pass at all — but there continue to be questions about their usefulness. As Adam Levine said, an NFT is a digital key that opens a digital lock, but so far we’ve only figured out how to paint the key. The true potential of NFTs is latent, and may well start to emerge in 2022.
Elon Musk - Edgelord of the Year
Elon is one of the most important entrepreneurs of our generation, turning our sci-fi fantasies into reality. The least of his achievements this year was being named Time Magazine’s 2021 Person of the Year.
“He tosses satellites into orbit and harnesses the sun; he drives a car he created that uses no gas and barely needs a driver. With a flick of his finger, the stock market soars or swoons. … He dreams of Mars as he bestrides Earth, square-jawed and indomitable.”
Elon also spent 2021 moving entire markets with a single tweet, and many of these markets are in the crypto space.
At the start of the year Tesla announced they would add bitcoin to their treasury reserves, purchasing $1.5 billion worth of bitcoin. They also announced they would accept bitcoin as payment — Elon was heralded a hero in the crypto community. A few months later, however, citing concerns over bitcoin’s carbon footprint, Elon said Tesla would no longer accept bitcoin for payments. This riled up many, with some even creating conferences dedicated to hating on him.
Meanwhile Elon dedicated development resources to dogecoin, appointed himself as the “Doge-Father”, and trolled the entire internet with seemingly no regard for what the corporate media thought of him. Not just a refreshing voice, but also an incredibly inspiring one who is constantly moving humanity forward and pushing the boundaries of innovation in multiple fields.
China Crackdown
China’s crackdown on crypto started with the lead up to the 100th anniversary of the Chinese Communist Party (CCP) and then only intensified as the year progressed. In a not-unexpected flex of power, China declared all crypto businesses illegal, pushed mining out of the country, and shut down all exchanges. The CCP also went after technology in general, banning private investment in many tech industries to effectively nationalize them.
The Chinese Communist Party also passed a "historical resolution" — a document that summarizes the party's 100-year history, and addresses its key achievements and future directions. This move (which cements President Xi Jinping's status in political history), as well as the pushback against crypto and dissent in the country, seems to be motivated by Xi vying for another term in office.
Although crypto can be banned, and industry players can be targeted, crypto itself can’t be shut down. Let’s hope it continues to be a useful tool for freedom for the Chinese people, and people all over the world regardless of government edicts.
El Salvador
In an historic move, El Salvador became the first country to make Bitcoin legal tender this year. Led and enthusiastically endorsed by President Nayib Bukele, the country began its journey to pull away from the US Dollar (which it adopted as its official currency in 2001), saying that bitcoin will be an official means of payment, and that bitcoin will be added to El Salvador’s treasury reserve assets.
The legislation itself, however, rubbed many the wrong way due to the inclusion of article 7, which said that bitcoin must be accepted when offered at a point of sale transaction. This makes the law far more severe than a normal legal tender law, making it instead mandatory tender. Ethereum co-founder Vitalik Buterin said “making it mandatory for businesses to accept a specific cryptocurrency is contrary to the ideals of freedom that are supposed to be so important to the crypto space”.
It’s important to remember that we can commend the spread of bitcoin, while continuing to hate use of force, and sure be sure to differentiate between the two. One of the 4 horsemen of the end-of-fiat apocalypse since the start of bitcoin was that eventually we would see central banks and governments around the world rush to add bitcoin to their balance sheets. That doesn't suddenly make these central banks and governments the good guys, but the spread of a non-government-controlled money is exactly what we want to see.
It’s definitely not what The International Monetary Fund wants to see though, and they publishing a statement against El Salvador’s move, saying that bitcoin presents “significant risks” for consumer protections and financial stability.
El Salvador went full YOLO though. This year they also started mining bitcoin using volcano energy, and they even announced a plan to construct a “Bitcoin City” near the Conchagua Volcano, powered by the geothermal energy. While the method they’re using to fund the project seems suspect (bonds backed by the full faith of the El Salvador government, anyone?), it would still be super cool to see the plan come to fruition.
Rise of Doge-Inspired Meme Coins
Doge is EVERYWHERE. Dogecoin (the OG) originally started as a cryptocurrency to mock cryptocurrencies, is now one of the most traded cryptocurrencies on retail investment apps like Robinhood. In fact, Robinhood reported that 34% of its crypto revenue in its first quarter was directly linked to DOGE trading. The dogecoin foundation reemerged with year with Vitalik on the board, and as mentioned above, Elon pledged to fund Doge development and explore acceptance of doge for Tesla merchandise.
Now Doge as a meme-currency has legs of its own — others are following suit in creating/adopting various iterations of the now iconic Shiba Inu breed. Ethereum-based Shiba Inu enjoyed a bull run in late October after being added to the list of cryptocurrencies Coinbase offers, and made some investors wealthy overnight, and the popular beef jerky snack Slim Jim enjoyed a significant positive reaction from their target audiences when they added Doge to their marketing. CEO Sean Connolly said:
“We've seen a marked uptick in audience interaction, including direct engagement and advocacy from the person [who] created dogecoin.”
And of course, we cannot forget Floki - the cryptocurrency based off of Elon Musk’s Shiba Inu dog. Floki assaulted the public, from London underground commuters to Australian drivers, with a barrage of advertising campaigns this year. While this meme-economy appeals to FOMO, we encourage readers to think carefully about the use case of whatever they’re buying into. If there is no apparent use case other than speculation, you’re just gambling — which is fine, but just understand what you’re getting into.
Giant hacks
Giant hacks and scams played a role in 2021. According to Chainalysis, DeFi ‘Rug Pull’ scams brought in over $2.8 billion this year. There were also regular DeFi hacks, such as the Poly Network which lost $600 Million in combined crypto assets (it was eventually returned), DAO Maker which lost $7 million, a CREAM Finance flash loan attack worth over $100m, Badger DAO protocol suffering a $120m exploit, and even centralized exchanges like Japan’s Liquid Global exchange losing $90 million.
There were also enormous public ransomware attacks such as the notorious Colonial Pipeline hack (which cut off a huge portion of the fuel supply to the East Coast). These attacks proved simultaneously how far technology has advanced, and how vulnerable vital operations running outdated software are.
Always keep your software and operating system updated, and before pouring money into DeFi find out if the platform has undergone any audits. If not, understand the risk you’re taking by investing.
Jack
Jack Dorsey has had a pretty interesting journey this year. He tweeted out a Mises Institute link for Rothbard’s “Anatomy of the State”, probably doing more to introduce the mainstream to Austrian Economics this year than almost anyone. He stood up to congress during a hearing about censorship, where we said that he doesn't think Twitter should be the arbiter of truth and doesn't think government should be either. He also started moving along with Bluesky, a decentralized Twitter, and tapped former Zcash developer Jay Graber to lead it. He also rolled out bitcoin tipping on Twitter, which is a really cool way to introduce a giant new market to the world of decentralized cryptocurrencies. At the end of the year he announced his resignation from Twitter (and Twitter immediately imposed stricter speech policies after his departure), rebranded Square to “Block” (where he remains CEO), and then started a war against VCs. We had a lot to say about this war in a previous newsletter, and although we don’t always agree with his decisions, we are intrigued to see what 2022 will bring for Jack.
The Rise of Messaging-App Cryptos
The ability to send quick, reliable, and secure payments via messaging apps has been something that governments have tried to thwart for years now — but in 2021 some platforms found ways to get their projects past the finish line regardless. Facebook pivoted from a focus on building their own cryptocurrency (Diem) to instead launching their pilot program for their Novi Wallet in the US and Guatemala in partnership with Paxos.
Telegram’s TON project, preemptively shut down by the SEC, celebrated a resurrection under the new “Toncoin” name. Although the official Telegram stablecoin effort was halted, multiple spin off projects emerged using the same code base, and this year Telegram CEO Pavel Durov officially endorsed one of them:
“I was inspired to see the champions of Telegram’s coding contests continue developing the open TON project, which they rebranded to Toncoin.”
Toncoin’s token price spiked immediately by nearly 30% soon after.
While Paxos transactions can be frozen at the protocol level according to their terms of service, and Toncoin gives people no privacy protection, Mobilecoin’s launch this year was the most exciting development for us.
Mobilecoin raised $66 million to build a privacy-focused payment technology that can be seamlessly integrated into any messaging app. It’s already been adopted by Signal and Mixin messenger so far, and they have designed it so that the messaging app itself knows almost nothing about the transaction taking place. Kudos to Signal and Mixin for going the privacy route.
The Rise of DAOs
This year Shapeshift decentralized itself out of existence, dissolving its corporate structure and shapeshifing itself into a DAO. An epic and impressive move from a group of people who walk the talk, and take actions that consistently align with the ethos of decentralized finance. Shapshift airdropped its FOX tokens to over a million customers as well as members of the DeFi community.
The concept of DAOs also reached mainstream media when the ConstitutionDAO was created to try to buy a copy of the US Constitution in an auction. It raised over $40 million in ETH in under a week, but was outbid at the last minute by billionaire Citadel CEO, Ken Griffin.
The FreeRossDAO raised $11 million to successfully buy Ross Ulbricht’s NFT collection, and the remainder of funds will be put towards his continued fight for freedom.
Further, DAO-builder Syndicate got big funding boosts from A16z and Snoop Dogg.
Are DAOs, with their decentralized structure and no central point to target, the ultimate response to over-burdensome regulation?
Metaverse
The Metaverse has arrived, intended to become a virtual realm where people can hang out in digital form using avatars. The concept derives its name from the 1992 novelSnow Crash by Neal Stephenson, and this year it’s seen an explosion in interest. Everyone, from innovators to influencers, is racing to stake their claim on the ground floor. Facebook announced it was officially rebranding to “META”, and hired 10,000 people in the EU to help build its own metaverse over the next five years. Paris Hilton participated in the inaugural Metaverse Festival in October, and Seoul, Korea, announced in November that it has plans to become the first city government to join the metaverse. Their plan is to enable people to not only enjoy virtual representations of historic sites but actually perform real world tasks such as visit city hall.
Pegasus spyware
Fear and unrest surged through the privacy sector this year as revelations that the phones of journalists, activists, and human rights workers were targeted using hacking tools provided by the NSO group. The software, Pegasus, includes covert and aggressive malware used to extract messages, data, and photos from iPhone and Android devices alike. This includes the ability to activate microphones and cameras, and record conversations in real time. Although NSO group claimed that these hacking tools were not sold to brutal regimes, all evidence points to the contrary. This software has been linked to countless targeting of dissents by authoritarian governments, and was also linked to the assassination of journalist Jamal Khashoggi. Leaked information has revealed that over 50,000 targeted phone numbers around the world have been identified as belonging to “people of interest” since 2016. Apple took a stance on this news by suing the company for both “flagrant” software violations, and many US state and federal laws.
Apple not so trusted with privacy anymore
On the subject of Apple, they started off the year strong. They doubled down on their stance on privacy by adding privacy labels to their app store to help people become aware of all the tracking going on with their apps. They also added a "do not track" pop up alert so that users could be more in control of who gets their data. Then Facebook sued them and Apple essentially backslid, allowing all apps once again to track users without their knowledge. They are relying on a company’s oath to anonymize the data before accessing it, but there is no way to enforce this trust-based system.
Apple also tried to implement the ability to scan private photos on a person's device in order to find CSAM, but after being met with outrage from the privacy community, decided just to scan iCloud backups of photos instead. Apple still remains one of the more secure mainstream options, but these actions lost them a lot of trust. If you’re one of these people who lost trust, it might be time to check out our NBTV episode on how to install Graphene on your phone!
State of Surveillance
20 years after 9/11, and surveillance has become a way of life. Governments are utilizing fear as an excuse to invade privacy and violate the safe spaces of millions of their own people. This year a document was leaked from the FBI illustrating how our “private” messaging apps may not be as private as many thought (FYI- Whatsapp and iMessage were labeled as “most permissive”, and Signal came out on top).
Popular blockchain analytics company, Chainalysis, came under some heat for “scraping IP addresses” of users of walletexplorer.com, which they admitted to secretly owning.
The European Parliament approved the mass surveillance of private communications, and Australia passed permissions for “extraordinary hacking powers”.
Perhaps the most heartbreaking news of all this year was that the founder of Wikileaks, Julian Assange, was approved to be extradited back to the US. It seems journalism has now been criminalized, and Assange will face espionage charges that could result in a lifetime prison sentence. Many fear that he is also at suicide risk. We pray that he can hold on, while people continue to fight for his freedom.
Today we sweep all the good and bad of 2021 behind us, and move forward into a new year. May we make this the best year we possibly can!
Check out our final NBTV show for the year, where we talk about the biggest lessons we’ve learn from this year!
By Will Sandoval, NBTV Associate Producer, and Naomi Brockwell.