December 29, 2022

The biggest crypto news and ideas of the day

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Welcome to The Node. This is Daniel Kuhn and Xinyi Luo, here to take you through the latest in crypto news and why it matters. This week the newsletter will feature guest essays from CoinDesk's Crypto 2023 series – where some of the sharpest minds in crypto have made their predictions about the months and years ahead. In today's newsletter:

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Secure Your Seat

Solana Suffers

Solana (SOL) has dropped as much as 10% in the past 24 hours, adding to a 20% slide over the past week and a 73.5% price drop since the collapse of Sam Bankman-Fried's crypto trading empire in early November. CoinDesk's David Z. Morris wrote about the connections between SBF and SOL, and why the fall of FTX has caused a loss of faith in the once prominent Ethereum competitor. Earlier this week, two top NFT projects announced departures from Solana.

Crypto in China?

China is launching the world's first state-backed NFT marketplace in January, for trading copy and property rights along with "digital collectibles." The "China Digital Asset Trading Platform" (as translated) will be run by two state-owned art and tech bureaus and a private entity called Huban Digital, and represents another leg forward for the country that is awkwardly embracing "blockchain" but has banned crypto. Earlier this month, a Chinese court ruled that digital assets have similar property rights to items sold on e-commerce sites – but the government still seems adverse to the phrase NFT.

A Phish Swims in a Leak

An anonymous Twitter user has obtained around 100,000 API keys belonging to users of the crypto trading service 3Commas. The data dump seems to confirm allegations the trading platform was breached months ago, leading to at least $6 million in customer losses. At the time, 3Commas told users they were being "phished." Commas CEO Yuriy Sorokin has asked Binance, KuCoin and other supported exchanges to "revoke all the [API] keys that were connected to 3Commas" and we suggest users do the same.

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Overheard on CoinDesk TV...

Sound Bites

"The first piece of this is working to harden cyber defenses to ensure that these hacks don't happen in the first place."

– TRM Labs head of legal and government affairs Ari Redbord, on CoinDesk TV's "First Mover"

The Takeaway: Zero to Hero?

One of the technologies that will undoubtedly change Web3 is zero-knowledge (ZK) cryptography. ZK has long been considered a potential game-changer for ensuring the privacy, security and integrity of blockchain applications. The rapid investment and development of zero-knowledge proofs is an important signal that the technology is getting ready for prime time.

Here are four predictions for where the technology will go in 2023, in addition to the players, projects and protocols that will drive – and capture – the most value.

A ZK-powered layer 1 smart-contract blockchain chain will launch in 2023

While a few chains – including Mina, ZCash and Celo – already use zero-knowledge cryptography in production, none of them provide true programmability or full on-chain smart contract functionality. As a result, they are limited in what they can do. But that's changing.

A smart-contract blockchain running a ZK-powered virtual machine will launch next year.

Building a new layer 1 blockchain from the ground up with all the right primitives in place is easier than trying to adapt Ethereum or other blockchains to a technology it wasn't initially designed for. A ZK-focused chain may be impacted by the lack of ZK-native coder, however.

Rollups will remain centralized, and zkEVMs will remain impractical

Several rollup implementations – both ZK and Optimistic – are live on Ethereum today. All of them rely on a single, centralized party known as a sequencer to order transactions. The challenge of decentralizing a rollup is both a technical and legal one. These include limits of full smart-contract functionality as well as questions of whether fee structures between L1s and L2s violate some securities law.

Hardware acceleration will make ZK more practical, useful and accessible

One of the most promising trends for Zero-Knowledge cryptography is hardware acceleration. When we think back to the early days of the Web, it was the integration of the Advanced Encryption Standard (AES), a cryptography instruction set designed by Intel, that enabled the ubiquity of internet-based communication protocol https. The same is probably true for ZKs.

Companies will have to choose a side on privacy

The issue is urgent. Web3 companies that truly hold the values of the space will take a stand to defend the rights of users and use technology like Zero-Knowledge cryptography to ensure they are protected. If we don't, we risk creating a global financial panopticon that is far more invasive than our current financial system.

– Alex Pruden, CEO of Aleo and founder of ZPrize

Off-Chain Signals

ChatGPT is coming for crypto (Fortune)
OpenSea chief seeks to distance NFTs from crypto crisis (FT – paywalled)
What's next for crypto (MIT Technology Review)

Why the SG Price Rose After the SocialGood App Became Token-Gated – Even in "Crypto Winter"

After achieving exponential growth to gain over 2.3 million users and successfully raising $14.2 million in VC equity funding, the SocialGood project has reached yet another impressive achievement. Its Shop-to-Earn platform, the SocialGood app, implemented its new membership system on Nov. 11, 2022, effectively token-gating the app. Continue here.

*This is sponsored content from SocialGood.