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Tether CTO Paolo Ardoino on taking the bull by the horn

Stablecoins may have suffered an identity crisis in 2022, but Tether chief technology officer Paolo Ardoino is bullish about the utility the sector provides.

Stablecoins have been under much scrutiny since the implosion of the third-largest stablecoin by market cap, TerraUSD (UST), in May 2022. The UST saga led to a lot of skepticism that caused consumers to question the safety of stablecoins. 

In the seventh episode of Hashing It Out, Cointelegraph’s Elisha Owusu Akyaw (GhCryptoGuy) interviews Paolo Ardoino, Tether’s chief technology officer, about how stablecoins work, and the two discuss frequently asked questions about stable tokens.

Fear, uncertainty and doubt (FUD) rocked the boats of stablecoin issuers after TerraUSD depegged in 2022. Tether was one such issuer at the receiving end of the FUD. Ardoino claimed that some of the FUD was being spread privately and publicly by competitors. Nevertheless, the Tether chief technology officer said that the FUD only served to improve trust between consumers and the company.

“I like the FUD so much because we can respond to it with facts.”

One such fact was the ability of the company to withstand the pressure that came as a result of panic in the market. Ardoino pointed out that Tether was able to process $7 billion in redemptions in 48 hours, which was 10% of the company’s reserves. According to him, it was an achievement that will be recorded in the history books of global finance.

On how to ensure that the industry does not again end up in a situation similar to what happened with TerraUSD, Ardoino argued that developers should stick to making stablecoins the traditional way and avoid the more experimental algorithm-based method. He believes that algorithmic stablecoins are inefficient and unsafe.

Related: Bitcoin advocate Najah Roberts explains why BTC is a tool for empowerment

Furthermore, Ardoino mentioned that algorithmic stablecoins might work only in instances where the stablecoin is heavily collateralized with more proven cryptocurrencies like Bitcoin (BTC) instead of cryptocurrencies issued by the same developers building the stablecoin.

“The problem with Terra was that their backing was a token they also created. Tether’s backing is the U.S. treasury bills, is the U.S. economy, so you cannot have traders attacking us because we have all the reserves.”

In the episode, the two also discuss:

How stablecoins work Algorithmic stablecoins vs. traditional stablecoinsThe TerraUSD deppeging sagaUse cases of stablecoins in developing economiesTether Peso and Tether Gold “Stablecoins war”: Tether (USDT) vs. USD Coin (USDC) vs. Binance USD (BUSD)Stablecoin regulationCentral bank digital currencies vs. stablecoins

Listen to the full episode on Spotify, Apple Podcasts, Google Podcasts, or TuneIn to get all the insights on stablecoins and Tether. You can also check out Cointelegraph’s catalog of shows on the new Cointelegraph Podcasts page.

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Top 7 blockchain courses and certifications for beginners

Blockchain courses and certifications help individuals understand the underlying principles and applications of blockchain technology.

Blockchain courses and certifications can play an important role in helping individuals gain a comprehensive understanding of blockchain technology and its applications. By completing these courses, individuals can develop technical skills, stay current with industry developments, enhance their career opportunities and increase their earning potential.

Here are seven blockchain courses and certifications for beginners.

INE’s Blockchain Security

INE’s Blockchain Security course is an online course offered by Internetwork Expert (INE) that provides a comprehensive overview of the security aspects of blockchain technology. The course covers various topics such as consensus algorithms, cryptography, network security, smart contract security, and blockchain attacks and defenses.

Related: What is a smart contract security audit? A beginner’s guide

This course is available as a monthly or annual subscription. The course is suitable for security professionals, developers and anyone interested in learning about blockchain security and how to secure blockchain solutions. There are seven modules in the course, as follows:

Blockchain security fundamentalBlockchain security advanced conceptsBlockchain risk managementBlockchain auditsVulnerabilities and vulnerability remediationBlockchain platform security considerationsCourse review

Throughout the course, students will be exposed to hands-on projects, case studies and real-world examples that help reinforce the concepts covered in each section. The course is modular, allowing students to learn at their own pace and revisit topics as needed.

Certified Enterprise Blockchain Professional (CEBP)™

Certified Enterprise Blockchain Professional (CEBP)™ is a professional certification program offered by 101 Blockchains, an industry-leading provider of training and research in the area of enterprise blockchain. The course is organized week by week into the following topics and can be completed in four weeks:

Blockchain technology fundamentalsEnterprise blockchain platformsBlockchain in trade financeBlockchain applications and use cases

The CEBP™ certification is intended for professionals involved in the development, implementation and management of blockchain solutions in their organization. It demonstrates the individual’s expertise in the field of blockchain and can enhance their career opportunities and marketability. The overall cost of the certification course is $399.

To earn the CEBP™ certification, candidates must pass a comprehensive exam (20 multiple-choice questions) that covers topics such as blockchain architecture, cryptography, consensus algorithms and smart contracts, among others. The exam is designed to test the individual’s knowledge of the concepts and their ability to apply that knowledge in real-world scenarios.

Certified NFT Professional (CNFTP)™

The Certified NFT Professional (CNFTP)™ is a certification program offered by 101 Blockchains that focuses on the concept of nonfungible tokens (NFTs) and provides a comprehensive understanding of the technology and its applications.

The program likely covers a range of modules related to NFTs, including:

Blockchain fundamentalsToken fundamentalsNFT fundamentalsNFT use casesNFT benefitsNFT challenges and risksHow to get started with NFTsHow to create your first NFT collectionTrading NFTs

This certification course is valid for a lifetime at the price of $179. By completing the Certified NFT Professional (CNFTP)™ certification program, individuals can demonstrate their expertise in nonfungible tokens and their potential applications, making them more competitive in the job market. The certification can also help individuals stay up to date with the latest developments and trends in the NFT space.

Certified Blockchain Expert (CBE)

Certified Blockchain Expert is a professional certification offered by the Blockchain Council. It is designed to verify the skills and knowledge of individuals in the field of blockchain technology. The course features various modules, including:

Introduction to courseOrigin of blockchain technologyIntroduction to blockchainTokenize everythingBlockchain ecosystemBlockchain miningTransactions UTXO vs. account modelSecurity and privacyOther consensus mechanisms in blockchainBlockchain solutions – steps and measuresUse-cases of blockchainOther use-cases of blockchain

This self-paced course is available for $179. To earn the CBE certification, candidates must pass a comprehensive exam (conducted for a total of 100 marks) with 60 or more marks. The exam covers topics such as blockchain architecture, cryptography, consensus algorithms, smart contracts and other related topics. The exam is designed to test the individual’s understanding of the concepts and their ability to apply that knowledge in practical scenarios.

Blockchain Specialization

The Blockchain Specialization is a series of courses offered by Coursera in partnership with the University of Buffalo and the State University of New York. The specialization covers the fundamental concepts and technologies behind blockchain and how they are used to build secure, decentralized applications.

There are four courses in this specialization, namely:

Blockchain basicsSmart contractsDecentralized applications (Dapps)Blockchain platforms

Each course includes a mix of video lectures, quizzes and hands-on projects to help learners apply their knowledge and develop practical skills. The Blockchain Specialization is intended for professionals and students interested in learning about blockchain technology and its applications. Completing this specialization can help individuals develop the skills and knowledge needed to work in the field of blockchain technology and enhance their career opportunities.

Blockchain A-Z™: Learn How To Build Your First Blockchain

Blockchain A-Z™: Learn How To Build Your First Blockchain is a course offered by Udemy that teaches the basics of blockchain technology and how to build a blockchain from scratch. The course is designed for individuals who are new to blockchain and want to learn how it works and how to create a blockchain solution. The course costs $74, includes 14.5 hours of on-demand video and includes modules like:

How to build a blockchainHow to create a cryptocurrencyHow to create a smart contract

Related: A step-by-step beginner’s guide to creating your first cryptocurrency token

The course includes video lectures, quizzes and hands-on projects to help learners apply their knowledge and develop practical skills. By completing this course, individuals can gain the knowledge and abilities necessary to work in the field of blockchain technology and improve their employment options.

Blockchain – Principles and Practices

Blockchain – Principles and Practices by Pluralsight is an online course that provides an introduction to the concepts and practices of blockchain technology. The course covers the basics of blockchain, including its history, architecture, consensus algorithms and security.

It also explores various use cases for blockchain in various industries, such as finance, supply chain and healthcare. To access this course, users must have a Pluralsight membership, which is about $29 per month or $299 per year. Free access to this course is also available with a 10-day free trial. The table of contents of this course is organized as follows:

Course overviewIntroductionUnderstanding the cryptographic principles used with the blockchainStoring transactions in blocksApplying proof of workMaintaining consensusCourse summary

The course is designed for those new to blockchain technology, but it may also be helpful for those who want to deepen their knowledge and expertise in this field. Individuals can learn the underlying principles of blockchain and how the technology can be applied to real-world scenarios by completing this course.

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Developers seek solutions for Web3-related scams from internet browsers

A new suite of tools for Web3 businesses targets the safety and security of transactions, websites and smart contacts to combat exploits.

A big concern for users in decentralized finance (DeFi) is its susceptibility to exploits. A report from Privacy Affairs revealed hackers stole $4.3 billion worth of cryptocurrency from January to November 2022 — a 37% increase from the previous year.

Such exploits harm the integrity of companies and fuel skeptics from outside of the space in their case against cryptocurrencies. However, in a Feb. 2 announcement from Web3 Builders, the company revealed a suite of tools to combat this issue.

The initial browser extension TrustCheck was created to flag Web3-related scams before users continue to interact with them. This new suite of tools builds on that via a Web3 Builders transaction checker, website checker and smart contract checker.

Ricky Pellegrini, the CEO of Web3 Builders, said this is an integral moment for the industry to prove its trustworthiness.

“It’s an unfortunate truth that scams and fraud are still common in the Web3 space.”

According to the announcement, the tools scan nearly 30 million suspicious domains daily and check for vulnerabilities on around 55 million Ethereum smart contracts. 

Related: DeFi-type projects received the highest number of attacks in 2022: Report

He continued to say that, even in the last month, the suite of tools discovered dozens of scams listed on popular platforms, marketplaces and exchanges.

In the last week, there has been a slew of new attacks that have been exploiting millions from the space. This includes one on Feb. 1, in which the BonqDAO protocol lost $120 million after an oracle hack.

Last week, hackers compromised Azuki’s Twitter account and stole $758K in just 30 minutes. The financial services platform Robinhood also had its Twitter hacked on Jan. 25, during which hackers tried to promote a scam token.

Nicholas Horelik, the technical co-founder and chief blockchain officer at Web3 Builders said, understanding what’s happening with your transaction is critical in keeping assets safe.

“End users deserve to have this functionality on whatever platform they choose and businesses should be implementing solutions like these to ensure their customers’ safety in Web3.”

On Jan. 24, the Wormhole hacker moved $155 million of the total $321 million stolen, which was the biggest shift of stolen funds seen in months.  

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What crypto hodlers should keep in mind as tax season approaches

Filing crypto taxes can be complex, especially for those exploring the decentralized finance world. Here’s what to keep in mind.

Filing taxes for cryptocurrency can be a confusing and daunting task for many individuals. The United States Internal Revenue Service (IRS) treats cryptocurrency as property subject to capital gains taxes. Knowing this appears to make filing crypto taxes simple, but crypto’s unique nature means there are many unanswered questions.

Accurately reporting gains and losses can be a nightmare. While everyone concerned about tax season knows that keeping accurate records of every crypto transaction is a must, there are other things to keep in mind.

There is a difference between short-term and long-term capital gains taxes, with tax rates varying depending on multiple factors. These capital gains tax rates are available online and are beyond the scope of this article, which will focus on avoiding potential issues with the IRS while filing taxes on crypto.

How to report crypto taxes

Filing cryptocurrency taxes isn’t a choice; it’s an obligation that every individual and business has. Those who keep track of their transactions — including the prices of the cryptocurrencies they transact — will have an easier time reporting their activities.

Even those who haven’t received any tax documents associated with their cryptocurrency movements may have taxable events to report. Speaking to Cointelegraph, Lawrence Zlatkin, vice president of tax at Nasdaq-listed cryptocurrency exchange Coinbase, said:

“Crypto assets are treated as property for U.S. tax purposes, and taxpayers should report gains and losses when there is a sale, exchange, or change in ownership (other than a gift). Merely HODLing or transfers of crypto between a taxpayer’s wallets are not taxable events.”

Zlatkin added that more advanced trading “where there is a change in economic ownership, literally or substantively, may be taxable,” even if the taxpayer doesn’t receive an IRS Form 1099, which refers to miscellaneous income.

Meanwhile, Danny Talwar, head of tax at crypto tax calculator Koinly, told Cointelegraph that investors can report cryptocurrency gains and losses through Form 8949 and Scheduled D of Form 1040.

IRS building in Washington D.C. Source: Joshua Doubek

Talwar said that investors with cryptocurrency losses after last year’s bear market might be able to save on current or future tax bills through tax loss harvesting.

Tax loss harvesting refers to the timely selling of securities at a loss in a bid to offset the amount of capital gains tax that would be payable on the sale of other assets at a profit. The strategy is used to offset short-term and long-term capital gains. Coinbase’s Zlatkin addressed this strategy, saying, “losses from sales or exchanges of crypto may result in capital losses which can be used to offset capital gains and, in limited circumstances for individuals, some ordinary income.”

Zlatkin added that losses “may not have been sufficiently crystallized from pending and unresolved bankruptcy or fraud,” adding:

“Taxpayers should be careful in how they treat losses and also consider the possibility of theft or fraud losses when the facts support these claims.”

He said that crypto investors should consult their tax advisers regarding any available tax breaks or deductions. Investors should also be aware of losses from “wash sales,” which Zlatkin described as “sales of crypto at a loss followed soon thereafter by the repurchase of the same type of crypto.”

Speaking to Cointelegraph, David Kemmerer from cryptocurrency tax software company CoinLedger, said that losses realized in 2022 can be an “opportunity” to reduce a tax bill, with capital losses offsetting capital gains and up to $3,000 of income per year.

David Kemmerer added that it’s “important to remember that exchange and blockchain gas fees come with tax benefits,” as fees “directly related to acquiring cryptocurrency can be added to the cost basis for the asset.”

He added that fees related to disposing of a cryptocurrency could be subtracted from the proceeds to help reduce capital gains taxes.

While the IRS has somewhat clear guidance on taxes owed from buying and selling cryptocurrency, tax forms for those involved in the sector can get more complex if they delve deep into, for example, the world of decentralized finance (DeFi).

Tax complexities with DeFi, staking and forks

Using DeFi can be complex, with some strategies involving multiple protocols to maximize yield. Between cryptocurrency-backed loans, transactions involving liquidity provider tokens and airdrops, it’s easy to lose track.

According to Coinbase’s Zlatkin, “most forms” of cryptocurrency rewards or yield are subject to U.S. tax when received.

He said that current U.S. laws on staking income are “undeveloped,” with the IRS treating staking rewards as “giving rise to taxable income when an individual taxpayer receives staking rewards over which the taxpayer has ‘dominion and control,’ or basically when the asset can be monetized.”

When it comes to airdrops and forks, CoinLedger’s Kemmerer noted that income from cryptocurrency forks and airdrops is subject to income tax, just like income from any other job. He said that when a fork or an airdrop lead to new cryptocurrency being earned, investors “recognize ordinary income based on the fair market value” of that crypto at the time of receipt.

Cryptocurrencies, nevertheless, go beyond these use cases. Many use crypto debit cards in their day-to-day lives, which means that in the eyes of the U.S. government, they’re paying for goods and services using property. What happens when it’s time to tell the IRS?

Tax implications of using crypto for payments

While defining cryptocurrency payments as property transactions sounds like a complex ordeal, according to Kemmerer, using crypto as a payment method is “considered a taxable disposal, just like selling your crypto or trading your crypto for another cryptocurrency.” He added:

“If you use your cryptocurrency to make a purchase, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it. “

Coinbase’s Zlatkin said this is true “even if the transaction is small, like buying a cup of coffee or a pizza.” If a payment is taxable when made with cash, it remains taxable with crypto, he added, stating:

“Furthermore, the recipient is generally treated as if they received money in the transaction and subsequently purchased the cryptocurrency with that money, and they are taxed accordingly.”

At this point, it’s clear that filing taxes related to cryptocurrency transactions is a complex process that needs to be well thought out. Cryptocurrency users need to consider all of this and avoid common pitfalls.

Keeping records is vital

Tax experts have repeatedly stressed that keeping records of every cryptocurrency transaction is key to avoiding incidents with the IRS. CoinLedger’s Kemmerer noted that without accurate records, “it can be difficult to calculate capital gains and losses.”

He added that records should include the date that users originally received their cryptocurrency and the date they disposed of it. This should be accompanied by the cryptocurrency’s price at the time of receipt and disposal.

The newly-added crypto question on United States tax form 1040. Source: CNBC

Koinly’s Talwar told Cointelegraph that it’s “often easy to miss the number of taxable events which may occur during the year” because acquiring and spending cryptocurrency is “becoming more accessible than ever, with exchanges and products providing seamless user interfaces.” Talwar added:

“It is easy to misunderstand when a taxing point arises for crypto. Many people don’t realize that their staking rewards are taxed as income when received, even if they haven’t sold the underlying staked asset.”

Talwar advised those heavily involved in cryptocurrency to consult a tax professional during tax season to help them figure everything out.

Filing crypto taxes can be daunting for many, adding a new layer of complexity to an already hard-to-grasp sector that’s constantly evolving. Offsetting tax bills with potential losses can incentivize sophisticated investors to take risks in the space, as even their losses can help reduce their tax burden.

As the law is still unclear regarding some of the cryptocurrency sector’s more complex operations, those who prefer to avoid risks and stay on regulators’ good side should consider avoiding DeFi. Either way, consulting with a professional is less expensive and less stressful than dealing with fines and enforcement actions from tax authorities.

This article does not contain tax reporting advice or recommendations. Readers should conduct their own research and consult a professional when filing taxes on their investments and holdings.

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What is crypto tax-loss harvesting, and how does it work?

Crypto tax-loss harvesting is a strategy used by investors to offset capital gains in their crypto investments by selling losing positions at a loss.

Crypto tax planning can help optimize taxes by identifying opportunities to minimize tax liability on cryptocurrency transactions. For instance, donating cryptocurrency to a charitable organization can provide a tax deduction and also avoid capital gains tax on the donated assets.

Crypto tax-loss harvesting is another strategy that cryptocurrency investors use to reduce their overall tax liabilities. This article will discuss the concept of tax-loss harvesting strategy, how it works and the challenges involved.

What is crypto tax-loss harvesting?

Crypto-tax loss harvesting is a tax strategy that involves selling a cryptocurrency at a loss in order to offset any capital gains that may have been incurred from selling other cryptocurrencies at a profit. The idea is that by offsetting capital gains with capital losses, the overall tax liability is reduced. 

Nonetheless, in order to claim a loss, the assets must be sold, and the proceeds must be used to purchase a similar asset within 30 days before or after the sale. This is known as the “wash sale” rule. Moreover, crypto tax-loss harvesting strategies can be used by individuals or businesses that have invested in multiple cryptocurrencies and are looking to minimize their tax burden.

Related: Cryptocurrency tax guide: A beginner’s guide to filing crypto taxes

However, in most countries, the losses can only be offset against capital gains and not against other types of income. Additionally, there are limits and restrictions on how much loss can be claimed and in which tax year it can be claimed. 

In the United States, the Internal Revenue Service (IRS) has specific tax-loss harvesting rules including the wash sale rule, which prohibits an individual from claiming a loss on the sale of a security if they purchase the same security within 30 days before or after the sale. Additionally, the IRS limits the amount of capital losses that can be offset against ordinary income to $3,000 per year. 

On the contrary, the United Kingdom does not have a specific wash sale rule for crypto investments, but there are general tax principles that may apply. For instance, the capital gains tax is applied to profits made from selling assets, including cryptocurrencies.

That said, if an individual sells a crypto asset at a loss, they can offset that loss against any capital gains they have made in the same tax year or carry it forward to offset against gains in future tax years.

However, if an individual repurchases the same or a similar crypto asset within a short period after selling it at a loss, this may be considered “bed and breakfasting,” and the loss may not be allowed as a deduction.

How does crypto tax-loss harvesting work?

Crypto tax-loss harvesting works by identifying a cryptocurrency whose value has decreased since it was purchased and then selling it at a loss to reduce the overall tax liability. To understand how to use tax-loss harvesting in crypto, the following steps may help:

Identify cryptocurrencies whose price is declining: Look through your portfolio and identify any cryptocurrencies that have decreased in value since you bought them. This will be the cryptocurrency that you will sell to realize a capital loss.Determine the capital loss: Calculate the difference between the purchase price and the sale price of the cryptocurrency you identified in step 1. This will be your capital loss.Offset capital gains: Use the capital loss to offset any capital gains that have been made from selling other cryptocurrencies. This will reduce your overall tax liability.Timing: Timing is important in this strategy; you can offset capital gains from the same tax year or carry the losses forward to the next tax year.Keep records: Keep records of all the transactions related to the tax-loss harvesting strategy, as you will need to provide them to the tax authorities.

Risks of tax-loss harvesting in crypto

Tax-loss harvesting in crypto can be a useful strategy for reducing overall tax liabilities, but there are also several risks associated with it. Here are a few examples:

Wash-sale rules: As noted earlier, in some countries, the tax code includes wash-sale rules that prohibit claiming losses on the sale of a security if a substantially identical security is purchased within 30 days before or after the sale. This can limit the ability to use tax-loss harvesting effectively.Short-term vs. long-term gains: In many countries, short-term capital gains, which are gains on assets held for less than a year, are taxed at a higher rate than long-term capital gains. If you engage in tax loss harvesting and buy back the same cryptocurrency within 30 days, you may end up with short-term capital gains, even if you originally held the asset for a longer period of time.Market fluctuations: Cryptocurrency prices are known to be highly volatile and can be affected by various market conditions, events and regulations. If the price of the cryptocurrency an individual sold at a loss increases shortly after the sale, they may have missed an opportunity to make a profit.Complexity: Tax laws related to cryptocurrency are still evolving and can be complex to understand. In the United States, for example, the Securities and Exchange Commission has issued guidance stating that some initial coin offerings (ICOs) may be considered securities and, therefore, subject to federal securities laws. Additionally, there are also state-level regulations that may apply, making it challenging for companies looking to conduct an ICO.Lack of knowledge: Not having enough knowledge of the crypto market and the specific tax laws and regulations in your country may lead to mistakes and potential penalties.

Considering the above risks, it is essential to weigh the potential benefits of tax-loss harvesting against the risks and consult with a tax professional before implementing this strategy.

How to reduce your crypto tax bill

There are several ways to reduce your crypto tax bill, as explained below:

Tax-loss harvesting: As explained earlier, selling a cryptocurrency at a loss can be used to offset any capital gains that may have been incurred from selling other cryptocurrencies at a profit. This can be used as a tax strategy to lower the overall tax liability.Holding period: In many countries, short-term capital gains, which are gains on assets held for less than a year, are taxed at a higher rate than long-term capital gains. Holding your cryptocurrency for more than a year can result in lower taxes.Using tax-advantaged accounts: Some countries allow individuals to hold cryptocurrency in tax-advantaged accounts, such as a self-directed IRA or 401(k). This can provide significant tax benefits.Charitable donations: Donating cryptocurrency to a qualified charity can be tax-deductible and can also be a way to dispose of appreciated assets without incurring capital gains taxes.Tax deferral: Some countries allow individuals to defer paying taxes on crypto gains by rolling them over into a qualified opportunity fund (QOF) or a similar exchange. Any investment vehicle (other than QOF) that retains at least 90% of its assets in qualified opportunity zone property and is set up as a corporation or partnership for the purpose of investing in such property is referred to as a qualified opportunity fund.

While reducing one’s crypto tax bill is an important consideration, it shouldn’t be the sole focus when investing in crypto assets because tax laws related to cryptocurrencies are still evolving and can be complex to understand. Also, if someone engages in illegal activities, such as tax evasion or money laundering to reduce their crypto tax bill, it could lead to legal issues and severe penalties.

 How to report crypto losses on your taxes

The process for reporting crypto losses on one’s taxes may vary depending on the country they live in, but here is a general overview of the steps one may find helpful:

Keep detailed records of all your crypto transactions, including purchase and sale dates, prices, and amounts. This will be useful when calculating capital gains and losses.For each crypto transaction, calculate the difference between the purchase price and the sale price. If the sale price is lower than the purchase price, the difference is considered a loss.In most countries, users will need to report their cryptocurrency losses on their income tax return, while in some countries, they may need to file additional forms or schedules specifically for reporting crypto losses.If a user incurred more losses than gains, they can claim the losses on their tax return to offset any capital gains.Keep all documentation and records of your crypto transactions in case the tax authority requests them.

Regardless of the above steps, cryptocurrency tax professionals may help understand the process and requirements specific to one’s jurisdiction due to different tax regulations in various countries.

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Is the Metaverse really turning out like ‘Snow Crash’?

Neal Stephenson’s science fiction novel Snow Crash predicted the Metaverse in 1992. This cult book has the amusingly-named Hiro Protagonist running around in an artificial cyber world, trying to stop a virus that wipes minds, aided by his hacker friend Y.T. Reality is a place to escape from, a neoliberal future wrecked by hyperinflation and […]

Snow Crash by Neal Stephenson

Neal Stephensons science fiction novel Snow Crash predicted the Metaverse in 1992. This cult book has the amusingly-named Hiro Protagonist running around in an artificial cyber world, trying to stop a virus that wipes minds, aided by his hacker friend Y.T. Reality is a place to escape from, a neoliberal future wrecked by hyperinflation and inequality and run by corporations and gangsters and insane bureaucracy.

In many ways, the book is horribly prescient. (Its also horribly written in places, more like an info dump than a novel.) The Metaverse was a place where people had digital avatars, where they hung out with friends, went shopping and attended concerts. It was full of ads, the infrastructure was owned by a billionaire, and a virus was wreaking havoc on society. It all sounds familiar.

It wasnt COVID-19 of course. The Snow Crash virus caused the infected to lose the ability to think for themselves, and they start speaking in tongues.

Obviously, at the time, we didnt have social media, Stephenson told The Washington Post, but added, I was writing about just a long-standing human trait, which is this tendency for the mind to get hijacked by ideas.

The metaverse cant enslave you, yet, but the addictive nature of social media suggests its possible you might get hooked on a better virtual world, where your hotter-looking avatar interacts with people from all over the planet and has adventures that are not possible in reality.

Macbeth Final Production

To give you one crazy example of the possibilities, there is an actual theater company in the zombie-infested online wasteland survival game Fallout 76 that puts on Shakespeare plays. So, you can be part of the audience, or even audition and act, if you desire. Almost normal, except you may have to blast a few zombies in the middle of Romeo and Juliet. The ushers patrol the perimeter with chainsaws and AK-47s to annihilate any undead critics seeking to make their analytical discourse upon the performance.

This is all very Snow Crash. There is a real tension between the use of virtual worlds for escape or leisure and the impetus for profiteering. Many corporations see the metaverse and metaverse platforms as new continents to be colonized and exploited. If the metaverse develops under a centralized model, then it will be Amazon, Facebook and Google all over again: whale time. A decentralized metaverse built around blockchain technology would be more egalitarian and put the power back in the hands of users.

Enter the metaverse, stage left

Dr. Christina Yan Zhang Z (Supplied)

Dr. Christina Yan Zhang, nicknamed Dr. Metaverse, wrote her 2012 thesis about MMORPGs and the early metaverse platform Second Life, so shes been thinking about this longer than most. Shes now the CEO of the Metaverse Institute.

I think the beauty about the current development of the metaverse is basically the convergence of a whole range of different technologies coming together. Many of them are getting more advanced to really help to create the next generation of internet, which is more immersive, interactive and intuitive. 

She sees the metaverse as an enabling technology to improve interaction in both real and digital worlds.

Gaming writer Wagner James Au has just finished a book that will be published in June titled Making a Metaverse That Matters. Back in the early 2000s, he was the virtual journalist named Hamlet in Second Life. His white-suited avatar (a nod to Tom Wolfe) went around submitting dispatches from that virtual world. 

He envisions there being multiple metaverses: Its going to be based on the community; its going to be based on culture and aesthetics. For example, Roblox is huge, but its primarily with kids. And the aesthetics are very intentionally looking like Legos. You could jump from Roblox to Fortnite, then Fortnite to VR chat. So, it will not be a single, virtual world.

Wagner James Au in Second Life (New World Notes)

He continues, I define it very directly from what Snow Crash described: It was a vast virtual world with user creation tools and highly customizable avatars that is integrated with the real world economy.

In other words, you can make money from it and also integrate with external technology so you can actually hook it up to other technology beyond the immersive 3D experience.

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Terra hit us incredibly hard: Sunny Aggarwal of Osmosis Labs

Snow Crash and capitalist realism

Science fiction and fantasy are known for creating new worlds to experience through literature, art and cinema. These genres have roots in the pervasive zeitgeist of their time, so they can often end up being unimaginative about new political or social opportunities. Tragic, influential British culture theorist Mark Fisher (who committed suicide in 2017) defined this as capitalist realism, the notion that capitalism is the only political structure and even visionary literature can rarely rise above imagining variations on this.

Mark Fisher Tribute Archive

Snow Crash posits a dystopian real world that makes escape into an alternative fantasy more attractive: Hiro is a pizza delivery boy in real life; in the Metaverse, he is the greatest swordsman alive.

The greatest tragedy would be if the specter of capitalist realism made the metaverse a mirror of the existing world. A virtual world where we peddle virtual crap to each other to keep our likes or crypto coming in. Roblox is a classic example: Its business model involves kids creating stuff with other kids that provides an income stream from their creativity. Web1 promised liberation but didnt fulfill it. Web3 needs decentralization so that corporations do not overwhelm it as they have with previous iterations of the internet.

The metaverse is not without its challenges. Magazines Jillian Godsil looks at some issues here. Author and futurist Bernard Marr also highlights some serious drawbacks.

Seven big problems

Bernard Marr. (BernardMarr.com)

Author and futurist Bernard Marr says, Im super-excited about this technology, but that comes with a warning about the potential perils of the metaverse. He has identified seven major problems and disadvantages highlighting the downsides to the virtual worlds. Most are quite knotty challenges, which wont be easy to solve in a malleable, constantly evolving world open to deviant behavior. 

Privacy issues

We already have privacy concerns when we browse the web, Marr says. The technology that is already tracking our behavior online will also exist in the metaverse, and the tracking is likely to become even more invasive and intense.

Wearable, haptic devices could measure all kinds of physical effects such as heart rate and sweating. Enormous amounts of data could be collected and used by companies for marketing or other purposes, Marr continues.

Safety of children

As parents, its already difficult to track what our kids are doing online, and that challenge will continue with the metaverse. Understanding what our kids are doing in the metaverse will be even more challenging because we cant see the world theyre looking at in their VR headset, and there is no process in place for monitoring their screens using tablets or phones, Marr opines.

Health concerns

The result of spending your entire life in the metaverse could result in everyone looking like the Axios Humans in Wall-E. VR hangovers are also a thing: The sadness and angst that come from leaving a very intense, absorbing experience and returning to reality can create a comedown similar to drugs or drinking. Gaming or internet addiction is already impacting mental and physical health, so it could potentially be even worse in the metaverse.

Axios Humans in Wall-E (Pixar)

Access inequality

Bernard Marr says, In order to use augmented reality, we need the latest smartphone and handset technology, and VR experiences require high-tech, expensive headsets as well as strong and reliable connectivity, he says.

How can we make sure that everyone in the world has equal access to the metaverse, and not just the people who have the most money and live in developed countries? This issue concerns Zhang, too. She sees Starlink as a way forward: The reason I mentioned Starlink is because one-third of the global population are still suffering from the digital divide, so they do not have access to the internet. Those smaller Starlink satellites can cover the most remote areas in the world.

Laws and regulations

A significant problem with all new technology is how slowly legislators and regulators are to formulate appropriate legal responses to the challenges presented. With something thats immersive, global and anarchic, which includes cryptocurrencies as well as the metaverse, authorities have difficulties keeping up with these technological changes.

Desensitization

Marr also worries that even more realistic violence will desensitize people to real-life violence. Although the zombie-hunting amateur thespians of Fallout 76 seem pretty balanced when Magazine chats with them. The counterargument might be that therapeutically killing orcs and zombies or catapulting angry birds is a relief valve for real-world stresses. These are not exclusive issues for the metaverse of course and have been leveled at games for years.

Identity hacking

If your avatar is hacked, a malicious entity could spread damage or possibly steal from you. This is yet another use case for blockchain technology in the metaverse as NFTs or blockchain-based identity technology is a solution suggested by Marr. So, your avatar could be anyone, but to enter the world, you would have to produce a digital, verified identity. That is similar to KYC processes to sign up for most crypto exchanges.

Interoperability

Au believes that there will be many different metaverse platforms, catering to different audiences. Wang disagrees, believing that interoperability will be an important way to ensure that users can move between experiences in the metaverse, via agreed protocols of interoperability, standardization of the metaverse and all additional assets by organizations worldwide. Interoperability and one unified Metaverse were the vision in Snow Crash.

Theres also disagreement over the level of immersion. Wagner thinks that there is sufficient computing available for most people to have a reasonably immersive experience via their smartphones, without needing VR headsets. Zhang disagrees, feeling that a large increase in computing power and probably quantum computing will be needed to fully realize an immersive VR system with millions of users.

Where is the metaverse heading?

In this difficult time in the crypto universe, many metaverse projects seem to be reorientating themselves. People are exploring ventures with a longer timescale to reach fruition. Zhang thinks that it will take 10 years to reach mass adoption. She views the European Unions provisional agreement on the Markets in Crypto-Assets (MiCA) proposal which aims to safeguard investing while fostering innovation as an important step forward for regulating the sector.

Wagner sees the drivers of the metaverse as users at both ends of the age spectrum: kids because they will find value in the play space, and seniors, driven by disability or social isolation, but able to interact via their avatars in ways that wouldnt be so easy in the real world. Wagner quotes the example of an 86-year-old blues guitarist he met busking in the street in Second Life.

Interestingly, Snow Crashs Stephenson has now launched a metaverse startup called Lamina1. 

Wagner says, Neal Stephenson launched it with a major player in the Bitcoin industry, Peter Vessenes. Theyre making what they call a metaverse-as-a-service so, a way for creators to monetize their content across various, multiple metaverse platforms.

Metaverse-First Blockchain Lamina1 Launches Rolling Fund for Web3 Builders https://t.co/vjZmahKK7o pic.twitter.com/kuykhtBLMQ

— Bunch Of Social (@BunchOfSocial) December 27, 2022

Vessenes, a Bitcoin pioneer, called it the base layer for the open metaverse: a place to build something a bit closer to Neals vision one that privileges creators, technical and artistic, one that provides support, spatial computing tech, and a community to support those who are building out the metaverse.

Lamina1 is very much built around the interoperability vision: that there should be one internet-like platform where players big and small can mutually coexist and flourish. That said, Web1 and Web2 arguably didnt reach that goal, so it isnt certain that a future version wont get dominated by big players as the web is now.

The metaverse is another new technology that has enormous potential for both financial and social rewards. It also has significant negatives that could stifle its growth. But Zhang opts for the glass-half-full viewpoint:

Fundamentally, we want to use technology to really benefit more people to have a more diverse, equal and sustainable world. We dont want the technology to be for a few people who have privilege or they are lucky to be financially free. So, I think there needs to be a really coordinated movement by governments, investors, NGOs and individuals coming together to ensure the rest of one-third of the population, in countries where the basic infrastructure is not in place, can be given more opportunity to flourish so no one is left behind. That needs to be addressed on a much higher level internationally.

See, the world is full of things more powerful than us. But if you know how to catch a ride, you can go places.
Neal Stephenson, Snow Crash

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Community mocks Charlie Munger for his obsession with China’s Bitcoin ban

The online community has expressed bewilderment over how China’s crypto ban aligns with the United States’ proclaimed principles of freedom.

The cryptocurrency community has ridiculed well-known Bitcoin (BTC) critic Charlie Munger, vice chairman of Berkshire Hathaway, for calling the United States to follow in the footsteps of China and ban crypto.

In an op-ed article in The Wall Street Journal, the 99-year-old investment veteran has once again slammed crypto, calling a cryptocurrency a “gambling contract with a nearly 100% edge for the house.”

Munger also said that a cryptocurrency is “not a currency, not a commodity, and not a security,” adding that “obviously” the U.S. should enact a new federal law that would ban crypto.

According to Munger, the best way to approach crypto is to follow the example of China, which put a blanket ban on crypto in September 2021. The Berkshire Hathaway vice chairman stated:

“What should the U.S. do after a ban of cryptocurrencies is in place? Well, one more action might make sense: Thank the Chinese communist leader for his splendid example of uncommon sense.”

The community was quick to react to Munger’s latest anti-crypto arguments, with many expressing bewilderment about how measures like China’s crypto ban stack up with the United States’ proclamations that it supports freedom.

“The battle lines are being drawn. Freedom or tyranny. Non-custodial wallets are the hill we can’t surrender,” NFT APE author Adam McBride wrote on Twitter.

Others also mocked Munger for not understanding that crypto is virtually unbannable. Indeed, even after “banning” crypto in 2021, China has continued to be the second-largest Bitcoin miner in the world, and possessing crypto is apparently still legal. Moreover, the idea of lifting the crypto ban has been floating around in China for a while.

It’s sad that Charlie munger believes he’s doing something by calling for a ban. Doesn’t understand it’s math and can’t be banned. Old age deteriorates critical thinking skills.

— 941 (@level941) February 2, 2023

Given that Munger called cryptocurrency a “gambling contract,” it’s worth noting that gambling is legal under U.S. federal law, despite people losing significant money from it.

Related: EU lawmakers vote for more restrictive capital requirements on banks holding crypto

According to data from the American Gaming Association, U.S. casinos and mobile gaming apps hit a record $54.93 billion in revenue during the first 11 months of 2022. The revenues came at the cost of Americans losing more money on gambling than ever before by the first quarter of 2022.

Many European countries also allow at least some gambling, with about 420,000 British gamblers losing more than $2,000 per year.

Despite casinos causing significant losses for investors, Europe and the U.S. have not followed in the footsteps of China, which banned most forms of gambling back in 1949.

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How to demystify DeFi

Although the learning curve for using decentralized finance (DeFi) is steeper than with centralized exchanges, DeFi and its use of immutable smart contracts open up prospects for a more inclusive world.

Although the learning curve for using decentralized finance (DeFi) is steeper than with centralized exchanges, DeFi and its use of immutable smart contracts open up prospects for a more inclusive world. But how can we navigate the core functions of DeFi, use them effectively and profit?

Understand key protocols

Lending and borrowing

Emerging in 2017 with the launch of MakerDAO, decentralized lending and borrowing platforms are the historical first stone of DeFi.

On the lending side, it’s all about putting your assets to work to earn interest from borrowers. On the borrowing side, it’s about depositing collateral to leverage its value, allowing the borrower to remain exposed while unlocking some immediate liquidity.

If the value of the collateral reaches the value of the loan, the collateral is liquidated to repay the debt. By creating loops — sometimes via different protocols — experienced users can make their investments go even further.

Decentralized exchanges (DEXs)

Previously, the only way to exchange one crypto asset for another was through order books on centralized exchanges like Binance or Coinbase. The arrival of Automated Market Makers (AMMs) like Uniswap or xExchange and their liquidity pools set the stage for decentralized trading, where individual users can earn a share of trading fees as income.

The principle is to deposit two crypto assets in equal proportion and receive a liquidity provider (LP) token representing the relative value of the contribution. This method of directly earning trading yields has made AMMs a fundamental part of DeFi.

Derivatives and leverage

Derivatives are financial products where investors can speculate on rising or falling prices. For this purpose, two parties enter into a bet, so to speak, on how a particular underlying asset will perform over a defined period of time.

Likewise, it is possible to bet on falling prices or to use leverage. Leverage means borrowing money for larger investments, opening the door to higher returns but also greater potential losses. This adds an additional layer of strategy and complexity for DeFi.

Know the rules and risks of the game

Arbitration, slippage and impermanent loss

The exchange rate of the tokens on a DEX can, in the event of sudden volatility, decouple from the external exchange rate. Some users will take advantage of the arbitrage opportunity and buy the underpriced token to pocket the difference on the markets.

In order to limit sudden movements, a mechanism called slippage devalues the exchange rate logarithmically in proportion to the imbalance of the liquidity pair.

When a user removes their LP tokens from a pool, it is possible that the value of the two assets they withdraw is less than if the user had just separately held these tokens. Known as impermanent loss, this represents a key risk for DeFi users.

Liquidation

When the collateral for a loan loses its value, investors can face what is known as a margin call. If users are unable to add additional collateral in this scenario, the protocol then begins the liquidation process and sells the investor’s collateral.

Liquidation prices vary for each investment and largely depend on the amount of leverage used. This means investors should carefully consider the intraday volatility of a given asset before trading with leverage in order to avoid being liquidated.

Flash crashes and flash loans

Sometimes, a sale momentarily collapses an asset’s price. This can touch the liquidation limit, allowing predators to recover the liquidity placed in collateral through an event called a flash crash.

Flash loans are uncollateralized loans, where the borrowing and the repayment are done in the same smart contract over the course of a few seconds. This allows traders to take greater advantage of arbitrage opportunities.

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Explore different perspectives

Lego money

Since DeFi contains a range of interlocking protocols, investors should look at the bigger picture. We can see this ecosystem as a huge Lego set, with each protocol representing a different brick. Liquidity providers can then create their own models to take advantage of specific opportunities and construct their own winning combination.

The number of Lego bricks will continue to grow in number, diversity and quality. Over time, this growth allows for increasingly more complexity among DeFi strategies.

Democratization and yield farming

At present, only a small proportion of users have the know-how required to enjoy the full potential of DeFi. However, a truly inclusive ecosystem for a range of experience levels is critical for onboarding more liquidity moving forward.

One possible answer is aggregation solutions that combine the strengths of different protocols. By emphasizing simplicity of use and ergonomics, the complexity of DeFi can become accessible to all.

The new economy

With the first crypto lending protocols dating back to 2018, we are clearly still in the early days of DeFi. In the past years, Web3 stakeholders have been finding new ways to generate real yields and minimize risk. New utilities are emerging to create more security for investors, such as DeFi insurance, which offers new forms of risk coverage.

Conclusion

Education, usability and simplicity of use are of utmost importance in the journey toward mass adoption. While fully researching the risks, rewards and trends of DeFi takes time, it could be a worthwhile venture for many modern investors.

Passion is the most powerful engine of learning, and no hack, FUD or bear market can take away your knowledge.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Wolfgang Rückerl is the CEO of Istari Vision and Entity.global. His expertise is in Web3 startups and staking on the MultiversX blockchain.

This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.

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Preserving and reinventing music festival legacy in the metaverse

The metaverse has been used as a means of cultural preservation in the past. Now, the legacy music festival Woodstock is using digital reality to preserve its legacy and reinvent its future.

The metaverse is becoming a destination for more brands, companies and communities to connect. A study from December 2022 revealed that 69% of users believe metaverse entertainment will reshape social life. 

Recently, the legacy music and arts festival Woodstock, known for being the most famous of the 1960s rock festivals, announced that it would reinvent itself as a digital world in collaboration with metaverse developers Sequin AR.

Festivals in the metaverse are not a new thing. As digital life has been becoming more prominent over the years, we’ve seen virtual PRIDE parades, cultural events specific to countries and metaverse fashion week.

In the case of Woodstock building its own virtual space, a physical festival’s immense legacy is being both preserved and reinvented for new generations. Cointelegraph spoke with the Woodstock team and Robert DeFranco, the CEO of Sequin AR, to understand how legacy events navigate a digital rebirth.

Jennifer Roberts, a partner at Woodstock Ventures, recalled how the original festival in 1969 “defied so many expectations” as it brought together half a million people around peace, music and art. Now the metaverse allows for a truly global audience to experience the festivals’ legacy.

“We think that today’s Woodstock Generation isn’t united by when they were born but by a shared value system of peace, creativity and compassion. ”

Roberts called the metaverse a “democratizing experience” where, despite physical circumstances, people can come together to celebrate what they believe in.

Connectivity is a big motivator for brands and companies to enter the metaverse. With over 90% of consumers curious about the metaverse, the opportunities to create connections on a global scale are only increasing.

Related: Metaverse not the endgame, but ‘ongoing digital transformation‘: Davos 2023

However, just as in real life, throwing an iconic festival for thousands of people is a big task with many considerations.

DeFranco said the goal of such initiatives is not to replace, but complement what is available in physical reality and the legacy of an event.

“There’s nothing like being at a live show. The intent is to have a community to engage in and an experience you enjoy when you can’t be at a live show.”

Roberts said when preparing to create this digital compliment, the anticipation of new needs for artists, audiences and even music genres is a new challenge. She also said leaving room for serendipity in the process is not to be overlooked. 

“The magic of the original festival was something that resulted from the alchemy of bringing different elements together. We have faith that will happen here too, albeit in ways we can’t predict.”

From indie artists to iconic pop stars, the music industry has been very active in its adoption of Web3 technologies. 

Major labels like Warner Music have been particularly active in bringing performances into digital reality, particularly after its announcement of its own music-centered Web3 platform it is creating with Polygon.

Roberts said however, when it comes to legacy it’s not just about keeping the past alive but looking towards the future.

“It’s not about enshrining the past, but rather a way to involve new audiences and write the next chapters of history.”

Over the next seven years, the metaverse is expected to create a market valuation of $5 trillion according to recent reports.  

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Despite a bear market, crypto’s future is still bright: Crypto in 2023

2022 was quite the year for crypto. It saw incredible innovation and greater adoption. This progress was accompanied by some major growing pains, including major hacks and scams amid an overall bear market.

2022 was quite the year for crypto. It saw incredible innovation and greater adoption. This progress was accompanied by some major growing pains, including major hacks and scams amid an overall bear market. The unexpected developments that took place towards the year’s end, such as a trend towards the removal of creator royalties and FTX’s collapse, will reshape the space in the year to come, requiring users and projects to adapt to a changing landscape. Considering all that the space has lived through in 2022, here are the biggest predictions for crypto in 2023.

NFT adoption is likely to continue with a focus on tech standards and utility

NFTs could become more widely adopted as technological standards and as utility-based primitives, leaving behind the highly speculative age of the PFP, collections of 10K or 1 of 1s.

In October 2022, many major marketplaces such as LooksRare and MagicEden began to make creator royalties optional or remove them entirely, meaning creators would lose a major source of revenue. Given royalties are a large part of what draws and keeps creators in Web3, this can threaten the use case of NFTs as art. New technological standards are likely to arise to solve the problem of royalties, but in the meantime, NFT technology will filter into other industries. 

Even prior to the royalty debate, as the market became saturated with countless collections lacking clear utility, it became clear that the use cases for NFT primitives would expand. Where in 2022 we saw NFTs become more widely used in entertainment, gaming and sports, 2023 is likely to usher NFTs into DeFi. DeFi projects already see the need for tokenized data when it comes to security, convenience and transaction speed — and NFTs are the optimal solution. DeFi-oriented NFTs will demonstrate that the fundamental technology carries all types of data securely, further extending its use cases to include medical records, legal records and copyright documents.

Another place NFTs found a home last year was with major brands. In 2023, more traditional brands and creators may enter Web3, pursuing tangible utility for their NFTs. By backing NFTs with physical products, brands can diversify and augment their products to offer unique perks to customers, which can help them reach new audiences, increase their overall presence and drive revenue.  

NFTs will continue to power the metaverse, a strategic point of entry for luxury brands

The metaverse has proven to be a strategic avenue for brands to further showcase their newest collections, increase community engagement and launch virtual events such as Nike’s .Swoosh or Burberry’s Minecraft collaboration. 

Metaverse-based activations enable users to experience the runway virtually or have their characters wear new pieces within a game. Community experiences power fan collaboration on next-gen virtual creations, increasing loyalty and retention. Luxury brands can make themselves more accessible and extend their reach to audiences globally by hosting shows in the metaverse, rather than at a single physical event. 

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Government guidance and regulation are more likely to occur as the tech advances

The SEC has already launched probes into Ripple and Yuga Labs over potential securities violations. Major companies in the space will continue to fall under the scrutiny of the SEC this year as the technology becomes more widely utilized by businesses and individuals. The Terra/Luna debacle and FTX insolvency are two major events that have added regulatory pressure to lawmakers, further ensuring regulation will remain top of mind in 2023.

This year, regulators are likely to assess the merits of algorithmic stablecoins and the asset backings of reserve-based stablecoins like USDT. Regulation will seek to determine whether these controversial assets are positioned enough — either via technology or assets — to justify being marketed as tied to the dollar.

Greater commercial and institutional adoption of DeFi

DeFi could become more widely adopted by retail investors in 2023, once they have regained confidence in the crypto space. While the FTX debacle has left many investors and businesses gunshy and skeptical of crypto overall, it only further proves crypto’s overarching narrative that the space needs greater decentralization. This could usher investors away from centralized exchanges and lenders towards DeFi alternatives.

Once these hurdles have been overcome, retail investors can find more tangible use cases through lending and borrowing against on-chain collateral or engaging in derivatives activities powered by trustless smart contracts. Institutions could also move into the DeFi space, providing lending and market-making initiatives while selecting the most secure partners to do so. 

The combination of increased retail and institutional participation in DeFi will result in tight network effects. More retail usage will increase the volume of assets, which will lead to more opportunities for institutions to provide liquidity, in turn making it easier for retail investors to onboard without execution risks, ultimately increasing retail usage and creating a positive cycle. 

Along with new trends come challenges

Security and reliability are keys to success in NFTs and Web3. To combat malicious actors, hackers and scammers, companies must prioritize robust infrastructure and hardened security. Success and growth are underpinned by trust. If consumer trust dwindles due to hacks and scams, projects and companies may find themselves facing tough roads ahead. 

While security is paramount, consumer education is vital for any project or company pursuing business strategies in Web3 and NFTs. Given that the conversations around NFTs are currently mired in doubt and fear, projects must invest more in educational tools for their communities through publishing blogs or hosting webinars and Twitter Spaces to mitigate this uncertainty.

Finally, despite regulation in Web3 posing many challenges for the ecosystem, 2023’s regulatory focus could actually positively resolve much of the “gray zone” that exists today for digital assets like Bitcoin and Ethereum. It could make it easier for institutions to onboard their clients, businesses to take custody and accept payment of crypto, and for brands to engage in Web3 initiatives. The regulatory tailwinds will serve as a significant catalyst for continued growth in this nascent industry. 

Anthony Georgiades is the co-founder of Pastel Network.

This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.

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