Nonfungible tokens (NFTs) saw a massive surge in popularity in 2021, accompanied by sky-high prices, but the market has since come crashing back to earth, and it’s unclear whether there will be a resurgence. 

NFTs are unique digital tokens recorded on a blockchain to certify ownership and authenticity. They can’t be copied or substituted but can be transferred and sold by their owner.

According to analytics platform NFTGo, the NFT market cap valued in Ether (ETH) is down 40.59% over the past year at the time of writing, with trading volume down 40.81%.

The market cap in U.S. dollars is down 41.16%, and its volume has dropped 66.77%. At the same time, market sentiment is ranked 13 out of 100, with an overall rating of “cold.”

Arno Bauer, senior solution architect at BNB Chain, told Cointelegraph that from a utility perspective, NFT projects are increasingly adding value and that this growth in functionality is where the future of NFTs likely lies. 

Bauer said the NFT market is showing “promising signs of innovation and creativity,” which holds great potential for the growth and evolution of the tech.

Related: Crypto lawyer about SEC: ‘Problematic to imply all NFTs are securities’

“Market sentiment, cultural shifts towards digital ownership, and the potential for NFTs to be integrated into various aspects of our lives also contribute to a positive outlook for the future of NFTs,” he said.

“While current market conditions might seem subdued, the ongoing innovation and potential for integration with both digital and physical worlds suggest that NFTs have not had their day and that their continued relevance and growth are highly probable,” Bauer added.

NFTs in the long term

As for long-term use cases, Bauer said NFTs will “likely evolve” over time and become increasingly linked to real-world assets, such as property ownership or unique physical goods.

Currently, NFTs have been most successful in the art world, with some selling for tens of millions of dollars.

Digital artist Pak sold an NFT project titled “The Merge” for $91.8 million on Nifty Gateway in 2021, while Mike Winkelmann, also known as Beeple, sold “Everydays: The First 5000 Days” for $69.3 million via Christie’s auction house the same year. 

Blockchain games also use NFTs to represent in-game items such as weapons and armor, and there is speculation the tech will make the jump to mainstream games. Various types of music assets are also being sold as one-of-a-kind NFTs.

Bauer thinks that as more robust technology provides enhanced use cases and ownership security, NFTs will likely become more attractive to mainstream markets.

He speculated that NFTs could link to financial instruments, representing shares in companies or investment funds, and social achievements, where they could symbolize badges of accomplishment in various fields.

“Beyond art, the ability to tokenize unique assets and provide verifiable ownership will create numerous applications across various domains,” Bauer said.

“Collaborations with traditional industries, technological advancements, clear regulatory frameworks and educational efforts can significantly boost NFT utility and adoption.”

“Addressing sustainability concerns could make them more appealing to a broader audience,” he added.

NFTs have the potential to make a comeback 

Jason Bailey, co-founder and CEO of NFT tool and self-custody solution ClubNFT, told Cointelegraph he thinks “NFTs will come back and go mainstream” because crypto and NFTs rebound cyclically, just like previous tech crashes. 

According to data gathering platform Statista, the NFT market is projected to continue growing in revenue, users and market capitalization.

As of 2023, there are 13.95 million NFT users, but that’s expected to hit 19.31 million users by 2027.

However, Bailey believes NFTs currently have some issues, most of which were amplified by rampant market speculation, that need to be solved before NFTs can go mainstream. 

He said NFTs and the ecosystem around them are so complex that almost everyone is still vulnerable to many risks they may not even know about.

“Many of us have been trying to educate and onboard people into the space thoughtfully so they can be safe, but the truth is that NFTs won’t go mainstream until the complexity is replaced with a safe-by-default easy path,” Bailey said.

“For example, the vast majority of people don’t realize that an NFT is almost always at risk in a sense, except for fully on-chain NFTs, which are a truly tiny fraction.”

“The steps needed to protect the art from disappearing, and prevent the NFT from breaking, are complicated, time-consuming and error-prone,” he added.

Related: AI-based tools bring security and transparency to the NFT market

Bailey believes that in the long term, NFTs or similar tech could prove invaluable in validating digital documents such as marriage certificates, diplomas and licenses.

Overall, he thinks NFTs solve too many of the current problems associated with digital ownership — including scarcity, authentication, provenance and provable ownership — to be ignored.

“We need to build infrastructure now, during the bear market, for smoother onboarding and to protect NFT adopters from malicious actors in the next NFT bull market,” he said.

“Once these issues are solved, NFTs will absolutely go mainstream because the train of digital ownership left the station decades ago, and there is no stopping it.”

Meaningful projects could be a game changer for NFTs 

Speaking to Cointelegraph, Andy Ku, founder and CEO of digital content Web3 ecosystem Altava Group, said he thinks the previous highs in the NFT market were based on a hype cycle, so it’ll be hard for an individual NFT to reach such lofty heights again.

According to CoinGecko, many of the top NFT collections have seen significant drops in value over the past year. 

At the time of writing, Bored Ape Yacht Club has fallen by 67.1%, CryptoPunks by 33.2%, Mutant Ape Yacht Club by 59.2% and Azuki by 49.3%.

Ku believes that if we can see more meaningful NFT projects on the market offering tangible benefits to more people, then it’s possible to have the combined volume bring the overall market value up.

Related: What’s next for NFTs and Web3 in the age of the creator economy?

“NFTs should offer value and utility beyond just a digital art or PFP. The two areas I particularly believe in are asset-backed NFTs and a membership NFT,” he said.

“NFT’s core value of being an immutable representation of something is a great fit for assets and membership.”

NFTs for subscription, membership-based models and loyalty programs are starting to gain traction, with examples in hospitality venues and gyms already on the market.

“In terms of asset-backed NFTs, master artworks, real estate and precious metals like gold are all good examples of assets in which people believe,” Ku said.

“NFTs would make a great proof-of-ownership for these assets as well as being extremely portable,” he added.

Crypto’s legitimacy and adoption have increased in recent years, and along with the uptick in use, the tech has become a topic of political divisiveness, resulting in a perception of partisanship — especially in the United States. 

Speaking to Cointelegraph, Jonathan Jachym, the Global Head of Policy at U.S.-based crypto exchange Kraken, said he doesn’t think crypto is partisan and that the situation is far more nuanced.

He says crypto tech is fundamentally about financial empowerment, the ownership of assets and the decentralization of power structures.

“These are non-partisan issues which legislators across the globe face daily as their constituents navigate the challenges of the existing financial system,” Jachym said.

“Technology can be used to build a fairer, trustless, apolitical financial system, which is more efficient, transparent and secure for everyone. Now is the time to embrace crypto,” he added.

Nearly even split of crypto support among politicians and voters 

According to Coinbase’s Legislative Portal, which tracks U.S. politicians who have made positive statements about crypto, there is a healthy number of crypto supporters in Congress on both sides of the political aisle, with 26 Republicans and 22 Democrats in the House of Representatives voicing support. 

In the Senate, it’s slightly skewed toward the right, with 24 Republicans and only 11 Democrats making positive statements about crypto. Support for crypto among voters also appears to be a close split between the left, right and independents.

According to a Feb. 27 national survey conducted by business intelligence company Morning Consult, 22% of Democrats, 18% of Republicans and 22% of Independents said they own crypto.

Jachym believes bad actors have sown division in the space, but overall he says crypto itself remains an inclusive, transformative technology with the potential to improve lives. 

“This is why, regardless of the political consensus of their populous, many developed economies are advancing bespoke regulatory regimes for crypto assets,” he said, adding, “For example, at the state level within the United States, both ‘red’ and ‘blue’ states have made meaningful progress toward workable frameworks for crypto.”

Bipartisan support for crypto already happening

There have already been some examples of bipartisanship among politicians with forming the Congressional Blockchain Caucus on Sept. 26, 2016, through cooperation by Democrats and Republicans.

Related: Congress may be ‘ungovernable,’ but US could see crypto legislation in 2023

The blockchain caucus was created to study blockchain tech and the role Congress can play in its development, and according to its website, the current four co-chairs are two Republicans and two Democrats.

Both parties also appear to be happy accepting monetary donations from the crypto industry.

In the wake of FTX’s collapse in 2022, it came to light that the exchange’s CEO Sam Bankman-Fried had made political donations to Democrats, but he also implied in a later interview that Republicans had received roughly the same amount in “dark” donations.

Bradley Allgood, the co-founder and CEO of U.S.-based blockchain development and fintech company Fluent Finance, told Cointelegraph that he doesn’t consider crypto a partisan issue but does believe the tech has been drawn into political discussions and power plays.

“A fundamental aspect of crypto — its inherent political neutrality and its role in fostering innovation — has found resonance in certain political factions, notably among those who favor deregulation and open markets,” he said.

“Contrarily, some elements of the current administration and regulators have adopted an adversarial stance toward crypto, purportedly to protect traditional institutions and maintain control over monetary mechanisms,” Allgood added,

However, Allgood says he firmly believes that the tech and the ideals it represents, such as decentralization, transparency and individual freedom, are far removed from the political squabbles of our time. He said:

“I must emphasize: each individual cryptocurrency is in and of itself the product of human intention and does carry inherent political bias.”

“The policies and parameters which govern individual cryptocurrencies — for example, how consensus is achieved on-chain, how validators are rewarded for their services, and inflation schedules — attract certain types of users and repel others,” he added.

Critics of crypto are united as well 

Critics of the crypto industry also come from both sides of politics. Democrats such as California Representative Brad Sherman and Massachusetts Senator Elizabeth Warren are two of the loudest voices criticizing the industry.

They are not alone, though, with Republicans such as Kansas Senator Roger Marshall co-sponsoring Warren’s bill demanding more transparency in digital asset transactions and South Carolina Senator Lindsey Graham throwing his support behind reintroducing the bill. 

Speaking to Cointelegraph, Aharon Miller, co-founder and chief operating officer of peer-to-peer trading platform Oobit, said crypto challenges the traditional financial system, so it’s natural for people with different political beliefs to have differing opinions on it.

He says crypto isn’t just for one political camp; it’s a technology that goes beyond political boundaries and has the potential to impact everyone, bringing perks such as financial inclusion, lower transaction costs and more transparency to the table.

Magazine: Blockchain games aren’t really decentralized… but that’s about to change

Miller characterizes crypto as a “game-changer that can revolutionize finance,” which is why he says regulators, policymakers, and the industry must work together to find the right balance between protecting consumers and fostering innovation.

“We need an environment that encourages responsible innovation so we can unlock crypto’s full potential,” he said.

“The more we understand the real-world advancements facilitated by cryptocurrency, the better equipped we are to address practical and accessibility concerns, thus promoting broader adoption.” 

Artificial intelligence (AI) has seen tremendous growth in recent years, exploding into popular culture and industry and leading to comparisons with the now infamous dot-com bubble and crash of the 1990s.

During the late 1990s up until the early 2000s, internet-based companies were the subject of massive hype and investment, with the sector peaking at a value of $2.95 trillion before slumping to $1.195 trillion as capital dried up and investors left in droves, causing many companies in the industry to go bust.

According to data from analytics platform Statista, the AI market has seen steady growth since 2021, with the current market size estimated to be around $200 billion and forecasted to reach $1.8 trillion by 2030.

Speaking to Cointelegraph, Henry Nothhaft Jr., who has worked in the AI industry since 2009 in various roles and founded the early AI software company Trapit, said the rapid expansion of AI and the dot-com bubble share some key attributes.

Nothhaft pointed to the scale of impact on the economy and society in both cases. AI, in particular, has been a polarizing topic, prompting tech leaders like Elon Musk to warn of impending doom while also investing in the sector.

Related: AI-related crypto returns rose up to 41% after ChatGPT launched: Study

“Both represent transformative technological innovation that redefine industries and change societal behaviors,” he said.

“As with the dot-com bubble, with AI, we’re experiencing a hype cycle characterized by rapid innovation, a frothy investment environment, a lot of new entrants and, I think, inflated expectations,” Nothhaft added.

AI still in its infancy

Although Nothhaft thinks it’s still early to make a call on just how inflated expectations are for AI, he does believe that most of the AI companies created during this hype period will fail and a small number of winners will shape the future of the industry.

OpenAI’s chatbot ChatGPT launched in November 2022 and quickly became one of the fastest-growing web platforms in history, eclipsing 1 million daily users in just five days and reaching the 100 million monthly users mark by January 2023.

However, it has seen a dropoff in traffic recently, and rivals such as Google’s Bard, Microsoft’s Bing and Character.ai have so far failed to reach the same levels of success.

According to Nothhaft, AI won’t experience a crash on the same scale as the dot-com bubble though. Unlike the early years of the internet, which he thinks were more a period of exploration and novelty than utility, AI has already seen applications across various sectors, including media, healthcare, finance, transportation and education.

“While AI is just in the infancy of its capabilities, these applications of AI are not future projections — they’re here and now. AI is delivering tangible value today,” Nothhaft said.

“Soon, it will be challenging to distinguish between the AI industry and the broader software industry, as AI will become a ubiquitous part of the digital landscape,” he added.

AI and crypto

AI’s rise has drawn parallels with crypto as well, which has had its own meteoric rise over the last decade, surpassing a total market cap of $3 trillion at its peak in November 2021 before losing more than half its value in 2022.

Initial coin offerings (ICO) gained enormous popularity as a fundraising technique for blockchain initiatives between 2016 and 2017. One key benefit was that entrepreneurs could receive funds directly from the crypto community.

Nonfungible tokens (NFT) also experienced a massive boom period, but Nothhaft said NFTs and ICOs couldn’t be more different from AI.

Related: Crypto is ‘just like the end of the 90s with the internet bubble,’ says Hodl CEO Maurice Mureau

According to Nothhaft, NFTs and ICOs represent niche applications of blockchain tech, while AI represents substantial technological innovation with wide-ranging, tangible applications.

“Unlike the crypto space, where the hype has often exceeded reality, the promise of AI is grounded in substantial technological advancements and nearly limitless applications,” he said.

“The growth of AI may seem rapid, but it’s not a bubble in the way that we’ve seen with certain crypto phenomena.” 

Sam Huber, CEO of metaverse platform LandVault, shared another perspective with Cointelegraph. He believes that NFTs and ICOs do share some similarities to the AI market, particularly in terms of initial hype, rapid growth and subsequent potential for market corrections — but differ in the factors driving growth.

Related: SVB collapse chilled NFT trading volumes: DappRadar

According to Huber, AI’s growth is primarily driven by technological advances and practical applications, whereas crypto and related assets, such as NFTs and ICOs, frequently attract speculative investments motivated by the prospect of quick financial gains.

“AI is a broad field encompassing various technologies and applications, whereas cryptocurrencies such as Bitcoin and Ethereum are specific digital assets,” he said.

“The value proposition of AI is its ability to improve and transform multiple industries, whereas cryptocurrencies serve primarily as decentralized digital currencies or investment assets,” Huber added.

Differences from the dot-com bubble

Huber said the rapid growth of AI and the dot-com bubble do share some parallels — specifically that in both cases, not all businesses or investment opportunities in the space have a viable business model.

“Many businesses were calling themselves ‘internet businesses’ by just having a website. It is similar to many companies today calling themselves ‘AI companies’ because they plug into ChatGPT,” he said.

“These companies attract speculative investment but are not building significant differentiation nor defensible technology. When these companies fail to deliver or raise their next round, it can cause a market crash.”

However, Huber says it’s a very different environment to the 1990s when the companies in the dot-com sector were going public much earlier and, once on the market, retail investors were able to invest in them. 

Related: Experiments show AI could help audit smart contracts, but not yet

“Today, companies are able to raise a lot more capital privately, so do not need to list,” Huber said.

“If they fail, the market impact is much less because they only have institutional investors on their cap tables, so the general public is protected and mass panic is avoided,” he added.

Overall, Huber argues that one of the main differences between other tech bubbles and AI is that it’s supported by tangible applications and use cases, with many companies incorporating AI into their operations and products.

The crypto industry is ripe with AI projects, and the music and film industries have also begun experimenting with it.

“This fundamental distinction implies that AI’s advancement is driven by practical utility rather than speculation alone,” Huber said. 

AI on a different path than dot-com bubble

Osman Masud, CEO of independent video game developer The Game Company — which uses AI in its products — told Cointelegraph it’s unlikely AI will follow the same path as the dot-com bubble.

“The dot-com bubble was driven by speculation around internet companies. AI technologies have already proven their practical use in industries such as healthcare, finance and automation,” he said.

“While AI and the dot-com bubble have experienced rapid expansion, the difference lies in the level of maturity and tangible value generated,” Masud added.

Related: Apple has its own GPT AI system but no stated plans for public release: Report

Overall, Masud believes that the growth of AI is being driven by advancements in machine learning, deep learning and neural networks, which continue to evolve and improve.

With the potential to transform industries and improve efficiency, he said the AI industry is expected to continue to experience significant growth in the years to come rather than collapse.

“While there may be fluctuations and market corrections, AI’s long-term impact and potential are expected to be substantial due to its wide-ranging applications and transformative capabilities,” Masud said.

Satoshi Nakamoto mined the genesis block on Jan. 3, 2009, minting the first 50 Bitcoin (BTC) in history and kicking off what would become a billion-dollar industry centered around mining crypto. However, with a cap on Bitcoin supply, the fate of miners after the last coins are issued is unclear. 

Bitcoin is created through mining, a process involving computer hardware to solve complex mathematical problems and verify transactions on the blockchain network. For their efforts, miners are rewarded with a predetermined amount of BTC for each block of transactions.

According to the Blockchain Council, more than 19 million BTC has been awarded to miners in block rewards, and according to Nakamoto’s white paper, only 21 million are available. Once this cap is reached, miners will no longer receive rewards for verifying transactions.

Speaking to Cointelegraph, Nick Hansen, founder and CEO of Bitcoin mining firm Luxor Mining, says that despite the loss of block rewards, miners will continue to play an essential role in verifying and recording transactions on the blockchain, but how they are compensated will evolve. 

Currently, successfully validating a new block on the blockchain rewards miners with 6.25 BTC, worth about $188,381 at the time of writing, according to CoinGecko. Miners also receive transaction fees.

According to calculations shared in a May 1 tweet from on-chain analytics firm Glassnode, since 2010, fees and block rewards have netted miners over $50 billion.

Hansen believes transaction fees will eventually become the primary incentive for miners to continue long after the last BTC is mined. 

“That’s why as transaction fees become an increasingly important part of Bitcoin mining economics, understanding transaction fee dynamics and forecasting them into the future becomes even more critical,” he said, adding:

“Thus, it’s important to see fees increase over time, something that Bitcoin Ordinals, as of late, has helped with, for example.”

However, this shift is still likely years away, given that nobody currently mining will be alive when the last BTC block reward is received.

It will be a long wait to find out

According to Hansen, based on the block discovery rate and the halving process, which occurs roughly every four years — or every 210,000 blocks of transactions — the last BTC will most likely be mined around 2140.

A Bitcoin halving is a planned reduction in the rewards that miners receive, with the next one currently predicted to occur around April 2024. This will reduce the reward for each block to 3.125 BTC or roughly $94,190 at the time of writing.

In theory, by limiting the supply of BTC, each coin’s value should increase as demand increases and supply remains fixed.

Hansen says the price of BTC in 2140 will depend on unpredictable factors such as market demand, the regulatory environment, technological advancements and macroeconomic factors.

“The fact that all Bitcoin is in circulation may create scarcity, but whether this scarcity will translate to price increases is subject to market dynamics,” he said.

“As we look to a future where all Bitcoin has been mined, it’s important to remember that Bitcoin was designed with this endgame in mind.

“The tapering off of block rewards and shift toward transaction fees are intrinsic to the protocol, and represent an ingenious solution to ensuring the ongoing security and viability of the network,” Hansen added.

Related: Rising BTC transaction fees are a good thing, Bitcoin educator shares

Jaran Mellerud, a research analyst from Hashrate Index, told Cointelegraph that as Bitcoin adoption and usage grows, transaction fees will drastically increase and become the primary source of revenue for mining firms.

Mellerud said that, by the time the last BTC is issued, the block subsidy will have already been so minuscule that it will not significantly impact the coin supply.

“Due to the huge block space demand relative to the scarce block space supply, transaction fees will have to skyrocket in a future scenario of hyperbitcoinization,” he said, adding:

“If you don’t believe there will be sufficiently high transaction fees in the future to justify the existence of mining, you don’t really believe in Bitcoin.”

What about fiat

By the time the last Bitcoin is mined, Mellerud believes its value won’t be measured in United States dollars or other fiat currencies.

He speculates that by then, fiat money systems will have long since collapsed, and Bitcoin could be the successor, becoming the standard unit of account globally.

“Under such circumstances, the only valid way to measure the purchasing power of Bitcoin is by looking at how much energy a Bitcoin or satoshi can purchase,” Mellerud said.

“Just as we currently measure the purchasing power of the U.S. dollar in energy terms, barrels of oil,” he added.

A collapse of fiat money systems has long been predicted, spurred on by the many problems facing the traditional financial system. As recently as March 2023, Silicon Valley Bank collapsed due to a liquidity crisis, with Signature Bank and Silvergate Bank following.

Related: The first-world debt crisis means you can expect more pain ahead

Before the March 2023 banking crisis, a February survey conducted by business intelligence firm Morning Consult and commissioned by crypto exchange Coinbase found most respondents were already disillusioned with the global financial system.

Bitcoin might not be the same in 120 years

Speaking to Cointelegraph, Pat White, co-founder and CEO of digital asset platform Bitwave, believes miners will remain a critical part of the ecosystem, but not all will survive, with some shutting down in the face of mounting costs. 

According to a March 24 report from Glassnode, since 2010, miners have already been experiencing long periods of unprofitability, with only 47% of trading days being profitable.

“I think it’s conceivable we’ll see some miners shut down or other manipulation techniques used in an effort to drive up fees,” White said, adding: 

“But I also imagine that will happen well before the last Bitcoin is mined since the last few halvings will get the block rewards down to the satoshi level.”

However, White also says “a lot can happen in 120 years,” and BTC could fundamentally change over the next century.

White believes that by 2140, quantum computers will likely have broken the core encryption under Bitcoin, though he says engineers working on it have long known it’s not quantum-secure.

“That shouldn’t necessarily scare people because of this quantum security issue. Between now and 2140, there will have to be a major reworking of Bitcoin from the encryption layer upward,” he said. 

“At that point, the Bitcoin developer community will be able to assess whether or not we’re actually on track to have a functioning transaction fee-based network or if additional Bitcoin mining is necessary to ensure the security of the network,” White added.

White further speculates that while Satoshi Nakamoto’s white paper states that 21 million BTC is the supply cap and the single most concrete rule, none of us will likely be alive by 2140 to enforce that rule.

He believes crypto boils down to coding and consensus; if the community thinks the transaction fee incentive is insufficient to keep the network secure, future miners could theoretically extend the BTC hard cap beyond 21 million.

Related: $160K at next halving? Model counts down to new Bitcoin all-time high

What effect this could have on the price isn’t clear, but either way, White thinks that the price of Bitcoin will stabilize at some global inflation-reflecting price point, and the major price movement will occur at some time in the next 120 years if one or more nations seriously pick it up as their reserve currency.

In that instance, he says it will “likely be independent of Bitcoin mining schedules,” and it would be the most solidifying moment to drive up the price of BTC.

Related: US law protects institutions and exposes retail investors — Rep. Torres

“There are things we can’t even imagine that might impact Bitcoin — wars and energy crises obviously — but what if we’re a true multiplanetary species by then and we have to extend the block production time to support solar system-level communication speeds,” White said.

“What I always find important is to focus on the hardest problems we’re seeing today and do what we can to solve them. That might mean solving for payments or digital ownership, or banking the unbanked — these are the problems to focus on now,” he added.

Crypto losses to bad actors have significantly increased in the last two years, but cybersecurity experts believe there is no cause for concern, as most new tech is exploited during the early days of its use. 

According to blockchain security firm CertiK’s annual Web3 security report for 2022, malicious actors drained over $3.7 billion in value from Web3 protocols last year, representing a 189% increase over the $1.8 billion lost in 2021.

CertiK’s report for the first quarter of 2023 also revealed that hackers accessed over $320 million in the first three months of the year.

Kang Li, the chief security officer at CertiK, told Cointelegraph that new technology is often a target for exploitation and the crypto industry is just the latest to suffer from its own success. 

“As new technologies emerge, they often become targets for malicious activities, simply because they present new vulnerabilities and possibilities for exploitation,” Li said.

“This has been seen throughout history, from the early days of the internet to the rise of email and, more recently, with the advent of blockchain and cryptocurrency,” he added.

According to Li, because the industry is still relatively new and rapidly evolving, some players are more focused on growth and innovation than on security, making them vulnerable to attacks and potentially contributing to the large number of losses recorded.

Data gathering platform Statista predicts that the crypto industry, which has seen massive growth since 2017, will keep expanding, with revenue projected to reach $64.87 billion and total global users expected to hit 994 million by 2027.

Li says this rapid rise in users and revenue, combined with some of the industry’s innovations, could also contribute to protocols being exploited. 

“Blockchain technology and the smart contracts that underpin many cryptocurrencies are highly complex; this complexity can create security vulnerabilities that skilled hackers can exploit,” he said, adding, “Cryptocurrencies also hold real value and can be exchanged for traditional currency in many places around the world; this makes them an attractive target for hackers who can transfer and potentially liquidate stolen cryptocurrencies quickly.”

In the long run, Li says, as security around the crypto space improves and Web3 matures, we will see a decrease in successful hacks, exploits and scams.

However, he thinks it will always be a continuous battle between bad actors and blockchain security experts as they both fight to achieve their goals in an ever-changing industry.

Recent: Debunking the myth: Cryptocurrency is used for criminal activity

“It’s essential to note that while hacks and exploits pose serious risks, they should not deter us from appreciating the enormous potential and innovative capabilities of blockchain and cryptocurrency technology,” Li said.

“Rather than a cause for retreat, they should serve as a clarion call for us to redouble our efforts to ensure that these transformative technologies can be used securely and responsibly.”

Artificial intelligence could be next

Artificial intelligence (AI) has become a hot topic in the last year, with some pointing out its potential implications for the workforce, while others, including tech entrepreneur Elon Musk, advise caution around its development.

Li believes it’s likely that as AI becomes more widely used, it will experience its own security issues, just like Web3 and other forms of transformative technology.

According to Li, as AI becomes more ingrained in our daily lives, especially in security-sensitive areas such as autonomous vehicles or financial systems, the potential for hacks, exploits and scams will likely increase.

Recent: EU legislators call for ‘safe’ AI as Google’s CEO cautions on rapid development

“AI systems can be exploited in several ways, from manipulating machine learning algorithms to data poisoning and adversarial attacks,” he said.

“There are also discussions happening around sensitive data leaking out of large language models, as humans interact and share information with AI chat platforms like ChatGPT,” he added.

Omer Greisman, head of security services at blockchain cybersecurity firm OpenZeppelin, told Cointelegraph that it’s still early to judge if bad actors will flock to exploit AI.

He says there is no immediate financial incentive at this stage, with most malicious activity focused on direct financial gain and no clear payoff yet for exploiting an AI.

“However, certain AI capabilities may facilitate a more sophisticated suite of attack vectors,” Greisman said.

“It’s also true that machine learning can be leveraged by security researchers to scan smart contracts to find vulnerabilities more efficiently,” he added. 

Growing pains are unavoidable for crypto as it grows

Greisman believes the crypto industry can still be considered nascent, so some “growing pains” are unavoidable.

He says that the rapidly evolving nature of the crypto industry means that security measures and best practices are still being developed and implemented, and users are still learning how to use the tech safely, which makes them easy targets for exploitation.

“The nature of smart contracts, in that they are open and visible for anyone to interact with, also means that the blockchain can be an attractive target for attackers,” Greisman said.

“Whereas traditional financial systems can rely on additional layers of security via centralized servers, a smart contract’s sensitive functions are potentially visible to any user. If there is a bug in a deployed contract, it can be called by anyone at any time,” he added.

Greisman says with time and experience, and as security measures in the crypto space continue to improve, hacks and exploits will likely decrease, especially if a conscious security-first approach becomes the new standard.

He notes decentralized finance (DeFi), in particular, has become more cautious and rigorous in its security approaches, with some platforms now implementing multisignature wallets and time locks for contract upgrades, reducing the risk of unauthorized access and malicious modifications.

Recent: Missing DeFi security layer found in a new company release

“The industry has already witnessed significant advancements in security practices, such as the widespread adoption of security audits for smart contracts,” Greisman said.

“Also, bug bounty programs encourage ethical hackers to find and report vulnerabilities rather than exploiting them,” he added.

In addition to these technical advancements, Greisman believes increased regulatory scrutiny and user education will play vital roles in reducing future scams, exploits and hacks.

“Regulatory measures help establish standards and guidelines for security practices while educating users about potential risks and best security practices helps enhance their ability to protect themselves,” he said. 

Crypto losses receive more attention than fiat currencies

Speaking to Cointelegraph, crypto exchange Kraken’s chief security officer Nick Percoco said that, in his experience, criminals target anything of value to turn a quick profit, and crypto is just one of many assets of value in the world today.

He believes crypto receives undue attention for its losses, while the fiat currency system still sets records yearly for losses through malicious actions.

“Crypto is often referenced in the news for theft and fraud, but in reality, the total losses are a fraction of the total payment card, ACH [automated clearing house] and wire fraud worldwide,” he said.

According to the Global Anti Scam Alliance — a nonprofit organization dedicated to protecting consumers from financial crime and scams — fiat money lost to scams has increased, with $47.8 billion lost in 2020 and $55.3 billion in 2021.

The United Nations estimates that the amount of money illegally laundered globally in one year is 2% to 5% of the global gross domestic product, equaling around $800 billion to $2 trillion.

Percoco says that, unlike other methods of theft and fraud, crypto transactions occur on-chain and in plain view of everyone in the world, which he believes is a major strength for the industry because the stolen funds can then be tracked. 

It might also factor in the increased scrutiny and attention that losses in the crypto space receive.

“When a large compromise does happen, the entire world is able to help track the funds to see exactly where they flow to,” Percoco said.

“This isn’t possible in the traditional financial systems where the movement of funds happens behind closed doors and over private networks,” he added.

Overall, Percoco expects that as global crypto adoption expands, total losses will likely grow proportionately.

“Although, improved education and understanding of the asset class will ensure this rise is not disproportionate to other payment channels,” he said.

Blockchain games are mostly played for entertainment, but some developers within the industry think the games could eventually evolve into a form of employment where players can grind out a living wage. 

Video games using blockchain tech allow players to earn native crypto or nonfungible tokens (NFTs) by playing and participating in activities within the virtual world. Users can then trade or sell their rewards to others and convert them to fiat currency or other crypto, such as Bitcoin (BTC) and Ether (ETH).

Known as GameFi and play-to-earn (P2E), these gaming mechanics have seen some places, like a small community in the Philippines, turn playing blockchain games into employment; however, it’s unclear how existing worker protections and labor laws would apply.

Many countries have laws entitling employees to certain rights, such as minimum wages, a safe workplace, compensation, a pension fund and other protections. 

A whole new unregulated frontier

Gip Cutrino, an entrepreneur and chief operating officer of Web3 platform Runiverse, told Cointelegraph that the concept of using blockchain games to grind out a living has already made an impact, especially in countries with lower wages.

According to Cutrino, because of the relatively new technology, the laws around the concept have not yet been made clear, but he expects regulations will be on the horizon as more mainstream audiences join the space.

“We’re building products and creating solutions that haven’t been accounted for by existing laws, which can become particularly complicated when we consider the global and connected nature of blockchain gaming spread across different countries and legal jurisdictions,” Cutrino said.

“There aren’t global labor laws addressing this specific situation, but we can expect increased regulation as GameFi evolves further,” he added.

Recent: Minecraft, GTA may yet change their tune on blockchain: GameFi execs

He notes that, from his perspective, there is more concern around blockchain games and income law implications, specifically how regulators might decide to define this category of income for gamers.

“Some countries have begun drafting laws that would classify any token invested with an expectation of profit and any project stimulating liquidity pools as securities,” Cutrino said.

The United States Securities and Exchange Commission has sent shockwaves through the crypto space with multiple enforcement actions against crypto projects and companies over the last few years, arguing in many cases that the tokens being used are unregistered securities.

Arguably the most infamous instance has been the SEC’s long legal war of attrition with Ripple over its XRP token. 

However, Cutrino still has faith that somewhere down the line, blockchain games will have a part to play in helping people find work.

“The potential for genuine, impactful employment opportunities in GameFi is massive and only poised to grow from here,” Cutrino said.

“The real value in terms of employment opportunities in the GameFi space heavily relies on its tokenomics and circulation for it to generate income streams that replace traditional wages while ensuring the sustainability of the game’s growth.”

The industry still has a long way to go

Speaking to Cointelegraph, Adam Bendjemil, head of business development at BNB Smart Chain, believes that using blockchain games to earn a wage could be a viable option and business model, provided demand meets supply and workers are well protected.

“If workers are well-protected, there shouldn’t be too many issues for most countries; earning by playing games full time is already a job for pro players,” Bendjemil said.

“Game farmers that spend time playing to sell back precious items is also very common but not legal — true ownership through Web3 games will change that into a viable legal job,” Bendjemil added.

Recent: Blockchain tech still far from hitting the esport big leagues, says investor

Esports, or electronic sports, is a form of organized competition via video games, with some pro players earning millions in prize money.

According to data gathering platform Statista, The International, an annual Defense of the Ancients (Dota 2) esport tournament, offered just under $19 million in prize money last year, but in previous years, it has offered far more, tipping $40 million in 2021. 

Bendjemil said that while he does hope and foresee that making a living through playing Web3 games will become a viable option at some point, he doesn’t think it’s possible to sustainably earn a living playing at the moment.

He believes that, for it to be viable, it will require a well-designed token economy that can adapt accordingly to market conditions and the number of regular players, which he says is a significant pitfall to overcome.

In his opinion, fixing these two issues could help avoid the “brutal pump-and-dumps we have witnessed in the past.”

“The key aspect of a viable Web3 game economy is likely to be ownership, and the key component of a viable economy is likely to be when people playing long hours to farm precious items will sell it to other players that are willing to pay for it,” Bendjemil said.

Ultimately, Bendjemil said video games are meant to be fun, and ownership for players is the primary added value with Web3 games rather than earning wages.

Recent: GameFi developers could be facing big fines and hard time

“It’s likely that it will evolve a lot before we reach a viable, long-term job opportunity,” he said.

“A lot of Web2 games have been successful in establishing a sustainable economy in their game in the past, and I believe that we will see similar viable models emerging in the near future for Web3,” Bendjemil added.

Still too early to know

Karl Blomsterwall, CEO of Nibiru Software — the Web3 developer behind the strategy game Planet IX — shared similar sentiments about it being the early days for blockchain games and where they stand legally.

Blomsterwall told Cointelegraph that the Web3 gaming space is still very much in its infancy, which makes a separation between gaming and labor hard to define.

“As the adoption increases, and especially if or when users prioritize GameFi over traditional labor, regulations will be adapted to encompass GameFi and play-to-earn,” he said.

“This is especially true for free-to-play models where users don’t need any significant buy-in to start playing the game.”

Blomsterwall said blockchain games are already starting to evolve past the initial stages into something that could be more sustainable as an employment opportunity.

Recent: Future of GameFi: Beyond the hype and toward accessibility through identity

However, he noted that this is like everything in the world: The first wave of something new rarely breaks the mold and succeeds. But the industry still has a way to go both in terms of regulation and development.

“You need first-movers, then the key is for projects that come after to learn from previous experiences,” he said.

“GameFi and its value in terms of potential employment might be a contested topic at the time being, but thinking that it’s not going to evolve and become a very relevant means of employment almost feels like agreeing with the skeptics when Amazon first launched their online book store.”

Most crypto investors probably aren’t thinking about divorce or what will happen to their digital assets in the event of separation, but lawyers say it’s becoming a very common scenario as more people hold crypto assets. 

Last year, market research firm GWI suggested that as much as 10.2% of global internet users aged 16 to 64 own crypto, with most ownership skewed toward nations experiencing high inflation or fluctuation in the value of their national currency.

Independent data and statistics tracker World Population Review suggests the divorce rate worldwide varies between lows of 0.15 divorces per 1,000 residents in Sri Lanka to highs of 5.52 per 1,000 people in the Maldives.

Speaking to Cointelegraph, Claire Walczak, a senior associate from independent law firm Lander & Rogers, who works in the firm’s family and relationship law practice, says family lawyers are seeing an increasing number of divorce settlements featuring digital assets.

She says it’s a “rapidly changing and evolving area of law,” so it’s important to have specialist family law advice if you have a matter involving digital assets.

According to Walczak, once divorce proceedings start, the court follows a process to determine how property and financial matters will be settled.

This can include determining what assets are available for division, assessing the parties’ respective contributions, considering whether it is just and equitable to make any adjustments, and evaluating each party’s future needs.

The same process applies when dealing with digital assets. Both parties in the divorce are obligated to disclose all documents concerning their assets, digital or otherwise.

Walczak says both parties to a property settlement are entitled to retain the crypto as part of their overall property settlement entitlements, regardless of whose name it is held.

If both parties seek to retain the crypto and fail to reach an agreement, courts may consider factors such as, who paid for the crypto, and who owns the wallet, when deciding who retains the asset.

“As part of this process, the court identifies and values the existing assets of the parties, which includes all digital assets,” Walczak said.

“In the case of cryptocurrency, the value of the asset type is determined by the open market and can be assessed via an exchange,” she added.

Market fluctuations can affect values

The crypto market can be volatile at the best of times, with exchange collapses and other factors pushing values down without warning.

Bitcoin (BTC) — the largest cryptocurrency by market capitalization — achieved an all-time high of over $68,000 on Nov.10, 2021, but has since lost a considerable portion of its value and sits at roughly $28,000 at the time of writing.

Recent: Bitcoin is on a collision course with ‘Net Zero’ promises

Walczak says the volatile and rapid fluctuations in crypto value can be a factor when splitting assets during divorce proceedings. 

“This can pose a risk to clients seeking to retain a large proportion of their property settlement entitlements in the form of cryptocurrency. This may need to be factored into the property settlement,” Walczak said.

“Once the value is determined, the parties can negotiate as to who will retain the cryptocurrency or, if neither party wishes to retain the cryptocurrency, whether it will be sold,” she added.

She noted that another consideration for family lawyers is that people who have acquired crypto as an investment asset must pay capital gains tax on any disposal, exchange or swap.

According to Walczak, if both parties in a divorce agree that the crypto should be sold as part of the property settlement, then the capital gains tax liability will be realized and form part of the asset pool.

“If, however, a party elects to retain cryptocurrency as an investment, then the capital gains tax liability will not be triggered, and the party retaining that asset may hold substantial unrealized capital gains,” Walczak said.

“Once it is determined who will retain the cryptocurrency or whether it will be sold, this can be documented in court orders,” she added.

According to the legal research platform Lexology, the case law on issues relating to cryptocurrency and its value is limited. However, there have been several high-profile cases in recent years where the value of crypto assets has taken center stage.

Lexology cites the 2020 Australian case of Powell vs. Christensen, where one party in divorce proceedings had purchased crypto, and the other sought the digital asset to be valued at its original purchase value rather than the market price.

The party who purchased the crypto argued that its value had decreased significantly since the purchase but did not disclose any documentation to support the case.

Ultimately, the Family Court of Australia determined the purchase value should be used for the divorce settlement rather than the reduced market value.

Staking and divorce 

Walczak says crypto staking rewards can also form part of either spouse’s income and are recorded on their individual tax returns — similar to how dividends are dealt with.

Crypto staking involves locking up crypto holdings to earn interest or rewards. Staking is also how specific blockchain networks verify transactions.

“This will have the effect of increasing that spouse’s taxable income, which may impact upon their final property settlement entitlements,” she said.

She also noted that if a spouse elects to retain the “crypto staking rewards,” they will be retaining a potential income-generating asset, which may impact upon that party’s property settlement entitlements.

A party may also request to be paid in a particular currency, which could include crypto; however, Walczak says a party can’t elect to pay another party in a currency where it is seen to disadvantage the recipient of that payment.

Laws in place to keep everybody honest

In a recent case, the divorce proceedings of a New York couple took a turn after a forensic accountant helped track down the husband’s stash of BTC, which he was trying to hide from his wife.

Australian digital assets lawyer Joni Pirovich told Cointelegraph that broadly, crypto tokens are included in the pool of assets for division in a divorce.

Pirovich, the principal at Blockchain & Digital Assets, also noted specific laws requiring each spouse to be truthful about the assets and other forms of property owned.

During her career, she has already had experience with crypto divorce cases and revealed there are options available to help track down any hidden crypto.

According to Pirovich, one of the parties often knows the other has purchased crypto, but the other is not being truthful or doesn’t know how to aggregate the information.

“In some cases, a ‘legal request’ is made of the other party to produce the information,” she said.

“In other cases, I have provided contacts such as crypto tax specialists or crypto forensic specialists to assist with identification of crypto tokens held, and profits/losses made from crypto token activities to assets with the fair and equitable division of property in a divorce,” she added.

Prenuptial agreements and crypto

A prenuptial agreement, or pre-nup, is a common legal agreement a couple makes before they marry concerning the ownership of their respective assets should the marriage fail.

According to Pirovich, crypto can be included in a binding financial agreement, including a prenuptial style agreement.

She says if a binding financial agreement exists, then specific entitlements to specific assets, such as crypto tokens, must be honored according to that agreement.

Recent: Wife finds husband’s Bitcoin stash amid divorce proceedings

However, if there is no pre-nup, then factors such as the length of the marriage, financial and non-financial contributions throughout the marriage, and whether one party will become the primary or substantial carer of any children are relevant factors in splitting the asset pool.

“Often, the party not involved in crypto tokens does not wish to receive any share of crypto tokens but rather the fiat currency amount invested, or their share of profits on the sale of the crypto tokens paid to them in fiat currency,” Pirovich said.

Ultimately, to avoid any issues down the track, she advises honest and open discussions with a partner about finances on a regular basis.

Recent: From cricket to crypto: AB de Villiers ventures into Web3

“There can be emotional reasons why a person seeks to maintain a level of financial independence from the marriage and assets treated as jointly owned by the couple. This tends to come up for people reentering marriage after a first divorce,” Pirovich said.

“At least annual discussions should be had about crypto and the couple’s financial position as part of annual tax return filing obligations, and at least every three years when the couple considers their wills and estate planning documents and revisions required,” she added.

In the crypto space, the term “airdrop” refers to the unsolicited distribution of tokens, usually for marketing purposes or as a reward for network participation or contributions.

The first recorded crypto airdrop took place back in 2014 when Auroracoin handed out its native cryptocurrency, AUR.

Another well-known airdrop was that of decentralized exchange Uniswap, which gave its UNI (UNI) governance token to its users in 2020. In total, over 250,000 accounts received 400 UNI each.

While airdrops may have encouraged some to be more active on blockchain networks, Chris Bradbury, CEO of decentralized finance (DeFi) platform Oasis.app, told Cointelegraph that users have realized how airdrops can be exploited, which has led to the phenomenon of “airdrop hunting.”

Airdrop hunters aim to make money by farming tokens from airdrops, hoping they will become valuable.

One recent example occurred during Arbitrum’s ARB airdrop, with on-chain activity revealing that airdrop hunters consolidated $3.3 million worth of ARB from 1,496 wallets into just two.

According to blockchain analysis platform Lookonchain, one wallet received 1.4 million ARB from 866 addresses, worth around $2 million at the time, while another wallet received 933,375 ARB from 630 addresses, worth around $1.38 million.

On March 20, Lookonchain revealed that six specific airdrop hunters had gotten nearly every massive airdrop in crypto.

Bradbury told Cointelegraph that “pro airdrop hunters will use scripts” to consolidate many different addresses into only a handful. “We’re not talking here about someone with thousands of wallets; these will be sophisticated developers to perform multiple actions across many wallets all programmatically,” he said.

A dangerous game

Bradbury further noted that while the tactic has the potential to be profitable once the costs and time involved are subtracted, it comes with some serious financial risks.

“Airdrop hunting is effectively a game,” he said, stating that it requires finding protocols that have not released a token, then interacting with them in all the various ways that could qualify the hunter to earn a portion of the airdrop.

Bradbury added that the risks are even higher when the protocols are new or unproven:

“The nature of retroactive airdrops means you’re often using new protocols, ones that haven’t stood the test of time. And in most cases, you have to deposit your assets into these protocols, adding risk that you could lose your assets to bugs or hacks.”

“The cost of airdrop hunting can quickly outweigh the value of any airdrop if it doesn’t become a top-tier protocol,” he added.

Failing to consider gas fees and other financial costs can also prove to be an issue for hunters.

Bradbury said it can wind up being tricky to find and complete the tasks required to earn a potential airdrop, as protocols are coming up with more innovative criteria.

“It can lead to losses if you end up doing a lot of things that don’t qualify, and most protocols now try to come up with innovative ways of deciding who gets an allocation — so the chance of spending time and money on something that doesn’t count is getting higher,” Bradbury said.

“You ultimately have to use the protocols, hoping to ‘win’ by performing the right actions on the right protocols but not really knowing exactly what you have to do — like a game,” he added.

Consequences of airdrop hunting

Airdrop hunting has become a relatively common practice in crypto as individuals and groups seek opportunities to receive free tokens and make a profit.

Crypto Twitter has many users offering tips on the best ways to airdrop hunt, sharing protocols that might provide a chance to make a profit and swapping other airdrop-related advice.

Some platforms, such as DeFi analytics platform DefiLlama, even have a page showing projects that don’t yet have a token but might in the future.

Zoe Wei, head of developer relations and marketing at BNB Chain, told Cointelegraph the extent of airdrop hunting can vary depending on the specific airdrop and the measures taken by the project team to mitigate the activity.

She also noted that the practice could create long-term problems for protocols when trying to provide incentives for ecosystem builders and contributors, which are crucial for long-term growth.

“Airdrops are important for the growth of a community from an early stage, but the difficulty lies when identifying the contributors — distinguishing between the real contributors and those who only contribute to get a reward,” Wei said.

According to Bradbury, a protocol’s long-term health is attached to rewarding real users and contributors who are there to help. Failing to recognize this can lead to an exodus as users look for other projects.

“This idea that there might be a generous airdrop and monetary value for using the protocol is actually how protocols get early users and the initial liquidity that they need,” he said.

However, Bradbury added, “The biggest issue is that in most cases, once the airdrop has happened, if you don’t continue to reward the users for using the protocol, many will leave and move to the next project.”

Solutions for stopping airdrop hunters

Determining the identity of the individuals or groups behind airdrop hunting can be challenging due to the opaque nature of blockchain transactions, which can throw a wrench in the works for projects trying to clamp down on the practice.

Wei said that’s one of the main reasons airdrop hunting will likely continue, especially if the projects behind the airdrops do not implement stricter eligibility criteria or adopt measures to discourage airdrop hunting.

However, she noted that there are other options available for protocols, such as exploring alternative token distribution methods or implementing more stringent criteria to ensure a fairer distribution of tokens among participants.

According to Wei, one specific solution could be soulbound tokens (SBT), which are non-transferable and will ensure only genuine supporters receive rewards if projects only airdrop to SBT-holding addresses.

SBTs are digital identity tokens representing a person or entity’s traits, features and achievements and are issued by “souls,” which represent blockchain accounts or wallets.

Recent: Arbitrum’s ARB token signifies the start of airdrop season — Here are 5 to look out for

Wei believes a shift toward using SBTs would also make token distribution more targeted and fairer.

“Adopting the SBT concept can make it more challenging for airdrop hunters, promoting a fairer token distribution and contributing to the ecological prosperity of the ecosystem,” she said.

“It helps ensure that airdrops are primarily directed at genuine supporters and engaged users rather than opportunistic airdrop hunters.”

Wei further argued that decentralized autonomous organizations could enforce governance fairness using SBT tokens for voting to avoid bot spamming.

Another approach could be using randomized distribution methods or limiting the number of tokens distributed per address to prevent disproportionate gains by airdrop hunters.

“Additionally, projects could focus on distributing tokens to their most active and engaged users, by considering factors like participation in the project’s community or usage of its platform, to encourage genuine participation and discourage airdrop hunting,” Wei said.

Failing to utilize tax loss harvesting is one of the biggest mistakes people make on their tax returns according to Danny Talwar, the head of tax at crypto tax software firm Koinly.

Speaking to Cointelegraph ahead of the April 18 United States tax deadline, Talwar said that for those investors who experienced losses in the market over 2022, this is the last chance to report the loss and “try and get some of that benefit” by offsetting it against any gains made last year.

Tax-loss harvesting occurs when an investor sells at a loss to offset the amount of capital gains tax owed from selling profitable assets.

“It’s probably the biggest mistake people make, not realizing they can use tax loss harvesting,” Talwar said.

“A lot of people might think ‘oh, I’ve not made any money on crypto, so it’s not taxable this year,’ but you can actually get that benefit. So that’s probably one of the biggest strategies people can use.”

However, he also noted that to claim a loss you “have to have realized the loss in some way.”

“The IRS was quite clear that you can’t claim a loss on something if its value has gone down and you haven’t actually sold out of it.”

Talwar says to be mindful that tax loss harvesting can lead some to commit a “wash sale,” an IRS regulation that prevents an individual from selling or trading stock or security at a loss, then buying the same asset within 30 days of the sale.

As digital assets have not been classified as securities, crypto is currently not under these same rules, however, U.S. President Joe Biden’s upcoming budget proposal has proposed a crackdown on crypto wash sales.

“Rules can change very quickly, and they can change retrospectively. So you really have to watch out as you have to understand the risks.”

Talwar said the IRS may still investigate whether a transaction was genuine “if you’re doing something just to get a tax benefit.”

“I wouldn’t be encouraging people to do it, but at the same time, people are doing it.”

Related: What crypto hodlers should keep in mind as tax season approaches

Talwar believes that those caught up in coin scams or exchange collapses such as FTX unfortunately might not be eligible to claim them as losses after the Internal Revenue Service (IRS) clarified the matter.

“The IRS actually came out and clarified the approach on that, because people were wondering whether they could claim losses on things like FTX or even rug pulls,” he said.

Ultimately, Talwar says “the best strategy is to actually pay tax” and get professional advice ahead of tax season as talking to an accountant can help uncover “what reliefs and benefits are available.”

“Obviously, using an accountant can help to navigate any of that complexity or challenge around what to do.”

For those that don’t have their documents ready, Talwar says there is the option to file for an extension but they’ll “still have to pay the taxes by April 18.”

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Magazine: Crypto audits and bug bounties are broken: Here’s how to fix them

A dozen European Union (EU) politicians have signed a letter calling for the “safe” development of artificial intelligence (AI) as Google’s CEO cautioned against releasing powerful AI tech before society has had a chance to adapt.

An April 16 open letter shared on Twitter by EU Parliament member, Dragoș Tudorache, called for a collaborative effort and a universal set of rules around the development of AI.

Tudorache, along with 11 other EU politicians named in the letter, asked the European Commission President Ursula von der Leyen and United States President Joe Biden to convene a summit on AI and to agree on a set of governing principles for the development, control and deployment of the tech.

“Recent advances in the field of artificial intelligence (AI) have demonstrated that the speed of technological progress is faster and more unpredictable than policymakers around the world have anticipated,” the letter reads.

“We are moving very fast.”

The letter further asks the principals of the Trade and Technology Council (TTC), a forum for the U.S. and EU to coordinate approaches to economic and technology issues, to agree on a preliminary agenda for the proposed AI summit and for companies and countries worldwide to “strive for an ever-increasing sense of responsibility” while developing AI.

“Our message to industry, researchers, and decision-makers, in Europe and worldwide, is that the development of very powerful artificial intelligence demonstrates the need for attention and careful consideration. Together, we can steer history in the right direction,” the letter said.

Google CEO Pichai Sundararajan, better known as Sundar Pichai, also expressed caution around the rapid development of AI in an April 16 interview on CBS’ 60 Minutes saying that society might need time to adapt to the new tech.

“You don’t want to put a technology out like this when it’s very, very powerful because it gives society no time to adapt. I think that’s one reasonable perspective,” he said.

“The pace at which we can think and adapt as social institutions compared to the pace at which the technology is evolving, there seems to be a mismatch,” he added.

However, Pichai also noted that while there are causes for concern, he does feel “optimistic” because of the number of people worrying about the implications of AI so early in its life cycle compared to other technical advancements in the past.

“I think there are responsible people there trying to figure out how to approach this technology and so are we,” he said.

Related: Elon Musk to launch truth-seeking artificial intelligence platform TruthGPT

The European Union is already looking at AI with its Artificial Intelligence Act, meanwhile, the European Data Protection Board has also created a task force for the generative AI chatbot ChatGPT.

The letter from the EU politicians echoes the same concerns put forward by more than 2,600 tech leaders and researchers who called for a temporary pause on further AI development, fearing “profound risks to society and humanity.”

Tesla CEO Elon Musk, Apple co-founder Steve Wozniak, and other AI CEOs, CTOs and researchers were among the other signatories of the letter, which was published by the United States think tank Future of Life Institute (FOLI) on March 22.

While the EU politicians agree with the “core message” of the FOLI letter, and share “some of the concerns,” they have come out in disagreement with “some of its more alarmist statements.”

Musk has continued to highlight the risk he believes AI could pose in an April 16 interview with Fox News, saying that just like any other technology, AI has the potential to be misused if it is developed with ill intentions.

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A “temperature check” proposal to deploy the decentralized exchange (DEX) Aave on the zkSync Era Mainnet has passed with overwhelming support from the Aave community. 

When voting closed on April 16 more than 99% of Aave (AAVE) token holders voted in favor of launching the third version of the lending and borrowing protocol on the zero-knowledge Ethereum Virtual Machine (zkEVM).

According to the proposal first pitched on March 26, the launch will be limited to USD Coin (USDC) and Ether (ETH).

Now that the temperature check has indicated a “positive sentiment,” the next steps listed in the proposal will be to proceed to another stage for further discussion, followed by risk parameter evaluation and finalization of the proposal.

If the next stages are successful the proposal will be submitted for voting and on-chain governance approval.

Only around 0.02% voted against the proposal with a further 0.02% abstaining from voting.

According to the proposal, deploying on zkSync can benefit the Aave ecosystem by introducing new users into decentralized finance (DeFi) and cementing Aave as a premier borrowing platform within the zero-knowledge ecosystem.

Related: Stablecoin adoption could lead to DeFi growth, says Aave founder

The Aave community previously voted to deploy the Aave V3 codebase on zkSync’s v2 Testnet, which was approved in another off-chain vote.

Decentralized exchange Uniswap is also set to launch on the zkEVM solution from scaling solution provider Polygon after a governance proposal was successfully passed.

In November 2022, Aave changed its governance procedures after it was hit by a $60 million short attack that ultimately failed.

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Securities and Exchange Commission (SEC) chair Gary Gensler could be facing unemployment after United States Representative Warren Davidson declared he would introduce legislation to fire the SEC boss.

In an April 15 tweet responding to Coinbase’s legal chief, Paul Grewal, the crypto-friendly Representative announced his intention to have Gensler removed from his role after the SEC’s latest announcement about revisiting the proposed redefinition of an “exchange.”

“To correct a long series of abuses, I am introducing legislation that removes the Chairman of the Securities and Exchange Commission and replaces the role with an Executive Director that reports to the Board (where authority resides),” Davidson tweeted.

“Former Chairs of the SEC are ineligible,” he added.

Gensler said in an April 14 meeting the proposed rule amendments could benefit investors and markets by bringing certain brokers under additional regulatory scrutiny as well as “modernizing” rules that define an exchange.

Similar amendments were proposed in January 2022. At the time crypto advocacy groups suggested it was an overreach of the SEC’s authority that could jeopardize participation in the space.

SEC commissioner Hester Peirce, known as “Crypto Mom” for her pro-crypto positions, criticized the new proposed rule amendments in an April 14 statement declaring “stagnation, centralization, expatriation, and extinction are the watchwords” of the latest move by the SEC.

“Rather than embracing the promise of new technology as we have done in the past, here we propose to embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology,” Peirce said.

“Accordingly, I dissent,” she added.

According to Peirce, unlike in the past when the SEC embraced new technology, the modern regulator has been expanding its reach to solve problems “that do not exist.”

She further opined the SEC has taken the approach of refusing to alter current regulations to allow room for new technologies and new ways of doing business.

“Today’s Commission tells entrepreneurs trying to do new things in our markets to come in and register,” Peirce said.

“When entrepreneurs find they cannot, the Commission dismisses the possibility of making practical adjustments to our registration framework to help entrepreneurs register, and instead rewards their good faith with an enforcement action.”

Peirce also accused the SEC of using the “notice-and-comment rulemaking process” as a threat.

Related: SEC to up scrutiny of firms offering or giving advice about crypto

According to Peirce, because of the concerns over the ambiguity and scope of the new proposed rule changes and the SEC’s “limited understanding” of the space, a concept release should have been issued instead.

“I wish we had proceeded differently,” Peirce said.

Over the last few years, the SEC has launched more than a few high-profile actions against crypto companies such as Ripple, LBRY, and Coinbase over alleged violations.

It has also taken aim at staking and stablecoins prompting some critics to argue the SEC has been using enforcement actions to develop the law on a case-by-case basis rather than creating clear regulations.

Magazine: Crypto Wendy on trashing the SEC, sexism, and how underdogs can win

Utility and long-term profits have been ranked as the top reasons for buying non-fungible tokens (NFTs), according to a survey conducted by CoinGecko and Blockchain Research Lab.

An April 10 CoinGecko report found most considered how much utility an NFT collection offers and the benefits of holding the token before buying with over 77% of respondents saying using an NFT for its “intended function” had some level of importance out of the 11 listed reasons for buying an NFT.

However, 15.7% responded they were “neutral” about utility and 6.7% felt it was “not important” in the decision-making process before buying an NFT.

The potential for long-term profits came in as the second most crucial factor with just over 76% of respondents giving a level of importance for hoping to sell their NFTs at a higher price later on. 

Some NFTs have sold for millions in the past, but the market has experienced a severe downturn in step with the broader crypto market, although the NFT market is expected to hit $230 billion in value by 2030.

The third most important reason people bought NFTs was to participate as a stakeholder in a decentralized autonomous organization (DAO) with 72.9% motivated by the opportunity to gain a stake in such a project.

Related: Community-centric NFT collection for the hustlers goes live to the public

Other high-ranking reasons included enthusiasm for technology, community involvement and enthusiasm for an NFT collection’s business or artwork.

The reason that ranked as the least important on the list was “disrupting established structures or industries,” which was listed as a top reason for buying by 59.5% of respondents.

Overall, all of the 11 listed reasons were more heavily rated as having some level of importance rather than being rated neutral or not important.

The results were taken from 343 responses examined by CoinGecko and the Blockchain Research Lab which were received during a survey conducted from December 2022 to January 2023.

Magazine: 4 out of 10 NFT sales are fake: Learn to spot the signs of wash trading

Open Exchange (OPNX) has claimed to have experienced a massive surge in trading volume and has joked about its dismally low volume on its opening day.

According to an April 10 tweet by OPNX, its day one trading volume on April 4 hit a total of $13.64 but has since apparently seen a surge to $12,398 on April 9, an increase of over 90,000%.

However, new data suggests the trading volume has seen a far bigger increase during the last 24 hours.

According to CoinGecko data, OPNX’s 24-hour trading volume as of April 10 has exploded to over $179,000, representing a gain of around 24,500% since April 9.

The vast majority of the volume has come from the trading pair for Bitcoin (BTC) and Tether (USDT), with more than $178,000 worth coming from the pair.

It’s unclear what exactly sparked the increase but it could be connected to the April 9 announcement from OPNX about a new market-making program to help increase its volume.

OPNX’s trading volumes may also be a result of the steady climb in the price of BTC which has seen the largest crypto by market cap cruise past $30,000 for the first time since June 2022.

Related: 3AC, Coinflex founders collaborating to raise $25M for new claims trading exchange

OPNX chief executive officer Leslie Lamb announced the exchange was open for business on April 4 and is the result of a partnership between the co-founders of crypto investment firm Coinflex and the founders of the collapsed hedge fund Three Arrows Capital (3AC), Su Zhu and Kyle Davies.

The crypto community has had a mixed response to the unveiling of OPNX and its reported trading volume.

Some comments criticized the exchange’s connection with Davies and Zhu, whose whereabouts have remained unclear since the 2022 collapse of 3AC, which once held $10 billion worth of assets.

Others, meanwhile, ridiculed OPNX’s still relatively low trading volume, joking that Changpeng “CZ” Zhao, the CEO and founder of Binance, would be worried about the project.

In contrast, Binance posted a 24-hour volume of over $11 billion compared to OPNX’s $179,000, as per data from CoinGecko.

Magazine: Zhu Su’s exchange did $13.64 in volume akshually, Huobi in crisis: Asia Express

Bitcoin (BTC) has hit price highs not seen since mid-2022 with the largest crypto by market cap touching $30,000 and setting a new high for 2023.

According to CoinGecko data, Bitcoin has slightly surpassed $30,000 and is at nearly $30,200 at the time of writing, a price it hasn’t reached since Jun. 10, 2022.

In the last 30 days, BTC recorded gains of nearly 46%, rising to its highest level in ten months on April 11.

Some analysts predicted that it would regain its $30,000 price tag as traders await the United States consumer price index (CPI) report on April 12 which will give insight into the Federal Reserve’s battle against inflation.

Since last week, the Crypto Fear and Greed Index has remained firmly within the “Greed” territory, with the latest April 11 update showing a score of 68 out of a possible total of 100.

Related: Bitcoin price will hit this key level before $30K, survey says

The Crypto Fear and Greed Index aims to numerically present the current “emotions and sentiments” towards Bitcoin and the cryptocurrency market, with the highest score being 100.

The index also hit a score of 68 on March 21, marking its highest level since it recorded a score above 66 on Nov. 16, 2021, just days after Bitcoin’s all-time high of over $69,000 was recorded on Nov. 10, 2021.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

Ripple’s XRP (XRP) is not a security because it does not fit the definition of an “investment contract,” the “only” legislative definition that it could “possibly” fit, according to Jeremy Hogan, a partner at law firm Hogan & Hogan.

In a series of tweets on April 9, Hogan explained that, in his opinion, XRP could only be considered a security under the definition of an “investment contract” as it doesn’t fit the other definitions of a security such as stocks or bonds.

Hogan argues, however, that the United States Securities and Exchange Commission (SEC) has not demonstrated an implied or explicit investment contract in its suit against Ripple.

“Instead it argues that the purchase agreement is all that is required — and that is all it proves,” Hogan stated.

“But that argument tears the ‘investment’ from the ‘contract’ as a simple purchase, without more, [there] cannot be an ‘investment contract,’ it is just an investment (like buying an ounce of gold) as there is no obligation for Ripple to do anything except transfer the asset,” he added.

The SEC initiated a lawsuit in December 2020, claiming that Ripple illegally sold its XRP token as an unregistered security.

Ripple has long disputed the claim, arguing that it doesn’t constitute an investment contract under the Howey test — a legal test used to determine if a transaction qualifies as an investment contract. It was established in 1946 by the U.S. Supreme Court in the SEC v. W.J. case.

Hogan further argues that all of the “blue sky” cases, which the Howey case relies on for defining an “investment contract,” involved some form of a contract regarding the investment.

Related: Ripple CEO: XRP lawsuit resolved by June, SEC conduct ‘embarrassing’

“Indeed, how can a person ‘reasonably rely’ on an offeror to make them a profit when they have zero legal recourse when that offeror fails to come through?” he said.

“They cannot. Even the oft-quoted four-part test implies that a ‘contract’ of some sort is required.”

Hogan says the crux of the issue is not whether Ripple used money from the sale of XRP to fund its business, but if the SEC has proven that there was either an implied or explicit “contract” between Ripple and XRP purchasers relating to their “investment.”

“There was no such contract,” Hogan claimed.

Magazine: Bitcoin in Senegal: Why is this African country using BTC?

Now is the “right time” for Hong Kong to push forward with Web3 despite the crypto market fluctuations, according to the Financial Secretary of Hong Kong, Paul Chan.

In an April 9 blog post, Chan explained that one of the three major directions he has proposed in the city’s budget was for the further development and application of Web3.

Translated, Chan wrote that for “Web3 to steadily take the road of innovative development” Hong Kong will “adopt a strategy that emphasizes both ‘proper regulation’ and ‘promoting development.'”

Chan says the region also plans to focus on financial security, preventing systemic risks and focus on investor education, protection, and measures around anti-money laundering.

In October last year, the government of Hong Kong floated the idea of introducing a bill to regulate crypto.

By Feb. 20 of this year, Hong Kong’s Securities and Futures Commission (SFC), the local securities regulator, released a proposal for a regime for cryptocurrency exchanges set to take effect in June.

The industry has been suffering a savage bear market and setbacks with exchange collapses and ongoing scrutiny from regulators.

According to Chan the industry is simply going through the same process as the Internet in the early 2000s, and after the “bursting of the bubble”, market participants became much calmer.

“After the tide of speculation ebbs, the remaining powerful players will focus more on competing in technological innovation, practical application and value creation, and contribute to improving the quality of the real economy,” Chan wrote.

“In the next stage, market participants need to develop blockchain technology more deeply, so that its characteristics and advantages of transparency, efficiency, security, disintermediation, de-platformization, and low cost can find wider application scenarios and solve more existing problems.”

Hong Kong’s approach to crypto regulation greatly contrasts that of the United States, which has adopted a more hardline response that’s led to speculation that the crypto industry’s “center of gravity” will shift to Hong Kong.

Related: Hong Kong crypto firms seeing interest from Chinese banks: Report

Cryptocurrency exchange Gate.io has already announced plans to launch a presence in Hong Kong following the local government’s planned 50 million Hong Kong dollar ($6.4 million) cash injection into Web3 in the city’s 2023-24 budget.

In a March 20 speech in Hong Kong, the Secretary for Financial Services and the Treasury, Christian Hui, stated that Hong Kong has been attracting “interest” from various crypto firms worldwide since October 2022.

“The road of innovation and technological change has never been smooth sailing,” Chan said in his latest post.

“Even if the development direction is locked, the actual path has to be worked out step by step; only by persisting in trying can we find new solutions and new ways out,” he added.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

Bankrupt crypto lender BlockFi has agreed to refund more than $100,000 to California customers that had continued to repay loans even after a trading halt on Nov. 10 last year. 

According to a March 27 statement from California’s financial watchdog, the Department of Financial Protection and Innovation (DFPI), its investigation discovered at least 111 borrowers in California paid back roughly $103,471 in loan repayments between Nov. 11 and Nov. 22.

The regulator claimed that BlockFi failed to “provide timely notification to borrowers that they could stop repaying their BlockFi loans.”

The DFPI claims that borrowers were not notified until Nov. 22 that they could stop repaying their BlockFi Loans “until further notice.”

According to documents, BlockFi requested permission from the bankruptcy court to return these payments to the borrowers in a motion filed with the court on Feb. 24, 2023.

The refunds will be able to go ahead if the motion is approved, with a hearing scheduled for April 19.

Meanwhile, the DFPI said BlockFi has agreed to an “interim suspension” of its California Financing Law (CFL) license while “the bankruptcy and revocation actions are pending.”

“If this motion is granted BlockFi agrees to direct the Servicer to timely return borrowers’ payments, including interest and late fees and all funds paid following the November 10th platform pause,” according to the DFPI documents. 

Unless otherwise ruled by the bankruptcy court, the regulator said BlockFi’s agreement to the interim suspension means it will continue to direct its agents to pause the collection of repayments for California customers on loans, interest payments and “not charge, levy, or assess any late fees associated with any payments, including at maturity.”

BlockFi has also agreed to continue not reporting to credit agencies that loans from California residents have become delinquent or defaulted on or after Nov. 11, 2022, and will not take “any action that may harm California residents’ credit scores on such loans.”

Related: BlockFi in no immediate danger, despite Silicon Valley Bank exposure: Report

According to the DFPI, Commissioner Clothilde V. Hewlett previously suspended BlockFi’s lending license for 30 days beginning on Nov. 11, 2022 and moved to revoke BlockFi’s CFL license on Dec. 15, 2022.

BlockFi halted client withdrawals and requested clients not to deposit to BlockFi wallets or Interest Accounts on Nov. 10, citing a lack of clarity around the FTX collapse.

By Nov. 28, BlockFi filed for Chapter 11 bankruptcy for the company and its eight subsidiaries. BlockFi International filed for bankruptcy with the Supreme Court of Bermuda on the same day.