By Sumit Gupta
India’s Web3 industry is on a mission – making India a global hub for Web3, blockchain, and crypto innovation over the next five years. The industry has the potential to contribute over $1 trillion to support India in achieving its goal of becoming a$5 trillion economy. While today it might appear as a vision too far away as the industry is still in its infancy stage, 2022 was a true reflection of the industry’s daunting spirit and its ability to stay focused on growth and innovation despite several challenges. And the confidence is driven by two things — the rapid pace of digitisation India has witnessed over the last few decades and the shift in the mindset of customers and other stakeholders who engage with the industry.
This nation-building vision led by innovative blockchain technology comprises a robust roadmap in line with the government’s “Make in India” and “Digital India” initiatives and supporting Indian entrepreneurs and developers to build more Web3 startups and use cases, adding tremendous value in a few areas impacting public wellbeing, including healthcare, education, agriculture and supply chain.
Against this backdrop, 2022 was significant on several fronts, be it technological breakthroughs, increasing investment flows or Web3 start-up proliferation – the industry has been able to shape a new narrative by setting new records and standards, breaking myths, and laying a solid foundation for the future. 2022 was also a challenging year for the industry; many companies froze and failed, while others innovated, advanced, and even thrived.
(Block)Chain isn’t broken – the chain has tied its champions with a revolutionary vision
2022 was a tough year for the industry, but what emerged rather was a robust Web3 ecosystem capable of driving its mission even further.
While the Web3 professionals have been leading this movement from the front, Web 2 Developers have upskilled themselves to migrate to Web3 – a trend that will only intensify in 2023 as we witness more users and use cases; It is estimated that by 2030, 10 lakh developers will get engaged in building Web3 applications and programs.
Funding continued to flow throughout 2022, with $1.5 billion into pure Web3 startups, encouraging entrepreneurs to build new projects. NASSCOM reported the number of Web3 startups crossed 450, of which four are unicorn companies. While these sound very inspiring, starting from 2023 till 2027, the funding dynamics will change tremendously, supporting many Indian Web3 companies’ focus on innovation and R&D.
Accelerated pace of adoption among institutions
Crypto adoption and institutionalization has increased rapidly with institutions such as Blackrock, JP Morgan, PayPal, Twitter integrating crypto functionality or heavily investing in the underlying crypto infrastructure or ecosystems. Fintech and crypto integrations are going hand in hand with crypto-based solutions providing attractive alternatives to popular Web2 apps and this trend is likely to continue if not accelerate.
In this context, Black Larry Fink’s recent statement that despite FTX’s own-created token caused its downfall, crypto and the blockchain technology which underpins it will be revolutionary, gives confidence to the ecosystem.
Growth of self-custody
The fallout of several centralized crypto companies has increased the importance of self-custody, especially after the recent failure of the FTX exchange that led to billions of customer funds being wiped out. The movement towards DeFi and self-custody is a natural shift and progression that will accelerate in the new year as users explore ways to safeguard their assets. With self-custody, users can control their funds as it allows them to retain complete ownership by managing their private keys.
New use cases for NFTs
Although the NFT market has been highly volatile and the trading volumes are far below the peak levels, the true potential of NFTs is yet to be explored. NFTs will largely define how ownership and identity function in the digital economy. NFT utility outside the art and collectibles market will increase in areas such as ticketing, digital identity, membership and subscriptions, supply chain logistics, and tokenization of real work assets.
Urgent need for regulatory clarity
The recent turmoil in the crypto market after the failure of companies such as Celsius, Three Arrows Capital (3AC), and FTX has made it more important than ever before to provide regulatory clarity for safeguarding users’ assets. Future developments in the crypto space will be shaped by establishing frameworks and standards for regulated entities. Clearer guidance and laws are crucial to prevent further failures in the industry that could drive out innovation of the decentralized economy.
Paving ways for transparency
From the users’ perspective, the positive momentum started in 2021 received a further boost in 2022 with more education and awareness initiatives launched by the industry; Investors have a better sense of the market and understanding of the crypto assets, and the industry as a whole sees it as a collective victory . Going forward, investors are expected to be much more cautious while choosing investment options and crypto exchanges. These factors, combined with the FTX incident, will drive them to shift to responsible and user-centric crypto exchanges – this will eventually benefit Indian crypto exchanges, which are far more self-regulated, compliant and follow the KYC process.
From the users’ perspective, they will be more cautious in choosing the tokens they would want to invest in, and expect higher standards from tokens. Hence, there could be less growth in new tokens and also a lot of projects would realize it is not worth making tokens.
An inherently ESG friendly asset
The industry will continue driving the adoption of green energy with improvements in efficiency and technology stacks ensuring low energy implementations of decentralized blockchain tech as opposed to centralized alternatives which typically employ more manpower, energy and resources to achieve similar objectives.
Massive ESG and Pension funds diversifying to Crypto as an asset class could be expected. While this is still in its nascent stage, it could propel the entire asset class to be soon valued at a multi-trillion dollar valuation.
Conclusion
On the policy and regulation front, the industry has been proactive and has been keen to work closely with government agencies; 2022 has been a good start with the taxation of virtual digital assets; in 2023, with India gearing up for its first G20 presidency with the first hints that global regulation of VDAs will be a key priority, there is overall optimism.
Overarching all these trends will be the emergence of sustainable and responsible business models led by players aiming to bring value to the industry in the long term.
The author is co-founder and CEO, CoinDCX