By Jake Coleman
On December 17, Nansen, a blockchain analytics platform, released a report outlining four ‘High-Conviction Bets’ that their analysts are enthusiastic about for 2024. The insights encompass a variety of topics, including artificial intelligence (AI) and projects that utilize the blockchain of Bitcoin as their foundational layer for building infrastructure.
Intertwined Artificial Intelligence and Blockchain Technology
Integrating artificial intelligence (AI) and blockchain technology is a key prediction made by Nansen analysts for 2024. This development holds great potential for advancing both AI and blockchain.
According to the report, AI agents were created for tasks that required clear instructions. However, they have since developed the ability to operate with more independence. Now, these agents can handle transactions and oversee the value given on blockchain networks.
It is hypothesized that artificial intelligence (AI) has the potential to emerge as a prominent user category within the blockchain ecosystem. Blockchain technology can bring about improvements in artificial intelligence (AI). The Nansen report highlights the importance of differentiating between interactions involving humans and those applying AI.
Several instances of utilizing cryptographic evidence for electronic signatures, such as implementing IPFS and Merkle Trees to guarantee the integrity of data sets and AI models, can be observed. Additionally, Zero-Knowledge Machine Learning (zkML) enables the verification of AI models without revealing their specific details.
In addition, Nansen analysts believe that integrating AI and blockchain will involve implementing token incentives for artificially intelligent agents and focusing on applications that cater to consumer needs.
Enhancements to the Overall User Experience
The user experience (UX) is a significant challenge for cryptocurrency users and a crucial barrier to widespread acceptance. However, the second Nansen prediction for 2024 centers on enhancing the user experience (UX) of decentralized applications (dApps).
One of the factors driving this perspective is the focus on enhancing user experience (UX) in 2023. This involves streamlining navigation and improving the intuitiveness of applications.
Another contributing factor is the increasing adoption of intent-centric applications within decentralized finance (DeFi). Intent is a method by which users can communicate their desired results and delegate the efficient execution of these tasks to others. This process simplifies the complexity of operations for the user, thereby improving capital efficiency.
Nansen’s report highlights the involvement of teams such as Anoma and Flashbots. These teams are actively developing versatile solutions within the decentralized nature of blockchains. Their goal is to establish a system where deploying new applications does not necessitate the establishment of novel variables like mempools.
According to analysts at Nansen, the forthcoming ERC-4337, which pertains to account abstraction, is regarded as a significant enhancement in user experience. This concept enables users to entrust on-chain actions to smart contracts while retaining control over their wallets.
The anticipated outcome is a notable enhancement in user experience when engaging with blockchains. The implementation of the ERC-4337 standard is expected in Ethereum’s upcoming Dencun upgrade.
One Year for the Dexs
The cryptocurrency market is experiencing substantial changes and expansion, especially in ongoing swaps and decentralized trading platforms (DEXs). Nansen provides several justifications for this overview, which include:
- Perpetual swaps have demonstrated significant compatibility with the cryptocurrency market, resulting in the development of inventive designs in LP-based Automated Market Makers (AMMs) such as GMX, Central Limit Order Books (CLOBs) like dYdX, and hybrid models like Vertex.
- Perp DEX. The decentralized exchanges (DEX) segment that offers perpetual contracts has proven to be a profitable company structure, producing significant profits for multiple parties involved.
Analysts commonly utilize the arguments above to highlight the growing potential of addressable markets for decentralized exchanges (DEXs). DEXs can provide markets for various types of assets, including those that are less commonly traded or have limited liquidity. Moreover, DEXs could expand their offerings to include other asset classes, such as derivatives of stocks and commodities.
In addition, the design space is undergoing changes to address challenges such as maximal extractable value (MEV) and integrating advancements like frequent batch auctions and limit encryption.
According to analysts at Nansen, these catalysts have the potential to bring about several positive changes.
- There is a positive relationship between market activity and trading volumes. When there is an increase in market activity, it tends to be accompanied by higher trading volumes. This can be attributed to liquidity being drawn towards areas where incentives are provided.
- The ongoing expansion of protocols’ monetary incentives via trading rewards and points systems.
- Enhance scalability, transaction fees, and user experience (UX) within decentralized exchanges (DEXs).
- Scalability solutions such as application-specific blockchains and specialized rollups contribute to the optimization of decentralized exchange (DEX) performance.
Considering the factors above, Nansen predicts that the market share of perp DEXs’ derivative volume could increase from its current level of 2% to reach 10% by the end of 2024. Furthermore, this market share could rise to 20% within the same timeframe.
Bitcoin’s Role as a Data Layer
Bitcoin (BTC) is at the forefront of price movements in the cryptocurrency market, while Ethereum (ETH) is playing a supporting role. The ETH/BTC chart has exhibited a sustained downward trend since the beginning of the year, remaining unaffected by the recent announcement regarding a possible ETH spot ETF.
The enduring operational track record and ability to withstand attacks have established Bitcoin as a prominent figure in the cryptocurrency sector. The cryptocurrency’s extensive network, substantial market capitalization, and active community collectively establish its reputation as a highly secure digital asset.
Nansen suggests that the various applications of Bitcoin can be expanded, going beyond its current role as a means of storing value and facilitating transactions. The trust and security inherent in the Bitcoin network make it a strong contender for a more prominent role in tomorrow’s financial infrastructure.
Efforts have been made to enhance the functionality of Bitcoin by introducing additional layers such as Lightning or Liquid, as well as enabling intelligent contract capabilities through platforms like Rootstock or Stacks. However, these initiatives have yet to gain significant traction thus far.
Some of the challenges that arise in this context involve issues related to user experience, limitations in scalability, and worries within the Bitcoin community regarding the potential for centralization and network risks.
Regardless of the challenges, there has been notable enthusiasm surrounding recent advancements such as the Ordinals protocol. The concept of ordinals pertains to assigning distinct identities to Satoshis, the minor units of Bitcoin. This development has facilitated the possibility of creating NFTs on the Bitcoin blockchain.
The BRC-20 standard, which utilizes Ordinals, allows for developing interchangeable tokens on the Bitcoin network. However, it is essential to note that these tokens currently possess a different functionality and user-friendliness than their counterparts on the Ethereum platform.
The market’s favorable reaction to these innovations, demonstrated by the significant trading activity of BRC-20s, suggests a growing acceptance of Bitcoin as a foundational system. The potential future scenario may encompass the rise of Layer 2 solutions and a modular architecture, facilitated by platforms such as Celestia or the OP Stack, the developer’s toolkit employed by the Optimism network.
According to Nansen’s analysts, Bitcoin, the leading and reliable cryptocurrency, will inevitably expand its presence beyond simple transactions. Consequently, it is advisable to monitor the progress of Bitcoin’s utilization in various applications for potential benefits in the year 2024 and beyond.
