Digital asset divination: Trends shaping the future of cryptocurrency

Since the launch of Bitcoin (BTC), the world's first digital asset, in 2009, cryptocurrency has evolved from a niche idea on cryptography forums to international headline news. With the cryptocurrency market cap exceeding $1 trillion, many former skeptics are paying close attention as crypto projects reshape the world's perception of money.

But how will crypto continue to integrate into the broader global commerce ecosystem?

Several key trends are emerging, highlighting promising directions for the evolution of web3. Below, we'll explore some projections on the future of cryptocurrency to better understand where this sector might be headed.

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What's the future of cryptocurrency? Trends to watch in blockchain 

Even the most seasoned crypto analysts can't predict with certainty how digital assets will evolve, but several emerging trends offer insights. From decentralized finance (DeFi) and regulatory shifts to advancements in blockchain scalability, these web3 developments are setting the stage for the future of crypto in the next five years:

Increased regulation in the cryptocurrency industry

As global leaders recognize the growing influence of cryptocurrency, many see regulation as a pathway to mainstream adoption. This shift is evident in policies like the European Union’s Markets in Crypto-Assets Regulation (MiCA) and the International Organization of Securities Commissions’ (IOSCO) 18 recommended guidelines for crypto oversight. These initiatives reflect a shared belief in the need for structured regulation, potentially paving the way for greater integration of digital assets.

Even nations that previously restricted crypto, such as China, show a measured openness to regulated digital assets. In 2023, the country’s Supreme People's Court classified cryptocurrencies as “legal property,” and Chinese miners have regained a significant share of the energy driving Bitcoin’s network. Such developments hint at an evolving global perspective, where crypto is welcomed within regulatory frameworks designed to ensure transparency and deter illicit activity.

Increased CBDC pilot programs 

Alongside new regulations, many governments are responding to the rise of cryptocurrencies by introducing their own Central Bank Digital Currencies (CBDCs). These CBDCs are digital assets on decentralized blockchains but retain the same legal status as a country’s fiat currency and fall under the oversight of each nation’s central bank. Proponents argue that CBDCs could modernize transactions with benefits like fast processing speeds and cryptographic security, while critics point out the potential for governments to exert tighter control over financial activity by tracking and, in some cases, censoring transactions.

Despite these debates, CBDCs are advancing quickly. Dozens of central banks are in various stages of research, development, or piloting, and several countries—including Jamaica, the Bahamas, and Nigeria—already have operational CBDCs. It remains to be seen how widely CBDCs will be adopted, but as they grow, the tension between these government-backed digital currencies and established crypto assets (especially stablecoins) will likely intensify.

Tokenization expands to more asset categories 

Beyond direct investment in established cryptocurrencies like Bitcoin, international banks are increasingly drawn to blockchain’s broader potential, particularly through a process known as “tokenization.” Reports from Citigroup and McKinsey estimate that tokenization could capture a market share between $2 trillion and $4 trillion, with BlackRock’s CEO Larry Fink dubbing tokenized assets as “the next generation for markets.”

Tokenization involves creating virtual tokens on decentralized blockchains that maintain key crypto characteristics like censorship resistance, transparency, and independent ownership rights. These tokens represent any asset a creator chooses, which is why institutions see vast potential across diverse asset classes, from commodities and equities to real estate and legal documents.

With its wide-ranging applications and surging interest from institutional investors, tokenization is set to attract greater attention and spur further innovation in the coming years.

Smart wallets make web3 user-friendly 

As cryptocurrency projects target the next wave of adoption, enhancing user experience has become a priority. Whether developers are working to optimize transaction speeds, gas fees, or network congestion, the focus is on making web3 both scalable and accessible. One promising technology with the potential to shape crypto’s future is a new type of crypto wallet: the "smart contract wallet." Thanks to the Ethereum (ETH) blockchain’s 2023 ERC-4337 upgrade, smart wallets are moving from concept to practice and could soon become the default for digital asset management.

Unlike standard wallets that rely on public-private key pairs, smart wallets use self-executing programs (smart contracts) to secure user accounts. This innovative model not only enhances transaction efficiency by bundling transactions for faster processing but also offers customizable features. With programmable smart contracts, users can directly embed automated actions like multi-factor authentication, social recovery, and gas fee preferences into their accounts. Compared to traditional wallets, smart wallets offer a more intuitive experience by eliminating the need to sign each transaction or rely solely on a seed phrase as a backup.

While smart wallets are still in their early stages, their user-friendly design and advanced security features could be instrumental in driving broader web3 adoption.

Interoperability brings blockchains together

Developers are also enhancing the web3 experience by prioritizing "interoperability" in blockchain protocols. Today, many blockchains operate independently, each with separate coding standards and rules. This isolation prevents seamless asset transfers and limits users' ability to connect with decentralized applications (dApps) across different networks. Interoperability seeks to address this by introducing technologies that enable cross-chain communication and make web3 navigation more cohesive.

While cross-chain bridges currently provide an option to move digital assets between blockchains, recent security issues have left some users cautious. In response, projects like Polkadot (DOT) and Cosmos (ATOM) are incorporating interoperability directly into their consensus mechanisms, allowing developers to create independent blockchains that are automatically compatible within a broader ecosystem of dApps. Additionally, as more blockchains and wallets align with the Ethereum Virtual Machine (EVM) coding standards, it’s becoming easier and safer for users to distribute assets across the web3 landscape.

Enhanced interoperability can streamline user experiences by reducing the need to switch wallets, exchange tokens, or navigate multiple interfaces to access web3 services. With these shared standards, using multiple blockchains could become as simple as using a single, interconnected platform.

Does cryptocurrency have a future? A few closing thoughts

After each hack, market downturn, or scandal in crypto's history, many web3 enthusiasts wonder whether crypto will go back up. Despite its volatility, the cryptocurrency market has generally trended upward over time, with each significant drop followed by another push higher.

There's no way to guarantee cryptocurrency’s perpetual growth, but rising interest from retail investors, institutional clients, and even national governments suggests that digital assets may continue playing a role in mainstream finance. Barring rare, catastrophic events—like a fundamental flaw in Bitcoin’s code—cryptocurrencies are increasingly likely to hold a place in the digital economy. Although questions remain about the future role of crypto, even skeptical economists are taking note of its staying power in the financial world. 

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Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.