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News review 1/31: Ordinals, Genesis, Twitter, VC firms, Aptos

The Ordinals protocol has created drama in the Bitcoin community. Genesis finally filed for bankruptcy. Twitter is applying for payment institution licenses in the United States. Which crypto projects got the most money from venture capitalists in 2022? Aptos has been flying high in January.

The Ordinals protocol angered Bitcoin maximalists

There has been no major drama in the Bitcoin community for years. The development of Bitcoin is notoriously slow, which means that new features or topics of drama don’t arise easily. However, in recent days the situation has changed due to a protocol called Ordinals.

Ordinals originates from the Taproot update implemented at the end of 2021. Taproot changed certain restrictions on data storage in Bitcoin, allowing the creation of the Ordinals protocol. Ordinals can be said to be an unintended byproduct of Taproot. But what is it really about?

The Ordinals protocol was created to track individual satoshis sent in the Bitcoin network. A satoshi is one hundred millionth of a bitcoin and the smallest unit that can be sent. Ordinals can also be used to add additional data to a single satoshi. This additional data is called inscription.

The additional data can be text, images, video, etc. The Ordinals protocol enables e.g. storing digital NFT art on the Bitcoin blockchain. We have written a comprehensive beginner’s guide about Ordinals. It’s worth reading if the topic interests you more.

It’s easy to guess that the storage of monkey JPEG images on the Bitcoin blockchain has raised the blood pressure of Bitcoin maximalists.

It is good to understand that Ordinals enables the entire data to be stored in the Bitcoin block. Many blockchains have implemented NFT storage in such a way that the blockchain only has a link to an image or video file, e.g. in the IPFS system.

This means that the size of the Bitcoin blockchain increases due to increased traffic and space demands. In addition, Ordinals utilizes the so-called witness data section in the block, which can be written really cheaply. The reason for this is the witness discount, which has existed since the SegWit update in 2017.

In other words, users of the Ordinals script can fill blocks with significantly lower costs than users who send ordinary transactions. The incident has raised quite an uproar among Bitcoin maximalists. Some support the new development, but some are of the opinion that such data does not belong on the Bitcoin blockchain.

This is where we circle back to the ultimate feature and nature of Bitcoin. It is an open and uncensored network for everyone. Anyone can send any transaction to the network as long as they pay the fee demanded by the miners.

There will probably be a tough discussion about whether the witness discount should be removed. This would make using the Ordinals script significantly more expensive. Blocking the Ordinals protocol is close to impossible.

Genesis filed for bankruptcy

Crypto lender Genesis, which has been in the headlines for two months, has finally filed for bankruptcy. Genesis is owned by the publicly listed company Digital Currency Group. It is one of the biggest lenders, especially for institutions. Genesis owes $900 million for the Gemini exchange owned by the Winklevoss brothers and more than two billion to other creditors.

We have covered the Gemini, DGC, and Genesis drama several times in previous news reports. The Genesis bankruptcy has been rumored for a long time, so the news certainly did not come as a surprise.

According to Coindesk, Genesis owes as much as $3.5 billion to its biggest creditors. The company has cash assets of approximately USD 150 million.

 

The cryptocurrency market didn’t really react to the news. This indicates that the problems of Genesis were well known and the possible risks were priced in. However, the drama is not completely over, as the parent company Digital Currency Group is still in deep trouble.

The bankruptcy of Genesis causes huge losses for DCG. It is possible, or even likely, that DCG will have to liquidate its holdings. It has a portfolio worth several billion dollars, with holdings in practically all the largest companies and coins in the crypto sector.

DCG has already subsidized Genesis with more than a billion dollars in the past, and DCG also owes Genesis more than 500 million dollars. Quite a deal, which is why DCG is still a potential black swan in the market. We will continue to monitor the situation in future news reports.

Twitter is applying for a payment institution license

The Financial Times reports on Twitter’s development work related to payment systems. According to FT, Twitter has started the process to create a new payment system. The company is also starting to apply for payment institution licenses in the United States.

Twitter has already registered with FinCEN, which oversees US payment traffic.

Elon Musk’s vision is to create an “everything app” like China’s WeChat. Twitter could become a “super app” that combines social media (video, messages) and payments. Cryptocurrencies will certainly come into the picture at some point.

So far, there is no definite information about the wider integration of cryptocurrencies. Many investors speculate that Dogecoin, which Musk is a fan of, will be integrated into Twitter’s payment method at some point. The price of Dogecoin did not react to the latest news in a significant way.

Twitter is already developing a feature called Coins. It allows virtual coins to be purchased with fiat money, which users can tip to content creators. Twitter also has an integrated Bitcoin dip feature for US users. This integration was done before Elon Musk’s time.

These cryptocurrencies were the favorites of VC firms in 2022

VC stands for Venture Capital. VC firms, therefore, refer to companies offering risk financing. These companies invest in projects with high risk & high return potential – such as cryptocurrencies.

When talking about cryptos that have entered the market in the past five years, it can be stated that behind every popular project, there are hundreds of millions of dollars of risk money from VC firms. The smart contract platforms Terra, Solana, and Avalanche are good examples from the bull market of 2021.

Twitter user The Defi Investor published an interesting thread yesterday. He listed the crypto projects that received the most risk money from VC firms in 2022. You can read the entire thread in the embed below.

The DeFi Investor mentions e.g. the following projects: Flow, Yuga Labs, Polygon, Secret Network, and NEAR Protocol.

Of course, it must be said that even an investment of hundreds of millions of dollars is not a guarantee of success. Terra Luna, the FTX exchange and the collapsed loan services Celsius & Blockfi are good examples. However, venture finance works on the idea that most projects do not succeed, but those that succeed return the investment 100x.

It’s likely that in the next bull market, there will be a 100x coin that is mentioned in the Twitter thread above.

The information of The DeFi Investor is collected from the website defillama.com. The Raises page lists the funding received by various crypto projects. You can sort this list based on e.g. the Amount Raised column and search for the next gems.

It is ironic that the overwhelming number one on the list is still EOS, which collected an ICO pot of 4.2 billion dollars. This smart contract platform was titled the Ethereum killer in the 2017 bull market. In recent years, EOS has disappeared from the headlines, even though the project has a huge fund for development.

Aptos is the rocket of 2023

Aptos is a smart contract platform launched in the autumn of 2022. It is one of the many challengers to Ethereum, which offers (at least on paper) scalability already at layer one. Aptos’ native token APT entered the market in mid-October 2022 when Aptos MainNet was launched.

Aptos has its roots in the Meta’s Diem (ex-Libra) project, which collapsed under pressure from regulators a couple of years ago. It uses the technology created in the development of Diem, and Aptos has also received huge investments from well-known VC firms. You can read more about the background and technology of the Aptos project in our Aptos guide.

Many expected Aptos to be one of the hot coins of 2022, but it turned out otherwise. Its timing was the worst possible, as the APT token entered the market at the bottom of a bear market, and the FTX exchange collapsed a couple of weeks after its launch.

However, the year 2023 has been amazing. The APT token price is currently almost 5x higher than a month ago. It reached an ATH of $19.92 last week, which is 6.5x higher than the December 29 low of $3.08.

apt

Why has the price of Aptos skyrocketed so much? There is no obvious reason for this. Aptos has of course gotten new developers and moved forward, but the project’s fundamentals have not magically exploded for the better.

It also seems that a large part of the volu,e has come from South Korea, where Aptos has gained enormous popularity for one reason or another. Add to this the liquidation of short sellers and general social media hype, and a price increase of hundreds of percent will be achieved.

The APT token is also helped by the small supply, which increases with block rewards at a rate of only seven percent per year (inflation). Huge amounts of tokens are locked in the wallets of venture capitalists. These locks will be removed from October 2023, when the market is guaranteed to be under selling pressure.