From bitcoin hitting $1 trillion in market value to Elon Musk’s dogecoin tweets: 12 key

It’s been a record year for the cryptocurrency market, which briefly surpassed $3 trillion in value in November. Bitcoin, the largest cryptocurrency by market value, and ether, the second-largest, hit all-time highs, while altcoins, like meme-inspired dogecoin, surged in popularity.

Other digital assets, like nonfungible tokens, or NFTs, sold for millions of dollars alongside fine art in major auction houses like Sotheby’s and Christie’s. In addition to art, NFTs representing in-game assets and digital land soared in value as well.

Blockchain-based applications, including decentralized finance, or DeFi, garnered interest from both retail and institutional investors, pushing the growth of Web3, which is the decentralized iteration of the internet based on blockchain technology that powers NFTs and underpins cryptocurrencies.

All of this helped push cryptocurrency into the mainstream in 2021.

Though there were countless defining moments this year, here are 12 highlights.

In June, El Salvador passed a new law to adopt bitcoin as legal tender, becoming the first country to do so.

The law allows bitcoin to be used as payment for goods and taxes in El Salvador. Businesses can price their goods in bitcoin, and exchanges will not be subject to capital gains tax, CNBC reported.

In August, a major upgrade to Ethereum went live. The upgrade, called London, included Ethereum Improvement Proposal (EIP) 1559, which changed the way transaction fees, or “gas fees,” are estimated. It also started the reduction of ether’s supply.

Additionally, Ethereum developers prepared for the network’s upcoming shift to a proof of stake model through a number of upgrades throughout the year.

Currently, Ethereum operates on a proof of work model, where miners must compete to solve complex puzzles in order to validate transactions. This model gets a lot of criticism for its environmental impact since it requires an extreme amount of computer power.

In 2022, Ethereum plans to shift to a proof of stake model, where users can only validate transactions according to how many coins they hold, rather than the energy-intensive mining rigs used now. This move is part of the merge to Ethereum 2.0, or Eth2.

Eth2 will be hugely impactful, since it will change the Ethereum infrastructure and ultimately make mining obsolete.

In August, DeFi platform Poly Network was hacked. Initially, over $600 million was stolen. 

Experts said that the hacker was able to exploit an issue within the network’s code. Though the hacker ultimately returned the stolen funds, it was one of the biggest cryptocurrency thefts ever.

This kind of fraud was not uncommon throughout the year. Over $7.7 billion was stolen in cryptocurrency scams worldwide in 2021, according to a report by blockchain analytics firm Chainalysis. That’s an 81% rise compared to 2020.

Rug pulls, a type of scam where developers abandon a project and leave with investors’ funds, became the “go-to scam” of the DeFi ecosystem, Chainalysis wrote in its report. In 2021, rug pulls accounted for over $2.8 billion stolen, or 37% of all cryptocurrency scam revenue, compared to 1% in 2020. 

In September, the People’s Bank of China confirmed its continued crackdown on cryptocurrency.

According to a Q&A on its website, the PBOC said that all crypto-related activities are illegal in China, including services such as trading digital assets, order matching, token issuance and derivatives. In addition, overseas crypto exchanges providing services in mainland China are also illegal, the PBOC said.

China’s renewed crackdown on bitcoin mining throughout the year pushed the market elsewhere, and in October, data from the University of Cambridge showed that the U.S. became the No. 1 destination for bitcoin miners.

The data stated that 35.4% of bitcoin’s hashrate, which is the collective computing power of all miners, was in the U.S. as of July, overriding China for the first time. Cambridge also found that China’s average monthly share of the global hashrate in July zeroed out, which was a major reversal from September 2020 when China captured about 67% of the market.

In October, the ProShares futures-based bitcoin ETF made its market debut on the New York Stock Exchange under the ticker “BITO.”

The bitcoin futures ETF tracks contracts that speculate on the future price of the digital asset, rather than the current or “spot price” of the cryptocurrency itself. As a result, the prices of the ETF and bitcoin don’t necessarily match.

Nonetheless, the ProShares bitcoin futures ETF saw one of the “biggest first days on record for ETFs,” CNBC reported.

Taproot, a highly anticipated upgrade to bitcoin, went into effect in November. It was bitcoin’s first major upgrade since 2017.

Taproot introduced what’s called Schnorr signatures, which help bitcoin transactions become more private and efficient, and less expensive. Most important, the upgrade better enables bitcoin to execute smart contracts, or collections of code that carry out a set of instructions on the blockchain.

Securities and Exchange Commission (SEC) chairman Gary Gensler was outspoken in his push to create regulatory framework for the cryptocurrency space. Federal Reserve chair Jerome Powell and Treasury Secretary Janet Yellen both repeatedly warned against cryptocurrency, particularly stablecoins, calling the entire asset class volatile and speculative.

In November, President Joe Biden signed the bipartisan infrastructure bill into law, which includes tax reporting provisions that apply to digital assets like cryptocurrency and NFTs.

Cryptocurrency “brokers,” which are mainly exchanges, will be required to issue a 1099-like form disclosing who their customers are. Businesses and exchanges will also be required to report each time they receive over $10,000 in cryptocurrency.

This caused an eruption of concern from the cryptocurrency community, and many lobbyists emerged, pushing for more clarity in the definition of “broker.”

As demand for Ethereum, the most used blockchain network, surged this year, other projects emerged in an attempt to compete.

Two include Avalanche and Solana, both of which launched in 2020 as platforms for smart contracts and the creation of decentralized applications. Each of their tokens, AVAX and SOL, respectively, jumped into the top 10 cryptocurrencies and earned market share among the rest.

As a result of competitors such as these, the total value locked (TVL) on DeFi increased seven times year-over-year, surpassing $200 billion, DappRadar reported. However, almost 60% of the TVL still remains on Ethereum.