Big Story 2021: This article is part of our Year in Review series.
Crypto is not easy.
The first thing you have to do is adjust your mind to a decentralized approach to everything and become responsible for your assets and information instead of trusting intermediaries. This is empowering but it’s also tough and carries a set of hurdles.
We compiled the biggest bummers of this year in crypto.
Gas fees are the worst thing about using Ethereum for retail users. Gas is a chunk of ETH users pay to run operations on the Ethereum blockchain. It’s virtually impossible to guess how much fees will be (in fact, it’s up to users to guess a price that miners are likely to accept) and it’s also difficult to tell how many transactions any semi-complex operation can take as a normal user begins. Sure it might cost $10 to send some ETH to a friend, but it could be $1,000 in ETH to get into or out of a liquidity pool. EIP-1559 took some edge off of this problem, but Ethereum mainnet is still no place for someone who isn’t investing thousands of dollars worth of crypto and planning to sit a while.
The Internal Revenue Service made it clear that crypto investors must pay capital gains taxes the same way they do for stocks or other assets. And if you’re compensated in crypto, better make sure you’re withholding income and social security taxes as well. But the nitty-gritty for crypto investors remains a work in progress, and states may start weighing in with their own taxation rules. Loved your ENS airdrop, right? Hopefully, you still have a bit of a fiat savings account if you want to keep all of it.
DeFi Tokens v. ETH
DeFi 2.0 came along late this year as aging DeFi tokens became more sedate. Governance tokens in the space started the year off nicely, and everyone’s favorite, UNI, was up over $40 in May, a $15,000 windfall for those who held onto its 2020 airdrop. Apparently, not everyone held. UNI trades under $15 today. Similarly, the DeFi Pulse Index, a product that holds 18 of the largest DeFi governance tokens (though, weirdly, not CRV) has also tanked. It’s trading at $241 in late December, down from $400 in November and $600 in May. Meanwhile, ETH itself remains on a generally upward trend for the year, despite recent pain; it’s up more than 400% in the past year, compared with a 150% increase for DPI.
This one is depressing but it shouldn’t be surprising. In any movement, there are spinoff groups and imitators, and inevitably some attract followers. Once they start to break ground, the original revolutionaries denounce them, this despite the fact they have a lot more in common with their imitators than the system both want to overthrow. So predictable. Le sigh. This was the year bitcoiners stopped apologizing and embraced toxicity as a feature of the community, not a bug. Invite them to all your parties.
The nice thing about Biden appointing Goldman Sachs alum Gary Gensler to head the U.S. Securities and Exchange Commission is this: the man is very memeable. The chair’s relationship with the crypto industry hit a low point in September when he told the U.S. Senate he wanted to offer crypto investors better consumer protections. Crypto’s luminaries weren’t exactly eager for those protections, to say the least. “If today’s SEC had been responsible for Internet policy in the ‘90s we’d still be communicating via fax,” Messari’s Ryan Selkis said in a widely circulated Twitter thread, “Probably protected from mean tweets though!”