What the hell is Web3 anyway?

Web3 — or Web 3.0 as crypto boomers like to call it — is a topical buzzword with only a very vague definition. Everyone agrees it has something to do with a blockchain-based evolution of the internet but, beyond that, what is it really?

Yet, the conversation surrounding the meaning and prospects for Web3 has become very fashionable in crypto communities. The term gets thrown about by big corporates trying to muscle in on the space while avoiding the negative connotations of “crypto.”

But, without an agreed-on definition, it can’t be properly evaluated.

Crypto influencer Cobie is among those deriding Web3‘s lack of specifics:

“Despite the deluge of undistinguished think pieces issued by the dominie of the day, nobody really agrees on what Web3 even is. Depending on which tribe you belong to, Web3 is a scam, Web3 is the future, Web3 is tokenizing the world, Web3 is VC exit liquidity, Web3 is just another name for crypto, you get the idea.”

He adds: “Even the crypto community can’t make their mind up on whether Bitcoin is Web3.”

Like many important terms in crypto, a key early crypto thinker coined the phrase and the community has had a few years to figure out what it means. There’s been a lot of reverse engineering driven by diverse ideologies and commercial realities.

What‘s becoming clearer is that Web3 is not just one simple idea. It is a series of ideas. It was arguably first coined in a blog post from Ethereum co-founder Gavin Wood in 2014. According to him, Web3 could foreseeably bypass the geopolitical data boundaries and his definition included “trustless transactions” as part of its tech stack. Wood went on to create the Web3 Foundation and the Polkadot network, which trades on being a Web3 alternative future.

The 2013 Etheruem white paper had earlier given devotees a chance to imagine what a DAO, for example, might look like.

Web3 is now peppered with various concepts: sovereign digital identity, censorship-free data storage, data divided by multiple servers and other ideas requiring an exegesis of Biblical proportions such as decentralized autonomous organizations. These various concepts and ideas interlace discussions about the “Web3” movement and its viability.

One thread links these concepts and Cobie’s starting definition of Web3. Web3 should include the “decentralization of power” and the “ownership of value” of one’s own content and data.

Like many, though, he’s cynical about the prospects of a utopian future coming to pass, noting that he wouldn’t be “surprised if crypto founders are too rich to care anymore and the new web gets built by late-stage capitalism greedcorps that make you buy a fractionalized micropayment NFT on Cardano to operate your electric toothbrush.”

Highly critical

The concept of Web3 has numerous critics who argue that it isn‘t practical or achievable. Critics like Moxie Marlinspike (creator of sslstrip and Signal/TextSecure) can never see a day where people run their own servers, as might be imagined by Web3. Protocols are much harder to create than platforms, he argued, in a much-commented upon piece in early January.

While that may be true, some projects like file storage protocol IPFS split data between servers and allow users to select which jurisdictions to share their data between.

Yet, complete decentralization is a hard problem to solve. Blogger suhaza replying to Moxie noted:

“People don’t want to run their own servers… companies have emerged that sell API access to an Ethereum node they run as a service… Almost all DApps use either Infura or Alchemy in order to interact with the blockchain. In fact, even when you connect a wallet like MetaMask to a DApp and the DApp interacts with the blockchain via your wallet, MetaMask is just making calls to Infura!”

So, here are the questions that need to be answered: What is Web3? Is it viable? Will it really be that decentralized?

Web3 history is driven by the disappointment of Web2

This is a story all about how the Internet got flipped-turned upside down…

First, there was the vision. Free for content creation and accessible by everyone. It was popularized by decentralized open-source believers including the internet’s inventor Tim Berners-Lee.

And, then there was the reality: data trade-offs for content creation and accessible for a price.

Web1 was like a huge Wikipedia page married to a massive Craig’s List. No ads, no logins and a private carve-up of its web pages. Web 2 is the current era of algorithmic targeted advertising and usually free usage in exchange for signing away your privacy and data.

Centralized by large corporates, our data is savaged by those giants. The internet is also fragmented by geopolitical walls such as the Great Firewall of China and their obtuse data localization rules.

Berners-Lee is desperately disappointed with how the internet has turned out and, so, a decentralized Web3 reflects Berners-Lee’s original vision: “No permission is needed from a central authority to post anything… there is no central controlling node and, so, no single point of failure.” He now runs Solid, his own Web3 data storage play.

So, Web3 begins with data privacy and decentralized servers.

Web3 starts with decentralized data storage

Decentralized storage of data is a key component of the emerging Web3 tech stack. In Web2, companies control closed databases. Large conglomerates including Facebook, Google and the other usual suspects go to massive lengths to hoard, control and monetize the data they collect. Web3 seeks to shift that.

Even by 2019, Web3 was being built at breakneck speed. (Source: https://multicoin.capital/2019/12/13/the-web3-stack-2019-edition/)

According to Gartner, five companies currently control 80% of the global cloud infrastructure market: Amazon, Google, Microsoft, Alibaba and Huawei. Web3 seeks to disrupt this status quo.

Decentralization means augmenting those power structures by giving participants partial direct ownership of the network. In Web3, users own their data on open encrypted networks. There are many projects in this space.

Censorship-resistant P2P data file storage and data sharing applications like Filecoin and IPFS have led the charge. A common characteristic for Web3 storage providers such as Filecoin is that data is replicated in multiple nodes across the network.

Yet, the emerging tech stack and ideology still leave many unresolved questions.

Empowering users to control their own data

Ryan Kris, chief operating officer of Verida, which is building in this space, described his “Web3 vision” to Magazine as “empowering people to control their own data.”

Verida’s target audience is Software Development Kits (SDKs) that solve problems in the Web3 stack: identity, messaging, personal storage and data interoperability.

An ambitious suite of applications? “Yes, but it’s a frontier technology,” he says, “without walled gardens.” Pragmatically, they are not only targeting crypto clients and are currently building a credentialing system for decentralized health in Bermuda.

But, how will Web3 bring us a fairer internet by enabling the individual to be a sovereign? Kris, who has a decades-long background in telecoms, finance, cyber security and blockchain consulting, acknowledges that it is a tough ask:

“There are also some good business questions as part of the viability of Web3,” he says. “How can personal data locked in centralized platforms be taken back by users? How are startups incentivized to build the products and tools to enable this transition? How are existing second- or third-tier Web2 companies incentivized to pivot to a Web3 business model so they can compete with existing market leaders?”

Kris notes there are regulatory and practical issues too with the new technologies:

“On storage, IPFS is great for sharing public data in a redundant and distributed manner, but it isn’t designed for securing private personal data. It is distributed in a way that users can’t own control. This introduces regulatory issues when data can not be guaranteed to be stored in a particular country.”

There are also various levels of decentralization in each project. If DApps use centralized storage, they are no longer considered “Web3” companies by the diehards. But, fully decentralized tech is extremely difficult to build.

More like Web2.5?

Some argue that what we‘re actually building at present is Web2.5, referring to businesses that are crypto-native but not fully decentralized in operation. This distinction is important. For example, the NFT itself might live on a blockchain but then there are centralized repositories of data connected to it such as OpenSea. If the server went down, valuable data could be lost.

OpenSea is the most high-profile platform for NFT sales, but it is “not exactly community-led,” notes Apollo Capital crypto analyst David Angliss. In 2021, OpenSea also took in major VC investing and made a failed Nasdaq IPO attempt, much to the chagrin of crypto folk.

This is where the Web2.5 definition is emerging.

“Web3 is not a segment in crypto. Web3 can be anything that uses a blockchain for censorship resistance, including NFTs and DeFi gaming platforms,” Angliss tells Magazine.

“Web3 will enable users to be sovereign over their data and identity. This does not exist in the Web2 digital landscape.”

“Web2 is similar to feudalism, as in walled-off ecosystems, governed by a select few. For example, an honest user-owned (the account name) “Meta” on Instagram, Facebook then rebranded and then had to make up a reason for suspending that innocent user’s long-term account. Web3 can stop that from happening again. In Ethereum’s name service, if I bought ‘Ethereum.ens,’ there’s no way Ethereum can take that off me.”

Angliss cites OpenSea as an example of a Web2.5 business. Being too decentralized, as in fully-censorship resistant, can be commercially unpalatable for a large business like OpenSea. For example, OpenSea “facilitates buying and selling of NFTs. But, in instances, it also disabled the sale of stolen Bored Apes.”

Web3 (or perhaps Web2.5, depending on what is being referred to) has been described as just another way to privatize the internet.

“Just because it exists in the crypto ecosystem doesn’t make it Web3,” says Angliss. The big danger is that we could just see centralized closed ecosystems rather than a burgeoning Web3.

Community-led platforms that are more decentralized than OpenSea are emerging including LooksRare and OpenDAO. LooksRare has even been conducting a “vampire attack” on OpenSea (stealing users away with greater incentives) which means a Web3 competitor to the Web2.5 NFT king could find favor.

The introduction of a token allows more options for these new NFT platforms in how they want to build customer loyalty. For example, OpenSea charges a fee, none of which is directed back to the community. LooksRare charges a similar fee (2% for every swap) on every basic sale, with LOOKS token stakers earning 100% of those trading fees.

So, maybe Web3’s time is coming?

Whose data is it anyway?

Sustained criticisms over the extent of decentralization in Web3 platforms may mean we‘re just too early. New business models and spaces like the Metaverse and play-to-earn games mean users want to own and house their in-game assets and NFTs on decentralized platforms. This is where Web3-native start-ups like Arweave, Sia and Aleph.im offer a different approach.

Web3 being truly decentralized requires the creation of new off-chain models that side-wipe cloud computing and Web2.5 definitions.

According to the 2021 Messari Report: “Arweave and Sia emerged this year as formidable competitors.” They seek to protect the risk of an NFT being lost because part of the data on a centralized server was hacked.

Another Web3 cloud competitor, Aleph.im, seeks to replace the cloud computing layer with an alternative service network. It’s a decentralized computing network supporting multiple blockchains by communicating with them through a messaging protocol to retrieve and encrypt important data.

Johnathan Schemoul, founder of Aleph.im explains to Magazine that: “the solutions that the Aleph.im network provides are a truly decentralized alternative where it’s needed the most: storage and computing. Blockchains are not designed to address large storage volumes or high-performance computing, as they typically focus on consensus and security.”

That means that large volumes of data are often stored off-chain, increasing the data storage risk for centralized databases like OpenSea.

Aleph.im enables users to rely on both blockchains as well as off-chain decentralized cloud technologies to provide true ownership of digital assets.

“To build a robust decentralized web, we need to extend the decentralization beyond layer 0 and 1 where consensus and security is handled. The growth of the Aleph.im ecosystem is proving that Web3 can be decentralized and we’re committed to continue this effort.”

Aleph.im raised $10 million in mid-January 2022, and its network is used by gaming company Ubisoft for its NFT storage, for example. This is the first time a mass consumer gaming studio has given this level of decentralized ownership to users.

Importantly, it also suggests Web3 could succeed as a B2B model, even if the average consumer doesn’t care about “decentralization.” Crypto trends often start with gaming.

Aleph.im is a middleware blockchain agnostic play. (Source: Image: https://aleph.im/#/)

Will tokenomics help Web3 adoption?

Consumer adoption of Web3 is a different realm. All of this attention on decentralization may not be something the average user cares about. The question of our time remains: How much do people value privacy over convenience? Can tokenomics overcome the privacy versus convenience conundrum?

Jonathan Hooker, managing director at Holon Global Investments suggests to Magazine that human internet behaviors will change. He starts his Web3 explanation by asking: “Do you own Bitcoin? How does owning and controlling your own self-sovereign wealth make you feel?” And, then:

“What if told you could own and control your own data like you control your Bitcoin?”

“The business model must find the thing that is important to that person,” he says. “Is that person suspicious of the government or placing their own health records on centralized systems they don’t control?”

“How important is it for that person to have those medical records at a critical time anywhere in the world? Filecoin and IPFS can solve these data concerns.”

Competition for NFT storage will be important for Web3 adoption. Filecoin launched its NFT.Storage in April 2021, also providing free off-chain storage of NFT metadata and assets.

One of the most significant implications of denationalization and blockchain technology is in the area of data ownership and compensation for lending, staking or using that data. This is the ground-breaking claim of Web3. Web3 provides value to users through tokenization and by enabling complex integrations with smart contracts.

Tokenomics can provide an “Internet of value over just the internet,” says Hooker.

Yet, as many simply sign into Web2 apps through a Facebook API without thinking twice, we have to question how much tokenomics can truly change human behavior. The big players, the Googles, Baidus, Tencents and the Facebooks (and its parent company Meta) all already own our data. Is it too late to get it back?

Maybe not. “Data is like fruit, at the beginning it is fresh but it decays over time,” he says. “Big tech’s data on us will have a shelf-life.”

Kris, the Web3 founder, agrees with Hooker that “privacy is not the issue, value for data is the issue.” People accept that they will lose their data privacy, so they might as well tokenize it. People give up their data readily, why not get paid for it?

“Personalized data offering is valuable in a personalization context,” he says. “I’ll sell my social media data but I won’t sell my health data, for example.”

Key management is a problem for both Web3 purists and mass consumer adoption

Others dispute this optimism about data tokenomics. Aaron Levie, founder of cloud computing company Box, while noting its great potential, questioned the viability of Web3 models in a Tweet thread:

“Why? Because data nearly always works in the context of an app. Twitter social graph, YouTube channels, Spotify playlists, Airbnb listings, Shopify stores: these develop over *years* within the context of a product and APIs that moved quickly to build value and trust over time.”

Levie argues further that tokenomics may make things more difficult. “With Web3 ideals, we’ve likely added community governance and tokenomics into the mix, which adds a new negotiation vector.”

This is the ease of adoption problem: “These are hard problems about human coordination, not about software or blockchains.” Many will choose a Facebook API for ease of use. It’s the business model and UX/UI experience that is crucial.

For example, there’s a common meme about the ease of logging to Web3 by the crypto faithful that is quite misleading. It goes something like: In Web1 there were usernames and passwords. In Web 2, you could sign in through a Google, Facebook or Twitter API and in Web3 you just connect your wallet. Sign in to MetaMask and pay with Ethereum, for example.

But, in truth, Levie is right. This meme ignores the stress of key management for blockchains. Even seasoned crypto folk have a heart attack every now and again, let alone the newbies.

Kris, the start-up founder argues that: “Web3 needs a better UX, public-key cryptography is a different way to login, it needs to be improved. What does key recovery look like for a user?”

And, at this stage, any possible solution is most likely not 100% decentralized. So, there’s room for improvement in Web3 key management. “The second someone loses control of their keys, it’s no longer Web3,” says Angliss.

So, fully decentralized key management remains a major problem for Web3 purists. Add this task to the too-hard basket for now.

Private key meme. (Source: https://memegenerator.net/instance/62834627/yoda-a-private-key-you-have-mhm)

Is 2022 the year of Web3?

Web3 needs to solve various problems first before it will be embraced by the mainstream. Importantly, it needs to be better and cheaper — or have other significant advantages — over Web2.5.

Scalability without sacrificing decentralization protocols remains a clear goal for Web3. But, decentralization is hard and centralized services are more user-friendly in many ways.

Ethereum co-founder Vitalik Buterin himself stated recently this is why (centralized) Binance to Binance transactions trump Ethereum payments in some places because they don’t have to be verified 12 times to be processed.

Referring to very high Etheruem gas fees, he went on to say: “I do think a lot of people care about decentralization, but they’re not going to take decentralization if decentralization costs $8 per transaction.”

“In order for blockchains to able to actually be something that people are going to adopt for mainstream applications, it has to be cheap… not by the standards of whales who bought crypto in 2014, but it has to cheap for the people who enter the system today.”

For now, it seems that Web3 is still an aspirational concept held hostage by the crossover between scalability, tokenomics, mainstream adoption and the diehard Web3 believers in decentralization.

Like much of crypto history.

But, watch this space.


Tagged : / /

Here’s how to keep your crypto safe

When the mafia kidnapped me, I had the choice to pay the ransom in either fiat money or Bitcoin. I did not hesitate before choosing the latter. Had I picked the first option, the criminals would have held me in a dark, damp cell for days in the Pacific Islands until the funds went through KYC, identity check, or, God forbid, the bank placed a hold on the funds. But after I paid, I was let go instantly. Who knew the network’s 10-minute transaction time and cross-border anonymity could be such a lifesaver?

— Dr. Anon

According to a recent report compiled by Chainalysis, the intersection between cryptocurrency and crime has grown to become a $14 billion industry in 2021. Regrettably, societies worldwide are far from perfect, and the rapid rise in the market capitalization of digital currencies has led to an explosion of crime targeting blockchain enthusiasts. The good news is that the money lost in criminal activities as a percentage of crypto’s overall market cap is actually going down.

While there is a wide range of variance in tactics, the common theme is the exploitation of individuals’ naivety and blind trust in the legitimacy of the crypto services they sign up for. The first step toward compounding gains with crypto investments is to be super diligent and to avoid losing your vigilance.

We’ve spoken to three experts to get their advice on protecting one’s hard-earned capital. First up is Dr. Anon, a Cointelegraph staff member, who, long before joining the firm, was targeted by the mafia out in the Pacific Islands for his expertise in crypto (as you may have gathered, his first security tip is to remain anonymous online to avoid letting bad guys know you even have crypto). Dr Anon is frequently abroad for work and had to think quickly to get out of quite a few dangerous situations. He explains why it’s essential to keep a low profile.

Dr Anon
Dr. Anon goes by many names.

Don’t post online about your success in crypto

Dr. Anon: In many parts of the world, people remain underexposed to crypto. Their only insight comes from sensational media stories of individuals getting rich off an early investment in Bitcoin or a lucky bet on Shiba Inu. When you travel to certain countries and mention that you work/invest in crypto, the locals’ first impression about you immediately switches to that of millionaire or billionaire. It will make you far more susceptible to crimes such as robberies or kidnappings. Unless it’s someone you trust, make up a cover story about what you are doing.

In addition, some investors are very emotional about the state of affairs of their favorite coins, or are downright zealous. Be careful about posting criticism, strong negative opinions, or factual information about certain coins on social media if you have a public profile. Some blockchain fanatics could retaliate by doxxing you — posting your phone number, addresses, spouses name, etc., for a broad (possibly crazed) audience. If you have to say something deeply controversial on the internet, keep yourself anonymous.

How to protect yourself from a $5 wrench attack

Dr. Anon: Long story short, a $5 wrench attack is when someone finds out you have a lot of crypto and physically attacks or threatens you and coerces you into giving up your private keys. Very few of these attacks happen

$5 wrench
Cyber security is no match for a $5 wrench and someone determined to make you give up your passcode.

impromptu; that is, they are highly sophisticated, carried out by professional, organized criminals. It’s a your money, or your life situation.

Suppose you became a target of kidnapping for crypto ransom. In that case, chances are the perpetrators have already scanned your LinkedIn profile, Twitter accounts, Crunchbase, public addresses listed on voter records, etc., and planned days, if not weeks, in advance to account for all the variables during the act, such as escape. The only way to access one’s private wallet is through the keys, so expect some pretty rough action if one refuses to hand them over.

That said, one can significantly limit their losses by having a decoy crypto wallet. In other words, don’t put all eggs in one basket. One strategy is to put, say, a small percentage of one’s crypto net worth into a separate hard wallet. Then, if a robbery, kidnapping, etc., were to occur, simply hand it over and call the police afterward. It’s a smaller loss than otherwise, and no amount of money is worth the risk of getting tortured or killed for refusing to pay.

Be on the lookout for signs of a rug pull.

Pulling the rug from under you

Personal security aside, the risks facing crypto investors regarding DeFi rug pulls, hacks, phishing scams, etc., are significant. In fact, Chainalysis estimates $2.8 billion worth of DeFi rug pulls took place in 2021. Cointelegraph reached out to Hank Schless, senior manager of security solutions at Lookout, for his insight on crypto cybersecurity.

How to spot a potential DeFi rug pull

Hank Schless: Rug pulls, which occur when a crypto developer [or outright scammer] abandons the project and runs away with any investor funds, are unfortunately fairly common. Often, you can spot a potential rug pull by looking at how that particular crypto is traded. For example, if a smaller number of wallets hold a massive percentage of the currency, or if its liquidity is abnormally low, odds are it could be a rug pull scheme.

Also, if the developer chooses to remain anonymous or the project seemingly appeared out of nowhere, this could be because the developer is malicious and trying to execute a rug pull as a quick money-grab scheme.

Common traits of exchange hacks and protocol security breaches

Hank Schless: Cryptocurrency platforms make for appetizing targets for a handful of reasons — many of which align with other financial cyber crimes, such as targeting banks and their customers.

Crypto platforms themselves have a mountain of highly sensitive, personally identifiable information.

Hank Schless
Hank Schless.

To register for most crypto platforms, individuals need to give their legal name, home address, date of birth (and the last four digits of their Social Security number in the United States). In addition, they need to link their account to a bank account and a debit card to make cash purchases of new crypto.

Cyber criminals can target employees of the crypto platforms with phishing attacks that intend to steal their corporate login credentials. With these credentials, the attacker can log into that employee’s account and move laterally around the infrastructure until they find valuable data to exfiltrate, encrypt for a ransomware attack, or funnel customer funds out to their crypto wallet.

The No. 1 thing to keep your crypto safe

Hank Schless: The number one thing, which is not a novel tactic, is never sharing your login information with anyone. As a personal investor, you rely on trading platforms to keep your data safe, but to keep attackers from gaining access to your personal funds, you should never interact with a link or email that asks for your login. If you receive a text message or email that claims to be from the platform you use, contact the platform directly and validate the communication.

Keep your funds in cold storage — but even that is not completely secure

Hank Schless:  No piece of hardware or software is entirely invulnerable. There are inevitable flaws in code and manufacturing, which could lead to critical vulnerabilities, but with enough time and resources, anything can be hacked. In the case of cold wallets, the most significant risk occurs when a malicious actor gets physical access to a wallet and can take the time to try to guess its PIN. That being said, it’s still far more secure to store crypto on a cold wallet than anywhere else.

Social engineering and time pressures are ways to exploit the desire to get rich

Hank Schless:  When targeting consumers, attackers know that crypto is relatively new and uncharted territory for most people. This may cause consumers to exercise less caution or have difficulty spotting red flags that indicate mal-intent. However, the recent boom has driven high interest in crypto and engagement with these platforms as people hope to make money from this alternative form of investing.

There’s also a particular type of individual who chooses to invest in cryptocurrencies, especially less established ones, to take on higher risk for potentially higher reward. This opens the door for aggressive social engineering and [the creation of] fake apps that either look real or promise higher returns and more real-time data.

Attackers will always try to create high-pressure situations that cause you to not think about what’s happening. It’s essential to take a step back, evaluate the situation, and find different ways to validate what’s happening.

If you’re ever contacted in this way, and the individual asks you to download an app or click a link, simply don’t. If this does happen, it’s important to ensure you’re protected by having a mobile security app on your device that will block connections to phishing sites and alert you if you download a malicious app.

Tax time
Nobody likes tax time.

A word on tax

And lastly, while pretty much no one in the crypto world is fond of taxes, almost all types of crypto acquisitions/dispositions are taxable events.

Despite the “Wild West” regulatory environment, crypto investors can face severe penalties should they be found to be non-compliant with their tax obligations — so, keeping your tax affairs in order is essential to protect your hard earned funds.

In an interview with Cointelegraph, Andrew Henderson, an international tax attorney and founder of the Nomad Capitalist tax consulting firm, discussed the nature of crypto tax transactions and the consequences for not abiding by the law.

Is there any way to legally avoid the tax bill?

Andrew Henderson: You’re paying on pretty much everything acquisition/disposition related; it’s like

Andrew Henderson
Andrew Henderson

with fiat money — if you live in the U.S. and get paid in euros, or even crypto, it doesn’t mean it’s not taxable. Other examples, such as staking or getting rewards from a DeFi pool — that’s income and taxable as well.

If you’re a U.S. person, or a green card holder or a citizen, anywhere in the world, you have to report your crypto income to the IRS [Internal Revenue Service] each year.

Suppose you live in a residential tax country, like Germany, Canada, Australia, or pretty much every Western country other than the U.S. In that case, that is where they tax you based on your residence, and they tax you based on your worldwide income.

So, if you live in the country and stash all your crypto in an account in Belize, that doesn’t solve the problem; you will be taxed locally. The goal of having no legal tax obligations depends on whether you are a U.S. person and giving up citizenship, or whether you’re simply moving out of your country and following the criteria to no longer be a taxpayer there, for citizens of countries with residential taxation, such as Canada, EU members, Australia, Japan, South Korea, etc.

Affluent investors can move to low-tax countries. Is there a trade-off?

Andrew Henderson: I’m a person who believes in the culture of a country, and obviously, El Salvador is trying to move in the right direction, at least on that crypto front. But that said, I’ve been to El Salvador; I found it to be a highly unworkable country. San Salvador was one of the few places in the world where I felt very unsafe. So, I do think there’s a danger.

In a country like Estonia, when they announced their digital nomad visa, everyone thought that meant they would get citizenship, and everyone could get a bank account, and there was zero tax. No, no, they have tax; you pay it later. So, [Estonia’s residency visa] was not nearly as great as what it was touted for.

The Cayman Islands, the UAE — [there are] plenty of territorial taxation only countries. Tax-free, tax-exempt — now you can move to Portugal, you can move to Italy, you can move to Greece, you can move to Malta, you can move to Ireland. These countries all have tax exemptions for some time, at least. A lot of people have moved to Puerto Rico to reduce the taxes. But Puerto Rico responded [by] raising the tax rate from 0% to 12.5%. So, anyway, you don’t need to go to places if you are not comfortable there; alternatives exist.

The consequences of evading crypto taxes

Andrew Henderson: Some people who got stuck before they came to me flew too close to the sun. But, as a case study, there’s one thing they’re efficient at over in Spain — they’re efficient at finding you, and will get your money. I mean, look at people like Wesley Snipes.

You’re filing a tax return under oath, so if you omit or misrepresent, you could go to jail. You could have your passport taken away — citizenship or passport. Good luck getting a residence permit anywhere in the world if that happens. Maybe El Salvador would take you; some countries don’t require clean criminal records.

Even if you don’t pay and you haven’t been caught, it could come and bite you down the line. For example, if you want to move to Saint Lucia [island nation in the Caribbean], one of the questions is: Are you in compliance with all your tax obligations? If you say yes, and later it turns out you’re not, they have every right to denaturalize you; you could become stateless. Or, at the very least, you paid $100,000, and you got nothing because you broke the contract. The consequences are far-reaching.

To sum up: Small tricks can have a big payoff

We all love to express our successes in the crypto space, but remember that too much attention could potentially expose oneself to the risk of a $5 wrench attack or doxxing. Therefore, if you have a crypto fortune, keep as much of your public information hidden as possible, have a decoy wallet in case one becomes a target of crime, and have a cover identity when in not-so-affluent countries.

Never share your login information with anyone, and keep your funds stored in a cold wallet. Specifically, be wary of clicking on links in apps like Discord that lead to login pages, as such programs have repeatedly become the target of phishing in the past. Always remember the official site link and cross-check that with the link you are clicking, even if the link is posted by an admin, as the latter’s account is still vulnerable to being compromised.

Remember to keep accurate records of your taxable transactions — it makes life a lot easier when it comes to filing returns. Citizens of residential taxation countries have legal means of avoiding capital gains or income taxes on crypto acquisition/dispositions, such as moving abroad. It’s much better to pursue such methods and have one’s mind at ease rather than evade taxes and risk jail time.

Stay safe out there, frens.


Tagged : /

Boston nurse fired for nudes on OnlyFans launches crypto porn app

Former Boston ICU nurse Allie Rae made international news in August last year after she was fired for running an extremely naughty Only Fans account on the side. The story appeared everywhere from the NY Post, to CNN, The Daily Beast — and she even made an appearance on Dr Phil.

The resulting publicity saw fans subscribing in droves and the 37-year old mother of three now makes more than $200,000 a month.

But the same sort of moralizing and censorship that ended her nursing career also threatens her newfound wealth from Only Fans. Just six days after her story was made public, Only Fans announced it would ban “sexually explicit” content, under pressure from its banking partners.   

“When the news broke about the payment processing and OnlyFans I began looking at other platforms to switch to, and quickly realized they too could fall into the same trap down the road,” Rae says on the line from her new home in crypto friendly Florida.

“It was at that time that I figured out crypto was the answer.”

She’s assembled a team of 20 developers and is putting the finishing touches on a new Only Fans meets Instagram style crypto-powered social platform called WetSpace. It’s due to launch in beta in February, accepting payments in a range of stablecoins across different chains to mitigate issues with gas fees. NFT support will come in the project’s second stage mid-year.

Porn has long been seen as one of the best chances crypto has for adoption: Users can remain anonymous and performers don’t have to deal with payment processors charging them high fees or unilaterally cutting off services under opaque morality clauses.

Despite this, as Magazine discovered in the past, crypto payments have failed to take off. Pornhub tried and failed with Verge, then moved to using Pumapay’s service, which was crippled by high gas fees on Ethereum and is in the process of relaunching on Binance Smart Chain. Spankchain attempted a more modest platform targeting crypto users but has had limited success so far, though it’s still in the game and is developing ‘SpankPay V2’ based on user feedback. Cumrocket is developing an NFT marketplace but reports limited availability of its CUMMIES tokens on exchanges.

Rae believes a major problem is trying to launch projects with related adult tokens. “I had been watching the fall of other ‘adult shit coins’ and how their model was destined to fail serving two masters — creators and holders. That is when WetSpace came about.”

Rae points out that adult coins add an extra step to the process and most are very volatile which isn’t attractive to users or models. 

“So I thought,’ Well we don’t need a coin, like, why go through all the drama of this coin? Of course, you’d get a lot of money up front, and it would definitely help fund your project. But luckily, I didn’t need to be concerned about the financial side of it, because I had the money to put into it.”

How she got here

The mother of three teenage sons, Rae is an unlikely porn star turned crypto entrepreneur. She joined the Navy at 17 and married husband Steven the following year (he sometimes stars in her videos). She then worked for five years in marketing, management and real estate, before getting her dream job in nursing. “I was obsessed,” she says. “I was a straight A nursing student, it was truly my passion and still is, it really is.”

Rae received a Masters in Nursing Education and specialized in Neonatal Intensive Care, nursing sick babies back to health. “Even though it was such a tragic time for so many families there were also so many great moments,” she says. “I was a wonderful NICU nurse very, very good at my job.”

But bored at home during the pandemic, she started up an Instagram account posting about hockey and craft beer. This attracted a devoted male following, some of whom suggested she start an Only Fans. When she read news reports that the actress Bella Thorne had made $1M on the platform in a single day, she decided to take their advice.

“I posted a few pictures and I really actually had kind of fun with it. It was quite liberating, you know, at my age and before you knew it, I had so many subscribers and we were actually making good money on there.”

By the end of her first month she’d made $6,900 — more than the $6,500 she was paid as a nurse.

Unfortunately for Rae not everyone is a fan of Only Fans and a group of six of what she calls her “mean girl” colleagues, led by a Pastor’s wife, stumbled across her Instagram and then screenshotted her Only Fans content for management.

News spread like wildfire through the hospital and that was “ultimately what I think drove management to have to act.”

“Their overall consensus was that it was now such a distraction on the unit, with everybody knowing, that if I was going to continue to do that, I couldn’t work there,” she adds.

“I wasn’t mentally ready to leave, I’ll tell you it was very difficult. There’s a lot of tears shed in that. But I think given how toxic the environment and how judged I felt there, I wasn’t looked at the same, it was probably the right thing to do.”

Tailor made for the media

Firing an ICU nurse in the middle of a pandemic due to her porny Only Fans account is an editor’s wet dream (not Magazine of course, we’re strictly interested in the future of finance) and the story went viral. She went from making $35K a month from her side hustle to $200K a month thanks to the publicity. Steven gave up his airline job to help full time with the business.

“Our success was just unbelievable and so it became hard to not make it a priority,” she says. 

“It’s crazy to go from being a suburban hockey mom slash nurse to now I’m like this advocate for the sex industry. I mean, it’s very, very different.”

Porn payments

Part of that advocacy is trying to figure out a way for creators and operators to escape the stranglehold that traditional payment processors have on it. In recent years the war on adult sites by payment processors has ramped up, supported by the emotive campaigns of anti-porn crusaders.

A case in point in the famed New York Times piece in December 2020 called The Children of Pornhub. Columnist Nicholas Kristof sensationally claimed the “site is infested with rape videos. It monetizes child rapes, revenge pornography, spy cam videos of women showering, racist and misogynist content, and footage of women being asphyxiated in plastic bags.” He argued the site facilitated sex trafficking and cited a petition with 2.1 million signatures calling for it to be closed.

Often mistakenly referred to as an investigation, the NYT billed the piece as “opinion” meaning its usual standards of fact checking don’t apply. Mashable summed up the piece as being based on the “dubious and distorted findings and arguments of one anti-sex work conservative group”. It caused a massive backlash and MasterCard and Visa quickly announced they would no longer provide services to Pornhub, threatening the viability of the tie.

The deplatforming of sex sites by payment companies has ramped up considerably in recent years, following the passing of the controversial  FOSTA-SESTA (Fight Online Sex Trafficking Act and the Stop Enabling Sex Traffickers Act) in 2018.

Rae’s first encounter with the issue, came when Only Fans caused outrage in August last year by announcing it would ban ‘sexually explicit’ content, threatening the livelihoods of 2 million creators making $2.3 billion a year. Founder and CEO of OnlyFans Tim Stokely blamed BNY Mellon, Metro Bank, and JPMorgan Chase for refusing to process payments, though the ban was quickly reversed after “banking partners’ assurances that OnlyFans can support all genres of creators.”

“A lot of people at that time were reaching out to me, what do you think about this? Oh, my gosh, where are you going? You’re making so much money. Now where are you going to put your content?” she recalls.

Rae explains that she’d considered other platforms but realized competitors “are at the mercy of the banks as well.”

“That’s when my brain really got to turn on to: what is the solution to this?,” she says.  “At that time, I didn’t fully understand the nature of what was going on. But I did a lot of research and I started to really dive into the dark, you know, part of what’s going on in terms of the big financial institutions.”

“Porn is always looked at as taboo. There’s a stigma out there. But the amount of control that these banking industries have, over every platform that runs primarily on fiat, is scary.”


She argues that Only Fans gives creators a safer way to work in the sex industry than in a strip club or on the streets. And while she believes in taking firm action against sex trafficking and child pornography, she says those aims are only selectively pursued by payment processors.

A 2020 survey from the National Center for Missing and Exploited Children revealed Facebook had 20.3 million reported incidents of child sexual abuse materials, Google had 546,704 incidents, Twitter had 65,062, Snapchat 144,095, and TikTok 22,692.

Way down the bottom of the list was Pornhub’s parent company MindGeek with 13,000.

“Facebook literally is the leader in child sex trafficking, and they’re definitely not shutting them down,” she says. “How much of it is in regards to them just truly wanting to get rid of the people in this industry (porn) and ban this type of content — is it really about child trafficking?”

“The banks are the issue across the board. And the only natural solution to that is well, how do we get rid of the banks? Well, luckily, there’s decentralization, and there’s crypto.”

Crypto and the porn industry

Rae had dabbled in crypto previously, making a bundle off of Dogecoin when Elon Musk’s tweets drove it to the moon, and playing around with creating her own NFTs when Cumrocket launched its NSFW NFT marketplace in mid-2021.

She says the anonymity of crypto is perfect for users who want to sign up but can’t afford to have an Only Fans entry on their bank statements.

“I get DMs all the time saying ‘God, I wish I could join Only Fans. But you know, I just can’t have my accountant seeing all the charges.’” There’s a huge market that a lot of creators aren’t able to tap into.

The WetSpace interface will look a lot like Instagram with a feed, a discovery feature for creators and later on, a marketplace enabling models to sell NFTs with added bonuses like free subscriptions, premium snaps or video chats. WetSpace will charge creators 15% (Only Fans charges 20%) and they can select which cryptocurrencies to accept. They receive the money instantly and don’t have to worry about chargebacks.

Rae says it’s about 90% complete right now, with new features being added all the time.

“We have a Discord (forum) that’s really poppin, lots of creators saying, Hey, are we gonna have this? Can we do this? And I’m like, ‘Yes, we’re gonna have so many great things.’ I think it’s going to be a fun place to be for the user and the creator. And I’m excited and I hope it revolutionizes this entire industry.”

Yeah, but …

While there’s no doubting her ambitions, so far though crypto payments in porn haven’t really worked out. In early 2020, Spankchain performer and ambassador Allie Eve Knox explained to Magazine why:

“These are old dudes that are just trying to get off and then now they have to go through this whole thing of creating a wallet, saving a seed phrase, getting crypto, moving it into a wallet. […] It’s not just ‘I’m gonna go buy porn in 15 minutes and relieve myself’ process.”

Rae however believes times have changed and that the tech is more widespread and user friendly than ever before. She concedes the biggest hurdle will be helping noobs get started, but there will be step by step explainers and guides on how to buy crypto through a connected Coinbase, Metamask or Trust wallet.

“I want very, very clear clicks: like ‘sign up for your wallet here’ step-by-step because I do understand it is a learning curve. We are putting a lot of time and money into the educational side of this. Because it truly is really easy once you get going.”

“Crypto is in your face everywhere now. A couple of years ago, people would laugh at you if you talked about Bitcoin, people were like, Oh, God, one of those Bitcoin people! And look at it now. It’s an actual currency. I think a lot of people who didn’t believe in it before are definitely starting to be like, Okay, what is this all about? And they’re wanting to know more.”

“There’s no doubt in my mind, it will be a very, very big part of pornography, or any type of subscription base for adult content,” she says. “I don’t think it’s going away.”


Tagged : /

A New Intro to Bitcoin: The 9 Minute Read That Could Change Your Life

By now you’ve probably heard of Bitcoin. You may have heard that it’s made some people rich. You may also have heard that it’s a new form of digital money, and that it’s the future of commerce; or that it’s a criminal enterprise, and that it’s bad for the planet.

The messaging is confused and confusing — which is partly because no one person controls it. Just like Bitcoin, which belongs to… well, all of us.

In this short essay I want to help the Bitcoin-curious understand a few facts about the world’s top cryptocurrency. It’s not technical, and it’s not hard to follow. It’s not comprehensive, either, which is why this article is peppered with links so you can find out more.

I’m not advocating for Bitcoin as an investment, although I do think it’s worth owning a little. I’m just trying to set the record straight on a few misconceptions, and to help newcomers to the Bitcoin community get up to speed quickly with a few key concepts. Hopefully if you’re reading this with an open mind, you’ll realize quickly that there’s much more to Bitcoin that its price.

There are babies in the bathwater

Let’s start by getting a few things out of the way: cryptocurrency is a dangerous and often ugly place. There are countless scams, hacks and exploits. It appeals to degenerate gamblers and criminals and fools. Motivated reasoning and sunk cost fallacy prop up bad ideas long after they should have collapsed. Con artists thrive in the open and ordinary people often lose their money. The crypto space is 95% bullshit by volume, so it’s understandable that some people conclude it must be entirely bullshit.

But mostly bullshit is not the same thing as entirely bullshit. Dismissing crypto because it is full of scams is like dismissing Twitter because the average Tweet is terrible. The problem is not that Twitter (or crypto) have nothing to offer. The problem is that it takes time and energy to learn how to dig through the bullshit and find the genuinely interesting ideas.

Rejecting cryptocurrency entirely is much easier and seems to offer a lot of moral clarity — but it leaves behind a nagging question: if cryptocurrency is so obviously awful, why doesn’t it just die?

Bitcoin vs Dot Com assets and other bubbles
Bitcoin vs DotCom and other asset bubbles / https://twitter.com/JamesTodaroMD

Bitcoin is not going away

An interesting thing about Bitcoin is that almost no one believes in it right away. Bitcoin’s design is so ugly and counterintuitive that almost everyone rejects it at first as impossible. It was around three years between when I first heard about Bitcoin, and when I finally started to seriously investigate it. I studied game theory and mechanism design in grad school, so I knew exactly why Bitcoin couldn’t work. I just couldn’t figure out why it was still around.

In theory I was confident that Bitcoin could not exist… but in practice it did and when theory conflicts with observed reality, it is theory that must change. I became skeptical of my skepticism. I read the whitepaper. I changed my mind.

More than anything I can write or say the most compelling evidence that Bitcoin works as advertised is the history of its operation so far. The longer Bitcoin continues to exist, the more seriously you should take it.

The academic term for this is the Lindy effect, the idea that the longer something has survived the longer you should expect it to continue. We could all collectively decide tomorrow that gold is no longer valuable and we could decide to keep listening to today’s hit singles forever. But we probably won’t.

Gold has been valuable for a long time, so it will probably still be valuable a long time from now. Today’s top songs are mostly new, which suggests tomorrow’s top songs will probably mostly be new as well. The continued existence of something is evidence it will continue existing. That’s the Lindy effect.

That’s why governments around the world have stopped ignoring Bitcoin and started to develop formal policies to outlaw, regulate or adopt it. A policy of ignoring Bitcoin and assuming it will go away on its own is no longer realistic. If Bitcoin was going to go away on its own, it already would have.

Ponzi will not reveal secret

Bitcoin has value because it is useful

A common objection to Bitcoin is that since they aren’t backed by anything they must not be worth anything. Since they don’t have any intrinsic utility they must be a greater fools’ game, where the only goal is to sell your worthless bags at a higher price to an even greater fool than you. It is true that the only use for Bitcoin is to transfer your bitcoin to someone else — but that doesn’t mean Bitcoin is useless. Transferring value is a valuable service. That’s why banking is so lucrative.

“As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: – boring grey in colour – not a good conductor of electricity – not particularly strong, but not ductile or easily malleable either – not useful for any practical or ornamental purpose and one special, magical property: – can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.” — Satoshi Nakamoto

Money is a technology for transporting value through space and time. Bitcoin is a vehicle for value that eliminates physical distance and cannot be diluted, seized or censored. It is the value of that service that “backs” the value of Bitcoin.

Bitcoin will not be stopped

Bitcoin does not have a central point of control so the only way to “stop” Bitcoin is to stop every person on the Bitcoin network individually. Even shutting down the entire internet wouldn’t work because you can connect with the Bitcoin network over radio or by satellite. By any realistic measure the network itself cannot be stopped.

Governments can of course outlaw cryptocurrency (several have) but making Bitcoin transactions illegal is like making drug use illegal — it doesn’t eliminate it so much as drive it underground. China is a powerful, authoritarian state that has repeatedly banned Bitcoin, but you can’t actually ban Bitcoin from China because Bitcoin has no concept of China. China can only choose to isolate themselves from the network.

But what if governments go farther and actually attack the network? They could secretly acquire or seize mining rigs and set them to mining empty blocks, slowing down the network and reducing revenue for honest miners. They could market sell the rewards they earn mining and open short positions to drive down the price of Bitcoin further damaging miner revenue and market confidence. As miners quit defending the network attackers will control more of it, causing a feedback loop / death spiral.

Attacks like this are easiest to picture with an abstract, monolithic world government. It is less clear how they would work in the context of actual world governments today. The two most obvious governments in practice that might launch such an attack are the US and China. China has been systematically working to expel all the mining rigs from its borders — so they aren’t exactly gearing up to launch a mining based attack on the network.

America also seems like an unlikely candidate to launch an attack on the network. Seizing private property like mining rigs outside the context of a conventional war would be an unusual and politically explosive precedent. More pragmatically, cryptocurrency has matured into an effective lobbying group. Sitting Congressional representatives in both parties own Bitcoin and have made support for cryptocurrency part of their platform. Some have even made it their signature issue.

A sufficiently powerful, ideologically motivated attack could suppress the Bitcoin network, but it would be expensive to maintain and wouldn’t prevent the network from resuming normal operation after the attack stopped. The game theory of what happens when motivated attackers and defenders clash over a blockchain is complicated and reasonable people can disagree about what it might mean. But the two most powerful governments in the world today are either embracing Bitcoin or systematically disarming themselves.

Bitcoin will not be replaced

Bitcoin is (by design) a very limited system. You can pretty much only use it to send and receive Bitcoin. It is very difficult to change (also by design) so it adopts new technology very slowly if at all. That can seem primitive and sluggish to outsiders but being resistant to change is the central value proposition of Bitcoin. You can’t make a better Bitcoin by making a Bitcoin that is easier to change.

Bitcoin is better understood as a social revolution than a technological one. No new cryptocurrency can achieve the same results as Bitcoin because the social context in which it was created is gone now. For the first year and a half of its existence Bitcoin was essentially free — there was a website called the Bitcoin faucet that gave users 5 BTC just for solving a CAPTCHA. Satoshi disappeared before the project hit major prominence and never collected any kind of special founder’s rewards for his efforts. Even if a new project could somehow recreate these conditions they still couldn’t recreate the history of proven operation since.

Other cryptocurrency projects may still prove useful / valuable — but not by outcompeting Bitcoin to be the best money. If they are successful it will be because they optimized to serve a different use case.

They won’t replace Bitcoin, they will exist alongside it.

In short, Bitcoin works as advertised

Bitcoin has operated continuously outside of anyone’s control for more than twelve years now — that fact alone should merit serious attention even from skeptics. It has not been hacked, censored, halted or controlled. It has survived bubbles and crashes, attempts to commandeer it or to outlaw it or to obsolete it. That history of operation is a growing body of circumstantial evidence that Bitcoin really is what it claims to be: a perfectly scarce, sovereign asset.

The growing body of evidence that Bitcoin is real means that responsible people need to start planning for that possibility. What does the existence of a universally available, perfectly scarce asset mean for the world?

Countries with double digit inflation
Image: Blockdata.tech

Bitcoin is good for people

Bitcoin is often accused of being principally useful for criminals but that isn’t really true. Criminal activity on Bitcoin peaked at ~2% in 2019 and fell to ~0.34% in 2020. Bitcoin transactions create permanent and public records. Most criminals would rather do business in US dollars. Bitcoin is actually mostly used for saving.

Bitcoin is good for the poor because inflation weighs most heavily on the poor. If your net worth is mostly cash and future cash-denominated wages inflation is a drain on your wealth. If your net worth is mostly investments and property inflation just changes the numbers next to your accounts — it doesn’t cost you anything. In countries with runaway inflation Bitcoin is a safe haven for the poor.

Bitcoin is also valuable for activists like feminist protestors in Nigeria or dissident politicians like Alexei Navalny in Russia or disenfranchised groups like unbanked women in Afghanistan. Alex Gladstein of the Human Rights Foundation has called it an “essential tool for preserving freedom.”

Bitcoin is good for the planet

In spite of the reputation it sometimes has in mainstream media Bitcoin is actually good for the environment. Bitcoin uses a lot of energy, but it is a scavenger that feeds on low-cost waste energy. Energy is much, much easier to produce than it is to store or transport which means a lot of energy is wasted.

For example oil mining often produces natural gas as a side effect. When it is convenient oil companies will sell that natural gas — but often oil is mined in remote locations so it is not easy or cheap to bring that gas to market. Instead in practice oil companies simply vent that gas into the air and light it on fire, a practice called flaring. By the estimates of the CBECI enough gas is flared globally to power the Bitcoin network ~6x over. Here is how large flaring is relative to other sources of carbon dioxide emissions:

Flaring emissions - Bitcoin energy usage is good for the planet
Image: GlobalCarbonProject.org

Several companies are building traveling Bitcoin mining rigs that can go to the vents and use that natural gas on site to mine Bitcoin. That causes Bitcoin’s energy use to go up, but it actually has a positive impact on the environment because using natural gas is much better than flaring it. Both flaring and using natural gas produce carbon dioxide but flaring (which is often inefficient and incomplete) can also release methane and NOx into the atmosphere as well. Methane damages the ozone layer and NOx contributes to acid rain. Using the graph of Bitcoin’s energy use as a proxy for its environmental impact is misleading.

Bitcoin mining is also really useful for renewable energy because lots of renewable energy is produced at off-peak hours when it is less valuable. The Bitcoin network acts as a “buyer of last resort” for energy producers, which makes renewable power more economically viable. Bitcoin effectively subsidizes the creation of more renewable energy by creating a market for their excess power. That’s why renewable energy companies are starting to add Bitcoin mining to their operations.

A lot of anti-Bitcoin critics cite environmentalism as a concern but not as many environmentalists cite Bitcoin as a concern because if you sincerely care about the environment it is fairly obvious that Bitcoin is a footnote.

Bitcoin energy usage vs other countries
Image: CBECI https://ccaf.io/cbeci/index/comparisons

Energy use can be surprising. Bitcoin uses more energy than Argentina but less energy than American Christmas lights. Neither comparison is especially useful — a better comparison would be to the energy use of the entire legacy financial system or the environmental cost of the petrodollar. In proper context Bitcoin’s energy use isn’t so much large as it is easy to measure.

Bitcoin is an alternative to war

The history of warfare is a history of the defense and acquisition of wealth. If that wealth has a physical location it will require defending physical territory, which implicitly means violence. As wealth migrates to non-physical systems like Bitcoin, it can be defended by non-violent means (i.e. Bitcoin mining). The more wealth leaves physical goods the less wealth requires physical defense.

Bitcoin also makes it harder for governments to prolong a losing war by spending their citizens’ wealth by hyperinflating the currency. It is much easier to fund a war with the creation of new money than through direct taxation because people understand the impact of direct taxation more clearly. That’s why most of the countries involved in World War I had to abandon the gold standard. If the people understood how much money war cost them they would put a stop to it sooner.

None of which is meant to imply that Bitcoin is the end of war — power plants and population centers will always need to be defended.

Governments will always find reasons to quarrel with their neighbors. But to the extent that Bitcoin gains traction it does meaningfully reduce the means and incentives for violent conflict.

Bitcoin vs Cash

You should own some Bitcoin either way

It is entirely possible that even having considered all the arguments above and in the first essay you remain unconvinced about the value of Bitcoin — you should probably still own a little bitcoin either way. That’s because if Bitcoin succeeds in becoming the best possible way to store value it will capture most of the value currently stored in other ways. It’s not just that the price of Bitcoin will go up — it’s also that the value of everything else will go down.

That’s why whether you like Bitcoin or not everyone needs to think about how they will protect themselves from the possibility that Bitcoin is real. Owning a small amount of bitcoin is one way to safeguard against that risk — and you probably need less than you think. If everyone in the world wants bitcoin there won’t be very much to go around — owning 0.074 BTC (~$3,400 at time of writing) will likely be enough to put someone in the top 1% of Bitcoin wealth.

You should probably own some Bitcoin

This estimate is based on current global wealth inequality. I also made a spreadsheet where you can examine/tweak assumptions for yourself.

Given that it takes such a small amount of bitcoin to hedge against a Bitcoin future owning no Bitcoin at all is actually an extremely confident stance. Being doubtful about Bitcoin’s chance of success is very reasonable but being 100% certain that it will fail is overconfident. Intelligent skeptics are skeptical of their skepticism.

Keep your mind open

Regardless of how you feel about Bitcoin I encourage you to stay curious. I’ve been immersed in the space since 2014 and I am still learning new things and changing my mind every day.

If you want to read more I’ve curated a reading list of pivotal essays that I think are worth your time. A version of this story first appeared in this newsletter (Something Interesting) — I write ~2-3x a week about cryptocurrency news and topics and I try to answer all reader questions.


Tagged : / /

6 Questions for Cristina Dolan of InsideChains

We ask the buidlers in the blockchain and cryptocurrency sector for their thoughts on the industry… and throw in a few random zingers to keep them on their toes!

This week, our 6 Questions go to Cristina Dolan, co-founder and chief operating officer of InsureX Technologies, an alternative insurance marketplace based on blockchain, and CEO of InsideChains, which builds large consortia and marketplaces with economic token layers to facilitate the global exchange of data and transactions.

Cristina is an engineer, entrepreneur and author who has successfully embraced advanced technologies to build and grow disruptive businesses throughout her career in media, telecommunications, e-commerce and, more recently, fintech. As an early adopter of crypto and blockchain technologies, she co-founded and advised blockchain-enabled companies in climate tech, insurtech, healthtech and crypto trading. As a veteran of evolving networked technologies, she is currently focused on cybersecurity, which has become the most immediate financial material ESG and sustainability risk organizations face today, and co-authored a recently published book: Transparency in ESG and the Circular Economy, Capturing Opportunities Through Data (available at ESGdataBook.com).

1 What has been the toughest challenge you’ve faced in our industry so far?

In the early days of crypto and blockchain, I would speak on panels where people would say things like, “Crypto and blockchain are only used by bad actors.” Unfortunately there are still “leaders” that talk about the criminal activities that are enabled by crypto and blockchain that “need to be stopped.” It is amazing that they haven’t learned from the radical transformation of media and e-commerce through the evolution of connected technologies.

It is unfortunate that some “leaders” just don’t understand that the evolution of new technologies also aligns with the changing needs of communities. Technology adoption is one of the most important pillars of corporate sustainability! (Look at Blockbuster or Kodak!) When companies fail, it impacts the communities, partners and even the local tax base that pays for services like education. We live in a world that is evolving faster and faster, and regulators want more and more data and transparency — you can’t stay in business without adopting new technologies.

The beauty of the hyper-innovation that has evolved from the interest in crypto and blockchain is unparalleled by any other disruptive technology. It has influenced innovation from cybersecurity, which utilizes cryptography, to supply chain, which needs transparency more than ever before!

Lack of understanding is probably the toughest challenge. It is hard to keep up with the accelerating evolution of technology in the context of social needs, like improved sustainability data tracking or improved controlled access to healthcare data.

Today, there is a requirement to be a self-learner just to keep up, and it takes up a lot of time. Even for those of us who are curious and love to learn and focus on solving problems with technology, the avalanche of evolving technologies can feel overwhelming. 


2 — Does it matter if we ever figure out who Satoshi really is or was?

I hope that Satoshi Nakamoto remains a mystery forever! While there has been a lot of detailed speculation around who was working on the foundational building blocks and who was influential in the public-key cryptography and decentralized architectures, it is important to keep the technology separate from the behavior or personal activities or an individual. Our “networked” culture is full of “celebrity” figures who have large social media followings and endorse products. This kind of celebrity would be a distraction to the impact and evolution.

Bitcoin is the grandfather of an incredible age of hyper-innovation which is hard to understand with all the complex interrelated layers, like economics, technology, politics, or simply how to transact with Bitcoin. Adding a celebrity layer to Bitcoin would just add more polarization and misunderstanding than what already exists, creating an unnecessary distraction or excuses to ignore the transformation that is coming quickly. Celebrity figures like Elon Musk have moved the crypto markets.

Organizations that don’t embrace technology will not be sustainable. We have seen many examples of this over the past few decades. Moving from a figurative representation to an actual human who will be depicted as having possible political or economic interests will only become an excuse for some leaders to ignore the requirement to transform to meet the needs of a changing society.


3 — When you tell people you’re in the blockchain industry, how do they react?

Years ago I would publish social media posts about blockchain and crypto, and people would say “block-what?” At the time, I was working in the fintech space, where some peers in the institutional financial trading space would make jokes about it “…there she goes again talking about crypto or blockchain…” Of course, many of them transitioned into the space later as their industry began to shrink.

Today, there is a totally different reaction. Many people are eager to learn more about the technologies and the potential trajectory of transformation. I do get a lot of calls from people who have “lost their keys” and want to know if there is a way to find them — of course, if it was that easy to solve for lost keys, people would have unlocked some of Satoshi’s Bitcoin by now!

Focusing on cybersecurity, I do get a lot of questions about custody and security. There are so many people across all industries who are now doing incredibly interesting things in the space. It is fun to listen and learn about possible solutions to critical social issues utilizing the technology. People are now thinking about the use of these technologies within important or sophisticated business processes, and collaborating on possible solutions is now a lot more fun!

4 — Which two superpowers would you most want to have, and how would you combine them for good… or evil?

Speed-related superpowers would be the most valuable in a world that is evolving at hyper speed. While some people might describe me as being energetic, I would love to have the ability to do more and experience more each day!

First would be related to travel speed that would enable movement from one location to another location without traffic jams or airport check-in protocols, which have gotten more complicated with the pandemic. So much time is wasted in traveling. As we begin to plan more face-to-face meetings that require putting travel time into the calendar to arrive in time, it is clear that having the ability to travel at light speed would save time. While the carbon footprint for travel could be decreased since there would not be a requirement for traditional vehicles, I am sure that traveling at the speed of light would create some significant heat. 

The second would be related to the speed of ingesting information and understanding it. The faster you can learn and connect the dots, the faster you can apply the intuitive understanding towards building valuable solutions for the growing number of problems our world faces today. This would enable me to do what I love to do, but even faster.

While living forever creates issues, including the increased demand for the limited resources on earth, the idea of being able to do and experience even more during our short lives is a good alternative.

5 — Name the things you own that you’ll never part with.

This is a great question, because my answer today is probably a little different from things I would have listed years ago. For example, a passport, which has been my gateway for learning, connecting and growing is probably the most valuable tool I possess. While it can be replaced if lost, it is still one of my most important possessions because of the possibilities it offers to engage with people all over the world. 

One of the lessons from the pandemic was in helping me understand how much I missed engaging with close friends all over the world. Unfortunately, during the pandemic, the passport didn’t offer the opportunity to travel, especially if it represented residency in a country with high covid cases. During the pandemic, the passport wasn’t as valuable as it had been throughout my life. It was even impossible to engage with close friends who lived within a mile of my home. While the evolution of conferencing tools has made it easier to video conference, the nature of the conversations tends to be more transactional and efficient, which eliminates the opportunity to learn or collaborate to the same degree. Travel is a wonderful gift. Unfortunately, we need more than just a passport to make it possible during the pandemic.

I have always loved beautiful watches the old-fashioned jeweled masterpiece kind and have a treasured collection that reminds me of important milestones throughout my life. It is such a treat to wear a beautiful timepiece, yet I rely more on my Fitbit these days to track my early morning runs regardless of where I am in the world. While I also have an Apple Watch Series 7, I still prefer my Fitbit with its longer lasting battery and its efficient metrics.

It is sad to admit that my mobile phone has become so important to my day-to-day activities, communications and work. While I don’t use it for banking and avoid SMS verifications because it can be a security risk, I recognize its value in remaining engaged and active both professionally and socially. It is becoming a bigger part of identity, and the required COVID-19 vaccine verifications are so much easier on a mobile device. While having the latest mobile phone isn’t as important, what is important is the connectivity and engagement. I love the ability to grab a spontaneous picture and send it to a friend or the ability to connect with people on demand. As an avid photographer with a large collection of amazing cameras from the old Rolleiflex, Kodak Brownie and an old tiny spy camera, to the latest Canon professional DSLR cameras and lenses, nothing beats the spontaneous nature of using a mobile device to capture an emotional moment and share it instantly with friends. There is still a time and place for these beautiful traditional cameras, but the smartphone has a unique use case. 

I treasure the more traditional artwork my sons have made in school over the years, which I have framed and placed on my walls, because the art represents their interests and activities over the years. Time feels like it passes faster and faster, and having the ability to look at their art and pictures, which I have throughout my home, brings back the joy and wonderful memories. 

6 — What’s the future of social media?

Social media has evolved over the last two decades as networked devices, smartphones and specialized applications have matured while the people that use them are also evolving and aging. For example, Waze lets you know that people you may know are traveling nearby. You could argue that the shared economy is a derivative of social networks that enabled growing mobility and shared solutions within communities. 

The nature of information that is shared on social media has changed as the demographics of certain networks have changed dramatically. Freedom of speech isn’t always welcome, and the ability to block opinions have polarized communities. There are a plethora of different communications tools which enable private communications. It is hard to keep up with all the different options and networks that friends prefer for direct communications. 

There is a move towards smaller private groups on networks with encryption and security. Mobile devices have become a critical component of how people communicate and identify themselves; for example, some COVID-19 vaccine verifications are dependent on smartphone access.  

While social media platforms where influencers inform large numbers of followers are still popular, they will need to evolve as the community matures. A different strategy will be required to attract younger digital native generations who have a different relationship with their digital identity and the digital worlds they play and engage in. How they communicate and engage may be an extension of the video games they participate in. It isn’t a surprise to see the popularity in NFTs when you look at the popularity of digital objects in video games over the years that have generated billions of dollars for popular gaming platforms. The popularity of digital worlds where identity is tied to digital representation of an individual’s interests and values will continue to rise.

While there will continue to be a variety of specialized social networks that cater to professional or other communities with common interests, the younger digital native generations are going to be more comfortable interacting and communicating through the use of their self-created digital identities in virtual environments. Technologies are evolving quickly to support immersive environments to facilitate interesting new interactions and experiences. The possibilities for the future are endless and not necessarily a direct extension of today’s leading social platforms. Who knows, maybe the future will be about sharing virtual experiences in the same way people share TikTok video clips? This will require easy ways to create the experiences, and yet we already see young kids creating interactive environments in Roblox.

A wish for the blockchain community: 

Wishing the ambitious blockchain community continues in its excitement for problem solving and innovation. While not all problems will benefit from the technology, the energy applied to problem solving through the evolution of the technology is contagious and inspiring! Hoping the ideation and creativity grows more to address some of the world’s biggest problems!


Tagged : / / /

The Vitalik I know: Dmitry Buterin

This is part two of an extensive interview with Dmitry Buterin, looking at his relationship with Vitalik and his insights as a father. For Part 1, which detailed his own fascinating life story, click here.

Dmitry Buterin recalls the day in 2013 when his son Vitalik showed him the Ethereum white paper at their home in Toronto.

“He‘s like, ‘Hey Dad, I was working on this thing, are you interested to look at it?’” the Chechyna-born Toronto resident says in his idiosyncratic accent. Vitalik had dropped out of university a year before to travel the world and, within a month of arriving home, he‘d written the first draft.

Even though Dmitry famously introduced his son to Bitcoin two years earlier, he admits many of the details went right over his head. But, he understood the wider vision.

“One of his skills is he can take something very very complex and he can explain it really well,” he says.

“So, even though I was only superficially knowledgeable about Bitcoin and all the crytpo stuff, when I read this document I was like, ‘wow, this makes a lot of sense to me.’ So, I was quite excited.”

Satoshi Nakamoto intentionally limited the complexity of transactions on the Bitcoin network and Vitalik‘s great realization was that if he designed an evolution of Bitcoin in a Turing complete programming language, it could potentially offer every conceivable digital service via the blockchain, from the stock market to building decentralized cooperatives. Dmtiry says the invention of Bitcoin had been a “huge leap” and that the next leap could only be built atop of it.

“For me, it really resonated as a very simple analogy, right?” He says, “Because I observed the growth of internet, it started with static HTML websites and it was all interesting, but very limited.”

“But, JavaScript came online and then all other scripting languages and things changed. So for me, it was very clear that Ethereum was the same magnitude of change as going from static kind of simple stuff to having Turing complete scripting, then the sky’s the limit.”

He adds further: “And yes, it‘s very complicated and risky and there are security issues and whatnot. But, you can do anything.”

Dmitry and Vitalik
Vitalik was interested in building Lego block chains early on. (Supplied)

Vitalik struggled as a public figure

Although Vitalik had the far sighted vision that turned into a cryptocurrency worth half a trillion dollars, explaining the concept and forging a coalition of like-minded people to help develop it forced him to become a public figure — a role that did not come naturally. “That was actually quite difficult for him,” Dmitry says.

“I could see that and he struggled, especially the first couple years because he is a person who has a, if you will, very kind and sensitive nature — well meaning. And he‘s like, ‘Oh now I’m trying to do this and why are all these people building these websites which ridicule me?‘”

But, he adds that the challenges helped Vitalik to grow in emotional intelligence.

“Through all the public speaking and interacting with so many people and all the traveling that he has done, now the world can see much more of the Vitalik that I know and his family knows: This very kind, sensitive and fun guy versus just kind of some smart guy with a lot of smart ideas talking about blockchain and stuff.”

Dmitry and Vitalik
Dmitry Buterin has a great relationship with his son Vitalik.

Back to the beginning

Now a successful businessman who semi-retired in 2017 after the SaaS business he founded, Wild Apricot, was sold, Dmitry says it was obvious from very early on that there was something unique and special about Vitalik. Dmitry, being of a philosophical bent, would no doubt add that there‘s something unique and special about every child, but Vitalik was in a category of his own.

His birth in 1994 had been something of a happy surprise. Dmitry was a 21-year old student at the time living in Kolomna, Russia with Vitalik‘s mother, Natalia Amelineas, as the former Soviet Union fell apart. While Dmitry had himself been a bright child who had learned to read by three and a half, he says Vitalik began reading “quite a way before that.”

But, great gifts come with their own issues, too, and Vitalik took longer than usual to become comfortable with speaking.

“It was kind of obvious that he had some really interesting capabilities,” says Dmitry.

“But also, every child who has very powerful brain has all kinds of other things like nervous tics and things like that. So, there are a lot of things that to deal with — their communication is different.”

When Vitalik was six, Dmitry, his new partner Maia and former wife Natalia all moved to Canada in search of a better life.

The move to the other side of the globe threw the young Vitalik into a strange and unfamiliar territory. Until then, Vitalik had been mostly raised by Natalia and Dmitry, along with her parents.

“They helped out a lot, but they were adamant about not sending him to childcare. So, when he arrived to Canada, he had to go childcare in different language and whatnot. So, it was a big and somewhat painful transition for him.”

Fast track to success

Vitalik‘s potential was noticed early on, and by the third grade, he‘d been placed into a class for gifted children where he began to develop his interests in mathematics, programming and economics. The young Buterin was able to add three digit numbers in his head “ten times” faster anyone else. People started to refer to him as a math genius by grade five or six.

A seminal Wired profile from 2014 described him as autistic wunderkind who had learned to speak fluent Mandarin in just a few months: “Which is bullshit,” notes Dmitry. It “took much longer.” Co-founder Joseph Lubin (later of ConsenSys fame) described Vitalik at the time as “a genius alien that had arrived on this planet to deliver the sacrosanct gift of decentralization.”

Like other highly intelligent people, Dmitry says Vitalik understands the world in a different way to the average person, which affects how they interact and socialize.

“When you‘re smart, your mind is much better at creating models of everything and forecasting different things,” he says. “And, that works quite well about a lot of things. But, it doesn’t work that well with humans:”

“You‘ve become way too reliant on your thinking mind and not so much on your sensing mind. Your thinking mind, however powerful, will mess up because human emotions are infinitely more complex than with any kind of analytical model you can imagine.”

Despite this challenge, he says Vitalik started to come out of his shell when he began attending a private high school called Abelard School.

“I think that he really blossomed when he went into high school,” he says. “He went to this little private school that made a big impact on him, he really opened up.”

But, the Vitalik we now know was really born online. He may be called a Russian-Canadian on Wikipedia, but he was raised as a product of internet culture.

“He actually learned how to connect with people online and build the connections and whatnot,” he says. “And, that‘s kind of when he entered the whole crypto and Bitcoin space.”

“He actually developed a lot of relationships online with other enthusiasts,” says Dmitry. “And that‘s another way we use social skills, just in a very different way than in face to face.”

Dmitry and Vitalik
Dmitry and Vitalik play a game of chess (Source: Twitter)

Enter the Bitcoin

Dmitry is reluctant to take credit for his son‘s successes, but he certainly played a key role by introducing his son to Bitcoin. He first tried and failed to get his son interested in hacking, which he describes as “how do you take a complex system and make it do something else that it wasn’t designed to do?”

Part of the father-son dynamic was that whenever Dmitry got interested in something, he liked to try and pass it on to Vitlaik.

“Vitalik also has a very curious mind. So, all of my life, especially as he was growing up, I‘ve been just trying to feed him a lot of interesting things and see what resonates.”

Dmitry himself learned Bitcoin after hearing about it on a cybersecurity podcast in 2011.

“I‘m like, oh, wow, this definitely sounds like very interesting technology that has some potentially big implications. But, I cannot say that, at the time, I‘ve had really much clarity about how big the implications of that were,” he says.

As a self professed “techno optimist,” Dmitry has always been fascinated by technology and feeds his range of interests — from AI and futurism to libertarianism and spiritualism — through voracious reading.

One formative influence was the scientist and inventor Ray Kurzweil who “wrote a bunch of books about the progress of technology and made a bunch of very optimistic forecasts about the future.”

“He was one of my biggest influences in my early 20s. When I read his books, I actually gave them to Vitalik as well. Recently, I ended up getting in touch him through some friend and he actually sent some of his books that I read with Vitlaik 15 to 20 years ago. He sent signed copies to me, which was nice.”

Dmitry Buterin
Dmitry Buterin is a funny and philosophical man.

When it comes to hacking, Dmitry explains that he failed to get Vitalik interested in the concept, as other things were more appealing. He passed copies of the Hacker Quarterly ‘2600’ Magazine to him, as well as books by the famous ‘90s convicted hacker Kevin Mitnick, who spent two years on the run from the FBI.

“He didn’t really get interested that much in hacking as such, but the cryptography really resonated with him. And you know, he read a whole bunch of books about cryptography and the math behind it. So, when I told him about Bitcoin, it was a very fertile object for his mind to chew on, if you will.”

While his 17-year-old son initially dismissed the concept of a currency with no intrinsic value being doomed to fail, he came back to it after quitting his World of Warcraft obsession when he needed something else to occupy his time.

Being a penniless student, he couldn‘t afford to buy Bitcoin or mine any, so he began writing posts for a blog for 5 BTC per article. This led to a gig as a head writer for Bitcoin Magazine, which he juggled while studying five advanced courses at the University of Waterloo and working part time as a research assistant for a cryptographer.

It was as a journalist that he covered a Bitcoin conference in San Jose California in May 2013, where the Winklevoss Twins and others talked up this new tech revolution as something that could be as significant as the birth of the internet. Excited by the potential, he decided to embrace the opportunity with both hands and drop out of college at the end of the semester to pursue it full time.

Dmitry and Vitalik
Vitalik, Dmitry and Natalia shortly after they moved to Toronto (Supplied).

Dad, I‘m dropping out

Dmitry recalls the day Vitalik visited to tell him of the plan.

“I actually do remember that day when he came from university. Actually, his mom was in our house visiting, so when he came in all three of us were here, myself, Maia and Natalia. And then he mentioned, ‘Hey, guys, I‘m actually thinking of dropping out,’” he says.

“And it was really interesting. All three of us had a very similar reaction that we supported him because we all knew that he‘s a very bright wonderful young adult and, if he drops out, he will be totally fine.”

“So, he dropped out and went for the whole trip around the world and got involved with a bunch of things.”

Dmitry met Vitalik‘s step mom Maia in Russia in “1995 or 1996.” The pair got married in 2004 but separated a couple of years ago. He says she played a big role in Vitalik‘s upbringing.

“Maia was a huge influence on Vitlaik because he was growing up with the two of us mostly and then he was seeing his mom regularly whenever she was able to visit Toronto,” he says, adding that she later moved nearby, so they saw each other often.

Dmitry explains that it was essentially as if Vitalik had three parents.

“Pretty much, it‘s nice. I think it was a couple of years ago when we were having some kind of family dinner, and Vitalik was here. He stood up and said that he is really grateful that in his life he has so many awesome people close to him and he said ‘I have my mom and I have you Maia,’ I don’t remember the words he used. But, you know, he was very genuine and very sincere.”

Read more: Meet Dmitry: Co-founder of Ethereum’s creator Vitalik Buterin

Meet Dmitry: Co-founder of Ethereum’s creator Vitalik Buterin


Tagged : /

Powers On… Top 5 crypto legal and regulatory developments of 2021

While still leading the securities litigation, hedge fund and SEC defense national practices at my last law firm, BakerHostetler, my practice team members and I would prepare an annual list of key developments and cases in the area each December.

It was usually a top 10 list that was then published by Wolters Kluwer in one of its CCH publications and by BakerHostetler as a separate publication to our law firm clients. Now that I am officially “retired” from law firm practice and these days devote most of my professional attention to the blockchain and crypto space, my editor, Max Yakubowski, and I thought it made sense to do something similar for Cointelegraph’s readers.

Powers On… is a monthly opinion column from Marc Powers, who spent much of his 40-year legal career working with complex securities-related cases in the United States after a stint with the SEC. He is now an adjunct professor at Florida International University College of Law, where he teaches a course on “Blockchain, Crypto and Regulatory Considerations.” 

So, here is my top five list for 2021. It has some caveats attached. For one, the blockchain space has so many dimensions, some implicating finance and many that do not. The use cases for this ledger technology expand each year, constrained only by human ingenuity. This list focuses on developments this year that affect financial transactions and systems. It also focuses on what I perceive as key regulation, legislation and litigation affecting the ecosystem. Next, this is a top five list, not a top 10 one. While yes, there are dozens of issues and items that are transformative, that would be a much longer piece. Finally, some of the items on the list I have already written about in prior columns, so they will be familiar to regular readers. As a result, I don’t feel the need to provide lengthy explanations as to why an item made the list. 

1. El Salvador adopts BTC as a national currency

Back in June, at the Bitcoin 2021 conference in Miami, Salvadoran President Nayib Bukele announced he would seek to have El Salvador adopt Bitcoin as a national currency. At the time, the country had used the U.S. dollar as its official currency since 2001, abandoning at the time its local currency, the colón. In short order, the country’s legislative body adopted laws mandating that beginning in September, all commercial establishments must accept Bitcoin as legal tender, with some exceptions. Wallets containing $30 in BTC have also been made available to citizens by the tiny country’s banks. This was not a voluntary choice for businesses; rather, it was required, which makes this event so significant.

It was a watershed moment for sovereign nations, as other countries have begun efforts to do the same, including Panama and Ukraine. While other countries have adopted blockchain technology for parts of their financial and governmental systems — such as Georgia mandating that government real estate auctions occur on a blockchain — this is different and more significant. It is for the entire country’s economy.

2. The United States’ “woke” legislation on blockchain transactions

In November, Congress finally passed the Biden administration’s $1.2 trillion infrastructure legislation— at least the piece of the proposed legislation that actually was directed at building and rebuilding our bridges, roads, rails and telecommunications. As part of the bill, formally called the Infrastructure Investment and Jobs Act, there is an amendment to Section 6045 of the tax code, which requires the reporting to citizens engaged in securities transactions, with an overly broad definition of “brokers.” It mandates tax reporting information by traditional brokerage firms of their customers. However, the bill arguably could be interpreted to impose this significant reporting requirement on blockchain miners and developers, which many in Congress believe is bad for crypto and overbearing.

The importance of this tax provision is that it is one of the first efforts of the federal government “to better incorporate digital assets, like virtual currency, into our nation’s tax code,” according to a Dec. 14 letter from six senators to Treasury Secretary Janet Yellen, whether Yellen does as they ask or not. These senators are Rob Portman, Mark Warner, Kyrsten Sinema, Cynthia Lummis, Pat Toomey and Mike Crapo — members of both major political parties. It is also significant that not only is there support for the technology in the Senate, there is now also a Congressional Blockchain Caucus.

The caucus is a bipartisan group of members of the House of Representatives dedicated to advancing the technology with “a light touch regulatory approach,” according to its mission statement. Back in August 2020, it wrote to the Internal Revenue Service seeking clarity on how the agency would be taxing the block rewards arising from the proof-of-stake validation process. As of this writing, the caucus website lists 35 members of the House, a significant number.

3. Federal Reserve Chair Powell is open to the benefits of blockchain for the financial system

On more than one occasion this past year, Federal Reserve Chairman Jerome Powell has stated publicly and in congressional hearings that he sees certain benefits for the world and U.S. financial systems in utilizing blockchain and digital assets. Back in March, he stated on CNBC that while Bitcoin was not a very good store of value or currency, it was a speculative asset like gold. Thereafter, he made clear that the Fed has no intention of banning crypto.

A few days ago, Powell acknowledged that he does not envision the Armageddon that crypto haters see. He made clear he does not see crypto as a danger to the financial system at this time. Regarding stablecoins, he said they “can certainly be a useful, efficient consumer-serving part of the financial system if they’re properly regulated.”

If you think back a few years, cryptocurrencies — and the blockchains from where they come — were verboten in the federal government. No one was allowed to embrace them. So, it seems to me that there has been a clear evolution and maturation of thinking on the part of Powell about these things and the useful aspects of digital assets for our economy and the world’s financial system. Given Powell’s considerable influence over our economy and economic stability, likely even more so than our president, this is a very positive development. All of this talk seems like a precursor to a central bank digital currency being issued by the Fed.

4. SEC allows Bitcoin ETF for retail customers

The new Securities and Exchange Commission chairman, Gary Gensler, has a clear bias toward his former employer, the Commodity Futures Trading Commission, where he served as chair from 2009 to 2014. Yet, he is still advancing the ball for crypto, albeit slowly.

For several years now, various financial companies have sought to sell exchange-traded funds based upon Bitcoin and other digital assets. ETFs hold a basket of securities or assets, such as the S&P 500 ETF, which holds all of the securities in the S&P 500 Index. ETFs are generally less costly investment products for retail investors than mutual funds. Yet, pointedly during the chairmanship of former SEC Chair Jay Clayton, each time one of the more than a dozen ETFs were presented to the SEC, it failed to approve the effectiveness of the public offering, effectively killing it.

In October, however, things changed. The SEC allowed the first Bitcoin-based ETF to trade in public U.S. markets: the ProShares Bitcoin futures ETF. Yet, there was a catch. The ETF approved is based upon Bitcoin futures, not the underlying BTC itself found in the spot market, revealing Gensler’s biases from his years at the CFTC. To me, there is no legitimate rationale for allowing a futures-based ETF but not a spot-based one. Indeed, a futures-based ETF, which requires a rolling over of futures contracts, is more expensive to manage.

Also, it is restricted in the number of contracts that can be purchased under current CFTC position limits rules. There is no similar restriction for spot ETFs. The claim that the markets for Bitcoin have been in regulated marketplaces such as the CME for years and thus the futures marketplace is a more stable and orderly marketplace for an ETF is bunk. Nonetheless, at some point, a spot ETF will be approved, and the fact that all retail investors can now buy Bitcoin, even if derivatively, is a significant advancement for both the technology and alternative asset.

5. Ripple fights the SEC in court

In the waning days of the lame-duck Clayton-led SEC in December 2020, the Commission authorized and filed a lawsuit against Ripple and two of its principals, alleging the defendants engaged in unregistered public securities offerings of XRP over a period of years. As discussed in one of my columns earlier this year, it was an ill-advised, overly aggressive action that did not need to be brought.

Among other reasons, it is questionable whether the XRP token was a “security” under the federal securities laws. Also, another government regulator, the Financial Crimes Enforcement Network, had previously complained in 2013 to Ripple that its offerings constituted “currency” exchanges, thus subjecting Ripple to register as a money services business “exchanger” with the agency. So, Ripple registered and was fined $700,000 by FinCEN as a penalty for registration and AML violations in 2015, only to have a separate federal agency — the SEC — claim five years later that the same offerings were public offerings of “securities.” Repetitive actions by multiple U.S. regulators for similar underlying transactions are unfair and unnecessary.

If I was a betting man, which I am, I would say the SEC will lose this fight — by which I mean the court either will find that XRP is not a “security,” that the sales of XRP by Ripple’s principals were not public offerings here in the United States, or that an injunction against the defendants is neither necessary nor granted. This fight and the subsequent decision by Judge Analisa Torres could be monumental.

There you have it, readers — my top five list.

Enjoy the holidays, and may we soon defeat COVID-19 worldwide. You will soon be hearing my ruminations again in 2022! 

Marc Powers is currently an adjunct professor at Florida International University College of Law, where he is teaching “Blockchain, Crypto and Regulatory Considerations” and “Fintech Law.” He recently retired from practicing at an Am Law 100 law firm, where he built both its national securities litigation and regulatory enforcement practice team and its hedge fund industry practice. Marc started his legal career in the SEC’s Enforcement Division. During his 40 years in law, he was involved in representations including the Bernie Madoff Ponzi scheme, a recent presidential pardon and the Martha Stewart insider trading trial.

The opinions expressed are the author’s alone and do not necessarily reflect the views of Cointelegraph nor Florida International University College of Law or its affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice.


Tagged : / /

Inside the Iranian Bitcoin mining industry

ViraMiner is an Iranian company that sets up Bitcoin mining farms and maintains them. It has two offices in western Tehran, located in separate adjacent buildings.

When Magazine visits, its old office is busy on a Monday afternoon. This place is now officially dedicated to its repairing services alone.

Mining devices are stored upon each other in yellow, green and red shelves raised against a wall facing the company secretary’s desk. Across the entrance, there is a busy repair room where devices are opened. Power supplies, hash boards and control boards are passed around, discussed and modified.

Bitmain Antminer and MicroBT Whatsminer are a specialty for repairs by the company, whose personnel are all young tech enthusiasts. Mina Jahanbakhshi, one of the three female employees present there, gives a tour around the office and leads me to a room next to the repair section, which is being prepared for new employees who have been hired to help the company keep up with its growing demand.

Electricity consumption peak in Iran’s hot summer has just passed and a presidential ban on power-intensive crypto mining has recently been lifted. The company, therefore, expects busy days ahead.

White new desks are put next to a wall toward the end of the quiet room and the extra repairing equipment has yet to arrive.

“The waiting period for repairing equipment is currently two weeks,” she says. “We are adding new personnel to speed up the repairing process.”

Mining has grown significantly in Iran over the past few years.

“People are getting more familiar with mining,” Jahanbakhshi says. “It’s an interesting and attractive field. It is growing worldwide, and likewise in Iran.”

Iran mine
ViraMiner is an Iranian company. (Supplied)

Small community

As another sign of a growing business, the company is preparing an additional office in a separate building nearby. The air in the under-construction workplace is teeming the odor of fresh paint.

Omid Alavi, ViraMiner’s CEO, is having a meeting a few steps from construction workers doing plasterwork on the walls.

There is no place to have an interview, so we move to the neighboring apartment where an office for another company is being prepared. Alavi exchanges a few jokes with the people in the neighboring office. A person unfamiliar with their relationship would assume the two offices belong to the same company.

“These are our competitors,” Alavi says jokingly as we walk past a desk across the entrance. “The crypto community is really small.”

Alavi tells Magazine that he established the company with two other partners back in 2016.

“In 2017-2018, the Bitcoin hype gained momentum. Many got interested in cryptocurrency and this led to the building of many mining farms in Iran. We put our focus on the setting up and the maintenance of the farms. We generally became a specialized company in this sector.”

Despite ups and downs, ViraMiner has seen overall growth in recent years.

“In the past four to five years, the number of our personnel has increased to nearly 70. We created a specialized repair services unit, where 16-17 trained personnel repair mining equipment,” he says.

“We had some of our staff do courses in China’s Bitmain Technologies Ltd and MicroBT. We also invited experts from China to train our staff here.”

ViraMiner was initially established as an underground company. But, in 2019, when mining was recognized by the authorities as an industry, Alavi and his colleagues received permits to be an authorized company active in the field.

“Simultaneously, we have tried to help the government make regulations for mining,” he says.

According to the Iranian Mining Association, two-thirds of Iran’s Bitcoin mining is unauthorized.

Bitcoin mining is big business in Iran.

Government supervision

Iran accounts for an estimated 4.5% to 7% of the global Bitcoin hash rate. The extensive reach of the industry has prompted the Iranian government to increase its supervision of mining.

However, the government has concerns with the industry due to the sector’s consumption of Iran’s heavily subsidized electricity, as well as a sneaking suspicion that illegal miners are evading taxes and duties.

Moreover, the government has shown a desire to turn mining into an opportunity to compensate, at least in part, for an almost-complete embargo on its banking and oil industries due to international sanctions.

Blockchain analytics firm Elliptic said in May that Iran’s Bitcoin production had hit revenues close to $1 billion a year at the country’s then-level of mining.

The former head of the Central Bank of Iran (CBI) Abdonasser Hemmati said in March that authorized farms will need to deposit their mined Bitcoin on exchanges specified by the CBI. Importers can then use Bitcoin as a source of foreign currency to pay for the goods purchased from overseas sellers.

But, despite many efforts to make laws efficient and clear, the regulations have still failed to satisfy mining businesses.

Miners complain that the government’s tariff scheme — paying the export price for electricity — is unreasonable and that it makes mining less attractive in Iran.

Regulations, especially those proposed by the CBI, are unclear and not yet operational, miners say.

“So far, the government hasn’t created operational infrastructures for this,” says Alavi.

“The government legislation puts forth two options for Bitcoin miners. They say either you can import products under the supervision of the Central Bank and be exempt from taxes or if you want to keep your Bitcoin, you need to pay your taxes — even though tax instructions for mining are unclear, too.”

Javad, a Tehran-based mining expert, tells Magazine he believes that clear regulations are crucial for the growth of the mining industry in Iran. He requests anonymity due to security concerns in Iran over speaking to foreign media, but he’s a hardware engineer with five years of experience in Iran’s mining industry.

“Mining is very attractive in terms of its revenue in countries like Iran, where income per capita is relatively low and there is a struggle with a high inflation rate,” he says,

“The role of regulations is utterly important to assure the robustness of the industry and to keep it from slipping into the shadows. If we have regulations that are a win-win for both the government and the businesses, miners would definitely be willing to come out of the shadows. Though, at the moment, the Energy Ministry has a one-sided view of this issue.”

He hopes that the government would recognize the potential in the sector for creating jobs and prosperity in Iran’s ailing economy.

“Bitcoin mining could be used by Iran to evade sanctions. But, if we decide to use this potential, we need to accept it completely. It means that Iran should have the required regulations to create domestic mining pools in case international pools decide to block Iranian miners,” he says.

“If Iran wants to use transactions on Bitcoin’s network in favor of its national interest, it needs to pay special attention to mining and make certain local rearrangements.”

Part of the Tehran city skyline

Massive crackdown

Despite the government’s newly found use for domestically mined Bitcoin, Iran’s poor power infrastructures have forced it to seasonally unplug farms that are on its watch.

In late May, authorities banned crypto mining for nearly four months as the country faced major power cuts in many cities.

This led to a drop in revenue for many mining businesses, including that of ViraMiner.

“We went into seasonal hibernating for four months,” Alavi says laughing. “We didn’t have much revenue through unauthorized miners either because the government was putting so much pressure on them and they were mostly scared off.”

So far, Iranian authorities have seized 221,390 mining devices according to Iran’s State News Agency IRNA, citing the state-owned Iran Grid Management Company.

The report said that the seized miners would have consumed 624.7 megawatts of electricity.

The Energy Ministry says Iran’s electricity consumption can hit a peak of 66 gigawatts in the summer. This is much higher than the country’s 55-gigawatts power generation capacity.

Meanwhile, according to Iran’s Blockchain Association, the overall mining consumption could be less than 1 gigawatt. This includes more than 600 megawatts consumed by unauthorized mining alongside more than 300 megawatts related to authorized farms.

“Mining accounts for less than 10% of electricity issues and power cuts in Iran,” Javad explains.

“The Energy Ministry has not been able to increase the number of its power plants. This should have taken place as part of a plan to raise power generation capacity to keep pace with annual growth both in domestic and industrial electricity consumption.”

He says that the mining industry has become a scapegoat for poor power infrastructures, as well as mismanagement on the part of the government.

“Many private power plants have not been able to undertake maintenance and overhaul operations on their worn-out facilities. This is because their payments have been long overdue,” he says, referring to payments due from the state. “So, they are not able to operate at full capacity.”

Difficult to trace

While authorities have focused on big farms operating at industrial and agricultural facilities, small-scale mining has had much of a chance to evade the government’s radars.

Home miners, in particular, are more difficult to trace.

Electricity consumption is a big issue in Iran.

Many Iranians have tried, in recent years, to set up one or two mining devices at home to be able to earn extra income at a time of economic hardship and high unemployment.

In 2019, home mining accounted for 2% of total unauthorized mining in Iran, according to Iran’s Moj News Agency. The number rose to 6% and 12% in 2020 and 2021, respectively.

“I used my miner for nearly six months at home,” Hoda, a Tehran-based miner, tells Magazine.

The 28-year-old art graduate makes handmade ceramics and pottery for a living.

“I don’t think the government can trace one or two miners set up at home,” she says. “I’ve been able to mine 0.1 Bitcoin and I’m planning to continue.”

Mostafa, who has been mining Bitcoin at his apartment in Tehran, says: “It is profitable, indeed, because both the value of the equipment and the price of Bitcoin go up over time.”

“But, it is difficult to do this at home because of the noise and the heat that it gives off. It could really become annoying.”

Both interviewees wanted their last names undisclosed due to concerns over the illegal nature of mining in Iran.

Mostafa says that the government would finally need to accept crypto mining and trading as legal businesses.

“No matter how much you confront technology, you’ll lose anyway. The government has to come to terms with crypto. It helps create revenue. Many countries are compensating for some part of their economic difficulties with crypto,” he says.

12 million traders

Despite profiting from crypto mining and having sold his mined Bitcoin on Iranian online exchanges, Mostafa expresses concern over lax operations of exchanges in Iran.

“One of the exchanges shut down its business a while ago. They stole people’s money. I don’t know where its office was,” he says.

“You can’t really trust these exchanges. If you go to their website, few of them have an address or a telephone number.”

The number of Iranian online exchanges has risen significantly alongside the growing number of Iranians investing in cryptocurrencies.

A study published in May said that nearly 12 million Iranians, out of a population of 85 million, had invested in crypto. It said 62% of the investors entered six months prior to the study when cryptocurrencies were seeing an increase in value.

Mohsen, an Iranian trading expert, emphasizes the role of the pandemic and the shutting down of many small businesses as reasons for public attention toward investment in cryptocurrencies.

“Crypto has been the most accessible market for Iranians as sanctions restrict their access to other international financial markets,” he says.

“Many enter the crypto market during a bull run and get a Wolf of Wall Street kind of impression. But, I think people would not have a good memory of crypto in the end, as they are mostly unaware of the technicalities of trading.”

He expresses doubts about the possibility of the government creating effective regulations for trading.

“Crypto could be a stepping stone for Iran’s economy. But, this opportunity will eventually go to waste because our regulating system is flawed,” he says.

Much greater potential

My interview with Alavi, ViraMiner’s CEO, becomes interrupted when he receives a phone call.

The office is now quieter. It takes only a minute before he hangs up, complaining half-jokingly about the conversation that he had on the phone.

“In the mining industry, nothing goes based on a plan. Seriously. In the past four to five years, I haven’t done one single project that was orderly, routine and standard,” he says.

“The mining sector is always in a rush. The investor wants its rigs immediately turned on and they want the farm to start operating as soon as possible. This is because network difficulty might suddenly see an extreme surge and this could cause a drop in revenue. Your business plan is volatile.”

Much capital has, so far, been brought to the mining industry by investors in and outside Iran.

Iran’s largest farms are run through Chinese investment. They are set up in Free Economic Zones, where companies are offered exemption from taxes and duties.

The biggest farm in Iran, established by Iran and China Investment Development Group, is based in a free zone in the southern Kerman Province. It is a 200-megawatts farm with a 2,000,000 terahash data center and 70,000 ASIC miners, according to the firm’s website.

A 30-40-megawatts farm set up by the Chinese in Maku FEZ in Iran’s northwestern region comes next, followed by smaller 4 to 5-megawatts farms, according to Alavi.

He estimates that $180 million to $220 million has been invested in authorized mining in Iran, though the potential for investment is much higher if obstacles on the government’s end are removed.

“Regulations related to the price of power have a few flaws. One of them is that the government set the export price as the price of electricity for mining, which we think is high. The other is the correlation between the price of power and the US dollar to rial rate. The government said in its instructions that, if rial’s value against the US dollar fluctuates more than 10%, the price of power will change too,” he says.

“This causes investors to feel uneasy. Due to a continuous increase in the value of the dollar against rial, the price of power has kept rising. It’s not a stable factor to include in your calculations as an investor. So, big investors never touch this sector.”

Even Bitcoin’s increasing value could fail in shielding investors from losing profit. Any profit can be cut by a hike in the price of exported electricity due to a decline in the value of the rial.

“Whenever crypto prices increase, rial loses value, resulting in a rise in the cost of power. The price of electricity has risen since the beginning of this year. Previously we would give $0.04-0.05 per kilowatt, which has reached $0.07-0.08. This spooks investors,” he says.

Despite dissatisfaction about the circumstances that authorized mining is currently struggling with, Alavi says he is optimistic about mining’s future in Iran.

“I don’t think Iran will be able to afford the costs of crypto assets going underground. So, it will create proper regulations for them,” he says.


Tagged : / / /

6 Questions for David Chaum of XX Network

We ask the buidlers in the blockchain and cryptocurrency sector for their thoughts on the industry… and we throw in a few random zingers to keep them on their toes!

This week, our 6 Questions go to David Chaum, one of the earliest blockchain researchers and a world-renowned cryptographer and privacy advocate. He is the founder of Elixxir, Praxxis and the XX network, which encompass his decades of research and contributions in the field of cryptography and privacy.

David Chaum is the creator and founder of XX network, the first consumer-scale, quantum-ready online platform that enables value to be communicated and exchanged without revealing so-called “metadata.” David is a pioneer in cryptography and privacy-preserving technologies, and is widely recognized as the inventor of electronic cash. His work on cryptographic “vault systems” contains the first proposal for a blockchain protocol, containing all but one element detailed 26 years later in the Bitcoin white paper. David’s company, DigiCash, deployed a breakthrough cryptographic blind-signature protocol in 1995 to create the world’s first anonymous digital currency, eCash.

1 What do you think will be the biggest trend in blockchain over the next 12 months?

At the moment, nonfungible tokens seem to be all the rage. But I think in the next 12 months, you’ll see people finally appreciating what true decentralization is. When people realize they can have a seat at the table, that they can own and participate in the governance of an entity, that’s when we will start seeing a lot of innovation and mass adoption in the blockchain sector. 

People will start to realize how much VC money has entered this space over the last five years, and come to their senses about these false prophets.


2 — What is the single-most innovative use case for blockchain you’ve ever seen? It may not be the one likeliest to succeed!

The Satoshi Vision — the right and ability to participate in economic activity (and upside). Money is tied to incentivizing freedom and democracy by ensuring that political freedoms are never stifled and can be economically supported.


3 — What are the top five Crypto Twitter feeds you can’t do without, and why?

@Defi_Dad is one of my favorite new feeds I’ve recently been put onto. Very insightful. He is a very level-headed, no BS, even-keeled person in this space, which is notoriously filled with shilling machines.

@rogerkver is a visionary who doesn’t get enough credit for helping people. He is also a huge reason why we are where we are at on the road to mass adoption.

@snowden is someone who speaks truth to power, every chance he gets. He is not afraid to speak his mind. 

@danheld is incisive, doesn’t miss a beat. Everyone should be following him — brilliant mind.

@laurashin has her finger on the pulse of crypto, she is the Barbara Walters of crypto.


4 — List your favorite sports teams, and choose the single-most memorable moment from watching them. If you aren’t a sports fan, choose a few movies and a moment!

The final chapter of 2001: A Space Odyssey was enough to make me worry about the digital future. I saw it when it came out and it obviously made a big impact.


5 — What were you like in high school?

Ummm… I spent a lot of time at UCLA. Truth is, I decided to spend time at UCLA rather than going to high school. It was the 60s and we still had the freedom to do things like this.


6 — What makes you angry… and what happens when you get mad?

People who don’t realize that democracy is not a given. The health of our society is not a given. 

It makes me angry that not enough people are worried about the potential bad outcomes that threaten us. This reality we live in where information and media are obviously manipulated, we get so many messed up outcomes that none of us want because our shared common sense gets lost in the shuffle.


A wish for the blockchain community: 

It’s over. Everything is global and decentralized. The governments, the corporations, they’ll have to play catch-up, but it’s done. We are a global community. The governments think blockchain and crypto are in question — they’re not. It’s the future. It’s now. It’s arrived. It’s done.


Tagged : / / /

Daft Punk meets CryptoPunks as Novo faces up to NFTs

Just recently, NFT collector CryptoNovo was posing for hundreds of photos, taking meetings with top tech companies and attending scores of invitation-only parties across New York City.

Today, the former-schoolteacher-turned-Metaverse-mascot is raking leaves in his suburban Illinois front yard.

“Dude,” Novo remarks excitedly as he works, “That just happened.”

That would be NFT.NYC, the early November conference/gathering/bacchanal that represented a coming-out party of sorts for the nonfungible token community.

While NFT.NYC 2021 was the third event in what will almost certainly become a series of (at least) annual affairs, it represented an explosion in popularity over the 2020 offering. Ticket sales jumped. Additional days were added. NFT.NYC ballooned to a four-day extravaganza at which Quentin Tarantino, Chris Rock and The Strokes, among others, made appearances.

Among the big names, NFT enthusiasts and curious passersby crisscrossing Times Square that week, CryptoNovo stood out. Many NFT initiates knew who he was, and while NFT novices had no idea who he was, they seemed to instinctively understand that even at this event, this guy stood out.

Crypto Novo
Novo holding a rake outside his home in the Chicago suburbs. Source: John Lacombe (Full disclosure: Novo does not, in fact, typically rake leaves while wearing his mask.)

The collection

CryptoNovo holds a collection of NFTs that is currently valued at $4 million. Meebits. Bored Ape Yacht Club. Adam Bomb Squad. World of Women. Many others. And, of course, CryptoPunks.

Novo owns nearly $2.5 million worth of CryptoPunks alone. One of them, however — CryptoPunk #3706 — stands out from the others.

Not because of its monetary value, but because Novo actually uses it as his face, strapping an LED digital mask to his head that completely covers his actual features.

For Novo, NFT.NYC was yet another leg in what has become the ride of his life.

“I had friends come out to New York with me who didn’t even have any NFTs,” Novo recounts. “They figured they’d sleep on pull-out couches in my hotel room and maybe come around with me and see New York. Suddenly, they’re on this million-dollar ride, this Entourage-type situation. We’re getting into clubs without paying a dollar. All of the access is based on NFTs in my collection.”

“We’re rubbing shoulders with famous and semi-famous people who love us for the stake of value that we put into the community. When it was finally time to take off the mask and get on the plane home, it was weird.”

We may live in a world in which Elon Musk named his child “X Æ A-Xii,” but CryptoNovo is not, in fact, Novo’s real name. What began as an online handle has evolved into, well, a full-blown persona.

The story behind that persona begins with Novo’s journey to the world of NFTs, which he considers to be a typical one.

“It goes back to toys for me. When I was a kid, I didn’t get toys all the time. Birthdays, holidays — that was it. For me, toys were something to keep track of and protect. As I got older, that evolved into collectibles.”

Collage of photos from NFT.NYC. Source: Twitter

The collector

Novo collected rare comics, unopened Star Wars Lego sets and everything in between. Like many collectors, he viewed the emergence of cryptocurrency with less skepticism than most: Here was something that, in addition to its intrinsic value, could be valued, bought and sold the same way a baseball card could be. One day, during a cryptocurrency conversation in 2019, a co-worker mentioned NFTs. That was all it took to get Novo hooked. “I realized that we were looking at a new frontier, not just of currency but of collectibles.”

Novo threw himself into the NFT space with fervor, becoming a fixture on NFT Discord and surrounding himself with, as he puts it, “the smartest people in the space.” Noted ground-floor NFT collector Tony Herrera taught Novo NFT basics such as getting a MetaMask wallet, transferring ETH into it, getting an ENS name, and actually buying NFTs and posting them for sale. Novo met NFT creators such as the influential artist and collector Pranksy. Novo asked questions, took notes, and offered help and input whenever he felt that he could.

Eventually, Novo arrived at the moment that he is perhaps most well-known for in the NFT world: his rags-to-riches purchase of an NFT known as the “Pranksy Hoodie.”

novo punks
Novo’s collection of CryptoPunks. Source: OpenSea

“I was a teacher,” Novo begins. “I didn’t have money to be dumping into NFTs left and right. I set aside one paycheck to invest, and I couldn’t really go over that. I couldn’t afford an Alien, an Ape or a Zombie [three of the most elite, rare CryptoPunks], I couldn’t afford a Beanie, etc. So, I started looking at another class [of CryptoPunks]: the Hoodie. There were more of that class, but they were statistically still pretty rare. But I wasn’t interested because of that. Art is in the eye of the beholder, and I liked the Hoodies.”

“What I have been building since the beginning,” Novo continues, “is friends. I contacted Pranksy directly. I offered him 1.24 Ethereum for a Hoodie he owned. He countered with a slightly higher amount. I basically had to come back and say, ‘Look…1.24 is literally all I can afford.’ He was able to see my wallet on the public blockchain and know that I was telling the truth.”

This was not, Novo stresses, a good deal for Pranksy — but Pranksy agreed to the sale, largely because of what Novo believes to be Pranksy’s faith in Novo’s desire to promote the NFT movement itself. It was almost, Novo says, as if he was buying the NFT not just with 1.24 ETH but with himself.

In any case, the transaction was made. The cost to Novo equated to roughly $400 at the time.

Savings and wise investments

“Then, I held on to it. I watched it become a primer and primer asset. It was known as ‘The Albino Hoodie.’ It had a certain look. People wanted it. Honestly, I wasn’t as focused on that. I’m busy trying to do right by Pranksy, for believing in me. I ended up helping him give away 150 CryptoPunks in a raffle that turned into a major event for him in terms of publicity and just for all of us in terms of growing NFTs.”

mic drop
Novo drops the mic at the end of the talk he gave at NFT.NYC 2021 after stating, “I’m CryptoNovo! I’m here to help! Peace! Stay positive, and love life!” Source: Twitter

As Novo interacted with more and more digital artists, his view of NFTs transformed. Initially, he had thought of NFTs as assets — the right Bored Ape avatar could become his equivalent of a Mickey Mantle rookie card. Today, though, his explanation of NFTs starts not with collectors but with creators.

“Think about just how many times the poop emoji has been used since it was created. Someone made that emoji, the same way someone makes any piece of art. But who has made the real money off of that emoji? Big corporations? Was the person who created that simple piece of art the one who profited?”

He cites elements in video games that make hundreds of millions of dollars and points out that famed NFT creator Rare Diamond Hands works at a massive game company as a digital-hand designer for first-person shooters. Novo believes Rare Diamond Hands is probably not being properly compensated for his skills at his job, but he now creates NFT images of hands holding diamonds — a nod to the Metaverse’s respect for “diamond-handed” collectors who never sell their NFTs.

“Anyone who purchases one of those images knows that they have exclusive rights to a hand designed by one of the elite video game artists.” The point, Novo emphasizes, is that regardless of what someone is willing to pay for a Rare Diamond Hand or a Bored Ape, that money is money that the artist who created the NFT deserves. For Novo, NFTs represent opportunities — for creators, for collectors, for businesses, for everyone.

Novo has a great face for NFTs.

Mindset of a cheerleader

This mindset had crystallized for Novo by mid-2020, and it changed his life. He became one of the biggest cheerleaders in the NFT space. He hosted online video interviews with NFT creators using Restream. He tweeted constantly about every piece of NFT news. He offered help and information to every new acolyte in the Metaverse, even dubbing his own specific corner of that world the “Novoverse.”

“It’s been a grind. I’ve been producing content in some capacity every single day for over a year. Can I introduce this person to this person, knowing that they have a common understanding and can accomplish something bigger together?”

Novo can’t resist using the kind of on-the-nose reference that one might expect from an NFT loyalist: “Can I open the door for more Neos in this Matrix?”

In The Matrix, Neo’s mentor, Morpheus, is known for his iconic sunglasses.

In the land of NFTs, Novo has his mask.

For as long as he has been a figure in the NFT world, Novo has been using digital photos and “AR filters” — augmented reality images that superimpose over real-life video — to replace his actual human face with a projection of CryptoPunk #3706.

As Novo became more and more involved in the NFT community, in-person interactions — both business and personal — became a reality. Novo’s response was to bring part of the Metaverse into reality. He purchased a face-worn digital mask that could display CryptoPunk #3706. He had a friend’s mom knit him a hat identical to the one worn by his avatar. He bought a suit that would look very much at home on a 1960s Batman villain.

Live stream
One of Novo’s Restream live shows with digital artists and NFT creators. Source: Twitter

Suddenly, a physical education teacher from Illinois effectively became a Daft Punk robot for the NFT space.

New York

In New York, Novo was constantly approached by excited friends — “My Aliens, Apes and Zombies,” as Novo calls them — who had only interacted with him online. A New York Times reporter interviewed him for 45 minutes (though he was cited in the resulting article simply as “the owner of CryptoPunk #3706.”) Novo gave a raucous speech at an NFT.NYC town hall that ended with him dropping the mic and high-fiving his way out through the crowd toward the exit.

Everyone wanted a photo. Whether they knew him as CryptoNovo or simply as “that goofy-looking robot-man on the sidewalk,” New Yorkers seemed to see Novo as a “piece” of the event. A banner, a mascot, an indicator: Something different is happening here. All of this was fine with Novo, though he does worry about anything that could contribute to negative stereotypes of either the event or the NFT movement itself, including a simplistic “robot mascot.”

“On one hand,” Novo offers, “Any kind of discussion is going to onboard more people, and having a discussion — negative or positive — will drive conversation and allow people to come to their own conclusions. Ninety-eight percent of the people who read an article about NFTs have no clue what an NFT is. If my glass is always half full, their glass is empty. I want to fill it. So, I’m always happy people are talking.”

On the other hand, Novo explains, he chafes at two conceptions: that the NFT movement is composed of “a bunch of crypto bros” and that it is about making a quick buck.

“When I showed up in New York for NFT.NYC, I had hundreds of people I was expecting to interact with who I’d never seen before. Maybe I had tweeted with them, or had them on my Restream show where they had an AR filter on.”

“Honestly, I was stunned by the diversity. I’m posing for all of these pictures, and it’s such a mix of gender, of ages, of cultures. And I’m realizing, ‘This community is everyone now, and everyone is bringing their unique aspect to it.’”

Crypto millionaire

The second conception is a little more tricky for Novo to tackle. After all, he is near the head of the line of NFT “early adopters” who have made real money.

One day, someone contacted Novo on Discord, asking if he’d be willing to sell the Pranksy Hoodie. Novo keeps the buyer anonymous, but not the offer: 350 Ether.

Both NFTs and cryptocurrency had recently skyrocketed in value.

Novo was being offered the equivalent of $1.07 million for his Hoodie.

“I had already realized I was going to have to sell some of my NFTs just to cover taxes,” Novo admits. “And, um… that’s a lot of money there.” He made the sale.

“Here’s what I don’t like,” Novo quickly continues. “Any time I tell this story to anyone who isn’t already in on NFTs, at this point I feel like I’m damned if I do, damned if I don’t.”

Novo is referring to what he did, or rather, what he didn’t do with his million-dollar windfall in cryptocurrency. He didn’t cash out — not most of it, anyway. He almost immediately reinvested in another Hoodie of lesser value that he felt he could get at a bargain price.

“So, let’s think about this,” Novo levels. “If I put my money back into our community because I see value, but mainly because I believe in the power of this movement, then I’m an idiot because this is all a big bubble that is going to collapse, according to people who aren’t actually a part of this. But if I do cash out, then I’m just another bro who’s only in it for the money. I’m going to be stereotyped either way.”

“I just have to believe,” Novo finishes. “Stories like this are going to make more people really see what’s going on, and those people are going to get it, and that’s going to grow our community.”

Explaining what’s going on, by the way, is now effectively Novo’s full-time job.

Earlier this year, Novo finally reached a crossroads. He had received offers to work full-time in the NFT space, and he sat down with his wife to discuss a career change. Fortunately, his wife — an advertising executive — believes in the power of NFTs as a new force in both technology and the marketplace. She encouraged him to make the switch.

Today, Novo is, for lack of a better term, an “ideas man.”

“It’s calls,” he laughs. “Lots and lots of calls — but fun calls!”

The business of NFTs

NFTs, Novo explains, are a space that the business world wants in on but doesn’t fully understand. Novo often helps businesses find pathways to meaningful NFT involvement. One day, he might be connecting a blue-blood corporation with a promising digital artist. Another day, he might help a major hotel chain understand just what is possible in terms of a Metaverse-themed resort.

Novo believes that anyone — from a major corporation to a struggling artist — who treats NFTs not as a novelty but as a vehicle to truly add something to the NFT community will be rewarded with brand loyalty. Some producers or collectors will strike it rich, but the space itself will be transformational — an entirely new landscape in which all people can interact, gather and, yes, profit.

Novo at a party during NFT.NYC. Source: Twitter

This, of course, is the kind of rose-colored premonition you might expect from someone who regularly sits in boardrooms while wearing an NFT on his face. 

“Yeah,” Novo admits. “I’m a true believer. But I don’t think it’s just me. I think the evidence is right there for anyone who actually looks.”

Novo mentions a podcast he listened to recently. “The same reporter who interviewed me at NFT.NYC was on it. He said that NFT.NYC was celebrities, scene people, hackers, artists, venture capitalists, libertarians and more, all mixing together. He said it was really weird. Sorry, but that doesn’t sound like ‘weird’ to me.”

“That sounds,” Novo opines with typical optimism, “like everyone.


Tagged : /
Bitcoin (BTC) $ 27,865.47 2.75%
Ethereum (ETH) $ 1,668.56 0.35%
Litecoin (LTC) $ 66.05 0.74%
Bitcoin Cash (BCH) $ 251.45 6.99%