A “You in?” The style pitch is also typical of successful multilevel marketing companies. Both make a virtue of the fact that our being “in” will clearly enrich those who urge us to do so by driving up the value of their holdings. or network. And then, hey, the same could be true for us!
As old as it is the promise of achieving financial independence by selling herbal supplements, cosmetics or leggings from the comfort of your home, the modern communication system can rapidly propel thoughts and movements above limits. The center of national and global dialogue.
But how does owning or trading crypto, which is ultimately just data – infinitely reproducible, supposedly almost free thanks to the Internet – makes one rich? Or for that matter, owning or trading other digital assets like NFTs (or “fungible tokens”) that have become all the rage among celebrity art collectors? Straightforward premise: By using blockchain—a kind of public database that anyone can access and everyone (supposedly) can trust—it is possible to create a chunk of data, known as a token, which is unique in the world, and cannot be reproduced. In other words, it is possible to make a digital object, whether it be a piece of art or a crypto coin, rare.
At the root of the growing crypto ecosystem lies a paradox—a disconnect between technology and economics. While individual digital assets—bitcoins, pictures of “bored apes,” giant JPEGs of what artist Beeple has produced—may be unique, the inherent nature of the Internet means that overall, the cryptocurrency has a potentially infinite supply. The NFT and all other exchangeable tokens that make up “crypto” and the broader vision for a decentralized Internet are known as “Web3”.
Basic economics suggests an unhappy outcome: When the demand for something is limited—there are only so many people on Earth, and only so much traditional money is converted into tokens and cryptocurrencies—and the supply is infinite, that asset. The average price is zero.
It should already be said that this does not mean that everything is currently being loaded onto a blockchain – which, judging from my inbox, is a Borgesian library of everything imaginable. – Will be useless eventually. Like every other means of exchange and storage of value since the cowrie shells and the Mesopotamian shekel, paintings of “bored apes” of controversial artistic merit have value because enough people say they do.
The key to understanding the long-term trend in the value of rare digital assets is believed to be understanding how their latest generation differs from the previous generation. In what might be called “first generation” blockchain-based technologies, such as bitcoin, there are only so many “coins” and those that exist are difficult and expensive to create. But second-generation technologies are increasingly diversifying into a dizzying array of potential applications, from “smart contracts” that trace the emergence of luxury goods to new competitors for Facebook. And to top it all, these technologies are predicated on the idea that the only limit to what can be done with them is the human imagination.
The barriers to creating new blockchain-based things are low, and – thanks to intense interest and massive investments – are falling all the time. My colleague Joanna Stern demonstrated this when she put a piece of her son’s art on the blockchain—and thus technically “mined an NFT.”
The result is that almost anyone, from real artists to scam artists, can create NFTs. (OpenCy, a leader in this field by volume, recently said that many NFTs minted on its platform are stolen, counterfeit or spam.) And while creating your own cryptocurrency can be challenging, a new one on an existing blockchain Creating a “token”. , which is almost the same for many applications, is no more difficult than building an NFT.
In fact, if one sums up the whole promise of Web3 in one sentence, it will be: the ability to secure any quota of data or code in Web3, due to the ease of creating new tokens and building new businesses around them. is we ever produce. Another way to put it: Web3 represents a way of financializing every possible human interaction.
“Web3 is such an over-capitalist way of trying to re-frame the Web,” says Catherine Flick, a senior researcher in technology ethics who teaches computing and social responsibility at Britain’s De Montfort University. This approach to human relations and the potential to profit from it exploits the economic insecurity of many Americans, and it is not unlike direct-marketing schemes, only aimed more at disadvantaged youth, she adds.
Matt Galligan, co-founder of XMTP Labs, a company working on a communication system for blockchain users, says that, while withdrawing money from anyone who ever does, it may seem dystopian, it is Facebook, Similar to Google and their business model. Competitor. The difference, he added, is that the companies that are most valuable on earth keep all the money that delivers results.
The ease of creating new crypto-whatsets is one reason why so many new NFTs, tokens, and businesses that claim to be based on crypto, or blockchain, or some word salad of related terms, are born daily. The gold rush mentality of many of the people with the loudest voice and greatest reach in the cryptocurrency community is also helping. But the craze for business model beginners that by their very nature reward those who are first, also contributes to their high rates of failure.
Recent research has found that most NFTs do not sell. A hardly comprehensive list of dead and abandoned tokens created for crypto projects includes approximately 2,400 entries. For every new cryptocurrency that retains any value, there are many that become worthless. A recent example: the “Let’s Go Brandon” coin, which briefly sparked interest from opponents of President Biden, after its sponsorship of a NASCAR vehicle was blocked, and has since crashed in value.
Risky behavior and new frauds have become common, including a strategy called “rug pulling”. , and go away. The head of the US Securities and Exchange Commission has said that crypto as a whole is a “Wild West” that needs stronger regulation.
Tushar Jain, managing partner of Austin-based crypto investment firm Multicoin Capital, believes that the crypto industry needs more clarity from regulators, to help everyone identify bad actors. He says the current rules are too vague, and so far the SEC has focused on going against companies that are violating them, rather than clarifying how not to violate the rules.
Not everyone who uses crypto and tokens as part of their business is concerned about whether they are tradable financial assets, and whether regulators should be interested in them. This is because crypto tokens can be used as all kinds of things that are not securities, from membership in a club to tracking the whereabouts of a shipping container. In fact, some of the blockchain-based businesses that seem most plausible as candidates for long-term survival do not consider the tokens they use as securities at all.
Friends with Benefits, a group of approximately 3,500 artists, coders and other creative types, created their token, $FWB, as a means of selling and recording membership in the group. People holding five FWB tokens can access events affiliated with the group in a given city, and if a person holds 75 tokens, they can access all events anywhere in the world, as well as FWB hosted on Discord Chat service can also be accessed. Recent events have included musical performances in Miami and Paris, featuring such famous acts as Azealia Banks, Erika Badu and Pussy Riot.
“Our mission is to show that crypto isn’t scary, crypto isn’t a boys’ club or anything else — it’s just another tool for culture,” says Rehan Anwar, co-founder of FWB who lives in Los Angeles.
XMTP Labs, a company co-founded by Mr. Galligan that has received investment from venture-capital firms including Andreessen Horowitz, will issue its own token. XMTP and its investors will own a minority of the tokens issued. This is a common business model for Web3 companies, many of which aim to profit through the issuance and appreciation of their tokens rather than through traditional sales or subscriptions in old things like the US dollar.
That said, Mr. Galligan’s business model is not built on capitalizing on any increase in the value of tokens issued by his company. “We don’t think the only way to make money on this is through ‘tokens go up,’” he says, referring to a common meme in Web3 circles that points to the idea that people can make more money by issuing tokens. Seeing you can get rich its value skyrockets if they convince enough people to buy in their sight.
Because the goal of XMTP is to create a new, open standard for communication – like email, just modernize – Mr. Galligan thinks his company can make money by consulting companies that want to use the protocol.
Dr. Flick does not agree that even the most lenient efforts to build a distributed organization or a Web3 startup can address the inequalities inherent in blockchain. Blockchain-based organizations have what is essentially a pyramid-shaped economic structure, in which those who jump early earn disproportionate rewards through appreciation in the value of their tokens, they argue. Those who come along later are likely to make little profit or loss of money from joining.
For these reasons, it is possible that even if Web3 and cryptocurrencies result in a handful of valuable companies in the long run, individual small-time investors, as is often the case, will not be the ones who benefit from their rise.
“I could be completely wrong about all of this,” says Mr. Galligan, who has built and sold several tech startups before. “But if it succeeds, because I was quick, shouldn’t someone be rewarded for that risk?”
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