 | Beyond cats NFTs are here, but where are they going? Michael J. Casey considers the possibilities.
Read more in THE TAKEAWAY below. | | |
 TOP TRENDS ON COINDESK | | |
Ethereum takes on DenverHordes of ethereum enthusiasts descended upon Denver, Colorado last weekend for the annual ETHDenver hackathon, discussing the future of a decentralized digital ecosystem and building up existing tools and products to create one.
Chronicling this year’s three-day event was CoinDesk reporter Christine Kim, who live-tweeted the majority of talks and presentations.
Perhaps indicating one important focus for the space, the concept of decentralized finance ("defi") quickly took center stage. Stani Kulechov, CEO of Aave, a Switzerland-based blockchain technology startup that oversees ETHLend (a decentralized asset-backed loans marketplace) explained that developers should focus on building up an ecosystem where they can unite users, perhaps by connecting different apps.
These new defi tools can help users better manage or use ethereum-based money and assets, and as such, a number of talks during the event focused on this concept.
Other talks focused more on security tokens, with one panel honing in on U.S. securities law. Tla Elyashiv, co-founder and managing partner of SPiCE VC, said the infrastructure for tokenized securities is "in its infancy," and expects the Securities and Exchange Commission to take at least a year to make a decision on how security tokens might evolve.
Still other startups attended primarily to announce their next steps. Crypto exchange ShapeShift is rebranding its entire platform this year, starting with a new version of its trading platform which opened in a private beta at the beginning of the week.
Rhombus, a ConsenSys-backed startup oracle service, announced it would be releasing new products to combine real-world data with dapps. As COO and co-founder Jeff Rosen explained, “For smart contracts [on ethereum] to do most of the interesting things we want them to do, they have to have some connection to the real world. Blockchains in and of themselves don’t have that connection.”
Another data platform, Streamr, has published a new open-source scaling tech called Monoplasma. The tool intends to simplify how users can distribute funds by allowing them to “repeatedly distribute value to a large and dynamic set of ethereum addresses,” according to CEO Henri Pihkala. |
Lightning rods
Crypto and controversy, name a more iconic duo.
Some of bitcoin's most controversial figures have been entering the public eye again in recent weeks, including both Brock Pierce and Craig Wright.
Pierce unveiled a new project aimed at gaining control of the domain for the now-defunct Mt Gox crypto exchange last month, dubbed Gox Rising. The effort seeks to unite the exchange's creditors, submit a civil rehabilitation plan and relaunch Mt Gox.
The questions remain, however: can he do this (legally) and will he?
Mt Gox's ownership is unclear at the moment: Pierce claims he owns all shares of the exchange outright, but Mark Karpelès, who ran the platform during its collapse, says he and Jed McCaleb (who originally founded the site) were not legally allowed to sell their shares, and therefore Pierce has no stake in the site.
A similarly controversial bitcoin figure, Craig Wright, has also made waves, after submitting a response to the Commodity Futures Trading Commission’s request for information on ethereum saying that he, as Satoshi Nakamoto, created bitcoin.
In his response, Wright says "ethereum is a poorly designed copy of bitcoin," the network cannot scale and "is effectively only being used to raise capital using illegal bucket shops."
In the same response, Wright praises bitcoin, and says he is "willing to testify under oath" as to the validity of his claims.
Outside the bitcoin community, Parity release manager Afri Schoedon has also come under fire after posting the statement “Polkadot delivers with Serenity ought to be. Change my mind” in the form of a rhetorical question.
Members of the ethereum community took Schoedon’s remarks as a sign that he does not have the network’s best interests at heart, resulting in a firestorm which ultimately drove him to quit working on ethereum outright.
Ethereum Foundation community relations manager Hudson Jameson said he was “angry and disappointed” in the community for running Schoedon out: “More people should have spoken up in support and there needs to be less vitriol."
Andreas Antonopolous, author of “Mastering Bitcoin” and “Mastering Ethereum,” even warned the ethereum community to try and work together during a speech at ETHDenver. While he was not specifically addressing Schoedon’s remarks or the backlash, his comments came just before Schoedon announced he was leaving.
Crypto coaster
Bitmain, the well-known and yet controversial crypto mining hardware producer, posted a stunning $500 million loss in the third quarter of 2018, according to private documents filed to the Hong Kong Stock Exchange (HKEx).
The HKEx is reviewing Bitmain’s application for an initial public offering (IPO) that it filed last September, meaning the company must provide regular updates on its financial results. Its Q3 update shows that the company brought in some $3 billion in revenue over the first nine months of 2018.
The same update also showed that the company saw roughly $500 million in profits over that same period. While the financial disclosure does not break Bitmain’s revenue or profits down by quarter, the company did previously disclose it had profits of $1 billion over the first six months of the year, meaning it had to have lost $500 million in the third quarter to achieve its overall result.
Bitmain doesn’t seem to be down or out just yet, however. The company announced a new 7-nanometer bitcoin mining processor it claims is even more efficient than existing devices. The new application-specific integrated circuit (ASIC), called the BM1397, claims to use 28.6 percent less energy than its previous offering.
The new chip will be available in the upcoming Antminer S17 and T17 miners that Bitmain will unveil in the near future. The company’s most recent Antminers, the S15 and T15, were just revealed this past November.
Blockchain Galaxy
The world's largest mobile phone producer, Samsung, wants to help its customers store their private crypto keys, and in a big way.
The Samsung Galaxy S10, revealed on Wednesday, includes a secure storage system designed to house private keys for “blockchain-enabled mobile services,” according to a press release. While details were initially scarce, a demo model available at the company’s D’light store in Seoul, South Korea provided more details.
The device comes with a “Blockchain Keystore” app that allows customers to send payments to merchants, sign digital signatures and store or transfer cryptocurrencies, alongside a number of other features.
As part of its in-built security, the device comes with a secure enclave, meaning some level of hardware protection for private keys. However, it also features what might be a centralized key recovery system offered by Samsung, raising questions about just how secure the enclave might be.
The phone's terms and conditions even indicate that at some future point, dapps will be accessible through the S10.
What is notable about Samsung's announcement is that it is incorporating blockchain-friendly tools into its flagship line, with four different products falling under the S10 umbrella.
Unlike the HTC EXODUS 1, which can only be bought using bitcoin or ether right now, or Sirin Labs' Finney, which can be purchased in a limited number of locations, the S10 is intended for mass distribution. |
 QUOTE OF THE WEEK | |  | "Be careful of fragmentation … When things get difficult, people become more insular in their thinking and they start magnifying differences instead of focusing on commonalities.”
– Andreas M. Antonopoulos, the author of "Mastering Bitcoin" and "Mastering Ethereum," advising the ethereum community to cooperate and collaborate rather than fight when times are hard. | | |
The Takeaway |  | | |
Michael J. Casey is the chairman of CoinDesk's advisory board and a senior advisor for blockchain research at MIT's Digital Currency Initiative.
There was something both fresh and familiar about the NFT.NYC conference that non-fungible token developer PeopleBrowsr put on at the PlayStation Theater in Times Square this week.
It felt like some of the early bitcoin conferences: A little scrappy and rough around the edges, some wild ideas that ranged from practical to pie-in-the-sky, but in all exuding a great deal of enthusiasm for a novel blockchain technology that could spawn a variety of new business and philanthropic models.
It remains to be seen whether NFTs can get beyond the gimmick status they occupied in popular imagination since Dapper Labs launched CryptoKitties, the popular game that creates unique, collectible, breedable digital cats. There are questions about scalability and interoperability associated with ERC-721, the dominant, Ethereum-based NFT standard, and on whether the world will embrace outside-the-box ideas for redefining value, property and commerce.
As with bitcoin’s development, success or failure will depend upon the emergence of an impassioned community and ecosystem around the technology, and the vibe at NFT.NYC suggested this is happening.
What’s both interesting and challenging, though, is that the very notion of community in the NFT world is quite different from the one observed in fungible tokens such as bitcoin. Unlike a bitcoin, which is intended to be fully substitutable for any other bitcoin, a non-fungible token is a unique piece of digital property.
Thus, the community that assigns value to that asset can often be quite narrow.
Speaking with me on stage, Arnold Waldstein, who raised $140,000 for ocean conservation via the Honu project — a collectible CryptoKitty that was part turtle, part cat – noted that Honu became a compelling storytelling device with which to galvanize action among a specific community of people passionate about ocean health.
But at the same time, the structure and community makeup made it difficult to achieve fundraising goals under the initial proposal. The team eventually had to abandon an auction model and went for a one-off sale.
It’s challenges like that which have people questioning what kind of business model could function for NFTs. Thankfully, some compelling ideas for new models that address them bubbled forth at the event.
Cashing on Future Upside
One key idea is that by attaching a smart contract that enshrines rights for the primary issuer of a token to future income from secondary market sales, creators of digital assets can be encouraged to relinquish control of them.
Venture capitalist David Pakman argued that the idea could lead NFT-embracing gaming companies to dramatically change their approach to how they make money. Such companies could deliberately create a limited supply of a particular digital artifact and ensure that they extract upside from future sales.
This way, rather than locking gamers into a walled garden of value capture, they can let their assets escape into the wider world, where they can generate greater value for the brand.
There was much talk of artists doing the same with otherwise unique, one-off works of art. As of now, an artist might sell a painting to a buyer for $10,000 but gain no benefit when a collector or a gallery subsequently buys it from that first buyer for, say, $1 million. If the work were indelibly associated with a unique NFT and a smart contract to manage future transaction rights, there could be a way for the original artist to participate in that future appreciation.
The approach could also enable payments for derivative works by creatives working with others’ original music or other artistic content. Or it could help charitable efforts like the Honu project, because the resale of the crypto-turtle-kitty to future buyers could continue to kick back funds to the philanthropic cause it represents.
It’s these kinds of ideas that make the NFT conversation so engaging, enabling a break with pre-existing mental models so that innovators can conceive of creative new approaches to problems.
For now, much of it is highly intangible, though it was good to see NFT.NYC exhibitors such as Vault.io, which demonstrated the potential for redeemable NFTs to transform gift tokens, branding and commercial exchange by showing visitors how to redeem a token in their wallet for a cup of coffee delivered by a Raspberry Pi-enabled coffee machine.
The Tension Between Community and Economy
Still, the question remains whether the narrow community of interests attached to specific NFTs can generate enough liquidity to make them viable.
This will depend in part on the success of different blockchain communities' scaling initiatives and on interoperability solutions such as the Cosmos and Polkadot networks, which could enable NFTs to move across blockchains. If the entire world is to be “tokenized” with these unique digital markers, as some suggest will be the case, we have to get far beyond the clunky on-chain transaction-processing capabilities of Ethereum and its competitors.
It’s a vision worth fighting for because communities are the breeding grounds for all notions of value. If you can tap into them, you can drive adoption. To achieve that, developers must consider that each community is unique: the things they value, the contracts their members enter into, and their preference for how to govern themselves aren’t necessarily served by anchoring themselves into monolithic blockchains with rigid programming logic.
It’s why, in addition to NFTs, other projects are working on community-based digital asset issuance models that don’t depend on an underlying chain or virtual machine such as Ethereum to process all transactions.
These include Intercoin, perhaps best known for now by a prominent hand-painted mural that greets motorists on the Gowanus Expressway heading into Manhattan from Brooklyn, and the colorfully named Economic Space Agency that was set up in Oakland, California by a group of radical economists, technologists and other social scientists.
The common idea in these concepts is that the smart contract features, the terms attached the token, and the consensus model can be designed uniquely according to each community’s preferences. Whether they can be secure from attack and sufficiently liquid is the question.
In all of this, there is tension between the narrow subjectivities of a distinct community’s expressions of value and the requirement to interface that otherwise closed subset of interests with a more universally accepted expression of value in the wider economy – in other words with fungible, negotiable instruments such as bitcoin or dollars.
It’s in confronting those tensions and figuring out the best business models to overcome them that NFTs and their ilk have the best chance of enabling practical, real implementations that can have a marked impact on the world. The more that those who are working on them come together and explore the prospects, the greater the chance of success. — Michael J. Casey |
 BEYOND COINDESK... | | |
ALEX GLADSTEIN: Many of bitcoin's critics need to better understand its value proposition, writes Alex Gladstein, chief strategy officer at the Human Rights Foundation. Responding to a Foreign Policy criticism of bitcoin penned by noted crypto skeptic David Gerard, Gladstein outlines the ways in which bitcoin today can help individuals and societies, particularly in countries with poor track records on individual rights or economic policy.
UNCOMMONCORE: The next major fight in the stablecoin space "will be a price war," says this analysis by UncommonCore. Stablecoin providers currently raise revenue through interest rates, and as the space matures, it is possible that these issuers may begin paying interest to each coin's holders. However, if this happens, it is unclear how providers will fare. Hasu and Su Zhu outline why in this overview of the space.
TECHCRUNCH: Privacy on an individual level may not be all that important in the grand scheme of things, but accumulated information about a large group of individuals is "enormously consequential," writes Jon Evans in TechCrunch. While not strictly referring to crypto, his overview echoes the ethos of many crypto projects currently building in the space. |
 WHAT WE'VE BEEN UP TO | | |
Last Thursday we launched a new series of monthly webinars focusing on the institutional crypto market.
On Feb. 21, CoinDesk’s Noelle Acheson spoke to Lucas Nuzzi, Director of Technology Research at Digital Asset Research, on the role of cryptoasset analysis in the shaping of the market.
Missed the discussion? You can watch it here.
Thanks for reading! |
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