December 2, 2022

Exploring transformation of value in the digital age

By Michael J. Casey, Chief Content Officer

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It has been exactly one month since CoinDesk published Ian Allison's report on FTX sister company Alameda Research's balance sheet and sent the world of crypto into turmoil. But in Miami, where I attended Art Basel this week, you could be forgiven for wondering what all the fuss is about. The mood in much of the non-fungible token (NFT) universe remains upbeat, thanks to the increasing Web3 engagement of big-name brands. In this week's column we explore the implications of this "brands-are-coming" moment for the future of Web3.

For the "Money Reimagined" podcast this week my co-host Sheila Warren and I talked to Juan Zarate, a researcher at the Center for Strategic and International Studies, in Washington D.C., about the crypto industry's preparedness for attacks by rogue states such as North Korea, which has a long history of hacking for digital assets. It's a complicated, contentious topic but an important one. Have a listen after reading the newsletter.

Launched in September 2017, KuCoin is a global cryptocurrency exchange with its operational headquarters in Seychelles. As a user-oriented platform with focus on inclusiveness and community action reach, it offers over 700 digital assets, and currently provides spot trading, margin trading, P2P fiat trading, futures trading, staking, and lending to its 20 million users in 207 countries and regions.

In 2022, KuCoin raised over $150 million in investments through a pre-Series B round, bringing total investments to $170 million with Round A combined, at a total valuation of $10 billion. KuCoin is currently one of the top 5 crypto exchanges according to CoinMarketCap. Forbes also named KuCoin one of the Best Crypto Exchanges in 2021. In 2022, The Ascent named KuCoin the Best Crypto App for enthusiasts.

Brands Will Save Crypto?

Be Careful What You Wish For

(Rachel Sun/CoinDesk)

On Nov. 14, as the rapidly widening contagion from the FTX exchange's collapse was thrusting crypto into an existential crisis, shoemaking giant Nike launched its bold new Web3 platform, SWOOSH.

The initiative is one of many such projects from household brands that are powering along as if nothing has happened in the wider world of crypto. These include Starbucks, the National Football League and its players, Instagram, Budweiser, Adidas, Dolce & Gabbana and Time. The list goes on.

It's why a common refrain I heard, during conversations with the NFT crowd during Art Basel in Miami this week, was that crypto will be saved by brands.

That may be the case, and it's all well and good that spending on such projects will help offset the big pullback in expenditure by native crypto companies. But it also evokes concern among many who were drawn to this industry's rebellious, disruptive appeal and by its promise to level the playing field by giving creators and users greater control over their money, content and data.

The question we must ask is: As crypto gets corporatized, will it lose its edge?

Mixed signals

To an extent, the answer is unavoidably yes. The crypto industry will have to bend to the legal and marketing concerns of image-conscious, bureaucratic public companies. Already it's clear that trigger words like "crypto," "blockchain" and even "NFTs" are being excluded from materials in favor of the generic idea of "digital collectibles."

All is not lost, though. So far, brands' activities in this space seem born of the right, inclusive spirit. There is a real effort, for example, to give artists, musicians and writers greater control over their work, to dramatically boost the royalties they receive and to seek out diverse creative backgrounds and styles.

Take Instagram, a subsidiary of Meta. The platform's latest trial with a group of NFT-savvy influencers will eventually allow users to make, buy and sell collectible content.

On the one hand, individuals can use the technology to build new exclusive-access business models, working directly with their most loyal audience members. At least in spirit, it hews to the Web3 principles of pushing control and ownership to creators and users. It also bars influencers from pricing their works higher than $1,000 and could encourage broader participation and allow the NFT business model to evolve into one that's more inclusive of the mainstream.
On the other, artists involved in the project are having to hand over a fee of 30% for each sale. Is this, yet again, the curse of control by an overly powerful, intermediating internet platform? Well, yes, but it turns out the monopoly is not Instagram's, which isn't charging anything to its artists, but Apple's. The iPhone producer is hitting Instagram with its routine fee for all products sold over apps purchased via its app store.

First principles

All of this offers a reminder that in Web2, centralized platforms like Meta and Apple have enormous power to shape the information, art and entertainment markets on which society, indeed our democracy and culture, depend.

This is why open metaverse projects such as Punk 6529's Om and Lamina1, founded by Bitcoin pioneer Peter Vessenes and sci-fi author Neal Stephenson, are important. In different ways, they are both built on first-principle frameworks that aim to prevent anyone from controlling any core applications or infrastructure and from setting up rent-seeking gateways through which creators or users would have to enter their worlds.

The bottom line: It's not enough to depend on the goodwill of legacy platforms and of the mega-companies that use them to reach audiences and customers. We must deliberately build systems over which those corporate machines can't exert control.

Read the full story

Off the Charts: At Long Last, a Difficulty Drop

Finally, some relief is coming for bitcoin miners who've survived crypto winter.

Throughout most of this year, they've had to endure a large extended decline in profitability. Not only has the price of bitcoin dropped from near $50,000 to below $17,000 in the wake of the FTX losses, but the network's total hashrate has continued to rise – which, thanks to Bicoin's self-correcting "difficulty" algorithm, raises each miner's cost of completing the proof-of-work function needed to win bitcoin rewards. In essence, it's been a worst-of-both-worlds period of plunging profits and surging competition.

But now, as today's chart from colleague Sage Young shows, the latest FTX-driven drop in price has been accompanied by a substantial drop in hashrate. That should result in a sizable reduction in difficulty, which will lower miners' costs and improve their margins.

It's bittersweet, of course. The hashrate has dropped because the funding challenges unleashed by FTX contagion has forced many already struggling miners to shutter their mining plants.

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The Conversation: SBF's Reality TV Moment

It was kind of the crypto version of one of those celebrities-under-stress moments in television history, like O.J. Simpson's famous car chase in 1994 or Britney Spears attacking photographers in 2007. Not quite the same viewership and less violence, but a similar voyeur vibe.

I'm talking about the bizarre experience of Andrew Ross-Sorkin's live interview of former FTX CEO Sam Bankman-Fried at the New York Times DealBook Summit.

If you didn't get a chance to watch the hour-long video, you can read the full transcript on CoinDesk or, with some spice and his signature wit thrown in, CoinDesk Executive Editor Marc Hochstein's tweet thread on the whole experience is a fun ride. Check it out.

Relevant Reads: The Next Domino

(Getty Images)

Another week, another big bankruptcy filing. This time it was crypto lender, BlockFi. The news Monday led to all sorts of other knock-on problems.

Nikhilesh De reported on the filing, noting that a $400 million line of credit that BlockFi had received from FTX itself was at stake.
In the column for his State of Crypto newsletter, De then laid out why this announcement was such a big deal.
CoinDesk TV's "First Mover" team talked to Hodder law firm Managing Partner Sasha Hodder about whether BlockFi's customers can expect to get anything back.
Notably, bitcoin's price was not greatly affected by the news. The same "First Mover" team talked to DFD Partners President Bilal Little about why that was the case.