Welcome to the Block & Mortar newsletter! Every week, I bring you the top stories and my analysis on where business meets web3: blockchain, cryptocurrencies, NFTs, and metaverse. Brought to you by Q McCallum.

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I’ve noted before that every emerging technology inevitably collides with law and policy matters.

But I usually frame that as “eventually.” You know, over the long run. I’m surprised by how quickly web3 ran into legal challenges, and how often it continues to do so. Perhaps this stems from crypto’s open challenges to the (strongly regulated) financial system? And compounded by the amount of outright crime?

Whatever the reason, this week I have two more crypto-meets-courtroom stories to share.

Because, hey, we needed another lawsuit

I’ve briefly mentioned NBA Top Shot before. They sell NFTs called Moments, which are short video clips from sporting events.

The Moments collection started off strong but, in the spirit of Nothing Good Lasts Forever, it tumbled. Top Shot is now facing a class-action lawsuit as a result. They tried to have the case thrown out but a judge has decided that the plaintiffs’ suit has enough merit to proceed to trial.

The plaintiffs’ claim? According to a Reuters piece:

The lawsuit said Dapper [Labs, creator of Top Shot] should have registered the NFTs as securities because their value was tied to the success of Dapper’s [Flow] blockchain. It also said Dapper reaped hundreds of millions of dollars by preventing purchasers from “cashing out” for months on end.

Further, the judge notes:

“In the most general terms, the court is asked to assess whether Moments are more like cardboard basketball cards, i.e., commodities, or more like crypto tokens,” he wrote. “Here, it is a close call and the court’s decision is narrow.”

There’s a lot going on here. A lot.

I’ll hit on four key points:

1/ As with so much of crypto these days, this lawsuit isn’t just about Top Shot. It edges into that thorny gray area of whether NFTs are indeed securities. And it reminds me of what I said a few weeks ago, in relation to the Metabirkins case:

• There’s my usual catchphrase of “you never want to be a case law pioneer.” You want to go into the courtroom knowing where you stand. Or, better yet, you want there to be such precedent around the issue that it never makes it to trial, because both parties already know where things will land.
• The stakes here go well beyond this particular case, precisely because any ruling on “are NFTs securities?” stands the chance of defining case law. A lot of people who aren’t directly tied to Top Shot will be impacted by the outcome.

2/ This highlights an interesting matter of consumer-side crypto. There is … I think it’s an Odd Lots episode? (Maybe?) The guest points out that consumers in crypto get to play both sides of the fence. I’m paraphrasing here: heads: I made some money selling tokens, so I get to keep it; tails: hey I lost money, I need the authorities to right this wrong.

(If you know which Odd Lots episode I mean, please let me know. I’d like to properly credit the guest.)

Crypto die-hards firmly believe that losing money is just part of the game. Mainstream investors, it seems, aren’t quite so eager to call it a day.

**3/ Depending on how this turns out, I might – just might – get to use the Money Stuff catchphrase. **Matt Levine is a recovering securities lawyer turned Bloomberg columnist who calls out the folly in financial news. His catchphrase “everything is securities fraud” makes it into just about every Money Stuff column. It means that whenever a company does something that reduces its share price – say, from meeting their ESG obligations … or not meeting their ESG obligations – an investor can claim they’ve lost money as a result, and shoehorn their frustration into a securities fraud lawsuit.

So, did Top Shot commit securities fraud? It’s too early to tell. But if the case does indeed determine that the Moments NFTs are securities, then, we’re on the way.

4/ Going back to last week’s newsletter: creators of digital goods have the option to build on a blockchain that may outlast their company. That puts buyers in a much safer space as far as protecting their investment. Doing so may also serve a risk management function for the company. As noted by the judge in the Top Shot case:

“Hypothetically, if Upper Deck or Topps, two longtime producers of physical sports trading cards, were to go out of business, the value of the cards they sold would be wholly unaffected, and may even increase, much like posthumously discovered art,” the judge wrote.

He continued: “That is not true here, where plaintiffs allege that the pooling of capital generated from the sale of Moments propped up the Flow Blockchain and where the value of Moments is intertwined with the success of that blockchain and Dapper Labs.”

(Remember when the question “which blockchain should we use?” was just about environmental impact? Those were simpler days.)

Bring popcorn

Newsletter #43 was all about web3 drama. I should have waited two weeks. I could have included this next bit:

Remember Voyager? I first mentioned them way back in newsletter #10. They were one of the companies caught up in the fallout from Three Arrows Capital and Celsius meltdowns last year. Binance is trying to acquire Voyager’s remaining assets as part of bankruptcy proceedings.

(No, you’re thinking of the other crypto company that’s in the middle of bankruptcy proceedings. You know, FTX.)

Things are … not going smoothly:

While lawyers and a number of individual creditors cross-examined two witnesses during the hearing, Berkeley Research Group Managing Director Mark Renzi and Timothy Pohl, an independent director of Voyager Digital LLC, commotion broke out in the courtroom.

An outburst by creditor Alah Shehadeh forced [judge Michael] Wiles to pause the hearing and call out the man’s “contemptuous conduct” and “refusal to listen to ordinary court rules.” Wiles stopped the creditor from questioning a witness because Shehadeh had already asked questions earlier in the hearing. Shehadeh interrupted Wiles and called him a “terrible judge.”

Once again, crypto delivers more drama than a soap opera. And it does so under the guise of being “financial news,” so you can totally sneak this in during the workday.

As a bonus, consider this quote from judge Wiles:

“It’s not an open mic. It’s not a town hall. It’s not a gripe session. It’s not a radio call-in show for sports news or crypto news.”

For the musically inclined, I invite you to put that to a beat. I bet your SoundCloud would do gangbusters.

What’s in a name?

Name recognition is a powerful force. So powerful that it can lead a group to rebrand in order to cover their tracks when things go sour.

Private military operators security companies do it. The field we now call “AI” has rebranded a few times. And even within AI, the old term “neural networks” got a new lease on life when it adopted the moniker “deep learning.”

(A new name doesn’t always wash away the stigma, mind you. This whole “return to office” idea isn’t fooling anyone. But that’s another story.)

Web3 is in a similar spot. Its association with scams and environmental impact certainly raised a few eyebrows. The idea of spending six figures on images that anyone can right-click and download didn’t help, either. And the collective ire of video game enthusiasts forced some game studios to abandon their NFT plans.

That’s all on the consumer side, though. Businesses are on a constant quest for a silver bullet, which makes them more forgiving of technology ills. Just as long as there’s a chance of profit down the road. That’s why they’ve learned to continue building on blockchain technology, but to do so quietly. No need to make that front-and-center for the consumer.

(That new Starbucks Rewards program? Those are not “NFTs.” Those are “Journey Stamps,” my friend.)

Will a simple rebranding be enough to save crypto? My take: that’s the wrong question. The real question is whether companies can produce something that consumers like and find useful. So long as it actually works, they can call it whatever they want.

And I’m not the only one to see it this way:

For Dickon Laws, global head of innovation services at advertising agency Ogilvy, terms like “crypto” and “Web3” have become toxic not just because of the bad actors in the space, but because of “terrible product-market fit.”

“Nobody has made Web3 relevant or accessible for the masses, or really spent the time trying to understand how it solves ‘mass’ market problems or improves consumers’ lives,” he said.

Laws said that the crypto “gold rush” of the last few years didn’t take off with the masses because it failed to address problems that “your neighbors, family and friends, gym buddies, people you meet on a dog walk can understand and relate to.”

There’s one more perk of not using the official, technical terms for web3. Doing so steers the consumers away from the other topic companies don’t want to discuss: true digital ownership. With the right to trade tokens on an open market. So long as consumers don’t know that their loyalty program, or event ticket, or whatever is built on a blockchain, they won’t start asking those embarrassing questions such as: “If this is really mine, why doesn’t it live in my wallet?” “Why can’t I sell this NFT?”

The companies will then get to have their digital cake, and eat it, too. And isn’t that the goal of running a business?

Just going to leave this here

Today’s newsletter opened on a sports segment. So let’s close it on a sports segment.

Some of Michael Jordan’s old sneakers are up for sale. I don’t mean just Air Jordan-branded sneakers. These are shoes he wore during championship games, which makes them extra special.

How much would this collection set you back? According to a Bloomberg piece:

It’s unclear how much a unique grouping like this might sell for, said Eric Hirsch, a modern collectibles specialist with Sotheby’s, which is offering the shoes for a private sale, not auction. A pair of shoes Jordan wore in his rookie season in 1984 sold in 2021 for a record-breaking $1.47 million. Hirsch said this collection could go for double, but he wouldn’t be surprised by 10 or 20 times that amount. Then, in September, a jersey Jordan wore in the 1998 NBA Finals sold at auction for $10.1 million. (Another footwear data point? A ratty pair of Birkenstocks worn by Steve Jobs sold for nearly $220,000 in November.)

That is quite a bit of money for old footwear! But could the future owner at least walk a few miles in Jordan’s shoes?

Eh, maybe. But probably not:

The shoes are in varying condition. Some of the polyurethane on the shoes has disintegrated over time, which could be repaired should the buyer choose. Original writing on the shoe is still clear. On the outside of the shoe from 1991, a left shoe, Jordan wrote, “To Tim” and signed it in gold ink. On the inside, there’s gold writing identifying when the shoe was worn: 6-12-91, Game 5, Bulls 108 L.A. 101.

Not to mention, these shoes don’t come in pairs. Each one hails from a different line of Jordans.

By now you might be wondering: “why am I reading about old sneakers in a web3 newsletter?”

No reason. None at all.

But the next time someone asks you why a person would spend good money on an NFT, something they can’t even really use … maybe you can show them this segment.

The wrap-up

This was an issue of Block & Mortar.

Who’s behind Block & Mortar? I'm Q McCallum. I've spent the past two decades in the emerging-tech space. And I'm very interested in web3 use cases.

Credit where it's due. Big thanks to Shane Glynn for reviewing early drafts. Any mistakes that remain are mine.

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