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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Crypto regulation week
Crypto has (earned!) a reputation of being a lawless space. But way back in issue #14, I pointed out that a lot of people actually like having laws. They want to know what they can and cannot do.
Sometimes the “cannot” part looms larger. Or at least it feels that way when there’s a move from the implied Anything Is Permitted (because it’s not expressly forbidden) to the explicit Some Things Are Not Permitted (because of new laws). And let’s not even talk about that uncomfortable middle state, There Aren’t Any Laws On The Books Just Yet But Regulatory Bodies Are Trying To Retroactively Claim Jurisdiction. cough SEC cough
For crypto, I see a certain irony in a theoretically decentralized and so-called “permissionless” system being subject to the whims of various governments. But here we are.
That brings us to the last couple of weeks in crypto regulatory news:
UK: House of Commons Treasury Committee says that crypto trading is gambling, not finance. The committee’s report highlights the benefits of crypto, including the potential for financial inclusion and improved payment systems. At the same time, they say that retail trading in the highly volatile, speculative space is cryptocurrency assets runs closer to gambling than to traditional finance. As summarized by the Guardian:
It has been widely expected that cryptocurrency trading would eventually fall under the Financial Conduct Authority – which is currently responsible for ensuring firms comply with money-laundering rules, and will soon be tasked with monitoring adverts.
However, the Treasury committee said treating cryptocurrency trading or investing like a financial service – and regulating it via the FCA – risked creating a “halo effect” that could lead consumers to believe the industry was “safer than it is” or that they were protected from financial losses, when they are not.
I’ll point out that these are recommendations, not laws. But it’s possible that they may influence future laws, so it would be wise to heed the committee’s report.
Pakistan: Finance minister says that cryptocurrencies will “never be legalized” in the country. This is, in theory, to stay on the good side of the Financial Action Task Force (FATF). It may also be a way to limit currency flight from Pakistan as citizens seek a hedge against the falling value of the rupee.
US: Crypto mining tax is in the works. Based on that proposed rule, mining firm Bit Digital plans to set up machines in Iceland. I emphasize the terms “proposed” and “plans” in those sentences because none of this is final just yet.
The reason for the tax is that crypto miners apparently use more than their fair share of electricity:
Government figures place the amount of energy used to harvest crypto in the U.S. last year near that used to power all of the country’s home computers. Crypto proponents say that the industry has moved to cleaner energy sources in recent years and that machines are often online when grid demand is low.
Let’s assume, for brevity, that this is both true and a fair comparison. Have you seen what people do on their home computers? Crypto can be a speculative activity, sure. But it’s still more productive than, say, spending hours scrolling Facebook. Or reading random web3 newsletters.
EU: Formal adoption of MiCA. Block & Mortar briefly covered the Markets in Crypto Assets (MiCA) regulatory framework last July when it was still in a provisional state. Last week the Council of the EU formally adopted MiCA. You can read the full 525-page report for details, or check this Fortune article – which gets extra points for the title “MiCA Drop” – for the highlights reel.
In July’s segment I noted:
This is when you might ask: why does a US-based web3 newsletter care about EU crypto laws? Especially since those laws don’t take effect for another 18 months? And our answer is: because Europe will be a testing ground for how these kinds of regulations work out . Which may – just may – help guide American laws.
and I think that still holds true today.
Sum total: Running a crypto operation has become a game of “the floor is lava,” with friendly governments as the couches. The hazy, changing regulatory landscape favors companies that can dedicate resources to monitoring or influencing policy. This can discourage smaller players and ultimately leave this “decentralized” space in the hands of a few large, centralized companies.
VR gets practical
Plenty of people – myself included – have poked fun at Horizon Worlds, the Facebook Meta FaceMeta metaverse property for being a little too … meh. Remember when their biggest news was that user avatars would have legs?
While every other metaverse provider was talking about slaying dragons and exploring new worlds with your friends, Horizon gave us “hey you could strap on some VR goggles and be in the office.” So I wasn’t too surprised to see that they’re now talking about metaverse-based job training. Per Nick Clegg, Meta’s president of global affairs:
“I certainly believe when it comes to AR and VR, it’s very obvious to me that one of the most powerful applications is the ability to dramatically improve re-skilling,” [he said,] pointing to applications in skilled trades as well as schools and elder care.
And also:
Doug Donavon, chief executive officer of Interplay Learning, which uses Meta’s VR headsets to train workers in trades like plumbing, HVAC systems and electrical services, said the technology has helped create a “boot camp style” training that gets people prepared for jobs in five to six weeks versus several months.
I commend Meta for finding a practical use case for VR technology. Simulation, in its various forms, presents a safe environment to test techniques and ideas. People can experience situations, and develop muscle memory for procedures, before lives or money are on the line.
That said … shall we let the fun use cases cut to the head of the line?
Remember how we got GPU cards for gaming and then they were co-opted by the AI crowd for training neural networks (before being further co-opted for crypto mining)? That followed the trend of games pushing the limits on computer systems, leading gamers to demand improvements, in turn driving advances in software and hardware alike. The pursuit of VR fun could do the same for metaverse technologies and smooth the road before the suit-and-tie use cases come about.
Like leaving a key under the doormat
You need your crypto wallet’s private key to initiate a transaction. So long as only you have that key, only you can send your NFTs or crypto tokens to another address. The tradeoff? If you lose that key, you lose access to the crypto in the wallet. And that makes people a little nervous.
Hardware wallet maker Ledger now offers a subscription service to recover private keys from its devices. The public’s reaction has been a little less than enthusiastic. And not just because Ledger is clearly trying to get their slice of the “Forever Transaction” subscription revenue pie.
People are far more upset with Ledger because of how the key recovery works. The service encrypts the key’s seed phrase and splits it across three custodians, thereby bending the core promise of a hardware wallet – that the key is safe because it never leaves the device.
The fact that this is an opt-in service does little to calm the angry crowds. Ledger made it worse by – borrowing a friend’s phrase – bringing facts to a meme fight:
After all the backlash, Ledger tried to defend its position, but somehow managed to enrage its users further in a now-deleted tweet, “Technically speaking it is and always has been possible to write firmware that facilitates key extraction. You have always trusted Ledger not to deploy such firmware whether you knew it or not.”
This is one of those unfortunate situations where everyone knows this to be true deep down but you’re not supposed to say it. The sin, you see, is in destroying the shared fiction.
Zooming out, it’s worth remembering that there always has been, and always will be, a tradeoff between security and convenience. And sometimes it’s really a tradeoff between two types of security. There’s the security of “no one else can get to my crypto because no one else has my private key” and then there’s the security of “I can still get to my crypto even if I lose my private key.”
While I’m personally not interested in this Ledger subscription – maybe I’d rather spend $10 a month on, like, Yet Another Streaming Platform – it’s not a stretch to imagine that plenty of people want precisely that flavor of security. Even if it means relaxing their grip on the “not my keys, not my crypto” mantra.
I think Ledger’s was wise to make this an opt-in service. It means the experience for their core audience doesn’t have to change, while the experience for consumer-level crypto users – the folks who would otherwise “protect” their seed phrase by saving it on their computer or scribbling it on a Post-It Note – takes a step up.
Sometimes the clue is right there in the name
I didn’t file this segment under Scam O’Clock™ because technically nothing has happened yet. But it’s still so very crypto that I had to share:
- someone launched a new crypto token – specifically, a memecoin
- investors pledged about $7M to said token
- the token’s founder has delayed the launch …
- … which has led some investors to ask whether this is about to become a rugpull
The token’s name, you may ask?
“PSYOP.”
Y’know, like, “psychological operations.”
So let’s say the developer does run off with the cash. Given the name, I wonder how that would hold up in a court of law?
If we take this to its logical conclusion, what kind of memecoin name would get a judge to toss the case? Could you beat the rap with a name like “HeadFake” or “ThisIsPerformanceArt?” Or would you have to go all the way to “You’reDefinitelyNotGettingYourMoneyBack” and “TheTermsOfServiceNoteThatYouCan’tSue?”
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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