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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#66 - Trust, bodegas, and random luxury

Description: Description: person walking on gray concrete floor; they are looking at wall-sized image of a robotic eye

(Photo by Tom S on Unsplash)

If you felt a bit of a festive vibe in the air this weekend, it’s because Ethereum celebrated its birthday on Sunday. Besides giving us the ETH token, Ethereum went on to become the “layer 1” (foundation blockchain) for a variety of other cryptocurrencies. It also gave us NFTs, so, you can thank (“blame?”) Vitalik Buterin and friends for the existence of collections like Bored Ape Yacht Club, Crypto Punks, and Goblin Town.

Hopefully you weren’t expecting a brief birthday bump in ETH value, though. The token’s price, relative to the US dollar, stubbornly held below the $1,880 mark the entire week leading up to Sunday.

Whose Eye Is It Anyway?

(With all apologies to comedy fans everywhere.)

Worldcoin is in the news again. You remember them, right? In May I linked to an interview with cofounder Alex Blania. In return for scanning your eyeball, Worldcoin lets you prove your unique, human identity online. And they’ll hand you some crypto tokens as a bonus.

Last week Worldcoin graduated out of closed beta status. Hence the posters in various cities depicting their eye-scanning “orb” device, plus all of the ads that run alongside articles about the project. There’s a sense of déjà vu as mainstream news journalists are asking what crypto journalists have been asking for months already:

What exactly does Worldcoin do with all of this data?

Between their privacy FAQ and parent group Tools for Humanity’s privacy notice, things don’t look so bad. Worldcoin promises not to hold on to the iris scans unless you ask them to do so. They promise to not sell or share biometric data. They really make themselves out to sound trustworthy.

Then again…

Thanks to the last three decades of tech-industry chicanery, it’s understandable that people are more than a little wary. “Just trust us with your personal data. We promise that we won’t use it for anything you’d deem objectionable. Other than, y’know, selling it to everyone and their kid brother so they can build creepy data analyses that hypertarget you based on your most intimate details. We promise not to use your phone number, e-mail address, precise GPS coordinates, social network connections, chat messages, reading habits, travel plans, grocery purchases, dietary restrictions, and medical history for anything else. (Until we figure out how to monetize them. ‘Legitimate business interest,’ amirite?)” How many times have we heard that line? And how much longer will we fall for it? The number of people who believe this is a fair trade for “relevant ads” is still large. yes. But it’s shrinking.

Seen through that lens, the Worldcoin premise is quite a stretch. “Scan your iris so you can prove that you’re not an AI bot.” (We’ll conveniently ignore that Blania’s Worldcoin co-founder is Sam Altman. You know, the guy behind OpenAI, the company responsible for the recent large-scale proliferation of AI bots that appear convincingly human.)

In a world full of scammers and fake identities, proving that you’re a real person – and a particular person, at that – holds a lot of value. I don’t dispute that. But I do question the cost-to-value ratio. It’s not just that Worldcoin carries a ton of sensitive information. It’s that they’re asking you to trust them to protect it from misuse. Even Vitalik Buterin, creator of Ethereum, has raised an eyebrow.

To be clear, this isn’t just a Worldcoin issue. Every day, we put our trust in a lot of Large Companies That Are Very Hard To Hold Accountable. Some of them store data points on us that, collectively, amount to something more sensitive than an iris scan.

But that doesn’t get Worldcoin off the hook. Even if the team has the best intentions in mind, let’s remember Brady Dale’s line: “the intentions of a [crypto project] creator are largely irrelevant.”

Signing up at the bodega

Continuing this theme on verification…

People who buy Bored Ape Yacht Club (BAYC) NFTs get more than bragging rights. Parent company Yuga Labs permits NFT holders to use those characters for commercial purposes. Between the recognizable artwork and the celebrities showing off their purchases (indirectly promoting the collection), adopting a BAYC-themed logo could boost your branding efforts.

The trick is that anyone can right-click-save one of the images and slap it onto their product. Aside from checking the wallet addresses, how would a buyer know that this is a legitimate use of the NFT character?

The new Yuga Labs “Made by Apes” program aims to address just that issue. NFT holders who register will get a license to use the Made by Apes logo on their BAYC-themed merch. Oh, and Yuga Labs will also include those products in a public catalog called The Bodega.

If you’ve done any work in the web development world, this logo is a step shy of how SSL certificates work: the person running the website gets a certificate from an authority (say, Verisign); in turn, Verisign vouches for that site owner; and when your web browser loads that site, it displays the padlock icon in your browser’s address bar because it trusts Verisign.

I expect few consumers will check for the Made by Apes logo before buying a product. That’s more to help legal teams prepare cases of copyright infringement. But they might browse the Bodega, in which case that site becomes a form of marketing. The Bodega is one way that Yuga Labs supports NFT owners’ investments.

Other collections grant commercial rights to NFT holders. I’d be curious to see whether they unveil their own verification system, and whether several providers pop up to deliver a turnkey service to collection issuers.

A little randomness to keep them hooked

I’ve already rambled about the luxury NFT market (including newsletters #59 and #64) so I won’t spend too much time on that here. But I did want to mention that Gucci is also playing this game. They’re issuing surprise goods – physical goods, not digital – to NFT holders:

The pieces will only be available to people who own a Gucci Vault Material NFT, given a year ago to holders of the Gucci Grail NFTs […].

The intent of the new Gucci Material NFT was intentionally kept a mystery when it was airdropped to Gucci Grail NFT holders last year, but Web3 communities have come to anticipate that mysterious gifts like this one will eventually manifest into future perks. That’s why Gucci Material NFTs, whose image is a bolt of bright patterned material, were valued at about $600 on Opensea, even before community members knew what exactly it represented.

Gucci has added an element of chance to NFT ownership: sure, you have the right to sell the token. But then you might miss out on these random, unannounced giveaways. It’s somewhere between a lottery ticket and a loot box, really. It taps buyers’ emotions to keep them loyal to the brand. Or, at least, loyal to the NFT collection.

It’s a bold move. The buyer pays up-front under the assumption that, over time, they’ll get their money’s worth. Gucci is putting its name on the line because they need to deliver something worthwhile.

Does this make loyalty-themed NFTs a form of quiet luxury? Sure, these purchases are etched into a public blockchain; sufficiently curious people can find out what you’re carrying. On the other hand, relatively few people will care to trace these transactions. The NFTs serve as mostly-invisible flags of wealth. Even better than fancy toilet paper.

Let’s close out with a story, shall we?

Once upon a time, there was a guy who built a company. It turns out his company was (allegedly) just a bunch of frauds stacked in a trenchcoat. As that company crumbled, he went on the lecture circuit to plead his case in the Court of Public Opinion™.

(It’s also possible that he maintained a very public image as a safety measure. “Hey if you go an entire day without hearing from me, that means someone’s taken their revenge.”)

When he ran out of things to say about himself, he decided to dish up information on his former colleagues. Shortly thereafter the Court of Law™ stepped in and told him that, going forward, keeping quiet would be a condition of his bail.

You’d think he would thank the judge. This would save the guy from further ruining himself. But no. Instead, his legal team kept complaining on his behalf:

In contrast to their stance on Bankman-Fried, his lawyers argued, prosecutors had “stood silent” while FTX’s new CEO, John J. Ray, publicly attacked and vilified their client. Regardless, Bankman-Fried would agree to a gag order – if it extended to prosecutors and other potential witnesses.

I don’t think it counts as an “attack” when someone is just … telling the truth? John J. Ray oversaw the Enron proceedings. If he says that yours is the worst company he’s ever seen, that is – as the kids say – a You Problem.

Now if you’ll excuse me, it’s time to throw on some headphones and crank “Declaration Of John J. Ray III In Support Of Chapter 11 Petitions And First Day Pleadings.

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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