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Posts Tagged ‘crypto

“Create more value than you capture”*…

A thoughtful consideration of Web 3.0 from the always-insightful Tim O’Reilly

There’s been a lot of talk about Web3 lately, and as the person who defined “Web 2.0” 17 years ago, I’m often asked to comment. I’ve generally avoided doing so because most prognostications about the future turn out to be wrong. What we can do, though, is to ask ourselves questions that help us see more deeply into the present, the soil in which the future is rooted. As William Gibson famously said, “The future is already here. It’s just not evenly distributed yet.” We can also look at economic and social patterns and cycles, using as a lens the observation ascribed to Mark Twain that “history doesn’t repeat itself, but it rhymes.”

Using those filters, what can we say about Web3?…

There follows a fascinating– and educational– analysis of the state of play and the issues that we face.

Tim concludes…

Let’s focus on the parts of the Web3 vision that aren’t about easy riches, on solving hard problems in trust, identity, and decentralized finance. And above all, let’s focus on the interface between crypto and the real world that people live in, where, as  Matthew Yglesias put it when talking about housing inequality, “a society becomes wealthy over time by accumulating a stock of long-lasting capital goods.” If, as Sal Delle Palme argues, Web3 heralds the birth of a new economic system, let’s make it one that increases true wealth—not just paper wealth for those lucky enough to get in early but actual life-changing goods and services that make life better for everyone.

Why it’s too early to get excited about Web3,” from @timoreilly.

See also: “My first impressions of web3” from Matthew Rosenfeld (AKA Moxie Marlinspike, @moxie, founder of @signalapp).

* Tim O’Reilly

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As we focus on first principles, we might recall that it was on this date in 2007 that Steve Jobs introduced the iPhone at MacWorld. The phone wasn’t available for sale until June 29th, occasioning one of the most heavily anticipated sales launches in the history of technology. Apple sold 1.4 million iPhones in 2007, steadily increasing each year; estimated sales in 2021 are 240-250 million.

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“There are two times in a man’s life when he shouldn’t speculate: when he can afford to and when he can’t.”*…

Robinhood, the trading platform supposedly meant “to democratize finance for all”: not all change is progress; not all “disruption” is for the good…

… What is Robinhood?

The company operates a mobile app that enables consumers to trade stocks, options, and crypto. These orders are the company’s inventory, which it sells to “market makers” — large financial institutions that pare (execute) the trades in the market. As with Google or Facebook, Robinhood’s users are not its customers, but its supply.

This means Robinhood is incentivized to keep its users trading … a lot. The goal: make stock trading as addictive as social media scrolling. RH has enjoyed success here. The proportion of users who check it daily rivals those of Twitter, Snapchat, and Facebook.

The transaction at the heart of the company’s model is “Payment for Order Flow” or PFOF. Because RH generates its revenue by selling orders to market makers, it doesn’t charge commissions to its consumer users. But this also creates a conflict of interest for the company, which is motivated to sell orders to the market maker that offers the highest payment for the trade rather than the best price. It’s like affiliate marketing, but for your financial future.

PFOF goes back to the 1980s, when it was pioneered by, wait for it … Bernie Madoff. Madoff relied on the practice to make his firm one of the leading market makers of its day, and when regulators raised questions about whether it presented a conflict of interest, he used his position as the chairperson of Nasdaq to prevent restrictions. (PFOF is illegal in the U.K.) There was no conflict of interest, Madoff assured his colleagues, because “there are very strict rules that I would assume most firms comply with.”

Robinhood is the latest example of an increasing trend: tech companies for whom illegality is a feature, not a bug. Uber is an $86 billion gypsy cab company. Facebook and Google have received so many fines, it’s likely the companies internally classify them as a cost of doing business. This is tantamount to replacing civics courses with prison training, because … well … that’s how we roll.

For its part, RH has racked up: a $70 million settlement with FINRA, a $65 million SEC fine (for failing to properly disclose PFOF), and a separate $1.25 million FINRA fine. And on Wednesday, on the eve of pricing its IPO, the company disclosed that its senior executives are under investigation by FINRA for failing to acquire broker-dealer licenses. In addition, another inquiry is under way into the possibility that RH employees made illegal insider trades during the GameStop frenzy early this year.

Once, that type of disclosure would have dismembered an IPO. Instead, 48 hours after it made the disclosure, Robinhood was publicly trading at $32 billion. Telling point: The company paid its chief legal officer, Daniel Gallagher, more than $30 million in 2020, even though it hired him halfway through the year. From 2011 to 2015, Gallagher was an SEC Commissioner. Our business environment has morphed from capitalism, which depends on the rules of fair play, into cronyism.

Flouting the law is now a signal to investors that a firm is “disruptive.” Established companies, which believe they have too much to lose, have spent years investing in a culture of compliance to protect themselves. Disrupters, with access to cheap capital and few legacy assets, have no such constraints. In Robinhood’s case, no less an establishment bulwark than Goldman Sachs has blessed its approach to business by taking the lead on the company’s IPO. Forget orange — criminality without consequence is the new black.

In practice, Robinhood’s activities look more like the dispersion of financial risk than the “democratization of finance” — kind of like if a for-profit prison claimed to be “democratizing housing.” As both an app and as an investment, RH makes more sense in the context of gambling than investing. Its business model depends on active traders, but research shows the more active traders are, the more money they lose. Likewise, the casino isn’t making much off the blackjack player who sits at the $5 table cadging free drinks, but it hopes the lure of easy money (and the lubrication of those free drinks) will loosen his pockets eventually.

Greater gambling access is becoming a trend. The illegal sports betting market, estimated at $150 billion a year, is rapidly moving to legal online forums. You can now place a sports bet from your couch in 20 states and counting, and mobile gambling apps are reaping the rewards. Since its SPAC listing in April 2020, DraftKings’ stock is up 160%. I don’t have a problem with this, as these firms state what they’re made for: gambling.

Another market that’s benefited from our insatiable appetite for risk? Crypto. Robinhood caught that trend early and introduced crypto trading to its platform in February 2018. Since then, the global crypto market has grown from $450 billion to $1.9 trillion. In the first three months of 2021, 6% of RH’s revenue came from Dogecoin trades. If that sounds like an unstable business model, trust your instincts.

Here’s what we’re saddled with: A trend of companies that prey on our financial naiveté, with no regard for law or morality and infinite amounts of capital. What can we do?

First, it’s long past time for the rule of law to reassert itself. Five years ago, admissions to elite universities were awash in bribery and fraud. Then the feds put some wealthy lawyers, investors, and television stars in jail. Did it work? I’d venture that if any parent receives an offer of a “side door” for their kid to get into an elite university today, the parent hangs up, crisply.

Second, we need to arm ourselves, and particularly our young people, with financial literacy. Everyone should be fluent in the basics of markets and how to build financial security. My NYU colleague Aswath Damodaran believes the best regulation is life lessons. Perhaps basic lessons in finance (e.g., not to trade on an app that harvests its orders for revenue) would lessen the pain of these lessons. If we can offer computer science and Mandarin in schools, we should offer courses in financial literacy. The English-as-a-second language course in any capitalist society ought to be in money.

We’ve implemented policies in the U.S. that have resulted in a halving of the wealth of Americans under the age of 40 (as a percentage of household wealth) over the past three decades. With so much less to lose, today’s young Americans are justifiably looking for new asset classes and embracing volatility. Put another way, there is cause for a rebellion. The food industrial complex wants you to be fat, social media wants you to be divided, and RH wants you to believe you can get rich quick by day trading. Rebel.

When the democratization of finance isn’t: “$HOOD.” Scott Galloway (@profgalloway) on the dangerously disingenuous Robinhood.

* Mark Twain

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As we reconcile ourselves to the fact that if it seems to be too good to be true, it is, we might recall that it was on this date in 2018 that Apple became the first U.S.-based company with a $1 trillion market cap. Shares of Apple rose 2.9% on the day, closing at $207.39, giving the company a $1.002 trillion valuation. Shares of Apple’s stock were up about 40,000% since Apple computer’s IPO on December 12th, 1980.

Amazon broke the $1 trillion milestone a month later on September 4th, 2018. Microsoft reached the milestone nearly a year later, on April 25th, 2019.

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Written by (Roughly) Daily

August 2, 2021 at 1:00 am

“What strip mining is to nature, the art market has become to culture”*…

Nyan Cat meme, sold for $590,000 as an NFT (non-fungible token)

Before Christmas, the only uncertain-times-era art world innovations I could think of were online art fairs and anonymous Instagram callout accounts. Now more innovation has arrived, and it’s come from outside, from the spheres of online culture and cryptocurrency speculation. Crypto has its origins in a mistrust of authority in various forms, from government-backed fiat, to the banking system, to the financial industry. Now it’s also challenging art world elites…

Cryptocurrency’s exploding again. NFTs (non-fungible tokens) in particular. The Nyan Cat meme goes for $590,000. The “ape in a fedora” CryptoPunk goes for $1.54 million. An animated gif of Trump’s bloated, naked corpse by someone called “Beeple” goes for $6.6 million, setting a new record for any Millennial artist, dead or alive. Christie’s launches a two-week sale of one of his works. It closes tomorrow and has already broken the record again. Current bid: $9,750,000…

The old gatekeepers have been losing their power for a while now. In his New York Times profile of KAWS (Brian Donnelly), who’s just opened a major retrospective at the Brooklyn Museum, Michael H. Miller writes, “One art reporter told me … that certain directors at Gagosian, the largest and most profitable gallery in the world, would automatically move anyone known to own a KAWS down on their waiting list to buy something.” Nevertheless KAWS is unstoppable. He has his career-defining homecoming museum show, his Peter Schjeldahl writeup, his many pages of coverage, his giant sculptures looming over Manhattan’s Park Avenue and Brooklyn’s Greenpoint waterfront, and, a couple years back, in 2019, he shocked the art establishment when his painting The Kaws Album (2005), a remake of The Simpsons’ remake of the Beatles’ Sgt. Pepper’s Lonely Hearts Club Band cover, sold at Sotheby’s Hong Kong for $14.8 million. Images and sculptures are accruing value in new ways: KAWS came up making street art and toy collectibles, and Beeple (Mike Winkelmann) made his name through Instagram and concert visuals. They symbolise the return of populism to the arts. I recently wrote for the Spectator about the trend of bad figurative painting that occupies the bardo between content and art: paintings that are easy to enjoy, and also to post. With NFTs, we’ve made another leap from art that’s easy to post, to art that simply is the post.

The old ways of valuing an object at auction (backdoor dealings, price fixing, and clandestine, corrupt practices) are coming up against the new ways (wild speculative mania and hyperstition) and falling short, for now. Beeple and KAWS, who have dominated the year’s artistic discourse, are outsiders that made it to the top. But it’s a very boring sort of outsider art, made by nerds for other nerds…

So much of today’s culture is a poor-quality remake of something better and more compelling. KAWS bootlegs pop-cultural staples like Mickey Mouse, the Simpsons, Peanuts, and SpongeBob in his own depressive comic style, while Beeple takes Mickey, again, Pokémon and Shrek, plus politicians like Joe Biden, Hillary Clinton and Kim Jong-un, and composites them into dystopian CGI montages. There are two paths for the golden-age American cartoon star: to be withdrawn, like the lascivious skunk Pepé le Pew, or, worse, to be reimagined as bad art, as childish and nostalgic art for those that don’t like ideas, or beauty…

There’s just too much of everything. There are too many different Oreos. 65 flavours in 8 years is too many. Too many Hot Chicken Wing Oreos, Waffle & Syrup Oreos, Jelly Donut Oreos, Supreme Oreos. There’s too much content that appears different but is the same. Too many identities are available to us. Too many manias. Too many hysterias. Examine nearly any aspect of society and you can see it’s gone too far. The reason so many flavours of Oreos are invented, according to the cookie’s brand director, is that this overabundance of choice reminds us of and drives us back to the original. It reminds us of how much we like the old Oreo, the Platonic ideal of the Oreos of childhood, the Proustian Oreo with the glass of cold milk. When there’s too much of everything however, at some point the original is lost, the memory is lost, and all that remains are faded, flat, hollowed-out derivatives…

The most popular series of NFT collectibles are algorithmically generated. And what they reveal, compared to the rest of culture, is a broader and more prevalent trend of art and entertainment that has the uncanny feeling of having been made by algorithm, even though it wasn’t. A painter and performance artist once told me, in the brutalist basement of the old Met Breuer, that Future had destroyed the future. Trap music has taken over the world, and it all sounds more or less the same now. It might be amazing, but it sounds the same. It’s supposed to sound the same. That’s the idea, what makes it so powerful. A talented producer can make a song in ten minutes on a live stream. A talented producer can make a song in less time than it takes to listen to. It’s never been quicker to write a song than now. Songs keep getting shorter and shorter. Records keep getting shorter and shorter. It’s a numbers game. I can write these columns pretty quickly now. This is an age of great speed and competition. We’re all looking for more popularity, new ways to find an edge; and yet, all this competition only seems to lead to blandness and mediocrity, rather than breakthroughs. Nor does it lead to collapse; even accelerationism doesn’t work. We want too much content, too fast, and it just leads to this endless algorithmic churning, this paint-by-numbers effect. You see it in art. In Netflix documentaries. Spotify playlists. Op-ed pages. The news. The latest manufactured outrage. Well-reviewed first-person novels about nothing. All so dreadfully banal and repetitive. This is what results when everything is forged in economies of dollars, of ether, of attention. Most culture now has the feeling of having been made by algorithm; and the reason for this, is that humans have begun to act like algorithms…

What non-fungible (which is to say, unique) tokens show us, is the absolute fungibility of culture today: its hazy, interchangeable meaninglessness. How it all belongs on a blockchain. How it all belongs on an infinite self-generating playlist ouroboros. It all belongs on a streaming service that slowly steals the hours and the heartbeats from inside you. When you look at the Discover Page Hotties, you look back into your own soul through a clouded mirror. “Online,” a mysterious anonymous cipher writes to you, “so much is dependent on an algorithmic matrix of mined data that the user’s identity is distilled so accurately that you can’t breach the identity that’s fed back to you via the screen. So no chance encounters, just a recurrent overlap of what you already are.” If life was once about chasing after a dream, it’s now about running away from the comfortable, hypnagogic lifestyles prescribed to you by the culture we create together, reflexively and imitatively. You’re living inside other people’s dreams; and these are not good dreams. So much of modern life is algorithmically scripted so as to exclude surprise or chance, and you must try to break free of this script every day. Rejecting all this post-death culture is a good place to begin…

The art world, disrupted by crypto: Dean Kissick (@deankissick) on why that’s a sad thing: “The Downward Spiral: Popular Things.”

See also “NFTs Weren’t Supposed to End Like This,” by Anil Dash, the co-creator of the NFT; further to which, this thread from Jonathan Zittrain.

And finally (as a cap on what’s turned out to be a trio of posts about scarcity, post-scarcity, and what matters in our economy; earlier here and here), “Red Bull, Elon Musk, and Matt Gaetz“… “post-scarcity is just another way of saying decadence.”

* Robert Hughes, writing presciently in 1989

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As we appraise art, we might spare a thought for an artist who, roughly a century ago, played an outsized role in revolutionizing the art world of his time, Pablo Picasso; he died on this date in 1973. Picasso is universally regarded as one of the most influential artists of the 20th century; he is known for co-founding the Cubist movement, for the invention of constructed sculpture, for the co-invention of collage, and for the wide variety of styles that he helped develop and explore.

Picasso in 1908

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Written by (Roughly) Daily

April 8, 2021 at 1:01 am

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