Show Them the Money!!

Headline: What is a digital currency custodian?

Date: 8/6/2022

Body:  Let’s say you have an older-laptop, 5 years old or so.  (Like the one I’m using now…hmm)  Anyway, let’s assume that you have a cold wallet, and you keep your Master password on a file within this computer.   If your hard drive crashes and you forgot your Master password, and you had $2,000 in cryptocurrency in that wallet, it is not good, but you will financially recover.  Now, let’s change things a bit.   Let’s say that you are in charge of a pension fund, and you have several million dollars of cryptocurrency on that device.  Now, you’re well and truly screwed.  But, what if, instead of this cold wallet, there was a business that would keep your cryptocurrency safe (and accessible) all the time, and they are insured to do this very business.  They have an IT department where every programmer seems to wear a cape: They’re awesome!!  Might it be worth paying this notional “bank”  just a little bit?  Yes, it would be, and this “bank” is known as a custodian for your digital currency.

Why are these services so badly needed?

OK, let’s take the example of a cold wallet used for offline storage of digital assets.  Usually, it is protected with a very complex alphanumeric password (resembling a nuclear launch code) and these codes are easily forgotten.  So, these services stand in as safer ways to secure our cryptocurrency and digital assets.

Second, even if it is a custodian hosting your hot wallet, stored online, it is much more secure than other solutions.  These services employ some very good programmers and your digital assets started safe and are now, even safer.  Most custodians offer a combination of hot and cold storage.   Coinbase advertises that 95% of the assets in their care are stored offline in cold wallets which are much more secure.  This arrangement allows for you to use your cryptocurrency online while keeping the majority of your cryptocurrency, [

The other important reason for the existence of cryptocurrency custody solutions is regulation. According to SEC regulation promulgated as part of the Dodd Frank Act, institutional investors that have customer assets worth more $150,000 are required to store the holdings with a “qualified custodian.” The SEC’s definition of such entities includes banks and savings associations and registered broker-dealers. Futures commission merchants and foreign financial institutions are also included in this definition. Within the cryptocurrency ecosystem, very few mainstream banks offer custodian services. Kingdom Trust, a Kentucky-based custodian, was the largest such service for cryptocurrencies until it was purchased by BitGo, a San Francisco-based startup. 

Let’s meet the Players in this drama

First, there are exchanges.  (We are only speaking of centralized exchanges here.   Decentralized exchanges are a different breed.)  A centralized exchange  will serve as your custodian; Said a different way, the will hold your private key to disburse cryptocurrency.  There is a risk if the exchange is hacked, but, this is probably a small risk compared to you losing your private key and not being able to access your cold wallet.  Plus, they have security personnel who are likely VERY good.

Second, there are Digital asset managers.  These managers act like banks.  They are licensed and regulated to an extent.

Third, there are custodial banks.   Per a letter from the OCC (remember them?) dated July 2020, custodial banks within the U.S. can now be custodians for cryptocurrency and digital assets.  But, please remember that not all custody arrangements are for everybody.  Some are aimed at institutional investors only and some are only willing to help ultra-high net-worth individuals

How much does third-party crypto custody cost?

If you go shopping for a new car, the price on the window is not what is charged: The dealership will add on all sorts of fees (freight fees, the financing fee, etc.)  Should it be any great surprise that cryptocurrency custodians charge a similar roster of fees?   There are 3 main fees:

Type of fee charged.	Commentary.	How much is this fee?
Custody Fee	Because they are safeguarding your assets, these custodians are taking on a risk, and they need to be compensated for this risk.	Usually less than 1%.
Setup Fee	There are some initial file management tasks that must be done to prepare for the acceptance of your digital assets into the custodian’s digital architecture.	This fee is not much, and might be waived entirely to entice new customers.
Withdrawal Fee	You might have to pay an amount every time you take currency out of your account.	Sometimes this is a flat amount, sometimes a percentage of the amount withdrawn.

What’s next for these digital asset custodians?

This is difficult because you have the confluence of 2 different dynamics: banking and Cryptocurrency.  Banking has for a long time, been traditional in outlook.   At the same time, cryptocurrency firms have to stay on the leading edge of technology.  Custodians have to speak both languages and have the skill sets represented by each.  Stepping into this shifting milieu,  are two changing attributes.  First, some of the traditional banking institutions  have been dipping a toe into these waters, and this could improve a lot of things within the industry.  Second, the government is cautiously beginning to become involved, in terms of regulation and in terms of taxation.  This could serve to allow others to get into the space.  Remember, for the most part, competition is good.

And these sentiments were also reflected in the letter from the Office of the Comptroller of the Currency.  I won’t bore you with the whole letter, but I suspect that the thought process might be salient.  They concluded that providing digital asset custodian services is a modern form of traditional bank activities and that custodial services of this type may involve more than holding keys.  Said the acting Comptroller of the Currency, Mr. Brian P. Brooks, “From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today.”

The Verdict

In the Old West, there used to be Wells Fargo stagecoaches that would take custody of the deposits going to the bank, and they had to be guarded by strong boxes, men on horseback and men carrying shotguns.  Custodians for our digital assets are just an updated version of this Old West figure.  In the place of handkerchief-masked banditos, there are  organized gangs of crypto-warriors, trying to separate us from our  digital assets.   To fight against this, it might make sense for you to consider deputizing  a custodian.  It costs a little, but, to sleep well is invaluable. 

 REFERENCES

https://www.investopedia.com/news/what-are-cryptocurrency-custody-solutions/

https://www.coindesk.com/learn/what-is-crypto-custody/

https://www.forbes.com/sites/lawrencewintermeyer/2021/12/09/digital-custody-is-the-key-to-unlocking-crypto-spot-markets-for-institutions/?sh=7e4cb6621ab0

https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-98.html

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Web 3.0 is really Sticky, err, um, Resilient.

Headline: What is Web 3.0?

Date:

Body:  If I hear about Web 3.0 from another pointy-headed geek, just one more time, I’m going to find where they live and fantasize about killing them in their sleep… or at least sending them glitter bombs.  But, my cantankerous nature aside, this is very important, as Web 3.0 is where we are aiming, as a society.   So, how do we get there?  How will we know that we have reached it?   What advantages can we predict?   What dangers might we face?   There are a lot of questions.  Beyond question, though, NFTs, cryptocurrency and other items will reach much closer to their fullest expression as Web 3.0 evolves.

OK, I might have been asleep, when was Web 1.0 and Web 2.0?

In Web 1.0 (roughly in the early 1990s) HTML was started, along with some of the organizational concepts like URL and HTTP were created.   Netscape Navigator was the highest tech in browsers, and e-mail was a real treat.

In Web 2.0 (roughly 2000 to today) user generated content became a really big deal.  Ever read fan fiction?  This is a part of Web 2.0.     Social media sites have begun to be very important.   Interaction seems to be the name of the game.   As the pandemic started, the FAANG stocks went crazy as Zoom and many other apps became central to our lives.  Now, the Web 2.0 is revolutionary enough, many people ser using it to report to work in the gig economy.

In Web 3.0, the keyword becomes participation.  In Web 2.0, there was a smallish group of people called coders who were behind the construction of each website and experience.  In the Web 3.0 world, anybody should be able to put up a website and coding and linguistic capabilities should be almost irrelevant.  Permissions needed are very few, and artificial intelligence becomes very important.  The Internet of Things (IoT) is also  part of Web 3.0   In one appliance, you can get an internet-enabled fridge, and this can e-mail you a list of what you need, when you get to the grocery store.   An internet-enabled toaster might toast the  weather forecast on your bread in the morning.   The possibilities are endless.

OK, Web 3.0 sounds really cool!!

Yes, it does sound really cool, but, cool down a little, for there are potential pitfalls as well.  Do I think that our computers will act together in a conspiracy, and like HAL try to kill us all?    No, this is unlikely.  But, there are still potential problems.   Most broadly, the computers could learn our leanings so well that we only get information that agrees with our opinions, even if the Truth is contrary.  This would make the echo-chamber problem of today’s media much, much worse.  I think it quite valuable for our opinions to be challenged, in a civil manner.  On the more felonious track, computers could decide that the “safest course” would be to do one thing, when for humans, it is unsafe.  (Assume that there are flood waters.  The computer might decide that, to save itself, and thus control, certain gates should be opened, even if it endangers a nearby senior community.)  Sometimes, it is optimal for the computer to control because response time needs to be very fast, and we have to be able to know when to override this response.  It’s a tricky thing.

Further, as there is no central executive authority, it is exceedingly easy to launch Denial of Service (DoS) attacks on individual websites.  If there was an intermediary, it could notice the repeated targeting, and take that node offline until the problem was fixed.

The thing to remember here, is that Web 2.0 is becoming Web 3.0 before our very eyes.   The transformation is rather slow in many ways, and the outward appearance of the websites will likely not change.   But, the coding behind the scenes has changed materially.

I have heard of the Semantic Web, is this the same as Web 3.0?

The Semantic Web was envisioned in 2001 to include natural language processing.   Web 3.0 adds a significant amount of artificial intelligence and uses the blockchain model as a replacement for a central authority.  We can easily see this today.   The Bitcoin and Ethereum currencies run on their own independent blockchains, maintained by the people who use the networks.   As far as AI goes, the best example I can give you is TikTok.  When first starting, the system asks you to check off boxes related to which types of content you would like to see.   But, the level of priority is not set by you.  As it serves you hundreds of video clips, the AI system takes note of what kind of content you “like” which content you watch to the end, and which pieces of content you comment upon.  It then gives you more of this kind of content, and your other choices are presented to you less.  (TikTok knows me WAY too well, serving up mainly videos of dogs being cute in families, and the occasional bikini-clad young woman.  It even picked up on my political leanings, and will prioritize a very active poster, who espouses opinions I am likely to agree with.)

Web 3.0 and its connection to cryptocurrency.

The point of cryptocurrency is to find a way around having a central authority in charge of the transactions.   That is why it is part of a movement called decentralized finance.  Web 3.0 is very similar in its attempt to allow for the broadest participation without need for a centralized authority.  In brief, if you agree to help maintain the system (e.g. being a miner or playing some other role) your participation in and support of the cryptocurrency is rewarded by earning cryptocurrency.  It’s quite easy for me to imagine a system in which individuals could develop d’apps to help in their DeFi experiences, and people would individually pay them cryptocurrency in return for the use of their programming.  In the past, when one would dig up physical gold, you would take it to the assayer’s office.   This person would certify the gold as 100% genuine and provide certification of the weight.    Thus, the reputation of the assayer was central to their success: one public whiff of being unscrupulous, and they would be out of the game.    It is not hard for me to imagine a Web 3.0 future where people and their reputations (good or bad) are represented by their NFTs.  The NFTs that have always been paired with truthful, factual information will become trusted and relied upon.

Another thing to consider is that 3-D graphics (even in the mobile sphere) are improving each day.   This will have huge implications for Web 3.0.   For instance, you might buy a Tesla if you can pay cryptocurrency, after having hand manipulated a projection of it.   In this way, you can alter the paint color, kind of roof or any other option.  Imagine how successful you could be in clothes shopping online.  Right now, it’s pretty much a guessing game to see if a pair of pants will fit.   But, if your phone can scan you, a truthful avatar can be made, and the clothes you are considering can be virtually “tried on.”  It’s kind of fun to theorize these things, but they would all be game changers.

What’s the chance Web3 is just an over-hyped fantasy?

Just to be fair, there are quite a lot of specialists who refer to Web 3.0 as “vaporware.” (This means a kind of software that sounds great and promises a lot and yet, never  achieves its potential.  James Grimmelman is a professor at Cornell who studies computer science and law, and seems to be one of these scholars.  He opines that if one of the purpose of Web 3.0 is eliminate any centralized authority, the blockchain retains all of the challenges related to the central authority.  He suggests that blockchains might be in the toolkit of Web 3.0, but it will not be the steel or rock underlying it.  He concluded that as of now, Web 3.0 is an aspirational statement.

The Verdict.

“Every new advent of the web is at first baffling,”   And this was said by a uniquely well-educated computer scientist.  So, you can just imagine the effect upon people who are not tech experts.  One computer scientist went even further.    “To the average person, it does sounds like voodoo,” said Olga Mack, entrepreneur and blockchain lecturer at University of California, Berkeley. “But when you press a button to switch on lights, do you understand how the electricity is made? You don’t have to know how electricity works to understand the benefits. Same is true of the blockchain.”  So, given these opinions of experts, what are we to conclude?    Well, I think we can conclude that people are aiming to achieve a more participative Web 3.0, but the timeline is uncertain.  More to the point, the timing is most probably going to be diffused over many attributes.  (The toaster I spoke of?   I saw that in an in-flight magazine offered by a major national airline.  It’s here NOW!!)  Other things like the crypocurrency  disbursement engines will likely take a little bit longer to develop, and that’s probably as it should be.  What do you think?   Remember, participation is a key attribute of Web 3.0.

REFERENCES

Web 2.0 and Web 3.0 Definitions (investopedia.com)

What is Web 3.0: A beginner’s guide to the decentralized internet of the future (cointelegraph.com)

What Is Web 3.0? (forbes.com)

People are talking about Web3. Is it the Internet of the future or just a buzzword? : NPR

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

 

Pay for Tea with Cryptocurrency?

Headline: Cryptocurrency British style

Date: 9/13/2022 –

Body: Not too long ago, Queen Elizabeth II passed away.  Her death has caused a cascade of changes in the governance of the U.K.   Almost unnoticed was the announcement that the U.K. would be looking to begin accepting stablecoins in exchange for goods and services.  Currently, there is a bill in Parliament that would do this, but the exact rules governing these activities continue to be amorphous.    But, there does seem to be some impetus behind this, as cryptocurrency is expected to be a major portion of a post-Brexit economic plan.    In the UK, these virtual currencies are referred to as “Digital settlement assets.”  Most interesting to note will be the role each financial regulator will be assigned to play in regulating this new ecosystem.

What caused them to act now?

OK, there are at least 2 reasons that they are choosing to act now:

1.   The E.U. is already considering their own framework for stablecoin issues within the continent.   Certainly, they don’t want to lag behind the EU for long.
2.   Even among the “stablecoins” which should be tethered to a fiat currency or a commodity, there have been problems.  When Terra imploded, there was a $40 Billion hole in the economy.

Whatever the impetus, there seems to be real pressure to ensure that the UK could become a nexus for cryptocurrency transactions.  “I see this as a key piece of legislation for financial services, which I hope can allow us to make the most of the opportunities of Brexit and to establish an approach to crypto regulation that is right for the U.K.,” said Lisa Cameron, a member of Parliament and chairwoman of the cross-party group for crypto.  “By bringing stablecoins within the scope of regulation, the bill paves the way for further adoption in the U.K., and this will be a key area of focus for parliamentarians as part of our inquiry into the wider sector,” she added.

How is the legislation in the U.K. different from the legislation in the E.U.?

The E.U. legislation is somewhat more limited in scope.  They have decided to focus upon the setting of standards that need to be met before an organization can issue stablecoins.  The U.K. legislation attempts to go further  and tries to define how various regulators would be required to interact with these issuers if they find themselves at risk of bankruptcy.  Despite the larger scope of the U.K. legislation, it is important to note that it does not disallow any category of issuer from issuing these stablecoins in the first place.  “The BoE will need to authorize any stablecoin, and there are due processes that firms will need to follow before being given authorization,” the PSR told CoinDesk in an emailed statement.  (The PSR appears to be the equivalent to SWIFT within the U.S.)  The FCA, which has already been authorizing crypto companies under the government’s anti-money laundering rules, will probably continue to focus on consumer protection, according to Alleyne, while the BoE is likely to focus on wider financial stability.

This timing appears to be very important, as the Tether cryptocurrency is preparing to launch a U.K. version.    The U.S. based Tether is worth  about $60 billion, so, it seems advisable that the system for regulation be there before the  currency gets there.  “We believe that the United Kingdom is the next frontier for blockchain innovation and the wider implementation of cryptocurrency for financial markets. We hope to help lead this innovation by providing cryptocurrency users worldwide with access to a GBP-denominated stablecoin issued by the largest stablecoin issuer,” said Paolo Ardoino, Tether’s chief technology officer. 

OK, so what else will this legislation do?

Well, that is at present unclear, but there are a few things that appear to be important. First, this will be only the first of several pieces of legislation designed to make the U.K. a very productive place to do cryptocurrency investing and handling.   Second, the FCA  has pointed out that they would setup a “sandbox” designed to work with industry to introduce more stable currencies and NFTs that retain their value.  Chancellor of the Exchequer (read Secretary of the Treasury) Rishi Sunak said:  “It’s my ambition to make the UK a global hub for cryptoasset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country.”

Other measures include:

·         The UK government will explore ways of enhancing the competitiveness of the UK tax system to encourage further development of the cryptoasset market in the UK. It will review how DeFi loans – where holders of cryptoassets lend them out for a return – are treated for tax purposes. The government will also consult on extending the scope of the Investment Manager Exemption to include cryptoassets.

·         The Chancellor has commissioned the Royal Mint to create a Non-Fungible Token this summer.

·         The Financial Conduct Authority will hold a two day ‘CryptoSprint’ in May with industry participants, seeking views directly from industry on key issues relating to the development of a future cryptoasset regime.

·         The Economic Secretary will establish and chair a Cryptoasset Engagement Group, convening key figures from the regulatory authorities and industry to advise the government on issues facing the cryptoasset sector.

The government has started a Center for Finance, Innovation and Technology, and the steering committee has already met at least once.

And, as the Bank of England’s Financial Policy Committee recently noted, we’re also mindful that as crypto-technologies grow and become more interconnected with the core financial system we’ll need to ensure that regulators have the right tools to manage the associated risks.  (It might be useful  to consider the Bank of England to be equivalent to the Federal Reserve.)  And it appears that “staking” with cryptocurrency will likely be taxed differently compared to other investments.

The Verdict

I fully understand that this entry goes over political activity within a country that is not our own.  But, it appears that they are genuinely trying to take a leading role in cryptocurrency, and the U.S. might be able to avoid some mis-steps if only we pay attention to what is happening on the other side of the Pond.  When the U.S. was setup, each state was seen as a laboratory of democracy, and lessons could be learned and mistakes avoided.  In a similar way, the U.S. should be taking careful notes on what the U.K. is doing and learn what we can.

REFERENCES

UK Crypto Industry Welcomes New Stablecoin Rules, Awaits Guidance (coindesk.com)

Tether to launch stablecoin tied to pound as UK aims to become crypto hub | Cryptocurrencies | The Guardian

Keynote Speech by John Glen, Economic Secretary to the Treasury, at the Innovate Finance Global Summit – GOV.UK (www.gov.uk)

 

Ripples Can Be Felt

Headline: What is up with Ripple and their litigation with the SEC?  Are there lessons to learn?

Date: 9/5/2022

Body:  Think promotions and commercials for financial services are bad now?  Back before the Securities Acts of 1933 and 1934, things were REALLY bad within the financial markets.    Without fear, mischievous and outright fraudulent pitchmen would be hawking their “can’t miss” investment opportunities.  Well, with the advent of cryptocurrency, the past is repeating itself, or at least rhyming the new lyrics with the old ones.  Scams abound, and projects that are semi-fraudulent are legion.   Add to this mix, the natural back-biting and scrambling behaviors that are part and parcel of Federal budgeting, and it seems that successfully prosecuting these criminals is a budgetary bloodsport.   One of the recent actions was brought by the SEC.  In this move, the SEC is asserting that Ripple Labs  perpetrated a $1.3 Billion fraud when they floated an unregistered security.

No, don’t leave!!  This one is really interesting, I swear.  OK.  The complaint alleges that the XRP sold (the digital asset on offer) was a security that they sold without validly applying for or receiving an exemption to registration requirements.  Now, this one seems most interesting because the majority of the digital assets that were distributed were in exchange for services rendered ,like market making.  Said one SEC official, “”Issuers seeking the benefits of a public offering, including access to retail investors, broad distribution and a secondary trading market, must comply with the federal securities laws that require registration of offerings unless an exemption from registration applies,” said Stephanie Avakian, Director of the SEC’s Enforcement Division. “We allege that Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors, which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system.”  This is interesting because the 1933 and 1934 Acts were not passed to disallow the selling of certain securities, rather, they were passed to ensure that potential investors had enough access to information to do their own due diligence research into the offering.

The’ Issue seems to hinge upon whether or not the XRP qualifies as a security.  Now, here’s the Law & Order bit: there is a smoking gun memo wherein the SEC officials discuss whether XRP is a security or not, and apparently the SEC does not want to turn this over to Ripple in the discovery phase of the trial.  (To me, not a lawyer, Ripple must have the scent of blood in their nose and this memo is likely red meat.)  It seems that the SEC is trying to exclude all memos like this, but the judge has decided to shield only some of these documents from discovery.  Said Ripple’s defense counsel, “We’re pleased with the Court’s order, which grants Ripple access to important documents that the SEC was withholding. We will continue to aggressively defend this case – and we remain optimistic that resolution of this case will provide much needed clarity to the industry,” Ripple General Counsel Stu Alderoty.  One of the documents sought is a draft of a speech by an SEC official, wherein he opines that ETH is not a security.  This would provide excellent evidence that XRP is not a security either.

Why go after Ripple?’

There are hundreds of other cryptocurrency related schemes, why go after Ripple?   The answer is three-fold:

1.  The market capitalization is quite high
2. Their parent company has agreements in place with many central banks of other countries.
3. They have developed DLT which will allow for much faster transactions and clearing.
4. They issued XRP in proportions in excess of the Howey test, and therefore, they are presumed to be securities.
5. Ripple was already taken to court by some of its’ investors.

The Verdict

Security?  Not a security, who cares?  I get your point of view, really I do.  But this is important because this has ramifications far beyond Ripple.   There is a question of where and how this digital asset can be advertised.   How should it be taxed?   This is a VERY serious when it comes to making money with cryptocurrency.  Additionally, the outcome could possibly lend some much needed stability to the pricing of such digital assets.  If pricing were more stable, it makes it much more possible that larger pension funds and institutional investors will get involved with digital assets and this would lend some excellent evidence of confidence in digital currencies, and might encourage others to get started in digital currencies.

 REFERENCES

https://www.sec.gov/news/press-release/2020-338

https://www.coindesk.com/policy/2022/01/14/sec-must-surrender-hinman-email-on-ether-to-ripple-judge-rules/

https://www.investopedia.com/xrp-loses-support-as-sec-files-case-against-ripple-5093766

https://www.nasdaq.com/articles/xrp-news:-why-ripple-investors-will-be-watching-august-31-and-october-15-this-year-2021-06

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Is Cryptocurrency a Good Hedge Against Inflation?

Headline: Is cryptocurrency a good hedge against inflation?

Date: 9/3/2022

Body:  I don’t need to tell anybody that inflation is rapidly deteriorating  financial positions of citizens almost everywhere.  Wouldn’t it be nice if we could find an investment vehicle that would accelerate earnings as the inflationary environment worsened?  One such investment (we’ve seen these before) are TIPS, or Treasury Inflation Protected Securities.    The face rate does not change for these securities, but, as the inflation rate goes over a threshold value, the principal gets added to, so you are now multiplying by a higher number.  Sounds pretty good, doesn’t it?   I think it does.  But it would be even sweeter if we could get this feature within an appreciating security… like maybe cryptocurrency?  Could cryptocurrency serve as that hedge against inflation?   Let’s discuss this further.

No, cryptocurrency is not a good hedge against inflation

Bitcoin has lost significant value over the past year, and this would argue against the hypothesis of cryptocurrency hedging inflation.  In order to serve as an effective hedge against inflation, cryptocurrency would have to be a significant store of value, long-term.   Said one expert, With crypto, “the extent of [price] volatility is so significant, it’s very hard for me to view it as a long-term store of value,” Anjali Jariwala, certified financial planner and founder of Fit Advisors.  “It’s tricky because it’s supposed to act like a currency, it’s taxed like property and some people compare it to a commodity. At the end of the day, it really is its own asset class that doesn’t have a pure definition.”

So, how does it become a genuine store of value?

First, the market needs to mature and long-term investors need to become involved.   These might be traditional large banks or institutional investors, but they don’t have to be.  There are crypto-focused ETFs and mutual funds that are arguably prepared to take part of this responsibility.  Another symptom of a mature market is that participants have an agreed-upon set of metrics.    In this very moment, consultancies like Chainalysis and others are in discussions about this.  I think that in the next 2-3 years, there will be a generally agreed-upon framework of market metrics.

The authors also make the point that Bitcoin needs to be broken out from the pack, to help cement the idea of a mature market.  Currently, when cryptocurrency is breathlessly covered by the mainstream media, all of the hundreds of currencies are grouped together, and spoken of, as if their average is truly meaningful.   Bitcoin is so much larger than the rest, it can really be the tail that wags the dog, within cryptocurrency.  So, for the market to mature, the level of understanding within the media also has to mature.   As of now, at least Goldman Sachs is separating Bitcoin out from other cryptocurrencies within their reports.  We’ll see how long it takes the media to take notice.  I will try to introduce some of the most often encountered characters.

Market capitalization

Market cap (for the cool kids) is really easy to compute for cryptocurrencies.   It is simply the value of one unit of that cryptocurrency, multiplied by the number of units available in the market.  For example, if a cryptocurrency is priced at $10,000 per unit and there are a total of 20 million coins in circulation, the market capitalization for that cryptocurrency would be $200 billion. This metric is important because it gives you a sense of the size of the cryptocurrency market. It can help you determine whether a particular cryptocurrency is overvalued or undervalued.

Funding rates

Funding rates are payments made on a regular basis between traders to keep the price of a perpetual futures contract close to the index price.  A perpetual futures contract is an agreement to buy or sell an asset where the contract doesn’t have an expiration date. Positions may be kept for as long as the trader wants, but the trader must pay holding fees, also known as the funding rate.  Think of this as an option to buy a cryptocurrency at a certain value on a daily basis until the buyer wants to quit.   Certainly, the exchange will charge a fee to keep this option open, and they do.  But, if a lot of these “options” are being exercised, it’s a sign of optimism in the market for cryptocurrency.

Bitcoin heat map

This cryptocurrency indicator looks at past price data and creates a color heat map based on the percentage of increases over the 200-week moving average (MA).   Red or orange areas of the map indicate intense trading activity and might signal a good time to sell cryptocurrency into an active market.    A blue area indicates that activity is low, and might sugges a buying opportunity.

But, in the future, cryptocurrency might become a good hedge against inflation.

On the other hand, when the price dots are purple and close to the 200-week MA, it’s usually a favorable moment to purchase Bitcoin.

Other experts take a more cautious point of view on this matter.  Many of their arguments center around the fact that cryptocurrency is very new and does not yet have a track record.  Said one expert, “Once volatility smooths out, we will have a better picture of how it responds to macro developments, like the rate of inflation or what the Fed is doing,”   People in this camp even cast doubt upon the ability of gold to serve as a hedge against inflation.  To corroborate this view, they cite the 1980s.  In this period, the inflation rate was 6.5% and owning gold, the investor would’ve lost 10%.  Not a very good hedge at all.     But, in the current era, since the beginning of 2022, the value of gold has increased 3%, suggesting a real hedge against inflation.   As proof that cryptocurrency might provide a good hedge against inflation, they point to the 1,100% increase in Bitcoin value over the last 5 years and compare that to the CPI increase of only 18.5% in the same period.

The authors go on to suggest that the bouncing ball we SHOULD be following is economic growth.  Cryptocurrency does not directly help to employ anybody or produce a product or service.  Investments in companies that produce goods or services, this does support jobs directly.  Further, a potent inflationary stimulus is international armed (and unarmed) conflict.  Use of cryptocurrency seems impotent compared to these issues.

The Verdict

“Overall, I think anyone seriously worried about inflation should put crypto on the table as an option that can protect against some inflation scenarios and take advantage of others. It’s not a magical hedge against inflation. Nearly all crypto assets have so much non-inflation-related risk that they are appropriate only as small parts of diversified portfolios rather than either core holdings or pure hedges.”  These are the words of an author cited, and I can put them no better.  Right now, it appears to be a bad hedging strategy, but in the future, it might represent a valid portion of a good plan.  Am I hedging a bit?   Perhaps.

 REFERENCES

https://www.cnbc.com/2022/07/08/why-bitcoin-doesnt-seem-to-be-a-hedge-against-inflation.html

https://www.fool.com/investing/2022/06/08/heres-why-bitcoin-is-a-good-inflation-hedge/

https://www.bloomberg.com/opinion/articles/2021-12-13/crypto-is-an-imperfect-hedge-against-inflation

https://www.coindesk.com/layer2/2022/02/16/bitcoin-isnt-an-inflation-hedge-yet-but-heres-how-it-could-be/

https://cointelegraph.com/trading-for-beginners/the-most-common-crypto-metrics-a-beginners-guide

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Am I Certifiable?

Headline: How to get a cryptocurrency trader certification

Date: 8/31/2022

Body:  If you need to get a complicated surgery, you might look at the walls of the surgeon’s office and look for certificate or diplomas.   These are serious credentials.  But in addition to medical professionals, one can get certified in almost any profession or activity.  In point of fact, I just heard that one college in Norway offers a summer-time program, certifying people as “elf-spotters.”  So, it seems unsurprising to find that there are certification programs for people who trade cryptocurrencies.

Formal University Education

Not for profit “real” educational institutions are not going to leave money on the table, so we should not be too surprised that some the most respected institutions of higher learning also offer a certification as a cryptocurrency trader.  Let’s take a peek at a few.

Cornell is a school in upstate New York, and is well-known for their Hotel Management graduate certificate.  But, they also offer a certification as a cryptocurrency trader.  Their certification in cryptocurrency trading appears to be excellent as well.   In the course of 4 sections, students go through their own theoretical ICO, and look at all of the challenges faced in this process.  They end the program with a Leadership Symposium.

The Wharton School is a part of the University of Pennsylvania, located in Philadelphia.   Their offering  is an entirely online program that seems to depend on case studies.  It is a 6-week program demanding 8-10 hours per week, and tuition of $4,500.   For this price, you get access to a wide variety of expert presenters on the topics of digital assets, blockchain and cryptocurrency.

Online Education Sites

There are more than a few educational sites on the internet.  Coursera and Udemy have cryptocurrency certifications amongst their offerings.  Surprisingly, (to me) LinkedIn also has a similar program.

Udemy offers such a cryptocurrency trading credential, and offers Lifetime access and a 30-day money-back guarantee.  (They also offer a large variety of other courses as well.)  One course, led by Professor Hassan comprises 12.5 hours of video instruction, and one print article.  He covers all aspects of selling, buying and trading cryptocurrencies, and even gets into portfolio management within the cryptocurrency space.  (Interestingly, this is the course that Investopedia identified as their #1 best buy.)

Coursera is another site offering cryptocurrency trading certification.  When I searched for cryptocurrency, I found 34 courses matching to that criterion.   These were from good sources too, including: Duke, Princeton and the University of Michigan.  All of these courses are free to take and get skills, but if you want them to show on a transcript, you will have to pay.

LinkedIn Learningà LinkedIn Learning also offered a good beginner’s course for $39.99 per month. When you consider you also get access to over 17,000 courses for that price (including eight cryptocurrency courses), that’s a pretty good deal as well.  Also nice about this option is that you are adding to your network of social contacts as you take your courses.  (This course garnered the award of “Best Value” from Investopedia.)

Other Organizations

Investopedia is one of my most favorite site for financial/Legal issues.   They offer 2 courses on Cryptocurrency.     The first one is expressly aimed at beginners and is $99.  The second one is $199 and is aimed at trading cryptocurrencies.  Both courses are video-based and offer lifetime access to their video libraries, and at the end of each course, the student can download and print a certificate.

The  Blockchain Council is  a world-wide association of 1500  people who are enthusiasts of the blockchain technology.   Their mission is to evangelize (their word) the benefits of the blockchain in all manner of cognate areas from Supply Chain Management to financial transactions.  They offer 3 courses relating to cryptocurrency, but these are interesting.   One of the 3 courses focuses on metaverses, and in the other examples, a set of metaverses is not emphasized.

Risk management is everything

Risk Management is boring — and happens to be the most essential skill necessary to be profitable. Understanding how much to risk on a trade and how to properly balance a portfolio are exponentially more important than entries and exits. Learning this takes time — most new traders are broke before they understand risk.

Most people would be far better off slowly investing a small percentage of their entire portfolio in crypto — and in Bitcoin, in particular. Don’t be fooled by the avatars on twitter — trading crypto is hard. 

The Verdict

There are a variety of places to get educated on the topics related to digital assets and currencies.  I guess that the key is to pay close attention to the credentials of the person teaching.  Carefully weigh these against the amount being charged for the education program, and always keep in mind what you are really taking the courses for. 

It seems that cryptocurrency is not leaving us anytime soon; Profit from it, if you safely can.   Key to that safety is learning.

 REFERENCES

https://www.investopedia.com/best-cryptocurrency-trading-courses-5111984

https://www.entrepreneur.com/article/425542

https://cointelegraph.com/news/trading-bitcoin-is-hard-10-things-every-beginner-trader-must-know

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Are You Feeling Out of Sports?

Headline: What are digital sports cards?

Date:

Body:  I remember being about 12 years old and I collected and traded baseball cards.  Quite a confession, I know.    People were serious enough about this hobby (read “obsession”) that there were magazines that were mainly devoted to supplying valuations for these cards.  I had a Cal Ripken Rookie card and I thought things couldn’t evolve any more.

I was wrong.

Now, there are digital sports cards being bought, sold and traded.   The Topps baseball card pack of the past would run you only a few bucks.   But, the digital sports cards of today (Think of them as NFTs) sometimes go for $150,000 or more.  And, you don’t EVEN get a single piece of fossilized, desiccated bubble gum.  Within the biz, these are called “moments.”  Most of these “moments” are reasonably priced at $10-$20, but a LeBron James dunk recently sold for $210,000.

Is this REALLY a Big Deal?

It would appear to be.     Started in October 2020, Top Shot already has 800,000 users and has registered almost $500 Million in revenue.  Dapper Labs is not doing this out of the goodness of their Canadian hearts,   the fee revenue is quite good.  Said the NBA Commissioner, “I think we’re just scratching the surface on what the potential is for blockchain to completely transform the digital collectibles industry.”

On the other hand, there are many who suggest that these digital sports cards will suffer the same ignominious fate as the founder’s previous project, CryptoKitties.  These also went up in value quickly… and then crashed.  In reply, Gharegozlou opines that he learned many important lessons from CryptoKitties, and will not make the same mistake with Top Shot.

What makes digital sports cards better than the physical sports cards?

By establishing the presence of the NFT on the blockchain, it makes it much harder to pass off bootleg copies as the real deal.   Since the ownership is permanently recorded in the blockchain, it is impossible to successfully create a copy that fools people.   In the case of digital sports cards, this also allows athletes the opportunity to monetize their images.

OK, so where do I go to purchase a digital sports card?

You have 2 options and there are advantages with each.   The first option is to go to Top Shot (or whatever the brand is) and purchase the NFT direct from them; Usually, you can even use a credit card.   The service will hold the NFT for you until you get another wallet.  The other option is to go to OpenSea or a similar exchange.  You might find a better deal here, but, you need to use a wallet (setup beforehand) filled with ETH (most likely.)  The thing to remember is that the rarer the clip (e.g. Alberto Bell hammering a Grand Slam) the more valuable it can potentially become.

This also brings up a new opportunity within a different debate.

For years now, the NCAA and the schools within the NCAA have been making money on the backs of their athletes.   For decades now, images of the athletes (along with their stats) have formed the basis of many sports-videogames.  Until now, the athletes have not gotten a cent, and would even get in trouble for receiving a submarine sandwich as a gift.  But now, there is NFTU which allows the university and athlete to profit.  West Virginia University has just joined this group.  (Did you know that they have a “Director of brand and trademark licensing?”  I didn’t.)  Both the players and the fans seem to be happy with this protocol:

“The relationship presents a win-win: fans are able to truly own and be a part of their favorite team on an interoperable and chain-agnostic platform, while the players themselves are able to generate revenue in entirely new ways that will be sustainable over time,”

Similar to many physical collectible trading cards, NFTU’s tokens are available in four rarities: common, premium, rare and ultra rare. Each animated NFT features an animated image of the player, along with their position, personal stats, jersey number, as well as music and sound effects. The platform, which currently only features basketball, announced Wednesday that it will soon add other sports, starting with football.

The Verdict

Digital sports cards are  an option for the person who wants to invest in NFTs.  The question is whether or not this will be an effective investment vehicle.     This is a tough call to make.   It’s akin to the question of whether or not investing in art is a good idea.  For most people, it is not, and they will lose a significant amount of their investment.  But, there are a few people who have a special understanding of the market (or a lucky charm hidden somewhere) who will make a big profit when they sell their work of Art.  I suspect that digital sports cards will be quite similar; Most will lose some money and a few will make a substantial profit.  If you find yourself in the 2^nd group, please remember to throw a nice reception.   And, invite me.

REFERENCES

Digital sports cards are receiving a popularity boost in the pandemic era | Fortune

Digital Collectibles: What They Are and How to Get Started (fool.com)

Reginald Grant & Cliff Pierre Launch NFTs By Athletes (yahoo.com)

West Virginia U. latest to join NFT marketplace for college sports (edscoop.com)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

My Analysis of Chainalysis.

Headline: What is Chainalysis?

Date: 8/22/22

Body:  I have now done a goodly number of these blog posts on topics related to cryptocurrency, and I have noticed a pattern, or rather, a common thread.  When you look at consumer protection for physical goods and services, you will often run into an entity called Underwriter’s Labs.  (You’ve seen this logo on almost every hand dryer at every restaurant you’ve been in.)  There is a reason why this is so ubiquitous: Underwriter’s Labs has worked hard for decades to build up the trust that people and companies have in their products and testing.  (They have a really fascinating facility in Illinois where they scientifically test everything from hand dryers to ballistic materials.)  Their logo has become truly iconic. 

In a similar vein, I have seen one particular entity over and over within these topics.  Their name is Chainalysis and they seem to be trusted by each small and large financial and cryptocurrency company I have seen.  In most articles, the first study cited is usually a study undertaken by Chainalysis.   Their results, too, seem to be taken as bulletproof.  So, how did they obtain this aura of trustworthiness?   I think this will be quite a powerful story, for cryptocurrency-based businesses and others as well.

OK, so what do they do?

I have already spoken of faith in a currency as one of the most important attributes it can have.  Chainalysis has a mission and that mission is to help others develop systems that others can have trust in their results.  So, Chainalysis consults on the best ways to audit and improve the technical aspects of cryptocurrency and compliance with regulation.  Unsurptisingly, they work with banks and governments.  Both of these are easy to see that payments might need to be accepted in cryptocurrency, or regulation might have to be considered.   But, they also work with insurance companies that insure the safety and availability of cryptocurrency exchanges.  All in all, Chainalysis seems to be well-positioned to be a first-mover within the cryptocurrency space.

Located in New York by Jan Moller, Jonathan Levin and Michael Gronager, this company was founded in October of 2014, and now has just over 100 employees.  In addition to consulting work of all types regarding cryptocurrency, Chainalysis also develops its own anti-money-laundering (AML) software.  In the most recent round of funding, Salesforce CEO Marc Berioff made a substantial investment and this is now a $2 Billion firm.  It uses this economic muscle to compete with Ciphertrace (a CA-based firm) and Elliptic, a firm based in the U.K.  In an effort to be excellent corporate citizens, Chainalysis tracked down $1 Billion, which the government then quickly clawed back from the perpetrators of Silk Road.

How serious are the illicit activities?

It really depends upon who you talk to.  Per the CEO of Chainalysis, “We are involved in conversations with regulators in the U.S. and the rest of the world,” Gronager said. “What is important to note is that this space has changed a lot and the amount of criminal activity is dropping a lot. It’s getting more and more legitimate use cases.”  He has a point, as illicit activity made up only 0.34% of transaction volume, down from 2% a year earlier.

On the other hand, this is transaction volume, not value, so these transactions might be far larger in value and it would be very significant.   Further, it seems reasonable to me that people doing illicit activities within cryptocurrency know pretty well how to layer their transactions within legitimate ones, and probably other tricks.  Point is, I think this might be an undercount.  (In a rather hilarious sidenote, the CEO’s girlfriend had her account hacked.  He asked the hacker for proof that her account would be fixed once the ransom was paid.  The hacker sent 16 statements of other incidents with good outcomes.   Gronager  used this data to shut down the account and get the miscreant arrested.)  It is important to note that many of the detractors of Chainalysis dislike their activities because anonymity is most important to them. 

The Verdict

Very often it is said that  anonymity is the highest goal of most people who use cryptocurrency.  To me, this is belied by 3 observations:

1.   Ethereum is one of the fastest growing cryptocurrency, and their transactions are anything but anonymous.
2. The sale of NFT’s at extremely high values suggest that people are not interested in anonymity.    The most valuable NFTs are the ones that are most unique, and easy to remember.
3.  Chainalysis is not the only company that does this work.   There are 4-5 other major companies around the world that are nearly equivalent, and everybody knows this.  Despite this, the use of cryptocurrency continues to grow.

It stands to reason that as cryptocurrency goes more an more mainstream, the anonymity hypothesis will be more thoroughly debunked.   As anonymity is seen as going down, I think faith in that system will go up, and this seems to be upheld by research done by Chainalysis.  Whether in USD or ETH, I think the prospects for this company are very good.  Mr. Gronager would seem to agree with me.   “In the past, there were internet companies and other companies. Then, every company became an internet company. I think every company will become a blockchain company. I want to bring transparency and compliance to every transaction. I want to make it a system everyone can actually use.”

 REFERENCES

Company

https://www.crunchbase.com/organization/chainalysis

https://www.cnbc.com/2021/03/26/chainalysis-doubles-valuation-to-2-billion-with-benioff-backing.html

https://www.fastcompany.com/90756505/the-8-billion-crypto-unicorn-that-crypto-loves-to-hate

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Air Drops Need Not Turn to Tear Drops.

Headline: What is an “airdrop” and what scams could they be a part of?

Date: 8/16/2022

Body:  Nearly everybody has seen the Hunger Games scene where on character is dying of blood poisoning, and a silver parachute comes  gliding gracefully down just outside the cave entrance where the character is hidden.   Attached to that canopy was the elixir that would bring him back to perfect health.   In cryptocurrency, there is something similar, and it is called an airdrop.  Usually, the “items” being dropped are new cryptocurrency or NFTs for use by the recipient.

What is a cryptocurrency airdrop?

Usually, it is a tranche of new cryptocurrency or NFTs for the use of current cryptocurrency holders.   It is kind of like a dividend within the stock ecosystem.  In this case, the Board of Directors would deem that “Each owner of our stock as of 9/30/20xx shall receive a dividend of $.60 per share owned.”  The airdropping of cryptocurrencies would be distributed in a similar way, but, instead of going to physical addresses, the “checks” are written to the various wallets that have already purchased their currency.

The split of Bitcoin and Bitcoin Cash in 2017 is an example of a blockchain event that preceded a cryptocurrency airdrop. The airdrop distributed free Bitcoin Cash (BCH) to anyone who owned Bitcoin at the time of the split.

Nuts and bolts-wise, these airdrops are pretty simple.   The investor signs up to apply for the airdrop.   In the process, they have to give a public key to their cryptocurrency wallet (recall, money can only be contributed with this key.)   They might also have to give other details to prove that they are indeed owners of the original currency, as of the effective date of the airdrop.    Then, the details are verified with the exchanges involved, and the cryptocurrency is disbursed.

Are there different flavors of airdrops?

There are several different types of airdrops.  The bounty airdrop is in response to a user doing something to further the project of the coinage.  Perhaps they have to post to Facebook with 5,000 or more friends, or post twice to LinkedIn about the coinage.    The user has to provide proof that they have completed the task, and their wallet address, and the coins will be airdropped to them.  The exclusive airdrop sends cryptocurrency to only a few wallets.   This appears to be the most like a stock dividend as it goes exclusively to people who have held the coins since a certain date.  Holder airdrops require that a user hold a certain amount of coins at a precisely set time and date.   At that exact time, if the user has a qualifying amount, they will be airdropped a certain amount of new tokens.

Why might there be an airdrop?

Well, let’s hearken back to the stock example.  The Board of Directors want to see that a spin-off corporation is seen in a popular light in the investing world.   So, all of the investors of ABC corporation on a certain date would receive several shares of 123 corporation, their spin-off.   The founders of a cryptocurrency might want to start an even newer currency that has features not seen in the old one.  So, at this “hard fork” they distribute a quantity of the new currency to holders of the original currency.  The other reason is to promote a new cryptocurrency.   News of the airdrop is publicized and the value of the currency (hopefully) increases.

What are the Pros and Cons of airdrops?

Pros	Comments
Opportunity to receive new cryptocurrency for FREE!!	Airdrops can be exciting!  Will the new currency be the one to challenge Bitcoin?   Nobody knows, yet.
Can learn about blockchain technology and investing.	This is the olde “learning by doing” trope.   To be certain, it is an effective way to learn, but it might be an expensive one, in the end.
Opportunity to participate in a new cryptocurrency project from the ground level.	Let’s say that GeoCoin was started to fund agriculture projects.    The governing board decided to start another project to save the oceans, and have an ICO for AquaCoin.  (Hopefully there will be no liquidity problems.)

Cons	Comments
Some cryptocurrency airdrops have special requirements.	Some cryptocurrency wallets might not accept the currency being airdropped.  Further, to get the airdrop, the recipient may be obligated to do something like write a positive article pertaining to the new currency.
Scams are abundant in the airdrop literature.	Scammers desperately want to get those private keys to drain wallets.   What better way than asking for the Public ones, and hopefully some get confused and use their Private one too.
Proceeds from cryptocurrency airdrops are Taxable.	Beware that the airdropped currency will be taxable.  Dividends are taxable, so this is not too surprising, I hope.

How might airdrops be a kind of scam?

These scams are most often executed thru a decentralized exchange, DEX.   The person is sent to a site that looks very much like the DEX, when in reality, it is a site controlled by the scammers.  In this way, their entry of both Public AND Private keys can be witnessed.  Then, the scammers go to the real site, and drain a very real wallet.

What can I do to avoid these scams?

Few things:

1.  You always have a right not to receive the airdrop.  Don’t apply for one, and you cannot be vulnerable to this scam.
2. Be wary of airdrop tokens received from an unknown source. It is highly likely these unsolicited tokens are part of a phishing campaign.
3. Do not visit or connect self-custody wallets to any websites advertised by airdropped tokens through error messages, token names, or other methods.
4. Do not interact with airdropped tokens (e.g. approving, transferring, swapping, etc.). As annoying as it sounds, it’s best to just leave them sitting in your wallet.
5. Do not hold high value assets in the same wallet used to regularly interact with Dapps. Use cold storage or custodial solutions such freely available Coinbase Vault or Custody.
6. Make sure to confirm the legitimacy of the project before claiming an airdrop. You should be particularly careful when it requires you to connect your wallet to an airdrop website.
7. In an announcement of an impending airdrop, look carefully for broken English and mis-spellings.
8. Before receiving an airdrop, do your research and go to the project’s website and confirm that they are executing an airdrop.   If you are still not sure, think carefully whether it is worth the risk or not, to receive the airdrop.
9. You might want to think about setting up a special wallet with the sole purpose of receiving airdrops.  Once received, this can easily and securely be transferred to another wallet.

The Verdict

The airdrop can be a really effective way to reward ownership or perpetrate a fraud.   Think on it: It is quite literally ETH or BTC falling from the sky.   These are unanticipated by the recipient, yet welcomed by them.  On the other hand, in order to receive this “mana from heaven” the over-eager potential recipient could pretty easily be fleeced, and tricked into giving up valuable identifying information.  If people are airdropped currency, they should quickly check and make sure that the airdrop is not a bogus attempt  to trick them into giving up valuable information to be used by an unethical hacker.  Once again, the price we pay for such  great potential benefit is eternal vigilance.                                                                                                                                                                                                                                                                                                                             

REFERENCES

https://blog.coinbase.com/security-psa-airdrop-phishing-campaign-38b880c0298a

https://www.coindesk.com/tech/2021/09/21/no-airdropped-nfts-cannot-empty-your-crypto-wallet/

https://www.thebalance.com/what-is-a-cryptocurrency-airdrop-5217777

https://academy.binance.com/en/articles/what-is-a-crypto-airdrop

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.