The Worm Can Be Turned.

Headline:  What is Wormhole in the world of cryptocurrency?

Body:  OK I will admit, I used to be a fan of Star Trek Deep Space 9.  There, I said it.  Most memorable is the beginning of the show where they would illustrate 2 black holes in space, connected by some kind of tunnel.  This kind of arrangement would ostensibly allow a space ship to flay faster than light, and go from one area of space to one VERY much further than could be reached under normal circumstances.  (This is assuming that one’s ship could withstand the immense gravitational fields and other phenomena related to a black hole.)  All of that aside, the idea is of linking one area of space directly to a VERY distant one is attractive.  The Wormhole is one of the world’s best-known bridges.

This was the idea behind Wormhole.   In this process, normal BTC is tokenized, and these tokens are transferred to other appropriate blockchains.  The large difference will be that the cryptocurrency is based on currency native to that blockchain, not a wrapped version of BTC.  This is considered a canonical token. In effect, ETH is held as collateral to back the purchase of Solana or other cryptocurrency.  This is supposed to make cryptocurrency much more interoperable. 

Recently, there was an exploit, using the Wormhole functionality.  As a result of this security flaw, hackers made off with $325 Million.  This bug seems to have started because of an update of the GitHub repository.  (This appears to be a conduit for distributing code updates to participants.)  This is interesting to me because the hacker who did this was offered an honest $10 Million bounty to reveal to developers where the bug was.  For now, it remains unclear where they will obtain the needed $325 Million to reimburse users.  Interestingly, the stolen cryptocurrency went to one central wallet, and regulators and other “net good citizens” are watching carefully for any action within these wallets.  (The authors helpfully supply the public keys for 2 of the main wallets affected.)

The Verdict

The point that keeps being made is that there is always a tradeoff between usability and security of cryptocurrency.   This is to some extent true, but, I think it is overblown within the cryptocurrency space.  I do not know anything about coding, but it seems that if the developers test their software more extensively, they  might be able to minimize the impact of these exploits in the future.

REFERENCES

https://www.coindesk.com/tech/2023/05/11/threshold-network-goes-live-with-wormhole-to-bridge-bitcoin-to-20-blockchains/

https://www.theverge.com/2022/2/3/22916111/wormhole-hack-github-error-325-million-theft-ethereum-solana

https://www.investopedia.com/crypto-theft-of-usd320-million-wormhole-hack-5218062

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 They Dublin Their Money?

Headline:  Why are cryptocurrency firms moving to Dublin?

Body: I remember one time there was a very famous bank robber.  After having been caught, he was asked, “So, why did you decide to rob banks?”   He looked disdainfully at the detective, “Cause, that’s where the money is.”  I suspect that this is why cryptocurrency firms are moving to Dublin.   But, maybe the crypto bros are huge James Joyce fans?   Let’s look at this.

What is going on?

Crypto exchange Gemini has selected Dublin as the headquarters for its European operations, amid a backdrop of crypto companies seeking expansion outside of the United States. Leaders of Gemini, the Winklevoss twins, confirmed this information recently.   When asked why, they cited a good pool of talent and a supportive regulatory system.  And, Gemini is not alone; Both Kraken and Binance have initiated activities there, apparently in response to passage of Markets in Crypto Assets (MICA) regulation within the EU.

Many have asked why this movement is happening.   According to the Winklevoss twins (key officials within Gemini) this is due to the amorphous, yet hostile regulatory environment in the States.   (In various interviews, the Winklevoss twins kept referring to the “war on crypto” within the US. Within Ireland, Gemini is registered as a Virtual Asset Service Provider and it is regulated under MICA.

Why Ireland?

“It’s beautiful and they don’t serve haggis, isn’t that enough?”  This was ostensibly exclaimed by the mayor of Dublin.  The  leaders of Gemini were less motivated by the lack of haggis and more motivated by the deep pool of talent and a community  ready to support their enterprise.  Per the Gemini leaders, Ireland will serve as a great entry point to the EU.

Key to this community is the Central Bank of Ireland Inovation Hub.  In this organization, different fintech firms can immediately discuss innovations with the Central Bank.   This ensures that there are fewer surprises for all parties involved, in the future.  This is somewhat akin to a program used by the IRS.   To head off the reasons for an audit in the future, the IRS  can become pro-active.   (These companies have to be BIG, think defense contractors and the like.)  The IRS will install an office within that company for a certain period of time, and if company personnel are considering a new kind of transaction, they can get an informed opinion on how it is going to be taxed.  In this manner, the need for very expensive audits can be diminished.  The Innovation Hub seems to act in a similar manner.

What I would say is we are in a very different monetary policy and interest rate environment and, as we know from other discussions, I think our sense from talking to firms, is that there are some changes in the sort of investment and investor appetite for these types of firms as well,” she said. “We’ll be looking out for that this year”.

The Verdict

I don’t  feel good about Gemini’s chances and I’ll tell you why.   First, Mr. Winklevoss keeps referring to the “war on crypto” and yet, he does not define what he means or how he is going to engage.    This is not the outlook of a long-lasting champion in business or any other field. Second, Mr. Winklevoss is quoted as saying that he foresees a “Cambrian explosion of innovation.”  This seems to me overblown.   In my humble experience, Mr. Winklevoss might benefit from a reminder of how many species in this evolutionary period, are now extinct.

REFERENCES

Crypto firm Gemini picks Ireland as European base amid US crypto blues (cointelegraph.com)

Gemini Will Base European Operations in Dublin, Ireland (cryptopotato.com)

Binance News on Binance Feed: Crypto Firm Gemini Picks Ireland As European Base Amid US Crypto Blues | Binance Feed

Cryptocurrency firms still engaging with Central Bank despite downturn – The Irish Times

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.

 

What is a Memecoin?

Headline: 

Body:    I remember joking around with a group of friends, and saying how one of the guys in the group had saved some orphans in a fire.  I thought this was pretty funny, so I went to the Paint program and dummied up a “newspaper article” remembering Joe as the swashbuckling hero who single-handedly saved 4 orphans from certain death.  I thought it was really funny and I thought I was super clever for having “substantiated” the claim.

Well, it turns out that when you are a multi-millionaire or billionaire, your jokes become so much more complex.    In point of fact, some get so involved that their “jokes” have their own cryptocurrency attached: That’s how we get Dogecoin and others.  These coins that started as a joke among wealthy friends are often referred to as meme coins.

OK, so what ARE meme coins?

Let’s begin by defining what they are NOT.    Bitcoin and Ethereum are occasionally useful for investment purposes.    The meme coins are (with exceptions) worthless because they are so thinly traded.   There is simply not much of a market for them.  In fact, many within the media describe these meme coins as pump-and-dump schemes.  On the other hand, they can act as a fun and enjoyable way to begin or continue a conversation about investing.  On the off-chance that it earns a profit, you could have a homerun.  But, it most likely will not happen that way.  You can buy a variety of meme coins from either centralized or decentralized exchanges.  In fact… you know what….I’m going to start my own cryptocurrency.   Let’s see… dog themes seem to be good.   Some kind of  alliteration or rhyme scheme seems to help.   Aah, I’ve got it.   I will sell canincoin.  (It really can be THAT easy.)  Before you make too much fun of my cryptocurrency, please consider that there is a cryptocurrency called “Australian Safe Shepherd” hereinafter referred to as, well, ASS.

A good joke amongst millionaires, where’s the problem?

The problem is that normal people, people like you and me, don’t have the millions to fall back on.   So, when there is a rug pull, the millionaires simply laugh and clink champagne flutes.  C’est la vie!  But, the normal folk who get caught, lose all of their money, and this is the problem.  Also something to be considered is how incredibly thinly traded these memecoins are.   Basically, there must be a market made for each individual sale.  And, between the buying and the selling, the value of this cryptocurrency can vary dramatically.    Added to all of this, the rate of inflation is unreal because many of these memecoins don’t have the built-in inflation defense of burning.

It gets worse, I’m afraid.   For all of the above-referenced reasons, the pricing of these meme coins is highly volatile.   But, the other important ingredient (read “ingreedient”  perhaps) is that these meme coins are marketed on social media, reaching people who completely lack the wherewithal to understand cryptocurrency as an investment.  Add the small possibility of immense gain (and the flipside of large probability of large loss) with the popularity of social media and you have the recipe for potential financial disaster for many.

The Verdict

Please, please be very careful if you invest in memecoins.

TREFERENCES

Meme Coin Explained (investopedia.com)

What Is a Meme Coin and How Do They Work? | PCMag

Memecoin mania triggers triple-digit gains from Binance Smart Chain-based altcoins (cointelegraph.com)

What Are Meme Coins? Definition and Examples – NerdWallet

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.

 

It Takes (Fake) Money to Make Money?

Headline: What is liquid staking?

Body:  OK, in the past, we have explored the Proof of Work consensus model of early Bitcoin network.   In essence, it required miners to solve very complicated computational hash functions, and the first one to the right solution, would receive a reward denominated in Bitcoin.  This worked but was extremely inefficient, requiring massive amounts of electrical power to run the boot-strapped supercomputers, and there were more than one actual fires and explosions.  So, it was a step, when Ethereum came along and used a consensus model of Proof of Stake for its validators.   These validators need to have a minimum of 32 ETH to become a validator, or they can work with others in a “staking pool.”  It should be noted that some validators can earn quite a high APY for their staking activities.

This is exciting!!  So, what’s the downside?

There are 3 main problems with staking Ethereum:

  1.  Minimum amount is highà  Currently, 32 ETH is required to be a validator and as of 5/7/2023, this would be in the neighborhood of $61,000 USD.   So, it is quite an investment that is required.
  2. Individual responsibilities are weighty
  3. The assets are immovable until the transactions are enabled and added to the blockchain.  So, the validator cannot sell or transfer these ETH once they are staked to help process a transaction.  This process can sometimes take a long enough time that the price per ETH has moved markedly. To get past this problem, some investors try to stake transactions through a centralized exchange.   But, they should know that the exchange might charge a considerable fee for the liquidity that they gain.

So, what is one to do?

We have seen something like this before.   Remember Mortgage Backed Securities?   When placed into tranches of increasing risk, the mortgage backed securities can be grouped into collateralized default options, essentially a derivative of mortgage backed securities.  (Remember how incredibly successful those were in 2009?)  Liquid staking allows one to place their ETH into a staking situation and receive daily staking rewards.   But, in liquid staking, the validator also gets tokens representing their interest in the staking pool.    So, they can transfer this token however they would like, and it is purchased, sold or transferred, just like an ETH.   (Before you jump up and down, screaming “I found a loophole!” you should realize that this is a type of debt until the transaction has been added to the blockchain.  Thus, liquid staking is a leveraging of cryptocurrency.  This is extremely risky.  (Remember my illustration of derrivatives in cryptocurrency?   It is like trying to change a light bulb on the ceiling by standing on 2 stacked rolling chairs.   This is not recommended.)

That said, there are services out there today, designed to help you become involved in this liquid staking.   For instance, there is a service called Lido (currently holding over 75% of the world liquidity staking activity), and they will help you to execute your liquid staking on the Ethereum blockchain.   And, there must be many others as well because more than $14 Billion USD is represented in these liquid staking paradigms.  (One investor has over $500 Million involved in liquid staking arrangements already)  These services are even honing their marketing materials effectively, as they emphasize the investor maintaining their sovereignty over the cryptocurrency.  As a result, after the Shanghai upgrade to ETH, liquidity staking is expected to increase markedly.

What is liquidity staking versus exchange staking?

OK, liquidity staking was explained as a form of derivative instrument above.   It allows one to use the tokens for whatever purpose they desire, regardless of use case, and not restricted by exchange.   Exchange staking is just like liquidity staking, BUT, you keep all tokens and coins within one exchange.  This can be convenient, BUT, be aware that the exchange is now a counterparty to your transaction, and they might restrict what you can do with your assets.

Top 3 Ethereum Liquid Staking Protocols

What are the Top 3 Ethereum Staking Protocols?   I will explain them briefly below, but, please be aware that Lido is by FAR the largest,  holding about 75% of the liquidity staking market in cryptocurrency.

Exchange ProtocolWhat is received by investor?What is the native cryptocurrency of the algorithm?What is the size of this protocol?
LidostETH tokens are received by the investor on a 1:1 basis.   stETH are minted immediately and burned when redeemed.The native cryptocurrency of this protocol is the LDO$7.68 Billion
Rocket PoolSimilar to the above.The native cryptocurrency of this protocol is the RPL$800 Million
AnkrSimilar to the above.The native cryptocurrency of this protocol is the ankrETH token.$153 Million

The Verdict

There is an idea in investing that, to obtain the  potential for reward, one must also stomach an equivalent amount of risk.  To be sure, the potential rewards for liquid staking can  be very enticing.    The risks that accompany these potential rewards are so numerous, it doesn’t seem that there is equity between the two.   Further, on the equity markets generally, when buying a stock, the potential losses are limited to the amount invested.   But, because of the derivative, the losses related to this investment, are unlimited.    Overall, it appears to be a sub-optimal investment.

REFERENCES

Liquid Staking and Its Benefits: A Deep Dive by Lido | CoinMarketCap

Liquid Staking Replaces DeFi Lending as Second-Largest Crypto Sector (coindesk.com)

Liquid Staking Takes DeFi By Storm With $240 Million Lido Inflow, Apparently From Justin Sun (forbes.com)

What is Ethereum Liquid Staking and Why It Is Crucial As Shanghai Upgrade Approaches? (cryptopotato.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.

 

There is a Difference between Trader and Traitor.

Headline:  Can you become addicted to trading cryptocurrency?

Body:  I don’t know about you, but there are a few things I probably addicted to.  First, there are bananas.   Love, those bananas.    Then there’s coffee, probably less than pathological addiction to each, but, I will go out of  my way if I am out of these items.  You might have your own addictions, perhaps it’s a cigarette after dinner, maybe it’s going to Thrift stores to find first edition books. Whatever it is, it  makes you feel somehow complete, and if lost, you are left somewhat bereft.    (I am developing an addition to online Scrabble playing  too, so, yeah, I feel your pain.)  These already mentioned are minor, and will not kill you ever, or at least for decades.   But, some addictions have FAR more deleterious effects (e.g. alcohol, drugs, gambling).     As we always hear warnings about these, there is one more I have to add to the list.    It IS possible to become addicted to trading cryptocurrency.  At first I was skeptical, but I think a pretty good case has been made.  But, you be the judge.


What is cryptocurrency trading addiction?

Sternlicht defines cryptocurrency trading addiction as the “persistent or recurrent pathological compulsion and obsession to engage in the behavior of investing in or trading cryptocurrencies despite negative consequences to personal and/or professional areas such as financial loss, disruption to relationships, career problems, mental health issues, and other such negative consequences.”  It seems that the group most at risk is the group of people who consider themselves to be financially knowledgeable.    They feel that they MUST know more than the person next to them, and thus can make REAL money on this trading thing, and only then realize  how vaporous cryptocurrencies can be and how incredibly volatile the pricing can be.

Why is this such a dangerous thing?

This is simply my theory, but it seems to me that trading cryptocurrency can supply (to some) the rudiments of the other addictive behaviors.  That first hit of smack can probably make you feel quite powerful and in control of your environment, and be very exciting at the same time.   Make a good trade on cryptocurrency and you obtain many of the same feelings.   Adrenaline junkies are effectively the same; They will do some pretty dangerous things in search of that BLAST of epinephrine and the elation of not being killed, while doing something that likely very few have ever done.  The price volatility involved in cryptocurrency can serve as a very good stand -in for a cliff or high bridge from which one can bungee jump.  I can hear some arguing that “This is NOT the same!!”  Well, I’m afraid it is, as it has already been repeatedly seen in people who day trade stocks.  What makes cryptocurrency even worse, potentially, is that they can be traded 24/7 and the only apparatus needed is a phone or computer.  (The side effects can include other addictions too.  Many addicts really love the 24/7 action, and many start to use amphetamines to allow themselves to be awake far longer.   This can create its own problems.)

But, wait, there’s more!!  There are now a plethora of stars and celebrities behind the hocking of cryptocurrency.   Matt Damon has promoted Crypto.com and Tik-Tok “Finfluencers” can be found by the score, each one explaining how they became rich using memecoins.   Many of them even have a helpful study course you might purchase from them.   How nice!!

What can be done to prevent addiction?

Cryptocurrency should be seen as an investment activity, and investing SHOULD be boring.  The research done should take a respectable amount of time (commensurate with the amount of money being placed at risk, of course.)  But, in my reading, most of those addicted read about the projects funded by these altcoins, as they were scrolling social media.  This seems to be the maximum extent of the research done by most.   So, I have a few ideas.

  1.  Have an accountability buddy and see if your “investment idea” passes the smell test with them.
  2. Read the whitepaper associated with each currency.
  3. When done reading, sketch out the reason that the currency is being created, and why each member of the management team  is important to its success.
  4. Sleep on it.  If it’s a good investment today, it should be a good investment 1-2 days from now.
  5. Keep most of your cryptocurrency and other digital assets in a cold wallet NOT connected to the Internet.

So, what can be done for the addict?

First, there is a monitoring regimen setup over their access to bank accounts and credit cards.  (Some even have access modified to allow only transactions  permitted by their therapist.)  Counseling sessions (one on one) are useful, but it seems that this is a particularly good use of group therapy techniques.   The group is a particularly powerful paradigm because each group member can have their feelings validated by other members of the group, and the patient can realize that he is certainly not alone.

A word of caution here.   The APA has not yet come up with a diagnosis for crypto trading addiction , so getting coverage from your insurance company could be tricky.   But, it is very much akin to gambling addiction.   The symptoms are very similar, the triggers are nearly identical, and the treatments are largely the same.

The Verdict

This can be a real thing, and cause REAL harm to real people.   But, then again, so can almost anything taken to extremes.  (Did you know that you CAN be killed by too much water in a restricted period of time?   It takes A LOT but, it can be done.)  There is a point of perspective though.   I have taken material from 4 different publications that I find to be credible.   When reading each in depth (don’t do it, it’s not worth it) one quite quickly can see that each article (remember, these are the CREDIBLE sources) always 4/4, mention the same protagonists, a husband and wife therapist.  Ostensibly, as they are positioning themselves as the go-to experts, they are likely  going to see much more revenue in their pockets.   I might be a cynical member of GenX, but, as one reads the literature, this one tidbit should be borne in mind.    The threat is real, for some, but for all, it can be avoided or treated.   In the interim, just do what you can to be observant of the changes in behavior of those you love.  Check in with them, and really find out how they are doing.  And, in Loving Memory of Jerry Springer, Be good to yourselves, and each other.

REFERENCES

https://cointelegraph.com/magazine/cryptocurrency-trading-addiction-what-to-look-out-for-and-how-it-is-treated/

https://www.washingtonpost.com/technology/2022/04/29/crypto-addiction/

https://www.coindesk.com/layer2/2022/05/04/i-totally-obsessed-over-it-how-crypto-addiction-almost-ruined-my-life/

https://www.ft.com/content/f8670d81-2632-498f-8b18-4d2ba14101f7

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.

 

Metaverse Standards

Headline:

Body:  OK, let’s close our eyes and imagine a scenario, both wonderful, and daunting.   Here we go.  You are running a very successful manufacturing plant in the U.S.   You make heavy pieces of railway infrastructure, and your business is booming.    On a vacation with your family, as you are desperately trying to remember their names, you are  taking in the sites of  Poland., and you see a manufacturing plant doing the same type of work, only better and it turns out cheaper.  You do some investigating with your legal team, and come to find out that there is a new owner, the grandson of the founder, and he wants OUT!!    So, he agrees to license to you for very little, the technology that made his family so fabulously wealthy, and you happily nap later, dreaming about the stacks of cash you will have to find homes for.   Only, there are 2 snags.   First, you forgot that European rails are of one gauge, and the U.S. rails are of a slightly different gauge.  You shrug, figure that your shop foreman can translate, and roll in your slumber.   But then the other shoe drops.   All of their apparatus, tools, procedures, protocols, everything are denoted in metric measurement,   Your people are all trained on U.S. measures.  Your  dreams of profitability might’ve been de-railed.

The different metaverses are somewhat similar.  The local currencies function differently, the character development is very different, and the ability to develop new items are at very different levels of difficulty.  This is why the question of interoperability is so important, so that the currency, characters and items can be ported from one metaverse to another.   But, to do this, there needs to be a common infrastructure underlying all of these items.  Developing this common infrastructure is why the Metaverse Standards Forum exists.  Let’s chug along and  perhaps see the end of the line.  (OK, I’ll stop with the train jokes, but, I really am rolling.)

So, OK, what IS the metaverse?

Simple answer is nobody can really define it: In point of fact, the members of MSF have a very active debate raging on this very elementary principle.  It should be a fully immersive space where one can see and hear (and eventually smell?) things that are not physically in the room with them.  Currently, the environments are not totally immersive but instead, are on a continuum, but each one is very siloed off from one another.   The Internet became so engrained in our lives because it was not walled off from one app to another, so to reach their imagined endpoint, the perfect world would all emanate from one point, and be freely navigated from world to world.  This runs counter to some visions of the future, so, we shall see  (and feel, and smell?)

What is the Metaverse Standards Forum?

OK, just a little reminder.  In this case, Metaverse Standards Forum (MSF) is what we’re talking about, not Medcins sans Frontiers (Translated Doctors Without Borders).   This is important to understand because this very generous organization is also abbreviated MSF.     Our MSF is an organization (of private companies, chiefly) that work together to institute a common infrastructure of code and  protocol, with the aim of accelerating the development of the whole gamut of metaverses.  Activities are sponsored by the Khronos Group.     I won’t bore you with the entire list of projects, but, when it becomes obvious that some standard has to be set for something, MSF starts a project on that area.  For example,  MSF might decide that common protocols have to be set up to take care of Digital Asset Management.    MSF puts together a Working Group to investigate that process, with the end result is a recommended common  protocol.    In their efforts to understand this process, the Working Group might sponsor hackathons to learn about what works and doesn’t work, on an accelerated timeline.  There are some truly HUGE companies supplying talent to MSF, but oddly, Apple has decided not to participate.  But, there must be a reason because, a few other suspects (Roblox and Decentraland among them) have made a similar decision.

All this sounds great!  Where’s the controversy?

Well, it does sound good, but there is politics to consider.   One of the companies to participate in MSF is Huweiwei, the Chinese company that makes 5G components for the Internet, probably really important to the future of metaverses.   But, some think that the company is part and parcel of the Communist government in China, and will not want to participate for that reason.

So, who’s getting the most right, right now?  Who is lagging, right now?

It would appear that, right now, the most immersive environment is the Omniverse, which is an environment designed by Nvidia.  Currently, it is being used to program autonomous vehicles, and will hopefully help to predict weather patterns, especially as they relate to global warming.     Meta, (f.k.a. Facebook)   has made a lot of vague promises, but not too much has come to fruition.

The Verdict

When we first got the “Internet” it was filtered thru the lens of an ISP, either AOL, or one of the other providers.  Unsurprisingly, some of the details of how things were presented were different from network to network, each one was its own “walled garden.”   As the Internet evolved, the different views of it began to be more uniform.  I think the metaverse will likely follow a similar model.   Right now, each one is a siloed area, which is somewhat OK (in many cases) presenting information to the user.   But, in the future, I think that all of these individual metaverses will begin to speak with each other, and the environment of the place will begin to be more and more immersive.  The question I think we have to ask is how immersive do we really want to have this metaverse?  Could it grow and develop to be so convincing ( and attractive) that people don’t want to leave, and eventually forget to eat, or drink water?  Sounds kind of ridiculous, but these are valid questions that we must ask ourselves.  The MSF will likely not approach these very difficult subjects, but they will hopefully, provide us with a language with which we can all better communicate during the intense debates.

REFERENCES

Microsoft, Meta, and others are founding a metaverse open standards group – The Verge

Meta and other tech giants form metaverse standards body, without Apple | Reuters

The Critical Importance of the Metaverse Standards Forum (technewsworld.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.

 

So many Realities… I need an Agent.

Headline:  A/R versus V/R versus X/R

Body: 

What is “VR” v. “AR” v. “XR?”

Intro: A confession I have to make first, is that I occasionally watch… South Park.  From time to time, their social commentary is so entirely on point, you grimace through the poop jokes to see the larger points.   In one episode, the South Park officials were convening to discuss what should be done to address the threat AI was posing to their community.  One guy, in the South Park Militia, kept shouting, “They took our jobs!!”    Although this was meant to be humorous, it brings up a really valuable point.  The next article I was reading was about VR, AR and the mysterious XR, and I was motivated to learn more about the differences and, sometimes, the ramifications.

V.R.

VR immerses the user in a virtual environment to create believable experiences, whether they immerse the user in a real-life situation or a creative imaginary experience.   Sometimes first responders don these goggles to virtually “walk” thru a building that they were about to enter.  Other people use them to participate in games.   The sexy bit is that your body can be in one environment, and your attention is in a completely different environment.  With headsets, goggles and even haptic feedback, the flow of information to the player, and FROM the player is bi-directional and continuous.

A.R.

Augmented Reality (AR) requires a bit of an explanation.    Goggles and headphones might be both used.  But, as one looks thru the glasses, one will see the world as it physically is, but with extra information superimposed on it.  For instance, a police officer might have goggles on that identify where there are people hidden.  For normal people, you will still see the pizza joint in front of you, but you might also see a rotating sign that says, “FREE Pizza, just leave your opinion on our service.”  In reality, the sign does not exist, but in the goggles, it is very salient, in bright purple.

X.R.

Extended Reality (XR) encompasses both of these and the metaverse.  As the article said, “Think of a 3D internet that you could access from anywhere through a laptop, smartphone or headset.”  One particularly interesting use case of XR is the virtually trying on of clothes.  In the past we pick out 3 or 4 garments we want, into the back to try them on, one by one.   With XR, we can step into a booth, and the computer scans our body to make a hyper-accurate digital model of our body.   Then, with those measurements and the model, the computer can virtually “try on” the clothes and see accurately how the digital clothes mathematically fit on the digital body. 

XR is being used in business.    Some manufacturing plants haver been designed with XR designed into it.    In some manufacturing plants, when a machine is needing maintenance, a virtual orange arrow will appear above the machine, indicating to personnel that attention is required.  When the proper goggles are worn, these orange arrows can be seen.  In the consumer world, probably the best-known example of XR technology is the Occulus Rift headset.  This headset can be used with a variety of entertainment software packages.  Finally, that most annoying cat-filter found on a Zoom call is an example of XR technology.

Summation Table

VRXRAugmented Reality
Fully virtual experience.Umbrella term for A/R, V/R and metaverse.Virtual elements are added to the normally-viewed landscape.
Works through a headset.Works through a headset or smartphone.
You see ONLY the virtual world.You see the real physical world with items floated on top of it.
There are FREE  apps, but they do require a headset.Can be used for Free through mobile apps.






The Verdict

There are an awful lot of new terms we have to define as these new technologies  begin to hit the mainstream, but this is nothing new.  Until the early 1990s, a “CD” was a certificate of deposit that on held at a bank, with the expectation of a decent rate of return.  After this, CD often referred to  a plastic/metallic disk that will either play music or transfer other data.  We will gain comfort with these new labels as time goes on.

REFERENCES

AR, VR, MR, and XR – what they mean and how they’ll transform lives (qualcomm.com)

What is VR, AR & XR? Meanings, Explanations and Examples (verizon.com)

AR vs. VR vs. MR vs. XR: Which Extended Reality Is The Best? (yahoo.com)

What Is Extended Reality (XR) and How Is it Changing the Future? | HP® Tech Takes

AR versus VR versus XR.docx

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REFERENCES

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.

 

Mixers, Blenders, Tumblers & Foggers. Bar? Home Depot? or Cryptocurrency?

In cryptocurrency, there are businesses that a called “mixers” or “blenders”  on the Ethereum blockchain.  The purpose of these businesses is to help disguise the source and target of funds.   Many people believe that there is no purpose for this service except money laundering, but there might be legitimate reasons.   For instance you might live in a country where your rights are often not enforced, and so, to defend yourself, you would want to re-enforce anonymity.    But, Tornado is accused of laundering a total of $7 Billion.  Specifically, the Treasury Department believes that Tornado Cash was used in several schemes perpetrated by North Korea.

How do mixers work?

Well, you take a quantity of mixer, pour into a glass, add a shot or 2 of vokdka…   Oh, sorry.  Cryptocurrency transactions are indelibly recorded on a blockchain that is publicly available.  Put simply, these mixers will co-mingle transactions, thus making the sources and targets of these funds less clear. 

Are there different kinds of blenders or mixers?

There are both centralized and decentralized exchanges, so it is likely not surprising to find that there are also centralized or decentralized mixers.     A centralized mixer means that there is a centralized  party who plans and executes these transactions.   There are also decentralized mixers (like CoinJoin or Tornado Cash) that require individuals to meet up  and agree to the transaction specifics.  Decentralized mixers charge much lower fees, but do require substantial knowledge of the individuals.

Are blenders and mixers legal?

They are not explicitly illegal.  But, they are often used for illegal purposes.   Per a recent report by Chainalysis report, they are the “go-to tool for cybercriminals dealing in cryptocurrency.”    The rub is that the US government believes that these companies must be registered under the auspices of the BSA.    This is quite complicated, and expensive, so the companies do not want to have to be registered, or abide by the  onerous recordkeeping requirements.

What can be done with non-compliant organizations?

Quite a lot can be done, especially with the help of international partners.  First, any servers used in this illicit activities can be seized by authorities.  They can face sanctions for their participation in international hiding of income.   Finally, they can also face a variety of criminal and civil charges.

Is this really a big deal?

Yes, it is.   In a variety of hacks, the ill-gotten gains were distributed using blenders, mixers or related services.

  1. In March 2022, there was a $620 Million hacking exploit on the online game Axie Infinity.   $20 Milllion of this money was distributed by Blender.io and this caught the attention of  the OFAC.
  2. In October 2020, the founder was ordered to pay $60 Million in civil penalties after his service Helix processed transactions totaling more than 350,000 BTC from 2014 to 2017.
  3. In April 2021, the founder of Botcoin Fog was arrested and stands accused of laundering $336 million USD in Bitcoin over a 10-year period.
  4. Tornado Cash laundered over $96 Million obtained in a combination of attacks on other cryptocurrency systems.  Crypto.com was hacked, and  it seems that 4,600 ETH was  washed using Tornado Cash.

The Verdict

A mixer can be a lot of things.   To some, it is a party so that people on a team meet each other in a social setting.   To others, it is a beverage one can combine with alcohol to improve the flavor of that alcohol.  To still others, it is a service that will help support the anonymous nature of their cryptocurrency transactions, whether illicit or legitimate.  But, one thing we can agree upon is that they exist, and we should then be perhaps a bit more skeptical when we think we know the source of our cryptocurrency transactions.

REFERENCES

Tornado Cash: What Are Crypto Mixers and How Do They Work? (coindesk.com)

Crypto Mixers and AML Compliance – Chainalysis

Mixers, Tumblers, Foggers – CipherTrace

US Treasury imposes sanctions on ‘crypto mixer’ over alleged laundering | Financial Times (ft.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.

 

Currently, Snowden in Russia.

Headline: What is the connection between Edward Snowden and cryptocurrency?

Body:  It might feel like a lifetime ago, but, just a few years ago, Edward Snowden blew the whistle on many Federal surveillance programs.    I will not opine on whether or not I condone what he did, just that to do so, he had to know a lot about cryptography and computers.   So, it seems appropriate to consider carefully how he might feel about cryptocurrency.  He has gone on record as being against the use of cryptocurrency as an investment.     The question is, why. 

I heard that he DOES use cryptocurrency??

Yes, he does use cryptocurrency to pay for server time.  He uses bitcoin to pay for this service because he can maintain much of his anonymity.  But, he makes a serious distinction between how he uses cryptocurrency, and others want to invest in cryptocurrency.  Just recently, there was a public letter signed by many knowledgeable people decrying  cryptocurrency, but Mr. Snowden seems to think that many of the undersigned were pressured in some way.  He also opined that many of these people know enough about cryptography  to understand that there are ways to ensure fair dealing in cryptocurrency.  Still, Snowden seems concerned about the metadata that accompanies the transaction.

He also seems to be concerned that BTC price structure very much resembles what happened in March 2020.    Despite his concern about investing in Bitcoin, he also indicated that current prices could encourage him to purchase some for future use.  In point of fact, he has already been involved in cryptocurrency.   He and a few other individuals started a cryptocurrency called Zcash.  This cryptocurrency was designed to be entirely anonymous and would remain so, assuming that at least one of the original 6 developers  truthfully destroyed their key used during the development process.  Recently, an engineer developed a way to avoid the trusted set up “ceremony” that was previously required.  In his final parting words, Snowden expresses excitement for the improvements made and the implications it has in moving forward to a more free and private currency.

The Verdict

The lesson here is quite simple, I think. We should use cryptocurrency and avoid being used by it. So, unless you have a smallish amount of money that you can reasonably risk, you should probably not be making investments in it. On the other hand, unlike short selling, the losses are limited to your investment. So, consider your situation carefully.

REFERENCES

https://fortune.com/2022/06/11/edward-snowden-says-use-crypto-dont-invest-in-it-bitcoin-is-what-i-used-to-pay-for-the-servers-pseudonymously/

https://www.coindesk.com/business/2022/06/11/edward-snowden-says-use-crypto-dont-invest-in-it/

https://cointelegraph.com/news/edward-snowden-says-he-feels-itch-to-scale-back-in-to-16-5k-bitcoin

https://www.entrepreneur.com/business-news/edward-snowden-revealed-as-secret-participant-in-the/426323

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.

 

Metaversus?

Competition is fierce.    In the natural world, the hyena clans clash with prides of lions, and only the strongest survive.   In a similar vein, the world of gaming has seen a lot of innovation and competitors have come on the scene to knock too-comfortable champions off of their thrones.   Atari competed with Colecovision, in the next generation, Nintendo is in an intense competition with Sony PlayStation.  So, we should probably not be surprised to see that when it comes to online social-gaming, the same competition would be keenly felt.  And, you would be right.

In the beginning, there was Second Life, owned by Linden Labs.  This was a rather clunky, though immersive platform, and it was only 2020 when Linden Labs sold this franchise to other investors.   Other newer, shinier toys beckon from the over-stuffed toy box.    I have done some research and these seem to the largest competitors to Second Life.  For fairness, I am presenting them in alphabetical order.

Avakin Life

Avakin Life is a social game after the example of Second Life, but with more complex functionality.  It was created by Lockwood Publishing (which has a large investment from Tencent.    There are over 200 million users of this platform.  Its success seems to stem largely from the developers’ focus on the phone and mobile computing.   This is the 4th generation of games from the company, and this seems to be the biggest hit they have had.  It is written up in any variety of websites and other publications.

The game was launched in 2013 on Google Play  and was a hit because of the gameplay, but mostly as a result of the social interaction.  It seems that one of the largest hurdles was designing a system for people to pay for things that they could use in-game.    One of the unusual features of this game is that the designers provide everything: There is no user-generated content in the immersive Star Trek and Tron-inspired world.  And, the company seems to be in the space for the long term.   Said one of the co-founders:

We saw how long it takes to develop a world and for the community to form,” Bjornsson said. “We saw how important social is. But we fell into this. Our style has been steady organic growth.”

Club Cooee

Club Cooee was started by a German startup, and recently added a 3D instant messaging service that combines avatars (with changing facial expressions with the ability to send videos and pictures.  These 3D avatars can be highly specialized, and clothing and accessories can be purchased in-game for “Club Cooee credits.”   In addition to gameplay, they can now converse in duos or groups, selecting a venue using in-game items.  The person can pay extra, and get access to premium services.    The founder, Alexander Jorias hinted that the platform was looking to make money with B2B partners.   The advertising will be non-standard making me think that there will be signs up in the game or sponsored activities that occur in-game to promote these partners.

To monetize, the site will allow users to buy extra credits to purchase virtual goods, and will also offer premium services for a fee. Founder Alexander Jorias says that the service is also planning to generate revenue with a number of B2B partners, and that little, if any money will come from standard advertising.

Garry’s Mod

Garry’s Mod (GMod) is a program made by Garry Newman that allows you to change the game of Half Life to your specifications . If you’ve ever searched “Half-Life” on YouTube, you probably have seen a Garry’s mod video, and many people seem quite excited by both the videos and the gameplay.  Besides being a social game, Garry’s Mod also appears to be a wonderful “sandbox” which allows players to create tools that will build spaceships.   There is also a “tool gun” which can help one manufacture vehicles or change the facial expressions of your avatar

Just to be fair, I should warn you that Garry’s Mod (GMod) does contain some blood and gore, so, be mindful.  It does require download of a Source engine game first, but this doesn’t seem like an onerous task.

GoJiyo

GoJiyo was developed by an Indian firm, and the idea is that you (either solo or with a group) can go on quests.  At the completion of these quests, you get points that can be used to buy in-game merchandise or real-world items.   You can do an awful lot, (e.g. greatly customize your character and meet new friends), but there is an impressive list of things that you cannot.  Interestingly, this game too strictly does  not allow for user-generated content.

Jios and Mios are the currencies of this system, and if you collect enough of them, you can earn a real-world trip to Mt. Kilimanjaro.   Users agree, though, that to earn these real-world inducements takes a very long time.

IMVU

This application does a lot of different things.   It has a 3D chat feature where you can have your avatar chatting with friends, and allows the person to shop at many different vendors.  It also allows you to have your own website and customize it to a very high degree.  Credits are the coin of the realm and you can use them to customize the appearance of your avatar.  There are a lot of ways to get credits including getting your friends to sign up for IMVU.  The truly unique thing about this program is the content is 100% user-created.  For an additional fee, you can be in the VIP club which gives you a special badge and removes third party ads.  There is also an Access Pass that is used to ensure that only adults are granted access to the areas that are geared toward adults.

Also unusual among these sites, there is a variety of ways to earn credits while contributing to the community.   There is a peer review function and these people perform a quality control function.   There is also a group for creators, who design new functions and products for the community.

The Sims 4

For 20 years now, we have had multiple editions of The Sims, wherein you create characters with their own life stories, and control them as they interact with your environment.   Up to now, this as been a single-player game.   But, with Sims 4, there seems to be an expansion module that will allow you to in some ways interact with a group of friends.  This is not really meant as an immersive social game, and seems to be a way for the manufacturer to dip their toes into the waters of social play.   But, there are rumors that The Sims 5 will be coming out soon, and combine the ability to control multiple characters and still interact with others.    Currently, this platform does not really fit with the others, but the title is well-known and came up in research again and again.

Twinity

Twinity was developed by Metaversum and run by ExitReality since 2012, and allows its citizens to run around 3-D renderings of historical versions of real-world cities.  Recently, Twinity has been introducing more fantasy-related worlds, probably thanks to its large amount of user-created content.  Twinity allows users to upload pictures of their own face, which is used to create a personalized, identifiable avatar.  (If a different avatar is desired, this is easy to accomplish too.)

The currency of the world is the Global, which can be used to pay for apartments and accessories for their avatar.   Globals can be purchased on their homepage with any major credit card or PayPal.   Globals can be earned by attending virtual events or completing the post-registration “welcome tour.”

Twinity has an interesting mix of professional and user-generated content.  Once a user creates a new piece of content, they can sell this content to other users and earn Globals in this way.  Though the citizens are given a starter apartment, there is a real estate agent who can be used to find other possible real estate for their avatar.   With some noteworthy in-game accomplishments, there are badges that people can display on their profile.

The Verdict

Each game mentioned has its good points and bad.   The point being that there are a plethora of possibilities.   Plus, in the future, I think there will be multiple ways to make these games interoperable.  Said another way, you could build a character in one metaverse and port it to another.  This has the potential to be very exciting