The Music Industry Grows Back to its Roots.

Headline: How might NFTs change the music industry?

Date:

Body:  For decades now, there have been a relative few ways to get your music distributed.   You sign on to a label, and essentially, you sign away to the corporate owners all or nearly all rights in your creation.  In return, they leverage all of their relationships with radio stations and venues, and you get airplay and concert dates.   NFTs suggest a new way to distribute music.  When somebody purchases the NFT represented by your musical composition, it is recorded on the blockchain.  (Depending on how the smart contract is written, this is usually bragging rights, not ownership of the audio or composition.)   Otherwise, you give over your check to a record company, and you have very little left but the beginning of a GREAT country song, perhaps.  (Provided that you crash your pickup, and have your partner leave you.)

What is an NFT for music?

The NFT is essentially a receipt, granting you ownership rights to that song or composition, and this receipt is recorded within the blockchain, and this is essentially immutable.    Through the years, there have been countless court battles about who owns a certain song and this record-keeping makes court battles generally unnecessary.

Where can I find these music NFTs?

Opensea is the thought that comes to mind for NFTs.  But, music is different and there are music-only platforms that seem to be preferred. Examples include Zora, Foundation, Catalog and Sound.xyz.  In marketplaces such as this one, music NFTs can be paired with PDF documents that contain a transcript of the lyrics.  The appeal to music writers is that as the song is sold from person to person, the original writer will continue to get a small amount of the sales price, as original owners are recorded in the blockchain.  This is already happening.  Recently, Jacques Green sold the rights to a song, called “Promise” for 13 ETH, or almost $23,000.  Kings of Leon minted an NFT of an entire album, and paired it with a VIP experience to any concert the buyer might choose to attend.  In another development, Universal Music Group has partnered with the Bored Ape Yacht Club to develop its own band within a metaverse.

Most interesting to me, is a community called Anotherblock.   This  group minted an NFT in a song called “Weekend on a Tuesday” and each of the 250 investors in the NFT get a .02% share in streaming revenues.  In an issue of Cointelegraph, the CEO, Michael Traore was quoted as saying, “Music rights’ value is created by people loving and listening to the music, and doing things with it. Why shouldn’t [they] be able to own rights if they create the value by listening to it. They should be able to get some of the upside as well.”  When they polled their Discord community, Anotherblock found that the most interest in NFTs was for EDM followed closely by hip-hop.   Said one managing director of another online community, Shannon Heber,  “The ethos and focus of Web3 is identity, ownership and community.”    Maybe they’re on to something, maybe they’re on something, time will tell.

What’s the big deal here?

The big deal is 3-fold:

First, artists don’t have to pay off a huge record label for distribution of their music.   The fans, if they are ardent enough, can make a direct financial contribution to the bands they like.

Second, if there is a lesser-known artist, the owner of the NFT is motivated to do whatever they can to promote the artist, in an effort to make their NFT more valuable, should they decide to sell it in the future.  This benefits both the artists and the fans. 

Third, the NFT allows the artist to gamify the experience to encourage interaction.  As an example, one artist offered a cash prize of $50,000 for the best piece of content that could be created.   This  encouraged fans to create a lot of content that helped the artist, and helped them feel as if part of the team behind that artist.

OK, so what’s standing in the way of NFTs being very common in the music industry?

The technological learning curve for NFTs can be a “key barrier to entry,” said Lin Dai, CEO and co-founder of OneOf, an environmentally conscious NFT marketplace that champions emerging musical artists. “About 99% of all creators have not been able to really participate yet,” Dai said.  “Do your own research” (DYOR) is a standard piece of advice within the NfT community, and setting up your own NFT is no different.  You have to carefully consider which blockchain you wish to record your NFT, and then, which marketplace will be best to sell

The Verdict

When the Internet started, it took some time for people around the world to see the value of giving away information to others.  Blogs also took a while to catch on, but now there are millions of them worldwide, and some of the content is quite good.   On the other side of the coin, some of it is useless or even entirely mistaken in the information it conveys.  It has taken us some time to become societally comfortable with this arrangement.  Seeing this pattern, I don’t think it’s too much of a jump to presume that NFTs will also take some time to gain widespread public acceptance.  But, I think that for the truly devoted fan, the NFT will allow for them to qualify for truly unique experiences  that they might value very highly.    In time, we shall see.

REFERENCES

https://cointelegraph.com/news/nfts-democratize-music-industry-and-redistribute-song-rights

https://www.coindesk.com/learn/the-web3-guide-to-getting-into-the-music-industry/

https://www.binance.com/en/blog/nft/how-are-music-nfts-changing-the-music-industry-421499824684903380

https://www.npr.org/2021/03/04/973791982/a-small-choral-group-is-betting-big-on-tokenizing-their-art-with-blockchain

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.

We put the “Ex” in “executive.”

Headline: Why are all the executives fleeing from the cryptocurrency firms?

Date:10/26/2022

Why are all of the cryptocurrency executives suddenly stepping down?

Body: Remember that old trick from college?  Just after dessert, just before the check arrives, you develop the sudden need to use the bathroom?  Then (ostensibly after washing your hands) you return to the table, and like magic, the check has been paid.  It seemed to always work (until you got a job.)   Well, something similar seems to be happening in the C-suite within cryptocurrency firms.  Like rats escaping a ship, they all seem to be jumping at the same time.   In my brief research, I found 6 of them leaving within a few months.  The question as to why has to be asked.

Is this REALLY a big problem?

It appears to be a real problem, because at about the same time as executives parachute out, the cryptocurrency seems to lose all value.   And this sequence of events is repeated.  Don’t believe me?  A few examples:

These are just a few of the cryptocurrency executives who have quit their jobs in recent days.   Given that the industry is so new, this gusher of governance leaving is a major concern.   The question we have to answer is , “Why?”   Particularly interesting would be, “Why now?”

To answer this conundrum, I might offer a few observations that come to bear on these questions.

Laissez-le-bon-temps-roulez!!

Apologies to anybody reading this who knows French.  But, the good times will roll, until they don’t.  When these CEOs took over 1-2 years ago, cryptocurrency was on a tear, and these CEO were raking it in, hand over fist.  Well, the good times have stopped for now, and the piano player is demanding to be paid.  Welcome to reality, indeed, as cryptocurrency values have almost universally tumbled.  Bitcoin, for example, lost 60% of its value.  This first major slap in their faces, could go a good way toward explaining the exodus  of cryptocurrency executives.  But wait, there’s more.  In the last decade or so, cryptocurrency has had to deal with attempts to regulate it.  Said one expert, “If there is a firm in complete crisis and meltdown, you need an adult in the room, and you need that adult in the room to understand regulation and compliance.”   This same professional seems to think that the shifting is not yet over.

Inflation

Yes, another mention of the “I” word, and I don’t mean, I-phone.   During the pandemic, the U.S. government was forced to make decisions in monetary and fiscal policy that made inflation a very serious threat.   Doubtless, you are aware that that particular bird has come home to roost.   Badly.   The resulting inflation is beginning to erode the confidence that buoyed valuations of cryptocurrencies.

Investors

The new regulatory environment is not the  only headwind to this industry.   Investors in these companies (or projects) are beginning to demand that they see profits.    These entities are not used to shareholder pressure, and this too is forcing top executives to consider stepping down.

The Verdict

The cryptocurrency firms are very new, and it’s logical that the leadership is too young to have much relevant experience.  But, that certainly makes it no less important that experienced people also be involved.   In an open bay with a light breeze and fair weather, almost anybody can handle the tiller.  But, it’s when the storm clouds roll in (and, they will) that you want an experienced hand on that tiller, and an experienced one in the bow too.

I did notice one thing that didn’t seem relevant to the discussion above, but seemed a salient point nonetheless.    Many of these cryptocurrency CEOs who are stepping down are often stepping into other roles.   Many are stepping into new CEO roles representing a different cryptocurrency.  This is important to your research efforts, because as you identify the management team, it is now very important to identify whether this team represented other cryptocurrencies before.   Would this be good or bad?   Good question: I would say it could be either:   It would be good if they made all of their learning mistakes with the former cryptocurrency and now had the requisite experience to enable their considered judgement.  On the other hand, a series of cryptocurrency projects in the past could denote a very poor management ethos for that team.  I guess the important thing to do is look at their behavior and ask if you would trust your money to a banker behaving in this manner.  Once again, it is a very individual decision.

REFERENCES

Crypto CEOs are leaving their jobs. Here’s why – MarketWatch

Crypto shakeout engulfs the C-suite as CEOs start stepping down | Pittsburgh Post-Gazette

Kraken’s Jesse Powell to Step Down as CEO of Crypto Exchange (coindesk.com)

Celsius CEO steps down amid bankruptcy proceedings | Reuters

Kraken CEO Jesse Powell steps down | Fortune

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.

OOPS! Seems I’ve dropped the F-bomb!!

Headline: What is financialization?

Date: 10/23/2022

Body:  I have been looking at the literature related to cryptocurrency and blockchain and I keep seeing a word I am not familiar with.  The word is “financialization.”  In the context presented, it seems to be important, so, let’s take a look at what it means, and what we might learn from it.

What Is Financialization?

When I see it in print, “financialization” seems to refer to the increase in size and importance of a country’s financial sector relative to its overall economy.   This is a semi-confusing and academic way to say that the financial world is seeping into many other aspects of our lives.  (Think of the cryptocurrency you use to buy things in the online games you enjoy.)  On an individual basis, it seems important to note that this process can easily lead to chronic stress on community members.  Just to put things in perspective, in the United States, the size of the financial sector as a percentage of gross domestic product (GDP) grew from 2.8% in 1950 to 21% in 2019.  This is far from a new thing; In fact, it has been happening since the 1980s as people started looking at shorter term investments.

The outfall of this has been seen in a process known as securitization  Think of this like a financial burrito.  The bank takes all of these investments and rolls them together into a holdable package, then they can cut this in almost any way to sell the pieces to different kinds of investors.  And, like a burrito, one cannot really see inside of it until it  is too late (sometimes messing up your hands severely.)  This is exactly what happened in 2008 with mortgage backed securities.  (Forgetting for a moment that these same banks then made bets AGAINST these investments, a.k.a. credit default swaps.)  Point is, in the financial world, things seem to be becoming more like the Wild West all the time.   The opportunities for profit abound, but getting yourself killed is REALLY easy.  As if this were not bad enough, as you add liquidity and borrowing (think of the pandemic payments?), inflation will invariably result.  

Is this REALLY a problem?

It might be.   For an economy to be robust, it must have a large variety of healthy industries and sectors.  But, since globalization has really gained a foothold, things are produced and services are rendered where they can most profitably be performed.  This usually leads to a less robust array of industries within a country, and this has happened to the U.S., for sure.   In 1982, only 10% of corporate profits were from financial services.   In 2003, over 40% of corporate profits were within the financial services sector.  I would intuit that this trend has probably continued and accelerated over the intervening 20 years.

What exactly do we lose due to financialization?

Quite a lot, actually.   In this short-term profits view, anything with ROI under a certain value is curtailed or terminated altogether.   One thing given short shrift is training.   In the past, many companies were happy to pick up high school graduates and train them in an apprenticeship type program.  While certainly valuable, the value of this program is only seen in the long-term.    So, these training type programs have all but disappeared from the corporate landscape.   Development too has suffered.   To roll out new products or services requires a short-term sacrifice to maximize long-run profits.  This process is seen as less essential than the parts of the business that can make money NOW!!  So, the budgets for these activities are minimized or eliminated entirely.

By similar logic, as a nation we are much less likely to see the value of public works projects, especially the routine maintenance projects that would serve the useful purpose of keeping our industrial capacity. (John Oliver had a wonderful episode based upon this.)  If it can make it to a comedy program on HBO, I consider the problem to be “known.”

So, is financialization ALWAYS bad?

No.   In some ways, the additional liquidity makes it possible for more enterprises to  make a go of it, and really try to bring novel products and services to the marketplace, and this is happening around the world.  International trade is also encouraged through financialization.  This is probably good.  One of these novel services is fractional stock ownership made easy a’ la Robinhood, Acorns or any of a dozen other similar apps.  They make it very simple for the common citizen to invest in stocks and do so regularly.  And, the offspring of these sites were all too ready to take your money in exchange for cryptocurrency, and this, I think, is where we went a step too far.  Investing a little bit in cryptocurrency might be good, but I don’t think you want to do it without considered judgement.   And that, gentle readers, takes time.

To be absolutely clear, the financialization of everything isn’t an unalloyed benefit. The phenomenon has a dark side. If everyone becomes an investor, the inverse is also true: Everything—and everyone—becomes a potential investment. As part of $ALEX, Alex Masmej designed a “Control My Life” component. Token-holders could vote on his life decisions—whether he should run three miles every day, stop eating red meat, wake up at 6 a.m. Token-holders had a financial stake in his success, so Masmej followed through on their commands. (To be fair, Masmej admits this was just “a fun experiment.”)

 The Verdict

Financialization is a tough one.  So, let’s finish by looking at it through a different lens, and I’m sure this will bring it home.   Literally.   We are speaking of the financialization of homes.  In the 1980s, 90s and the early 2000s, it seemed as if housing prices just went up, without rest.  As a result of this and the relentless pace of change in all other areas of the economy, homeowners began to see their homes in terms of how much profit they could lock in when they sold it. They began to prioritize at a lesser value, the home’s ability to server a social good of supportive living.   Thus began the process of financialization.  It is an unfortunate, but I might argue human reaction to rapid globalization and changing technologies almost makes it unavoidable.

The real question is what do we do about it.  I think a good first step is to be aware of it when we see effects of this process.  Then, perhaps we can remind ourselves of the true value of a house or an education.

REFERENCES

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwjqh6vF0sv6AhVPFVkFHekPDlgQFnoECAoQAw&url=https%3A%2F%2Fwww.levyinstitute.org%2Fpubs%2Fwp_525.pdf&usg=AOvVaw20-IK3luzggWazMzWDnSCW

Financialization Definition (investopedia.com)

Wall Street And The Financialization Of The Economy (forbes.com)

The Financialization of Everything – The Atlantic

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.

VPN… Goes Without Stayin’

Headline: What is a VPN?

Date:10/18/2022

Body:  OK, back to basics night.  To  really take advantage of cryptocurrency and NFTs, it might be important to make use of a secure browser and perhaps a VPN (Virtual Private Network.)  So, what are these things and how might they be used in your pursuit of virtual riches?  Might it also make your continuing remote work more palatable to your boss.

What is an VPN?

A Virtual Private Network (VPN) can be used when you are using a public network.  They can be helpful to disguise your identity.  This makes it harder to track your activities and also masks where you are signing on from.  This is important because not all sections of the Internet are available to residents of every country.  People often think of North Korea, or China when they think of a VPN, and it is true, as far s that  goes.   But, perhaps there is a gameshow that is available online only to those within the U.K.  A VPN will mask where you are logging in from, and presents you with a much more comprehensive set of options.  In addition to disguising your location, the VPN  will offer you secure encryption and secure data transfer.

The VPN offers you some real security.  It encrypts your IP address and your protocols.  It also offers a kill switch, where if there is unusual traffic, the connection is shut down immediately.     Finally, it offers extra security by use of 2-factor authentication.    At first a password is required.   But then, they will also text you a one-time use code.   Once you enter it, you will be given access to the VPN.  Unfortunately, it is not a silver bullet.  The use of a VPN does not protect you from malware of any type.  So, even if you are using a VPN, please be sure to also have an updated anti-virus program running.

Is this a large movement?

Yes, it is.  The number of people using VPNs increased more than 4-fold from 2016-18.  Now, in countries like China, it is estimated that 20% of  Internet users are connecting thru a VPN.

Are there different flavors of VPNs?

Yes, there are different varieties of VPN, mainly 2 different ones.  First there is a site-to-site VPN and this is used mostly in very large companies with facilities all around the world.  (Think of Boeing or Airbus.)  They might want to send engineering plans from a new airliner to their other facility.  On the intranet, things are pretty secure, and there is an intranet at each facility.   The VPN acts as an encrypted tunnel between the 2 networks.  The other variety is a Client-to-Server connection  Think for a moment (hey, no cussing) about your ISP, whether it be Xfinity, Cox, whatever.  The VPN forms an untraceable tunnel for your now-encrypted data, before it hits Cox or Xfinity, taking your transmissions DIRECTLY down the encrypted rabbit hole.  That way the rest of the Internet has no idea of where you’re  transmitting from.

How Do I choose the right VPN for me?

Choosing the best VPN comes down to what you want to get out of a VPN. You should consider locations, cost, speed and security protocols. You may want to choose a VPN service based on whether it will maintain a connection as your internet changes (from Wi-Fi to cellular, for example).

OK, I’m sold.  Is there any reason NOT to get a VPN?

While a VPN will keep your connection secure and your data safe, there are some potential drawbacks to using one.

The Verdict

Depending on what you do on the internet, investing in an VPN might be a good idea.   Perhaps you are looking for academic information that your country’s leadership doesn’t want you to have, perhaps you are doing cryptocurrency transactions, and you just wish to have a safe connection to the internet.  Both of these are completely valid reasons to get a VPN.  It’s pretty simple to do, too.  Consider it carefully.

REFERENCES

https://www.kaspersky.com/resource-center/definitions/what-is-a-vpn

https://www.forbes.com/advisor/business/software/what-is-a-vpn-and-how-does-it-work/

https://www.pcmag.com/how-to/what-is-a-vpn-and-why-you-need-one

https://www.codecademy.com/resources/blog/what-is-a-vpn/

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.

Have Your Cake and Eat it… Two?

Headline: What is the double spending problem with cryptocurrency?

Date: 10/14/2022

Body:  I have read more than a couple of articles about cryptocurrency, and I keep running into something called the “double-spending problem” with cryptocurrency.  I don’t fully understand this, and I would imagine that I am not the only one confused.   So, let’s dig in.

“Double spending” is the proper economics-speak for what is being attempted, but I would like you to think of another word you are more comfortable with, counterfeit.    Let’s say that you put together a press in your basement and have the correct paper and inks necessary to print money.  But, at heart, what you have is a photocopier.  Once you have run  a good number of $100 bills, you notice that they look VERY real, but, all of the serial numbers are identical.  So, once you spend the first one, the chances for you to get caught go up appreciably, as the Secret Service will clearly be looking for bills with that serial number.  Spend the same dollar multiple times and you are risking prison.  Bitcoin and other cryptocurrencies do not have serial numbers( or fiat currency that you turn over to a person in return for a good or service) , so, there is a risk of double-spending, and the process must have a functionality to prevent this.  Enter the blockchain.

In this ecosystem, the miners make sure that the transactions come from a sufficient source, go to the right wallet and do this by a consensus system, but the vast majority of the reward goes to the miner who verifies the transaction first.  The key here, is two-fold:

1. Multiple miners who don’t know about the identities of the other miners, verify the transactions independently.  The block of transactions is only added when all details have been confirmed.
2. The ledger behind this process is “distributed” and simultaneously held by millions of people.  Hacking is deemed almost impossible.
3. Once recorded on the blockchain, the transaction is immutable, and cannot be erased.

In this way, no  central Bank is necessary, and the decentralized system can work its magic.

Well, this is neat, but how is double-spending avoided?

Let’s have some fun here and take the worst case scenario.   Let’s say that you have 1,000 BTC.  You spend it once on a house, then you buy a 2^nd house with the same 1,000 coins.  As they come into the system, both transactions are placed into a suspense file until they can be verified, usually within 10 minutes.  So, the result will be verification of the first transaction and rejection of the second.  It is a fairly well-known guideline that many merchants wait for 6 confirmations of one transaction.

OK, good, but what exactly do these miners do?

This is referred to as the consensus model.  There are several of them.   The first used by Bitcoin was the Proof of work.  This is effectively an extremely complicated math problem.   The miner is given a hash function involving original data.  Once solved, a hash total of the same length will result (and the details of the transaction are confirmed), and the miner will receive a reward in Bitcoin.  Because they are not economically punished for incorrect guesses, people can set up impressive “rigs” to send out a huge long series of hash totals, guessing until they get the right hash total to evaluate the function.  Once a correct answer is obtained by 6 miners, this answer that solves the hash is transmitted to the entire network.  This process makes counterfeiting nearly impossible.

“Nearly impossible?”

OK, there will always be bad actors in any social network, and the blockchain is no exception.  There are 3 main kind of attacks, but, they are all very haphazardly successful.  They are as follows:

How concerned should I be?

Don’t’ be.  Like the Hitchhiker’s Guide to the Galaxy, the entry here would be “mostly harmless.”   The bottom line is that if you don’t accept any transactions, that you are not expecting, you won’t be fooled by these techniques.

The Verdict

I work for the U.S. Government and I almost laughed when I first heard of “double spending.”   Then I realized that it was an attempt to defraud.  Fortunately, it turns out that the person who designed this cryptocurrency system had thought of this and made it extremely difficult to execute.   This would tend to make cryptocurrency more secure to invest in.  Just be aware that there is severe price volatility that you have to consider.   Also, it should be borne in mind that bad actors are cobbling together more and more sophisticated rigs, every year.  Bitcoin buyer beware.

REFERENCES

https://www.investopedia.com/ask/answers/061915/how-does-block-chain-prevent-doublespending-bitcoins.asp

https://www.sofi.com/learn/content/double-spending/

https://www.gemini.com/cryptopedia/double-spending-problem-crypto

https://www.coindesk.com/tech/2021/01/21/the-bitcoin-double-spend-that-never-happened/

https://academy.binance.com/en/articles/double-spending-explained

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.

FinTok? Are We Talking About Fishing?

Headline: What is FinTok?

Date:

Body:  Ok, confession time.  I’m 46 years old and I watch a lot of TikTok. (The Dreadnaughts sing, “old Mauii” and it is fantastic!!!)  I find it interesting to be able to really  interact with the content in a very personal way.  Others apparently feel similarly positive.  Over the months, several communities have sprouted, each with a 3-letter word tied to “Tok.”  For instance, the community aimed at veterans and members of the military, there is “MilTok.”  (I can only assume that there is a community for social media people called “ClickTok.”  Perhaps there will be soon.)  Imagine my surprise to find that there is a financial industry community called “FinTok.”  (Not sure what the people from Finland use.)  My questions are simple.  First, is this really a thing?   Second, if it a thing, can we learn from it to eventually make money from it?  (For the remainder of the entry, it might appear that I impugn the integrity of anybody giving financial advice on TikTok.  I’m not.   Many are good-hearted people who believe deeply in their own information.  However, I DO, mean to skewer any financial “guru” who claims to have the “one secret for ANYBODY to get rich!!”  It doesn’t exist.)

In times past (i.e. my childhood) investment advice and maxims came from my dad.  For centuries this has been the way, and for some reason, we have assumed that women are not up to the task (turns out, they’re better at it.)  Back then, it was “cool” to hear a co-worker talking about a “hot stock pick” and then go home, call your broker and make the (probably ill-advised) trade.  As generations go on, the technology improves and now, this generation is over TV.   They want their advice to come from the social media channels they spend so much time and energy on.  Enter FinTok.

Unsurprisingly, you usually find the flavor of the month here.  Currently, it’s all about cryptocurrencies, and in recent days, it’s all been about real estate investing.  (Oddly, the same people can sometimes be seen hawking both using VERY similar logic.)  But, on occasion, you do come across some good stuff, especially videos about business.  There is one REALLY smart guy who owns a septic company on the East Coast.  (Septic pumping?   Yes, septic pumping.  And the business related conundrums he asks his audience about are some humdingers.)  There are others who suggest that there are savings to be made using different sites to find discount codes.  These are all good and interesting to watch, but before making purchases or lifestyle changes to institute these changes, seriously ask yourself it it’s a good idea or not, for YOU!!  Remember, you are not a notional character.   You have past experiences, biases  and beliefs that have to be taken into account when instituting behavior changes.

This is  just another marketplace of ideas, so, that’s fine

Well, yes and no.  Certainly they should have the right to put up their content.    But, the problems begin to come into focus when people try to execute on the strategies they learned on FinTok.  Problem is, you might very easily have a reasonably well- educated person giving commonsense financial advice, let’s say, in Australis.  If a 20-year old in the U.S. tried to execute on this advice, they’d likely lose pretty big.  The financial systems are pretty  similar, but when you get into the weeds, there are some details that make the advice given to any client, very different within the U.S. v. in Australia.

I understand that the GenZ aged people are just trying their best, using the tools that are so familiar to them, to fill a gap in their education.  I actually salute them for going on this journey.  But, if given just a short segment on being a  critical thinker, they might come to notice a very large conflict of interest here.

Have you ever been reading a  magazine, and you have read 2-3 good articles, and happen upon what you think will be the 4^th well-researched article.   And, it does look the same, same typeface, a few high-value pictures, but all of the stories seem to be about the country of Qatar or the caring professionals at Astra Zeneca.  Now, your spider senses are tingling, any you scan to the top.   In the middle of the top margin, it says, “Advertorial.”   This means that the “article” was provided by a sponsor.  Though the information might be accurate, the point of view might not be held by many people.    TikTok can have many of the same kind of things.   I can’t tell you how many videos of cute puppies, then the voice starts,”You want to keep these puppies safe and healthy, right?   Feed  them Farmer’s Best.”  Thus it becomes pretty obvious which videos are most likely to be… perhaps biased.  The problem is, that in the FinTok areas, the creators are not required to label their videos as sponsored content.  The video might introduce a lot of different investment opportunities, but, oh, guess what?  You can get them ALL thru USAA!!  Perhaps you can get these investment opportunities from Morgan Stanley.  I pick on these 2, but it could be any of the thousands of other companies.  The point is that  within social media, the FinTok area is very like the Old West.  Both possibility for striking it rich, and the probability of hurting yourself exist

OK, this has to be addressed

For centuries now, the field of finance has been almost exclusively the province of men.  Women can understand an teach financial lessons just as well as men can.  (They can also be prosecuted for financial crimes, just like the men.   This law-breaking potential is very equal opportunity.  But, the fact cannot be denied.   To this point, most of the self-appointed personal finance gurus have been men.   So, some women (some VERY well-qualified, some less qualified) have taken TikTok as an opportunity to close this gap.  But, it’s very tricky to evaluate the advice giver (always.)  On TikTok, this can be made impossible, and those who even try to independently vet these financial gurus are in the tiniest minority.  This critical reviewing of information has never been more… er…um…CRITICAL!!

This being careful about information obtained should extend beyond TikTok too.  (I once had a really good chart of the financial abbreviations people put after their names.    This can be really confusing because there are only about 200 different credentials.   Some require much study and perhaps night school.   Others, all you have to do is say, “Goodnight, school!” and you are now  qualified to use the abbreviation after your name.   I cannot believe how many of the certifications demand little to no training.  (As I recall, it was nearly half of them.)  So, please be careful about the information you take as gospel.   (Unless you’re on my page.   You can TRUST that source.)

Finfluencers?

This is what the financial influencers on TikTok calls themselves.  But other countries have been presented with this problem too.  In Australia, for instance, a number of regulations have been considered and most were rejected.   The minister for financial services called them, “an inevitable part of a financial ecosystem.”  They also struggled with these  questions, as she identified the crux of the problem in the following manner.  “The bloke at the pub, for one thing, does not make money from his talk.”  But, many social media influencers do.   I really like dogs and follow this woman who has 2  extraordinarily cute golden retrievers.  She has a series of wonderful videos of them in the pool, on walks and in the ocean.   Just recently, she began introducing the corporate name behind the doggie beds they have.  Some might say she’s sold out.   It’s my judgement that you just have to exercise some of your own.

Beware of 3 red flags:

The Verdict

So, I guess the question we windup with is, “Is it safe to use social media as a way to educate ourselves on financial matters?”  And I guess the answer goes something like, well it’s a great place to start.  But, many professionals agree that they are unsure of themselves within this environment.  “TikTok is the opposite end of spectrum from the 20-page whitepapers that we are very good at producing,” laughed Rich Latour, BlackRock’s global head of content.    So, I guess the best answer is that we should all become very much aware of the credibility of the sources we listen to.

REFERENCES

https://www.theguardian.com/money/2021/jul/10/fintok-how-tiktok-is-helping-young-people-use-cash-wisely

https://www.fool.com/the-ascent/personal-finance/articles/2-big-problems-with-fintok/

https://markets.businessinsider.com/news/stocks/tiktok-feminist-finance-gender-equality-investing-fintok-stocktok-2021-5-1030476909

https://www.reuters.com/markets/us/financial-giants-tiptoe-into-tiktok-2022-05-12/

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.

NFTs can be MONEY!!

Headline: How are NFTs used in Finance?

Date: 10/6/2022

Body:  So, we are hearing all kinds of things about NFTs.   The lady who started the Bored Ape series of NFTs made $2 Million in the space of 2 days.    (The cheapest one is now going for tens of thousands of dollars.)  So, there is a lot of money in NFTs.   The question is, are there a lot of NFTs in money?  So, let’s see.

How NFTs Can Play Into Trade Finance

OK, first, NFTs are more than just pictures.   They are pictures that come with a receipt of ownership that resides on the blockchain, and that is immutable.  This attribute makes NFTs very useful.  Even if a hacker can steal an NFT, the history would be on the blockchain, transparent to all.  Within the world of business, the NFT can be used to streamline the cryptocurrency process.  In trade finance, NFTs could help because developing a convincing fraudulent NFT is effectively impossible, as the transaction to create them is memorialized on the blockchain.  NFTs could also help by minimizing human error, as signatures are difficult to read, but a tokenized NFT is readily identifiable and instantly verifiable.  Further, as smart contracts become ever more, well, smarter, they can ensure that routine transactions stay within normal limits, freeing up employee time to work on other tasks.  And, yes, this is already happening.   Tradeteq executed the world’s first on-chain tokenized transaction.

What you talkin’ about, Wallace?

OK, first you have to understand that NFT does not equal picture.   Up to now, that has largely been correct, because most NFT’s have been sold as art pieces.  In simple terms, NFTs are digital receipts of purchase that reside, forever, on the blockchain. This means that any item that may benefit from being more easily verifiable and interoperable with the blockchain could eventually become an NFT.    This provides a level of certainty and transparency that has never existed before.  The thing to remember here, is that the NFT is really the entry on the blockchain, and the picture, or sound file that is associated with it is not the NFT itself.  (Per Forester Research, 28% of Americans don’t know this, so, if it’s weird to you, you’re in good company.

Despite this oft-misunderstood attribute, the money being shelled out for these NFTs is very large.  Adidas sold more than $22 Million in NFTs in 2021 alone.     Already, in 2022, more than $40 Billion of NFTs have been sold.  One major bank considers NFTs to be an entirely novel class of digital assets.  (I’m not one to make predictions often, especially concerning the future, but I can foresee an online world where your NFT becomes almost a signature for you.  You would tote that NFT around with you from metaverse to metaverse, and you could do business with people based upon an evidenced, immutable history of interactions that went favorably or not.  Really, handwritten signatures can be faked.   But, the NFT is recorded on the blockchain.)  We might not be there today, but I feel pretty confident that this is our eventual destination.)  Interestingly, some NFT purchasers are already using NFTs as collateral on a loan.   So, I take this as progress toward my prediction.

Let’s Take it to the House!!!

Real estate is a pain.  Commercial real estate can be governed by contracts that run into the hundreds of pages.  This means thousands of individual details that are vitally important.  I have never done a commercial real estate transaction, but, I have done several residential real estate transactions, and I can attest to the pain involved.   Oftentimes, things are so stressful that I begin feeling it as symptoms in my body.  Somehow, I doubt that I am alone in this.  But, as we get the blockchain involved, things could become much simpler.  Title Insurance searches are now so complex that there is an entire industry dedicated to it.   With all transactions permanently on a blockchain, proving clean title will be made much faster, and significantly less expensive too.  These benefits could easily apply to other types of insurances and taxes as well.

The Verdict

The blockchain will have significant effects upon how we transact business.   It will stand as a check on credibility, a simplification of research  and likely turn into some type of signature, signifying you.  I wouldn’t blame you for not believing me.  Things right now are so vague that NFTs are anything to everybody.  But, for just a moment, I ask you to think of the evolution of the signature and similar devices and how important they are.   Several centuries ago, the signet ring was invented, and a person would leave a characteristic mark on the wax sealing an envelope.  Even today, signatures are vital.  If you got an e-mail shouting in the subject line, “LOSE 20 POUNDS IN ONE MONTH!!!” would you be more likely to open this if it came from your doctor (high credibility) of from your Uncle Victor who is always  going on about how the Lindbergh baby was launched into space with the Tesla (likely lower credibility.)  As NFT usage matures, especially within social media, I can easily envision  a situation where you will begin to notice which NFTs are presented with information that turns out to be true, and you then making decisions based on the belief that this information is more credible.

The point I am trying to make is that financial information can tend to be VERY complicated.  In order to have at finding a way in this world, you must subject every fact presented to you to the sniff test.  Key to that test being successful, one must develop a finely tuned, err… um… BS detector.   And one of the keys here is to understand the sources of your information and which ones you can trust, and which ones you should probably inspect closely.

REFERENCES

Opinion: Real-World Use Cases for NFTs in Finance and Trade | FinTech Magazine

Beyond CryptoKitties and bragging rights: A look at the financial use cases of NFTs – Tearsheet

How NFTs Can Impact the Financial Industry (newsweek.com)

NFT Meltdowns Are Paving The Way For Better Use Cases (forbes.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.

We’re Not Playing Games… OK, Maybe We Are.

Headline: How to play games while earning cryptocurrency.

Date:

Body:  For millennia now, people have done work (usually hard work) and gotten in return, some rate of monetary compensation.  (“A good day’s pay for a good day’s work.”   And all that).  We are all quite familiar with this model, most of us engage with it every single day.  If one is really lucky and works very hard, one can work out a career that does not feel like everyday drudgery. But, what if we change this model and get paid for playing games?   Could we do this?   Yes, we can, and some do.   Welcome to the brave new world of GameFi.   GameFi combines NFTs, and blockchains  into online games.   And, instead of paying for “in-game purchases” the player is instead rewarded (with a digital asset of some type) for the amount of time they spend playing the game.  Confused?  I was too.  (At the start of writing, the only financial model I could understand is if players see a plethora of online ads constantly, or if they have to agree to become some sort of brand ambassador.)  But, I will cautiously push aside this initial kneejerk response and try to understand.  Perhaps you can too?

So, how does this all work?

It all started with cryptokitties.  Then, slowly, other games of various types were added.  As the players go further and further into these games, they will encounter a variety of NFTs, which they can earn in time playing the game.  Then, once accrued, these NFTs can be traded at a marketplace or sold for digital currency.    As they go, they will certainly come up with unique ways to combine attributes, and others will want these attributes in their character, or piece of land, or other asset.  These new protocols can then be traded  for NFTs, and the process can begin anew.  Remember, all of this is built on a blockchain, so players can easily prove ownership of digital assets, and since this information is distributed, if there is one malfunction, the rest of the game is unimpaired..

OK, you had me at making money while playing games.

So, what do I have to do to get started.  It’s as easy as 1:2:3, (isn’t it always?)

Are there some examples?

Yes, there are many examples.   Just a few that caught my eye:

1.  Alien Worlds—In this game, the player goes into several foreign planets to mine and gather resources.   The player can make money (TLM) by renting out  their land to others.  It has broken through the 1,000,000 monthly users level and works on a variety of blockchains.  Before one can play, though, they must purchase several cards that give them the right to own land within the game.
2. CryptoBlades—This is a role-playing game where you design the development of your character and craft unique weapons to help him or her.  These weapons can then be traded at the marketplace.  The player can make money (SKILL)  by selling their unique weapons and armor.  It has a monthly user base of just over half a million and works on the Binance blockchain.  Players do have to pay a few fees to use the game.
3. Axie Infinity—This is a game that allows you to create Pokemon-type characters as combinations of animals.   As it involved the care of “animals” it is very time-intensive.  When trained, these animated beasts can “battle”  When created, these unique beasts can be traded to other users.  The player can earn (AXS) and (SLP, smooth love potion) for doing quests and resource farming.   Axie itself   It has a monthly user base of over 300,000 users and runs on the Ethereum blockchain.  Before you can play, you have to purchase 3 “Axies” from the marketplace.  They surpassed $1 Billion in 2021.

Before we leave this topic, there is one more thing which is worth mentioning.  There are platforms (like MOBOX) which feature multiple games wherein a player can migrate items from one game to another.  These platforms are pretty sophisticated already, allowing people to earn money by “staking” and even joining liquidity pools.

How big are these, really?

In a word, BIG.  There is a “holding company for games” called Yield Guild Games.  In addition to hosting the games, YGG will also act to facilitate trading amongst players.  Within the community itself, there are various roles called “scholars” and “community managers.”   Each role gets a piece of the action as new creations are sold and traded.     There are some people in the Phillipines who make 5-10 times the amount of money they made at a normal job, doing these roles within the game.  Oh, and don’t cry for ther management either.   The YGG Treasury is worth over $415 Million (This is the pot of real money they use to develop the game more.)

The Verdict

We are still in the very early stages of this phenomenon.   Doubtless, as more and more people interact in this virtual ecosystem, we will better learn both the benefits and the potential pitfalls represented by these games.  I have to wonder, though, if games like these are going to become the social media platforms of tomorrow.  Instead of TikTok, you’ll check in on your friends within a platform within the gameplay.    Wouldn’t that be fun?  Copuldn’t that be profitable?

 REFERENCES

https://www.coindesk.com/learn/gamefi-how-to-earn-crypto-playing-games-online/

https://www.nasdaq.com/articles/nft-based-video-game-helps-gamers-earn-crypto-while-playing-online

https://www.coinbase.com/learn/market-updates/around-the-block-issue-16

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.

The Council Will See You Now.

Headline: What is the Crypto Council for Innovation?

Date: 9/24/2022

Body:  I keep seeing references to the Crypto Council for Innovation, and I have no idea who they are and what they do.   I like to picture them arrayed around a dark wood conference table in some stone tiled basement, and the head sits in a bigger chair with dragons carved on the sides, with 2 Doberman pinschers at either side.   But, probably not.   Let’s investigate.

Who are they and what do they do?

The Crypto Council for Innovation is a lobbying group to influence regulation.   There are some heavyweights on this Council including a former CIA Acting Director.  These individuals write reports in favor of their members and present these findings in report form, to Congress and potential regulators.  Said one member, “We have a lot of policy makers who are becoming aware of crypto and at the same time might harbor some misconceptions about it.”  Just recently, they published a report on Bitcoin.     It seemed to be “common knowledge” that Bitcoin represented a major money laundering threat, and the report was written to investigate that thesis and either debunk it or provide support for it.  They make it quite clear on their website that education of the investing public is also key to their purpose.

Who were the founders?

Fidelity Digital Assets, Coinbase, Square and Paradigm are the founding members.   These have been joined by many former government officials.

Why do they exist?

There is already a Blockchain Association and a Chamber for Digital Commerce, so, one might rightly ask why add a third body?   They focus more on international regulation than regulations that arise in America only.

Do all experts agree with them?

In a word, no.   No less than Jamie Dimon said, “Something that’s not supported by anything, I do not believe has much value,”

 Why do we need such a group?

The securities Acts were passed in 1933 and 1934, and thus could not envision the changing financial landscape of today.     A central part of this act is Rule 3b-16 which defines an exchange.  The exchanges that we have today are far from the physical buildings thought of in 1934.  They occur on websites, which are somewhere in cyberspace, so, the rules have to be updated.  The update requires such an exchange to register as a broker-dealer.  Even the President seems to be onboard with these ideas, saying, “we must reinforce United States leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of  payment innovations and digital assets.”

The CCI is concerned about the ramifications of the new rule.   They suggest that a traditional definition of finance is used to define non-traditional finance, and no accommodations seem to have been made to provide for the special nature of cryptocurrencies.  Their recommendations are as follow:

1.  Limit the applicability of the new rule to a small number of cryptocurrnecies.
2.  Evaluate the risk of the new rule to place the U.S. at a competitive disadvantage as compared to other countries.
3. The Commission should clearly define “communication protocol system.”

The remainder of the letter is pretty much focused on #3.   So, we’ll look there next.

So, what is a communication protocol system?

It appears that the communication protocol system is the manner in which willing buyers and willing sellers are brought together.  In the past, this was a trading floor and telephones.  But, given the fact that  decentralized finance was not mentioned by name, the SEC appears to be trying to be aggressively expanding its portfolio.  As I mentioned in a previous post, there were many different government agencies  battling for a place in regulation of cryptocurrency, and it seems that this is the SEC’s attempt to jump into the fray.  The agency’s rationale for introducing the amendments is that the definition of “exchange” must be updated in light of recent technological developments, most notably digitization of securities marketplaces. The proposal states that the new definition is supposed to be “flexible enough to accommodate the evolving technology.”

Not everybody is drinking the same Kool-aid, however.  Pro-crypto SEC Commissioner Hester Peirce was among the first opinion leaders to ring the alarm over the proposal. She offered a dissenting statement in which she called the document “too wide-ranging.”   At stake here is the very presence of crypto exchanges, as per the verbiage in the amended rule, they probably wouldn’t meet the new definition, and might be regulated severely.  Patrick Daugherty, partner at law firm Foley and Lardner and the leader of its blockchain taskforce, calls the SEC’s initiative a “stealth rulemaking proposal,” agreeing with Commissioner Peirce on its potential to be used in targeting crypto industry players.   If the new rule takes effect, the exchanges would have to register as a broker-dealer and as an “Alternative Trading System”, a slightly less regulated entity.

The Verdict

Given that there is an intense battle within the government to see which agency will take the lead in regulating crypto, it seems like a good counter-balance to have an entity like the Crypto Council for Innovation.  I understand that most people hear the phrase “lobbying group” and immediately think of back room deals and people with suitcases full of cash.  Given that many of the people on this Council are former government officials, I understand where this comes from.  But, really, it’s just like what the IRS does: When they suggest a change in rules, they write an Exposure Draft, and then the professionals within the field review it and suggest alterations during the “comment period.”  Given this similarity in , procedure.I have to think that the  CCI is a good counterweight to a potential government over-reach.  What do you think?

 REFERENCES

https://www.coindesk.com/markets/2021/04/13/ex-cia-director-says-criminals-will-move-away-from-bitcoin-in-new-lobbying-groups-first-report/

https://www.businessinsider.com/crypto-council-innovation-square-fidelity-coinbase-paradigm-boss-bitcoin-2021-5

https://www.sec.gov/comments/s7-02-22/s70222-20124040-280166.pdf

https://cointelegraph.com/news/stealth-rulemaking-is-proposed-sec-rule-with-no-mention-of-crypto-a-threat-to-defi

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.