September 20, 2022

Deconstructing a band, models (not the AI kind), and The Merge

Welcome to the Block & Mortar newsletter! Every week, we bring you the top stories and our analysis on where business meets web3: blockchain, cryptocurrencies, NFTs, and metaverse. Brought to you by Scott Robbin and Q McCallum.

It's been quiet in the land of crypto.  Something happened on the Ethereum blockchain – "The Merge" – but it was such a small deal that we won't even mention it first.

Perfect for those metaverse photo shoots

Emerging technologies give you a new lens through which to see your business:  "What new capabilities does this offer?  What new threats does it present?  And how will we have to adapt as a result?"

Sometimes your What We Do directly translates to The New Thing. Case in point: modeling agency Photogenics has determined that, with fashion houses offering digital goods for people to decorate their avatars … someone might need … y'know, models. 

Several models working with Photogenics have opted to lend their face to avatars destined for metaverse projects:

Photogenics models are available for metaverse-based shoots, drops, wearables, events and other modelling jobs. Brands pay to licence out the avatar models for metaverse campaigns for a given period of time. Photogenics transfers an NFT with a built-in burn period, at the end of which the proof of licence expires.

A note for the modeling industry: digital twins don't age.  A model's present-day state, captured in pixels, could potentially collect money well into the future.  And as their faces change – due to age or anything else, really – they have the option to digitize their updated selves.  Imagine a portfolio of your likenesses, from your 20s, 30s, 40s, and beyond, all available for metaverse modeling.  You could even have multiple versions of yourself  in the same photo shoot, appearing as parent and child. 

Taking a wider view, digital models dissociate the person from the entity that performs the modeling, allowing the two to vary independently over time.  And this sounds like a musician releasing albums, does it not?  An album can sell decades after it was recorded, so a musician's catalog is comprised of multiple, concurrent revenue streams. That thinking is what led to Bowie Bonds – selling off the rights to future album earnings – an approach that has since been duplicated time and again by other musicians.

All of which takes us to our next segment:

A digital band, but not necessarily electronic music

You may remember Kingship from a previous newsletter.  This is the Universal Music Group band whose "members" are based on Bored Ape Yacht Club (BAYC) NFT characters.  They're back in the news this week because Universal has engaged James Faunterloy and Hit-Boy, producers who have worked with the likes of Nas, Beyonce, and Rihanna, to write the group's music.

Some readers may find this scandalous – "OMG they're writing music for ape JPEGs" – but haven't we seen something like this before?  Is this really such a large departure from pop sensations that have received a lot of … ahem … corporate support?

Frankly, we think Kingship is a brilliant idea for Universal Music. To explain why, let's don our Risk Management Goggles:

There are many ways to view the term "risk."  We prefer to see it as a question mark on your balance sheet: you're doing something today that may lead you to lose money later.  It's a question mark because you don't know when this will happen, nor how much money that will be, if it even happens at all.

When a label backs a band, or when a film studio backs an actor, they're investing in high-profile people with real lives and real personalities.  It's entirely possible that there will be some messy story in the press.  The scandalous love affair.  The shocking drug habit.  The old, racist tweet rant that somehow slipped through the nonexistent due-diligence exercise.

Every time one of those celebrities gets in trouble, it represents a potential cash leak for their investors.  Maybe they'll follow a sin/redemption arc and come back even more bankable.  Or maybe their careers will crater, and the remaining albums on that contract are doomed to never be released.  We imagine that record labels would love to close off those sources of risk.

So, back to Kingship.  Those BAYC characters? They only have the life and personality that they are given.  They only "exist" when and where the company wants them to.  They can't get into trouble.  And because this arrangement lets Universal decompose the notion of a "music group" into its constituent parts of "personality," "songwriting," and "performance" – it can leave each facet to an expert in that domain.  These BAYC band members are the perfect, low-risk celebrities – wrapped up tight like a movie script.

This arrangement is also good for Kingship's fans.  This band will be so much more than a music group; it will be an interactive story. You'll watch them perform, you'll hear their backstories (because, let's face it, they'll just have to do some late-night TV "interviews"), you may even interact with them in a metaverse event.  You'll witness their "lives" play out in real-time, in the semi-real world… but the whole thing, just like a movie, is scripted.  Kingship fans will effectively get to play as extras in this story.  And if you think of a metaverse experience as interactive, immersive escapism, Kingship can take that idea to another level.

Maybe they'll loop in Jimmy Fallon?  He caught a lot of flak for showing off his BAYC NFT a few months back.  Universal should give him first crack at interviewing Kingship because, hey, he's already made it clear that his show is BAYC-friendly.

(Dear Jimmy: when this happens, please don't forget that we said it first.)

And then there's “The Merge”

Blockchains are, deep down, tools for trust.  They allow strangers to conduct business without having to know each other.  People sometimes frame this as Blockchains Eliminate Middlemen (such as credit card payment processors, stock exchanges, and banks).  This is attractive because middlemen have developed a bit of a sour reputation.

Blockchains still sit between the parties that want to interact, though, so it's more appropriate to say that Blockchains Are Middlemen, expressed as code. Instead of a single bank validating a transaction, a bunch of strangers all run the same code to validate it before it gets written to the permanent record.  This transparency and public scrutiny provide the trust that would otherwise have come from a centralized third party.

This transparency also comes at a cost.  The old-school blockchains use a validation scheme called Proof of Work (PoW) which requires that the validators – "miners" – run some computationally-intense code.  All of that computation consumes large amounts of electricity, which usually means burning fossil fuels, which harms the environment. If you've ever heard someone say that "NFTs are destroying the rainforests," that's what they mean.

As of last week, Ethereum underwent a significant change – known as "The Merge" – in which it ditched PoW for a validation scheme called Proof of Stake (PoS).  This system uses less than one percent of the electricity of PoW, which largely addresses Ethereum's impact on the environment.

(Ethereum is not the first network to use PoS, but certainly the largest and most well-known to do so.) 

So what does that mean for people who use Ethereum? 

If you're using Ethereum to buy NFTs, you'll still pay the "gas" transaction fees.  Those aren't going away.

If your company has been thinking about issuing cryptocurrency tokens or NFTs, you're in luck: The Merge has eliminated most concerns about the environmental impact (not to mention, the reputation risk) of using Ethereum-based blockchains.

And if you're wondering about the spread of blockchain technologies, The Merge is definitely a step in the right direction.  Ethereum and other eco-friendlier blockchains should reduce barriers to adoption.

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Note: We’d like to thank Shane Glynn for reviewing early newsletter drafts. Any mistakes that remain are ours.