September 6, 2022

Digital escapism, case law pioneers, and “Can't Be Evil” NFT licenses

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.

Many of you are coming back to your inboxes after a long holiday weekend, so we'll keep this issue short.

Metaverse properties as digital escapism

Did you catch the Snoop Dogg/Eminem performance at the MTV Video Music Awards?  It starts with the pair sitting on a couch, getting high.  The drugs kick in and they find themselves transported to the Otherside metaverse, in the form of their Bored Ape Yacht Club (BAYC) avatars.

The clip has received its share of flak, both for the BAYC connection and for what some considered low-quality animation.  And while people will mock this as celebrity excess – they paid good money for ape JPEGs, then paid other people to animate them – we think those gripes miss the larger point.  The rappers' performance really captured the metaverse spirit.

No, seriously.  Hear us out.

The point of being in a metaverse is digital escapism. Doing so allows you to be someone else, somewhere else. To play a role. To don a costume and parade around a virtual world with your old friends, and maybe make some new ones. 

At the risk of getting too philosophical on a Tuesday morning, this is about redefining "reality."  Similar to the way the introduction of the telephone redefined "communication," a concept that e-mail, online chat, and video calls have all redefined in turn.  With each step we're still communicating – exchanging information – but the technological advances open new opportunities.  For example, chat apps let us flip between real-time and asynchronous conversation, and we can even have multiple simultaneous conversations so long as our brains and keyboard skills can keep up.  

Similarly, this metaverse flavor of "reality" grants us new capabilities.  Consider what animation did for TV and movies. Compared to filming with real-world actors, animation allows characters to be anywhere and do anything, without a special effects budget or stunt team.  And the exaggerated facial expressions you see in The Simpsons rival any human actor, if for no other reason than "human faces simply cannot stretch that way."

Spending time in a metaverse is the latest iteration in interactive escapism.  Especially of the shared-experience variety.  Early role-playing games?  Your character was stats tracked on paper.  Quest-style video games? You're in the driver's seat, but you live in someone else's predefined body.   More recent video games maintain that first-person perspective (helping further immerse you into the story) and also allow you to design your character to look like whomever you wish – be it a mirror of your real-world body or something completely different.  Metaverses will provide all of the above, but you can mix the swashbuckling adventures with simple twists on everyday life: have a meeting, attend a concert, or go shopping.

All of which takes us back to the Snoop and Eminem performance: it showed us that dropping in on a metaverse is the digital equivalent of getting high with your friend and sharing a hallucination.  And that's just beautiful.

(Bonus: the online experience won't show up on a drug test.)

But we thought crypto was all “no take-backs?”

In August 2020, just a few months into the Covid-19 pandemic, Citibank had intended to pay interest on some loans but instead repaid them in full.  To the tune of about $900 million

The whole point of a loan is for lenders to collect a steady stream of interest over the years, so this should have been a quick "oh ha ha, yeh here's that money back, please keep those interest payments coming."  But in this case – perhaps due to the economic uncertainty caused by the pandemic? – the lenders chose to keep the money. And, no surprise, the bank filed lawsuits in an attempt to get the money back.

We're seeing a similar story play out in the decentralized finance (DeFi) space right now.  Cryptocurrency exchange Crypto.com typo'd a wallet address and mistakenly sent someone about $7 million.  What can they do about it?

  • On a technical level, Crypto.com can't claw the money back.  Cryptocurrency transactions only support the "push" of a deposit, not the "pull" of a withdrawal.  So the company can't reach into that other wallet and take back the $7 million.
  • On a legal level, Crypto.com … maybe has a chance?  Perhaps?  They've filed a lawsuit and the courts have frozen the recipient's bank accounts.  

Still, it's complicated.  As we've said before, no one wants to be a case law pioneer.  And since the court system is sorely lacking in Crypto Transaction Typo cases (as opposed to the more common Crypto Phishing Theft cases) that is precisely where the opposing parties find themselves right now. 

Crypto.com could have quietly swallowed the loss, and treated it as a (very expensive) lesson in developing more robust internal protocols.  This would have cost them the original $7 million, plus some extra money in implementing the aforementioned protocols, but that would have been the end of the story.

Having filed the lawsuit, they've closed the door on the quiet option.  Now the whole world not only knows that the company goofed, but that it took them seven months to notice.  Additionally, a core tenet of crypto is that your transactions are your responsibility.  It's up to you to double- and triple-check both the amount and the destination wallet address before you click "send."  (Ask anyone who has issued an international wire transfer.  It's the same level of anxiety.)  So by filing the lawsuit, they're also making some cultural waves.

A verdict in Crypto.com's favor means that they get the money back yet lose street cred with the hardcore DeFi crowd.  It's hard to put a price tag on that reputation risk, but it's possible that the long-term impacts could far exceed the $7 million.

Then again, this could also provide more mainstream support for DeFi by showing that it is not the lawless hellhole it usually is sometimes seems to be.  When clearly erroneous transactions can indeed be reversed – even if it requires a judge to override the technical matters of wallet mechanics – everyday people feel safer because they know that they won't get burned by making an honest mistake.  Think of this as adding referees and padded gloves to a bare-knuckle boxing league.

What if courts rule in favor of the lucky wallet-holder?  This is the worst-case scenario for Crypto.com, really.  The company would lose the $7 million in cash (which, one could argue, they already have already lost), they'd take a reputation hit (likely becoming a pariah in some corners of DeFi), and the move could possibly reduce mainstream interest in cryptocurrencies.

Playing the long game on NFT licenses

A common refrain in this newsletter is that, generally speaking, rules are a Good Thing™ for web3 adoption.  In an August issue, we expressed that as:

People have a love-hate relationship with rules.  By defining boundaries, they give us a sense of certainty.  We know that action X is fine but action Y will have us standing before a judge.  And by the time we enter the courtroom, we have a rough idea of what's on the proverbial menu.  Without rules, we'd all just do whatever we want.  (And if you scale that out to "the entire population," you get the definition of anarchy.) 

Yes, there are plenty of people who prefer the high-risk, high-reward arena of regulatory grey areas; but for the most part, widespread adoption will rely on people having a reasonable understanding of what is permitted.

One source of that clarity is regulations, as defined by a government.  Another is in licenses, as issued by creators.  New technologies challenge rulemakers, in part, because they carve new paths that the old rules had never considered.

Given that, the team at VC investor Andreesen Horowitz (a16z) has released the "Can't Be Evil" (CBE) licenses specifically designed for NFTs.  Quoting a tweet thread by Miles Jennings, a16z's general counsel and head of decentralization:

3/ With that in mind, the CBE licenses serve three core purposes: 1) protect creators’ IP, 2) grant NFT holders a baseline of rights that are irrevocable, enforceable, and easy-to-understand 3) help creators & their communities unleash the economic potential of their projects.

[...]

5/ The CBE licenses seek to extend the “Can’t be Evil” principle to NFTs by transparently codifying the rights of NFT creators, buyers and sellers, thereby making NFT ecosystems inherently more trustless.

(The CBE licenses are inspired by CC0, which we covered just a couple of weeks ago.)

This is an interesting path for a16z: they are giving away the licenses (ergo, the money spent on legal wrangling) for free, which means they won't see any immediate, direct monetary benefit. 

Then again, this move can pay dividends over time as the wider NFT space grows.  If a16z invests in an NFT-related startup that has adopted one of its licenses, the VC firm is already familiar with licensing terms and knows that they've closed off certain future legal problems.  That saves money in the long run – closing off legal loopholes protects their investment – which would be well worth the cost of fronting the money to create the licenses in the first place.

a16z scores a point for playing the long game.

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