July 26, 2022

NFTs with benefits, the changing sands of Time, and investing in a country

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.

NFTs with benefits

When people think of NFTs, they probably think of deeds of ownership for digital artwork.  Those prices can move around a lot (sometimes up, sometimes way way up, sometimes way way way down). This space is mainly for art collectors and price-watching speculators. 

You also have the more practical use cases. Manufacturers and fashion houses, for example, have developed digital twins for real-world goods. And then there's our favorite, the utility-style tokens that serve as access passes or VIP membership cards.  We call that last group "NFTs with benefits" because those perks give customers reasons to hold onto the tokens, which should protect the resale value from the wild price swings of the purely-art-collection NFTs.

Issuing NFTs as access passes is known as token-gating in the biz, and it's gaining traction.  Startup Front of House (FoH) has built a system to pair digital collectibles with perks at brick-and-mortar restaurants

We've seen token-gating before. But FoH stands out as an early case of a company building out the backing infrastructure for this concept. (Remember, "companies building infrastructure" is akin to the old "selling picks and shovels" concept: it's a hint that these providers see long-term benefit in this field.)  The other cases we've noticed appeared to be home-grown, one-off solutions. With FoH, restaurants don't have to build out their own.  They can just plug in to a provider's system.

We look forward to more NFTs with benefits, as well as service providers who will make it easier for businesses to work with token-gating and loyalty programs.

The transformation of Time

When it comes to emerging technologies, you usually see smaller companies dive in very early while the larger ones hold off until the Hot New Thing has grown and matured.  Their wait-and-see approach shifts from "dismissive eye-roll" to "mildly curious investigation" to "a frantic game of catch-up, masked with a light scent of No, We Were Always Here, Why Do You Ask?"

(For a deeper look into this phenomenon, we highly recommend Clayton Christensen's book The Innovator's Dilemma as well as The Diffusion of Innovations by Everett Rogers.  Plenty of startup founders have thoughtlessly flogged the former's notion of "disruption" as a rallying cry, but we assure you, it is a much more insightful read than that crowd may let on.)

So it's noteworthy when a larger, established, more mature player is an early adopter of a new technology.  The publisher Time is a case in point.  They've gone all-in on web3, from accepting cryptocurrencies for subscriptions to issuing a series of NFTs called TIMEPieces, which serve as access passes to its eponymous publication.  And continuing down the path of NFTs with Benefits, token-holders get "unlimited access to TIME content, as well as exclusive invitations to both virtual and in-person events."

Time isn't just dipping their toes into web3.  All of this is part of a larger strategy.  Keith Grossman, Time's  president, has done his homework on this space and is rethinking the company through a web3 lens:

“And that’s when everything clicked. [...] I said that within 30 days, we would start accepting cryptocurrency for digital payments. Today we accept 33 cryptocurrencies for digital subscriptions. ... And then I said within six months, we will figure out how to use a token and a blockchain to change the relationship of a consumer with our brand."

This is especially noteworthy in light of how slowly the print media field has adopted technology in the past.  Remember early news websites, the ones that tried to simply recreate the print experience through a browser?  Those publishers were running on the web but not really embracing what it could do for them.

For any exec who is thinking about how web3 could impact or outright transform their business, we recommend keeping an eye on Keith Grossman and his work on Time's journey.  

(And, yes, obligatory self-promotion: your Block & Mortar editors are putting the finishing touches on our own workshops and coaching for leadership teams.  Want to see how to apply web3 to your business?  You can sign up here and we'll notify you when it's ready.)

It's like an IPO for a country. Kinda.

Given the number of governments that are trying to regulate crypto, or that are still in the early  planning stages of their digital currency, it's interesting to see one go all-in: the Central African Republic (CAR) is outright issuing its own Sango Coin crypto tokens

And while Sango Coins are tokens of the fungible variety, not NFTs, they still come with added benefits.  Nonresidents who buy Sango tokens get a plot in the country's metaverse, have the option to purchase real-world land in the country, and may even attain CAR citizenship.

This may look like a publicity stunt but we sense a method to the madness.  Countries, just like corporations and individuals, sometimes need more money than they have on-hand.  In order to close those budgetary gaps they can:

  • Sell some property.  They get cash, sure, but they lose the property.  This is unpleasant if they'd prefer to hold on to it, or simply impossible if it is key to their day-to-day operations.
  • Apply for loans or issue bonds.  Taking on debt means betting on their ability to repay the money. They don't relinquish any property up-front, but could lose it in the event of a default.  
  • Issue shares of stock. They get money now, in exchange for some flavor of future benefits to the buyer… but they don't really have to "repay" the money in the traditional sense.  

At the risk of falling into the "is a crypto token a security?" debate – the answer is obvious: "maybe?" –  it's hard to look at a program like Sango Coin and not see it as a form of stock-like fundraising. People give CAR fiat currency in exchange for the tokens, CAR offers them benefits in return.  And it behooves the token buyers to support and hype up the country, because that improves the future resale value of their tokens.  

Compared to a loan or a bond, token holders get "repaid" when they sell their coins. The buyer in that case may even be CAR itself should it conduct a buyback to, in so many words, "go private."  All the while, CAR avoids eye-watering interest rates and the risk of default that would accompany a traditional loan. 

(Why would a country worry about interest rates and default risk?  We're not sure. It's not as though wealthy nations have ever saddled the developing world with sketchy debt that left them with multiple generations of ever-deepening economic distress. Nope. Never happened. Nothing to see here. Move along.)

Scam O'Clock™: Premint edition

Similar to Things Go Wrong™, we – perhaps, foolishly? – did not expect Scam O'Clock™ to make a repeat appearance.  At least not so soon.  But here we are.  We'll leave it up to readers to keep track of which segment appears more often.

Crypto transactions work in a push fashion – someone sends tokens to an address – rather than pull.  Because no one can pull tokens out of your wallet, then, thieves need to trick you into sending your tokens to the wrong place.  Or they con you into granting them access to your wallet, such that they can initiate the transfer on their own.  It's all about getting you to click a poisoned link, or to share your keys, which is why these scams typically start with someone contacting you.

Maybe a thief wants your specific NFT, so they try to contact you directly.  Or they want to steal pieces from a given collection, so they hack that group's Instagram account or Discord server.  Since messages from that trusted source carry an air of legitimacy, NFT holders are more likely to drop their guard and click the (unbeknownst to them, tainted) link. If approaching specific NFT owners is akin to picking someone's pocket, then going after a whole collection this way is like pulling off a bank heist.

Continuing that analogy, hacking a central service is equivalent to thieves infiltrating the bank's headquarters and posing as key employees.

All of this is to explain why last week's infiltration of Premint is such a big deal.  NFT artists often turn to Premint to raise awareness and build community in advance of their upcoming release.  By hacking Premint, would-be thieves could target a much wider group of NFT holders. (Anyone who browses the site likely owns some NFTs already.)  Not to mention, because of all the FOMO and opportunism in web3, people can be quick to click a link that reads "free NFTs."

Sadly, we know this will not be the last Scam O'Clock™ segment.  Web3 is still in its early, lawless days.  And as thieves cast wider nets, we expect to see more attacks on centralized services. 

As we've noted before, there's no such thing as perfect security.  But you can protect yourself by using a hardware ("cold") wallet and by treating any stray links with suspicion.  The folks at NFTevening offer another useful tactic to keep your crypto tokens safe:

Ultimately, it’s always safer to use a crypto burner wallet to avoid situations like this. Essentially, a burner wallet is a temporary crypto wallet that you use purely for minting NFTs or making any dApp transactions. This wallet will only have the minimum amount you need to mint an NFT or pay for gas. This way, even if someone hacks your burner wallet, your primary assets will remain safe.

(For a little advanced reading, this Ledger article on "blind signing" sheds more light on why burner wallets are so important for crypto safety.)

“We'll call it the Genius … Space? Maybe?”

When we first came across Solana Spaces, we thought it would be another metaverse implementation to compete with the likes of Otherside and The Sandbox.  So we did a double-take when we noticed that this was supposedly located in real-world ("meat-verse?" Maybe? We'll workshop it?) NYC.  

Yes, go ahead, you're welcome to make a joke about how everything crypto should be online.  And when you're done laughing, take another look.  Solana describes Spaces as:

[...] everyone’s first crypto friend.

Inside, you’ll learn how Solana works, what Web3 is. We’ll set you up with a wallet and your first NFTs, and guide you through your first on chain transactions.

There’s more. We also designed Spaces to be cultural centers, embassies for Solana.

We’ll be an event host, a launchpad, and a purveyor of Solana culture – including a whole new set of merch, and frequent limited edition collaborations with brands in and outside of crypto.

It's easy to see web3 as an online-only affair.  And maybe there's some truth to that.  But these technologies will be used by people in the real world, and many of those people could use additional on-boarding and guidance in order to make the most of what this new world has to offer.  

We salute anyone who is doing their part to put web3 into plain language.  (That's why we created this newsletter!) Especially since crypto's UI/UX still leaves so much to be desired.  If web3 is to gain wider traction, the field needs to do something to balance out the tales of Scam O'Clock™ and "oh yeh you sent tokens to the wrong address so they're gone forever."

Don't believe us?  We invite you to take another look at the mock-up image in that Solana Spaces tweet thread.  Don't you get a distinct … vibe?  Like the urge to buy an expensive toy?  Spaces has the potential to be the Apple Store (including the Genius Bar) for a certain slice of web3.  Granted, we expect they'll focus on Solana-based technologies.  Which is only fair.  But we also expect that people will come away with generally-applicable web3 knowledge, and that can only help the space to grow and mature.

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