The case against crypto in the metaverse

How the next wave of technology is upending the global economy and its power structures

Aug 08, 2022 View in browser   By Derek Robertson An NFT on a billboard in Manhattan. | Dia Dipasupil/Getty Images This newsletter has already asked if crypto is going to be foundational to the metaverse , but it's a question worth revisiting. The pro-crypto argument is that the technology is the only way to guarantee digital property rights. As an Andressen Horowitz memo on the "essential ingredients" of the metaverse puts it "true digital property rights weren't possible before the advent of cryptography, blockchain technology, and related innovations such as NFTs." Think of the recent craze for metaverse real estate : The NFT is a certificate of authenticity that serves as the "deed" to one's "home." That principle could then apply to anything from your avatar's clothes to their virtual car to any other item used in a virtual world. But Minecraft, one of the biggest metaverse-like spaces, just banned NFTs , accusing them directly of being vehicles for financialization that are "inconsistent with the long-term joy and success of [their] players." Does that make the game an outlier, or ahead of the curve? I spoke to Liron Shapira, an investor, entrepreneur, founder of the relationship-coaching app "Relationship Hero" — and an outspoken crypto skeptic and Twitter pugilist, asking him to weigh the relative merits of the Web3-metaverse boosters' claims. "It's such a classic case of abstract reasoning that sounds like it makes sense on an abstract level, but then when you unpack it and get more specific it dissolves," Shapira said of the argument that blockchain is the key to interoperability and freedom from Big Tech's stranglehold on our data. "It is kind of nice to think, what if you didn't have to trust [those companies], but in practice, it's just not a big deal… their examples don't make a compelling case." A good example of Shapira's argument came in his January debate with Balaji Srinivasan , a former partner at Andressen Horowitz (and former Coinbase CTO) who argues that blockchain is a world-changing technology. Shapira asked Srinivasan why use blockchain for recordkeeping or fundraising, for example, when DocuSign and Kickstarter work just fine? Sophisticated payment rails for digital financial transactions already exist; why add another layer of "wallet"-based obfuscation? (Srinivasan's counter-argument: That the programmable nature of blockchains make them uniquely valuable for facilitating the flow of money, and scaling up the number of transactions possible on it.) But you don't have to be an all-out crypto evangelist like Srinivasan to see the technologies as potentially complementary. When I spoke with Matthew Ball upon the release of his book " The Metaverse " — which describes both the benefits and drawbacks of Web3/metaverse integration without taking a side — he said he sees the technology's potential to make users less dependent on big corporations, but is sympathetic to gamers and other consumers who simply view it as a moneymaking scheme (the very case the "Minecraft" developers made in announcing their NFT ban). And it's not only gamers with whom crypto's reputation is at an ebb right now, given the market crash and increasing likelihood of a regulatory crackdown. In that light, it's easy to imagine giant corporations keeping a wide berth (especially given Meta's own tortured history with crypto ). The best argument for crypto's instrumentality to the metaverse would be an everyday, ubiquitous demonstrated use for it — but virtual real estate is more of a speculative bauble than an impactful app like Google Maps or, well, Facebook. Maybe a new use will emerge, but as the two technologies develop their relationship looks less like interdependence and more like good-old-fashioned overlap.   INTRODUCING POWER SWITCH: The energy landscape is profoundly transforming. Power Switch is a daily newsletter that unlocks the most important stories driving the energy sector and the political forces shaping critical decisions about your energy future, from production to storage, distribution to consumption. Don't miss out on Power Switch, your guide to the politics of energy transformation in America and around the world. SUBSCRIBE TODAY .     mixing it up The Treasury Department building. | Patrick Semansky, File/AP Photo The Treasury Department today sanctioned Tornado Cash, one of the world's biggest crypto mixers, for the role it played in helping North Korean (and other) hackers launder stolen money. What's a "crypto mixer"? A helpful Ars Technica explainer describes them as "creating a disconnect between the funds a user deposits and the funds the user withdraws," by pooling large amounts of users' funds together and then allowing users to withdraw the initial amount they put in, but not the same deposit. There are legitimate reasons someone might want to protect their privacy, but it also poses an obvious opportunity for money laundering on a large scale. And large-scale did Tornado Cash go: as POLITICO's Eric Geller noted for Pro subscribers today, the Treasury Dept. is accusing North Korean hackers of laundering $455 million worth of Ethereum through the service that was stolen as part of a March heist. (And more than $7 billion in total.) Tornado Cash isn't the first mixer to get slapped for providing such a service, either, following Blender.io in May . A senior Treasury official told Eric the efforts are meant to "send a strong message" to crypto companies with overly lax info-collecting capacities. afternoon snack It's time for a long-overdue update from the DFD "history of the future" department — this time from the literary world. As part of a weekend Wikipedia rabbit hole, I came across an essay by Thomas Pynchon titled " Is It O.K. To Be A Luddite ?", in the October 28, 1984 New York Times Book Review. In it, the giant of postmodern literature tackles the role that anti-technologists have traditionally played in shaping our technological and scientific culture, providing catharsis for those who feel mystified or repressed by "progress" — think Frankenstein's monster, doling out vengeance for man's hubristic attempt to play God. The essay includes some oddly optimistic speculation about the "Computer Age," observing there seemed "to be a growing consensus that knowledge really is power, that there is a pretty straightforward conversion between money and information, and that somehow, if the logistics can be worked out, miracles may yet be possible," including a final rapprochement between the so-called Luddites and techno-optimists. (So much for that.) Pynchon also alludes to the potential for a similar modern-day-Prometheus moment in the essay's closing, where he points out that "If our world survives, the next great challenge to watch out for will come — you heard it here first — when the curves of research and development in artificial intelligence, molecular biology and robotics all converge." Which sounds very "Blade Runner" (a film that was just two years old when the essay was published). But those curves — in the ongoing debates about how humans react to AI, the ethics of genetic engineering, or the meaning of "work" in an automated world — have only bent further upward since Pynchon's writing, if not yet reaching as explosive a convergence as he might have imagined. Not much has been heard from the reclusive author in recent years, but maybe it's not too much to hope for an exploration of the subjects in one more twilight-era novel. the future in 5 links A federal court ruled that AI doesn't have legal standing to file patents . NFTs have become a predictable match for the big-money world of European soccer . What's so special, or not, about the nine cryptocurrencies the SEC classified as securities? Chinese tech company Baidu says it wants to surpass Tesla in the autonomous vehicle race. Yet another big crypto lender is pausing withdrawals . Stay in touch with the whole team: Ben Schreckinger ( bschreckinger@politico.com ); Derek Robertson ( drobertson@politico.com ); Konstantin Kakaes ( kkakaes@politico.com ); and Heidi Vogt ( hvogt@politico.com ). Follow us on Twitter @DigitalFuture . If you've had this newsletter forwarded to you, you can sign up here . And read our mission statement here .   Follow us on Twitter Ben Schreckinger @SchreckReports Derek Robertson @afternoondelete Konstantin Kakaes @kkakaes Heidi Vogt @HeidiVogt   Follow us

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