A strong majority of U.S. voters see crypto and web3 as important new advances that benefit average Americans, a new survey shows. Moreoever, voters want the government to make sure that regulation is sensible and positions the country for continued technological leadership, they say.

The survey, commissioned by Andreessen Horowitz and conducted this month by Morning Consult, shows broad support across a range of questions related to crypto, digital assets, and the decentralized internet framework known as web3, in which blockchain-based technologies would reduce the power of centralized platforms and corporations and give citizens more autonomy over their money, data, and other assets.

“Even we were surprised by just how many people understand and embrace this vision of a decentralized future,” said Tomicah Tillemann, global head of policy for a16z Crypto. “Web3 is no niche matter. It’s a movement — one that’s gaining builders, backers, and believers every day.”

Economic issues paramount for voters

The survey showed that most Americans see crypto as a positive force for innovation and opportunity. First, the overall voter sentiment and economic numbers:

Demographic consensus

Leaders on both sides of the aisle would be well-served by a new strategy for an emerging American economy — web3 and crypto are central to that conversation, especially in communities of color, according to the study. Web3 appeals to Americans precisely because it gives people more control over their finances during an economically anxious time, the survey shows. As a result, a majority think digital assets are the future of finance.

Moderate regulation urged

Given this, voters strongly responded that they do not want to see heavy-handed efforts to shut down or jeopardize the potential of web3.

Holders are many and diverse

Another key finding in the survey: A significant percentage of Americans own digital assets, and ownership is diverse. This isn’t just a fad — it’s about having more control at a time when trust in institutions is greatly diminished.

Opportunity for both parties

As midterm elections approach, both parties have an opportunity to get savvy. Voters care about the economy — and they are overwhelmingly pro-web3. This is especially true for young voters and Black/Latinx voters.

About the poll: This survey, commissioned by Andreessen Horowitz and conducted by Morning Consult, interviewed 2,191 registered voters in the United States online from December 1-3, 2021. The margin of error of a truly random sample is +/- 2 percentage points; a larger margin of error may apply within subgroups.

As director of the Securities and Exchange Commission’s Division of Corporation Finance between 2017 and 2021, Bill Hinman spearheaded the agency’s early work with cryptocurrencies and blockchain technologies. Bill understood both the need to protect investors and the value of rapid innovation in digital assets. In 2018, the division he led laid out a framework that market participants could use to evaluate whether digital assets should or should not be considered securities, giving clarity to many in the crypto community.

Bill, who is now a senior advisor at Simpson, Thacher & Bartlett and an advisory partner at a16z, sat down with Crypto Quarterly to discuss how regulators can move forward to craft the rules of the road for digital assets without stifling innovation. This is an edited transcript of that conversation, which reflects his views and not necessarily those of the firms he advises.

How would you describe the overall cryptocurrency regulatory landscape in the United States today and why is it important that it be improved?

Historically, U.S. financial markets have been some of the strongest and most respected in the world. Effective regulation has given participants in those markets a sense of confidence that they are fair, efficient, and reliable. Markets thrive when these ingredients are present, and it is hard to see how markets lacking these factors can succeed in the long term. 

That’s why most of the serious participants in the crypto markets welcome thoughtful regulation. They are calling for U.S. regulators to keep pace with the developments in crypto technology and to bring a regulatory approach that is supportive of innovation while being protective of participants. Fulfilling the promise of the blockchain and our ongoing leadership in financial markets depends on that.

It’s important to recognize that the financial regulatory system in the U.S. evolves slowly. And until recently, the instruments that were being regulated hadn’t changed all that much. But the new instruments that are based on blockchain technology, and that fall broadly under the crypto umbrella, present new and innovative ways of approaching a wide range of products and services. These include instruments that have financial value and characteristics that attract the attention of regulators. But blockchain technologies are being used to create and offer services beyond the financial sphere. By presenting a way to integrate the transfer of value into the internet, blockchain technologies will facilitate the next generation of the internet — Web3 — which has the potential to be more democratized and less susceptible to domination by tech behemoths. Because these technologies have implications beyond the financial sphere, we must work to update our current financial regulations and laws, which never contemplated the instruments and services these technologies enable.

Given the complexity, how should the U.S. move forward on regulating these instruments?

The United States can either be a leader and take steps toward sensible regulation or let linger an ill-suited regulatory framework that drives people to move operations elsewhere. Policymakers and others must impress on regulators how important it is to not reject all digital assets out of hand as speculative or lacking purpose. Our regulators, as they approach digital assets, will hopefully be thoughtful about where the value is and where the real risks lie.

The recent Presidential Working Group on Stablecoins recognized the value of stablecoins in streamlining and making more secure domestic and cross-border payments. I believe the group did a good job identifying potential sources of risk and the need for regulatory protections. I was gratified to see them urge Congress to consider these issues and provide a workable regulatory framework.

Do you have a sense that regulators and legislators understand the complexity of the challenge and the consequences of bad regulatory decisions?

Until recently, not all the regulators had been closely following developments that go on in the digital asset community. Now, because that community is larger and trades billions in value daily, the regulators are becoming more focused on how digital assets fit into their world.

At the same time, I think there’s a much deeper appreciation on Capitol Hill, and among some regulators, for wanting to make sure that the United States remains the world’s preeminent financial center and of the risk of pushing important innovation to take place outside of the country.

What types of innovations are you talking about?

The benefits that crypto can facilitate are numerous. A U.S. dollar stablecoin framework that embraces private stablecoins, for example, could provide systemic resilience and help maintain the global preeminence of the U.S. dollar.

In addition, it would be beneficial if some of the applications that today are managed by large, centralized enterprises that monetize user information and traffic were less dominant because there were more peer-to-peer solutions available — solutions where users are better able to retain their privacy and choose for themselves how or if their online activity is to be monetized. The solutions that offer the most promise in this area are those enabled by blockchain.

Given the breadth of instruments that crypto can enable, it’s not always clear who should step in as regulator. There are signs of emerging turf battles among agencies. How should they be resolved and who should take the lead?

Where there is potentially overlapping jurisdiction between agencies, it is common to see each one wanting to resolve that redundancy in its favor. This is also the case where there may be regulatory gaps that can be filled by a choice of agencies. None of this is unique to crypto. Congress, in its wisdom, generally decides these issues. The deliberations that precede their decision-making can be very lengthy — often years. In the meantime, we can hope that our regulators act in a way that goes beyond turf wars and is motivated by what is best for the public and the long-term health of our economy.

The SEC chairman, Gary Gensler, recently embraced the notion that for crypto to flourish, it needs to have rules. And given the lack of crypto-specific rules, he suggested the agency would focus on protecting investors through enforcement actions. Do you agree with his assessment and is this the right approach?

I agree that you have to have a regulatory framework for those instruments to prosper in the long term. It is interesting to note that even absent a comprehensive federal system of regulation, liquid and deep markets have developed and operate with significant efficiencies. As we consider the proper level of regulation, it will be important to decide who is the right regulator for different aspects of this very complex set of instruments. They’re not all the equivalent of securities or commodities or copyrightable materials. There’s a whole host of things with different consumer protection aspects to them and no one regulator really has the ability today to cover all that.

Any specific ideas you would like to see the regulators take up?

There are a few things I would like to see my former agency take on that I  think would help, particularly with respect to secondary markets and trading. While I was at the SEC, much of our focus was on the creation and sale of digital assets and making clear when a sale of a digital asset needed to either be registered under the Securities Act of 1933 or sold pursuant to an exemption from that law. Currently, I believe that with a few exceptions, much of that activity is done in compliance with the securities laws. What is of prime interest now is the enormous secondary trading of crypto assets. Much of this trading is among market participants who had little or nothing to do with the creation or initial sale of the assets. With the increase in the variety and number of digital assets that trade, it has not always been clear how or whether the Securities Exchange Act of 1934 (Exchange Act) should apply.

Chairman Gensler has indicated that he believes many crypto exchanges are trading digital assets that are securities. He suggests these exchanges should register as securities exchanges or as alternative trading systems under the Exchange Act — frameworks designed to facilitate the trading of conventional securities. I understand where he is coming from. Trading in active markets for any instrument can be abusive or worse, particularly if those markets are opaque or not subject to regulatory oversight. While trading in blockchain-based assets may benefit from the publicly distributed nature of the ledger on which transactions are recorded, much of the activity is difficult to track and the information available about market activity can be limited. I am sure Chairman Gensler believes an Exchange Act layer of regulation could enhance crypto exchanges. It would allow the SEC to conduct periodic inspection of these exchanges and subject trading on them to rules that govern broker-dealers in our traditional securities markets.

Are there problems with this perspective?

There are at least two ways where leadership in this area could be more effective. First, it is not helpful to simply say “some of these assets trading on the digital exchanges must be securities” and to suggest that market participants come in and discuss their position. The market has seen unusually high levels of enforcement with respect to crypto exchanges, and market participants are reasonably concerned that coming forward to have a dialogue will result in their becoming enforcement targets. Of course, for the SEC to fully understand the crypto markets and products, it would be very helpful for it to have a way to productively discuss digital assets markets and trends. The SEC may want to consider creating an amnesty program for those who come in to discuss a path to secondary market trading compliance. In creating such a program, the Commission should recognize that its current framework for secondary trading activity has not been designed with blockchain-mediated assets in mind. To the extent the exchanges are trading digital assets that fall into the rubric of the securities laws, that framework will need to be streamlined or otherwise modified to provide a workable trading environment. The rewards for doing so could be great — the U.S. markets in this area would likely thrive and at a minimum would not cede this activity to operations outside U.S. borders.

Beyond facilitating that dialogue, what else could the SEC do?

One relatively simple thing the SEC could consider is building out and modifying its Alternative Trading System (ATS) rules to accommodate digital assets. It could establish basic information requirements that elicit the material and relevant information needed for a digital asset to begin trading on an ATS platform. These requirements would be different from the rules that apply to conventional securities, given that digital assets often trade without a central issuer’s continued involvement. Without an issuer, the financial statement and other information the SEC requires make little sense. But other information requirements could — for instance, information about the number of tokens issued and issuable under the relevant protocol, how that protocol may be changed, how transactions on the token’s blockchain are transferred and verified. In order to address money laundering and “know your customer” concerns, trading on these ATS platforms could be limited to those participating through wallets hosted by intermediaries that have appropriate AML/KYC procedures in place and are subject to SEC review. 

If such a system were available, market participants could have a choice: trade on a regulated platform, or trade outside that platform on exchanges that have structured themselves to avoid coming within the SEC framework or trade on a peer-to-peer basis on the blockchain. Although some will prefer the latter alternatives, I would expect most institutions and many retail customers would welcome a more carefully regulated marketplace.

Creating paths to compliance in areas of innovation is a worthy goal for all regulators. The ATS idea is simply one example.

Erikan Obotetukudo (above), the daughter of Nigerian immigrants, grew up about 40 miles east of Los Angeles in a multi-ethnic neighborhood in Rancho Cucamonga. Her parents were among the Nigerians sent by their country in the late ’70s and early ’80s to study abroad with the ultimate goal of bringing intellectual capital back. She often attended parties with the local Nigerian immigrant community, where they would gather monetary gifts to send back to relatives in Africa.  

Taking care of relatives overseas was part of Obotetukudo’s culture, much like it was for her Taiwanese, Filipino, and Black friends, who also sent money to their families overseas. But there were few affordable, efficient options for doing so — high fees ate into the amounts, and transactions took days. 

Today, Obotetukudo is the founder of the Audacity Fund, a cryptocurrency-based VC fund that invests in Black- and African-led crypto startups. She sees crypto as a better means of supporting their unique cultures, while removing institutional bias and fostering financial inclusion. 

Crypto could be especially impactful on cross-border remittances, a fast-growing global market that reached a record high of $648 billion in 2020 and is expected to grow to $930 billion by 2026. Cross-border payments are critical to supporting the economies of countless developing countries, but come with fees that average 6.38% of the amount sent, according to the World Bank, and can be much higher in certain geographies. 

The fees amount to a sort of tax on some of the people who can least afford it. And remittances have other issues such as long delays for recipients or difficulties in redeeming funds. Remittances between Nigeria and the U.S. through banks and wire services, for example, were an estimated $17 billion market in 2020. But transactions are often blocked. 

“There’s a preconceived notion that those transactions are associated with fraud,” Obotetukudo said. Because of those challenges, as well as government repression and rapid currency deflation, Nigeria has become a global leader in cryptocurrency adoption.

“We’re seeing remittances and payment technologies that are being powered and enabled by crypto and blockchain,” said Obotetukudo. “Crypto and blockchain are amazing because you can simply be a holder of Bitcoin and have access to a global network.” 

The technology allows people not only to receive money from overseas, but also to engage in commerce, create funds, and generate yields, she added. “You can do so much more without having to get the permission of intermediaries that have a long-standing bias that keeps a lot of people from participating.”

A lifeline amid crumbling institutions

Crypto remittances are also having a growing impact in Venezuela. Millions of its citizens have fled violence, food insecurity, and poor medical resources, and many have settled in neighboring Colombia. Remittances back to Venezuela have become a lifeline for those who remain, as well as a booming marketplace. 

Fintech company Valiu, which specializes in remittances to Venezuela, provides access for many undocumented migrants and refugees in Colombia. The platform also eliminates the excessive fees imposed by governments and traditional institutions. 

“The government of Venezuela is very corrupt — they try to steal all the money and get a cut of everything,” said Valiu CMO Christian Knudsen Daccach, adding that fees at money transfer institutions can be prohibitive. 

A prolific underground market of nonsecure, unofficial remittance intermediaries, who are connected through word of mouth and WhatsApp, had been the only alternative. Now, Valiu users in Colombia can buy “crypto-dollars” backed by Bitcoin and send them across the border in less than 30 minutes. The funds are protected from Venezuela’s hyperinflation until they are redeemed into local currency through affiliated banks. Valiu charges fees of between 2% and 4%. 

A growing number of fintech players connecting the Latin American markets to blockchain and crypto — for example, Airtm and Bitso in Mexico and Chile’s Global66 — are slowly changing the landscape. 

“Crypto is borderless; you can be in Singapore and your cousin in Colombia can send you money,” Daccach said. “You have to pay a commission, but you don’t have to depend on intermediaries or centralized institutions. It’s much easier, it’s much cheaper and you’re autonomous.”

Countering pervasive fraud

In the Philippines, remittances from overseas workers accounted for 9.7 percent of the country’s GDP in 2020. But the lack of centralized banking has resulted in pervasive fraud and a system of expensive and hard-to-access remittance cash-out counters.  

However, crypto-backed, blockchain-enabled platforms for sending funds are showing significant promise in the Philippines. After a pilot program by the Grameen Foundation successfully delivered pandemic relief funds to hundreds of female micro-entrepreneurs through a decentralized blockchain platform called Celo, the global nonprofit organization hailed the promise of the crypto-based system. 

“The program proved the point that [remittances] could be done in a cheaper, faster, and more transparent way,” said Gigi Gatti, director of technology development for the foundation, which fosters financial inclusion. Gatti noted that the Philippines aid program delivered funds not only more efficiently, but also more transparently and with less fraud than traditional programs.

As crypto-backed startups are proving the value of the technology, major financial institutions — including the same companies whose historic bias and high fees have led to a boom in cryptocurrency-backed remittances — are beginning to embrace it.

“Different central banks across the world are now starting to incorporate cryptocurrency, particularly Bitcoin, into their ledgers,” Obotetukudo said. 

While the overall size of crypto-based remittances is hard to estimate — and is likely to be relatively small for now — the technology’s potential to reshape a practice that is vital to the economy of many developing countries is evident in the interest it’s generating among entrepreneurs. As of July 2021, there were 87 cryptocurrency remittance startups across the globe, according to startup data provider Tracxn.

As the market scales, developing a strong ecosystem with protocols for compliance and identity verification will be critical to widespread adoption. 

Daccach believes we’re in the midst of a crypto revolution that will see many changes and new players over the next few years, making them more efficient and competitive. “I think that will help emerging countries … which really need remittances and international payments,” he said. “The biggest beneficiaries are the customers.”

Evan Bell first learned about money from her mother, whom she describes as a “big saver.” Like many in the Black community, her mother gravitated toward fairly conservative investments, like certificates of deposit, while avoiding riskier ones like stocks. 

Bell went on to study math and economics in college, and she embraced broader investment approaches for herself. Along with her savings and 401(k) accounts, Bell has owned property, stocks, and a handful of cryptocurrencies, including Bitcoin, Ethereum, and Mobilecoin. 

Bell first learned about Bitcoin nearly a decade ago. At 28, she considers crypto a must-have for her portfolio. It’s an opportunity to “participate in something that feels very future-focused,” she says.  

She is hardly the only one in the Black community who wants to own a piece of the crypto future. As optimism about crypto’s potential has spread across the globe in recent years, a new generation of Black Americans is embracing cryptocurrencies in record numbers. A recent Harris Poll survey found that 30% of Black Americans own cryptocurrency. That’s almost double the 17% rate of crypto ownership among white Americans. Among Hispanic Americans, the rate was 27%.

The reason for the enthusiasm: a pent-up desire for an alternative to centralized traditional financial institutions whose history with the Black community has often been marked by discrimination and exclusion. Over half of Black Americans who have heard of cryptocurrencies say their decentralized nature is a positive attribute, according to the Harris survey. These statistics and findings are in line with the results of Andreessen Horowitz’s own survey, conducted by Morning Consult.

A history of exclusion

“Cryptocurrencies are opening up opportunities for more diverse investors, which is a very good thing,” said Angela Fontes, a vice president at the University of Chicago’s NORC, a nonpartisan research center, whose own survey found that 44% of crypto traders are non-white. 

In a recent publication, researchers at the Federal Reserve Bank of San Francisco reached a similar conclusion. Noting that structural inequities are at the root of financial exclusion and a massive wealth gap between Black and white families, the researchers said new financial technology “offers an opportunity to reach many who have been excluded from the financial system by approaching financial products with a new eye.” 

Thabo Abbate, whose Arbitus Group is one of the first crypto-only accounting firms in the U.S., is seeing this firsthand. He says cryptocurrency presents a new, more inclusive opportunity for people who have been actively neglected by traditional investing and banking methods.

“Financially disenfranchised individuals are far more likely to adopt cryptocurrency than individuals who have been well-served by the legacy financial system,” he said. The Harris survey showed that milennials and other young people are leading crypto adoption in the Black community. 

“When you are starting from zero or you don’t have examples of people who look like you, then you are far more receptive to novel ideas,” Abbate said.

Abbate has found his Black clients skew to relatively “safer” assets within the crypto ecosystem. He says those clients are more interested in coins with a higher market cap and track record — such as Bitcoin, Ethereum, Litecoin, and Cardano — than in smaller, earlier-stage tokens. 

The nexus of culture and money

Erikan Obotetukudo, founder of crypto VC firm Audacity Fund, which invests in Black and African-led startups, says there are also cultural reasons why crypto and blockchain technologies speak to some in the Black community. She points to Guapcoin, a relatively small cryptocurrency that was developed by and for Black people, which she says embraces Black vernacular and culture. “Those nuances are very important as we think about designing this new internet in an inclusive way that really allows people to feel seen,” she says.

“It is in our best interest to be early in crypto and blockchain,” she continued, “and benefit from the success that we bring to these technologies.”

The intersection of crypto and culture is also evident in the way Black artists and communities have embraced non-fungible tokens (NFTs). Black creators like 3D artist and animator Andre Oshea and former pro baseball player turned digital artist Micah Johnson, for example, have had success monetizing their work through NFTs. Between January and November 2020, digital gallery ONE/OFF reported that its Black crypto artists sold more than 500 works for an estimated market value of $736,000. 

“NFTs lower the barrier to entry for creatives to participate in commerce,” said Cuy Sheffield, Visa’s head of crypto, who is an advocate of crypto as a force for Black financial empowerment. “You can create work that you can tokenize into an asset that you can actually sell.”

Adoption of crypto in the Black community is also being driven by cultural and family ties to other countries, especially in Africa. Countries such as South Africa, Kenya, and Nigeria have been early adopters of crypto as a tool for investment, savings, trade, and remittances. 

“Africans are really tied into remittance markets and are very multi-currency, and I think [cryptocurrency] was easy for them to pick up,” said Abbate, whose family has sent money to relatives in Botswana. “We’re very comfortable with the idea of money floating in value … and a lot of Americans are not used to that volatility.”

Demystifying crypto

Crypto can be complex, and that’s opened the door to a cottage industry of entrepreneurs who are offering crypto education targeted at the Black community in various formats. Podcasts, videos, and social media sites offer plentiful tutorials and analysis, while news sites like People of Color in Tech provide support and insight. Platforms such as Crypto for Black Economic Empowerment, led by Obotetukudo, connect Black founders, investors, and artists. Many of the historically Black colleges and universities have crypto clubs, and there are individualized learning services, such as Crypto Tutors.

“It’s incredibly powerful to be able to see people who look like you have success in a new industry and with a new technology,” Sheffield said. “Being able to highlight the creators and entrepreneurs in this space goes a long way to inspire people. Crypto is not something that is exclusive.”

In September, Visa partnered with First Boulevard, a new digital bank focused on serving the Black community. First Boulevard will pilot Visa’s crypto APIs and have a variety of content to broaden clients’ understanding of finance, crypto, and volatility. 

“[Crypto] is not the cure-all solution to racial wealth disparities,” Sheffield said. “We think crypto should be a part of the conversation. And we think that when new asset classes emerge, and new technologies emerge, we want to do everything we can to make sure that they’re accessible and that underrepresented communities have the opportunity to benefit from them.”

Writer Emily Segal released her first novel, Mercury Retrograde, last year through a publishing collective she’d founded with a group of writers. She was eager to get started on her second novel, but finding the time and resources to work on the book was difficult amid her countless other responsibilities. 

Her friend and fellow writer, Dena Yago, had recently crowdfunded her essay about Billie Eilish,“Blurred Vibrations,” on the cryptocurrency-based platform Mirror.xyz, raising nearly $38,000. Yago encouraged Segal to try the platform, which uses non-fungible tokens (NFTs).  

“The publishing world moves very, very slowly,” Segal said. “I figured why not, as an experiment, put up a crowdfund for the book?”

Within 13 hours of launching the campaign for her novel-in-progress, Burn Alpha, Segal had reached her goal, raising 25 Ethereum, or ETH — roughly the equivalent of $75,000. But collective fundraising for blockchain-based creative work goes beyond similar-sounding crowdfunding models. 

Segal retained 30% of the book’s token supply, while the rest was distributed among 104 backers, each of whom contributed anywhere from 0.5 to 5 ETH to the crowdfund. Through their share of the token supply for the book, contributors got fractional ownership in Segal’s book enterprise. Any time tokens are sold, a percentage will go back to the original holders. And if the value for the novel’s NFT appreciates, funders will benefit, just like a shareholder in a company would benefit from a rising stock. 

“It was the equivalent of being paid a really nice book advance,” Segal said, “and getting it with tons of sweetness from a lot of people who wish you the best.”

NFTs burst into the zeitgeist in early 2021, when the artist known as Beeple sold what is essentially a JPG file for $69 million in a Christie’s auction. Since then, much of the attention has focused on the technology’s power to monetize digital art and collectibles on platforms like OpenSea, Nifty Gateway, and others. But as new platforms emerge, including Mirror, launched in 2020 and focused on the written word, they’re showing the technology’s potential to have a profound effect on a much broader range of domains. 

A new way for writers to publish, and own, their work 

“If you build the creator economy on top of crypto, you could do really powerful things,” said Mirror founder Denis Nazarov. “With crypto, it’s clear that you can build a publishing alternative where there is no central operator of a system.”

Nazarov first got into crypto around 2014, interested in how creators share and monetize their work online. Time and again, he would see content go viral and its creator get no credit or royalties from the traction. He created Mirror in hopes of creating a new ownership model, where a digital asset “would always be attached to your identity and payments would be baked natively into the system,” he says.

In its first iteration, Mirror was essentially a blogging platform that combined crowdfunding capabilities and NFTs — a bit like a crypto-enabled version of the newsletter subscription service Substack.

“In Substack, you’re just a patron,” Nazarov said. “Imagine if you were a co-owner or investor? You have a shared interest in the success.”

The first writing project on Mirror was called “$ESSAY” and was created by product designer and software engineer John Palmer as an effort to broaden opportunities in publishing. 

“The tools we have at our disposal influence the kind of work we create, and when the only tool around for getting paid to write is a newsletter publisher, it’s no wonder we see more and more newsletters,” Palmer wrote on Mirror. “Other formats and styles of writing are obviously valuable and worth paying for, and for this reason alone it’s worth experimenting with new funding models.” 

Palmer created a fixed supply of fungible tokens used for smart contracts on the Ethereum blockchain that comes with a specific set of standards, including how they can be transferred, their total supply, and how their transactions must be approved. Palmer retained 35% of the total, distributing the rest through a crowdfund. Once the project was funded, Palmer minted it as an NFT.

“If this experiment is a success, it will mark an early promising sign for a new way to fund not just writing, but all kinds of creative work,” Palmer said at the time. 

It was — the fund exceeded its goal of 10 ETH, raising more than $37,000 across a total of 63 backers, all of whom received an equity stake in the enterprise.

New platforms, new communities

“NFT ownership reinvents how to build communities,” said Nazarov. “The creator economy is traditionally top-down. The crypto economy is more like a flat company.”

OpenSea is also attracting writers who are experimenting with new ways to use NFTs. Writer Rex Shannon has been releasing his novel CPT-415 page by page on OpenSea, with each new page made publicly available only after it’s sold, so that buyers fund and facilitate the continuing work. The Chaintale is a “collaborative dynamic story” created by Italian artist Brickwall, in which buying an NFT allows the purchaser to add a block of content to the next installment on OpenSea. 

“What’s exciting with NFTs is that the use case is not just purely financial or purely speculative,” OpenSea CEO Devin Finzer told VentureBeat. “Folks from all sorts of different industries have started getting curious. It’s really expanding beyond people who are really interested in trading stocks or what have you to people who are more interested in creative work.”

Traditional publishing steps into NFTs

Some in the publishing industry are also getting involved in the world of NFTs. Bookwire, a Frankfurt-based digital service provider for publishers, is launching an NFT publishing platform called Creatokia that is designed to connect readers with books and authors they follow. Writers on Creatokia can sell NFTs either for a fixed price or using an auction.  

“We are building this platform not to enable publishers to sell NFTs to the crypto community, but to enable fans who have no experience with all of this to buy NFTs without necessarily understanding the technology behind it,” said Eric Bartoletti, head of business development for Bookwire. “NFTs allow publishers to create completely new kinds of digital products.” 

Buyers will be able to unlock exclusive content via access codes linked to the NFT they purchase. They will also have access to time-limited drops of NFTs that may only be available for purchase for an hour or a day. This can be particularly valuable for genres like fantasy and science fiction that attract superfans willing to pay top dollar to be part of a closed community of other superfans. 

“You are not only buying one piece of literature, you are buying a package. You are part of the project,” said Bartoletti. “These are die-hard fans of that very specific content or author. Offering something special to them can be a great benefit for publishers.”

Funding the next wave of innovation and experimentation

What makes NFTs exciting for many creators is that they are a blank canvas filled with possibilities for new forms of expression. 

“Often, projects have NFTs that go on and have a life of their own,” said Segal. “Literature is really siloed, and there’s so much more room to connect with culture in a dynamic way. Exploring these avenues is a way to hasten that.” 

While the world of NFT publishing is tiny for now, its participants are excited about its potential in the arts and beyond. “We think NFTs are bringing back a Renaissance, where creators, collectors, developers and all sorts of projects will emerge,” OpenSea’s Finzer said. It’s not unlike, he continued, “the paradigm shift where the birth of the Internet really brought thousands of new, early applications and ultimately, billions of people changing their lives in a big way.” 

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Matt Kane’s career as an artist started in Chicago around 2004 when a local gallery began selling his oil paintings. After moving to Seattle three years later, art took a backseat as he taught himself to code and became a web engineer to make ends meet. A few years after that, he finally had enough time on his hands to pursue an idea he’d had for a while: combining his creative and tech chops by making digital art.

Much in the way he’d stretched his own canvases and mixed pigments as an oil painter, Kane committed to building his own software so he could control how his digital images came to life. This past September, in the thick of the COVID-19 pandemic, his digital art piece “Right Place, Right Time” sold on the blockchain for 262 ethereum, at the time equivalent to more than $100,000.

The sale was significant, not just for Kane, but also for digital art. While artists have been creating digital works for years, blockchain technology, which can help distinguish an original from a copy, has helped to create a market for them. As a result, digital art has begun to fetch increasingly handsome sales prices and the attention of more and more art collectors.

“People have been experimenting in this space for years, but it was Matt Kane’s sale last year that created a big shift,” says Lindsay Howard, digital art curator and head of community at cryptoart platform Foundation.

Explosive growth

In the months since Kane’s sale, the momentum has only accelerated. In January, “AI Generated Nude Portrait #1,” first sold on the digital art marketplace SuperRare by 21-year-old artist Robbie Barrat three years ago for $176, resold for 100 ethereum, or more than $100,000 at time. Marketplaces like SuperRare, Nifty Gateway, and async.art have seen a swell in the number of both artists selling works and collectors buying them since the start of the pandemic.

The recent entry of big-name artists into the field has also helped legitimize the growth of so-called cryptoart. In December, renowned digital artist Beeple, who’s long been making and sharing digital art for his nearly two million Instagram followers, sold his first collection of 20 pieces called “Everydays” for a record $3.5 million. That month, cryptoart sales overall shot to $8.2 million, up from $2.6 million the previous month.

In February, Beeple’s work “Everydays: The First 5000 Days” went up for sale at the auction house Christie’s, becoming the first crypto-based work to do so. A few weeks later it sold for an eye-popping $69 million, garnering news headlines and sparking criticism that crypto-based art was merely the latest investment bubble.

While a $69 million sale of digital art may be a sign of speculative frenzy, the technological innovations that underpinned it are very real, and the sector is far from an overnight success.

If cryptoart is finally having its day in the sun, it’s because digital artists have quietly been laying the groundwork for a number of years — collaborating on projects and sharing their works on various cryptoart platforms.

“On the one hand you have this original cohort of crypto artists who were super excited about a $50 sale a year ago. We’ve been building all that infrastructure and growing our follower base. The prices of our works have been steadily increasing over time,” says German artist Sven Eberwein, who has created more than 50 digital pieces whose prices range from $52 to more than $30,000 each. “Now you have new artists entering the space and selling immediately. There was a lot of building in the first half of last year. Now it feels like everyone is reaping benefits.”

A boon for artists

Cryptoart relies on non-fungible tokens, or NFTs, a special type of cryptographic identifier on the blockchain. Unlike a cryptocurrency, where every coin is identical, each NFT is unique and traceable, and can be attached to an item, like a digital artwork, to prove its authenticity. As such, the NFT is the digital equivalent of a signature on a physical artwork that distinguishes an original from a copy.

“If you’re a digital artist, you can’t sell an image on Instagram because anyone can just copy-paste that image. That’s gravitated a lot of artists to crypto work,” says Richard Chen, founder of Cryptoart.io, and a collector himself. “With NFTs, you can sell individual images. It’s a new revenue stream.”

While NFTs have already been a huge boon for digital art sales, some artists are especially excited by another aspect of the nascent cryptoart market that distinguishes it from its physical world counterpart: blockchain technology can be used to earmark a portion of the proceeds from secondary sales for the artist. On marketplaces such as Foundation and SuperRare, for example, artists receive a 10% commission on all secondary sales, earning increasing amounts as their body of work changes hands and appreciates in value.

Barrat, for example, made about $11,000 when his piece resold in January. That’s 62 times more than he made on the original sale.

The potential of NFTs extends beyond art. Musicians, designers, and game developers are excited about using the technology to trace, verify, and ultimately retain more of the value behind their digitized creative works.

“Right now this is about digital art, but I think we are going to start to see all kinds of creators coming into this space,” Howard says. “This is about creators of all types being able to sustainably fund their work through the media they share online.”

What’s in it for collectors

Artists aren’t the only ones excited about the new cryptoart market. Collectors say the recent growth points to an increased interest in digital art as an asset class that investors could use to diversify their portfolios. Its prospects as an asset class are especially bright because the same blockchain technology that allows artists to monetize their work would make it easy to create financial products that allow investors to borrow and lend against crypto artworks or to offer fractional ownership.

“Once art as an asset class becomes big enough, you can plug it into that financial infrastructure,” says Chen. “You can get a loan on an art piece or fractionalize artwork where people own shares in an artwork. There are a lot of interesting ways to bridge cryptoart with finance.”

What makes it art? And what is it worth?

Unlike the traditional art market, cryptoart, for now, lacks many of the elements — historical prices, large numbers of market participants, critics, and galleries — that have helped buyers and sellers to discern the good from the bad to value works. “There have been conversations about a lack of criticality in the cryptoart space,” says Howard. “In traditional art spaces, there are critical gatekeepers who judge a work — what’s good or not and why.”

It remains to be seen whether a similar “scaffolding” develops around cryptoart given that many crypto enthusiasts are drawn to the medium because of its decentralized, distributed nature. “The exclusiveness of the art world doesn’t fit with the cryptoart ecosystem,” says Howard.

Yet already market participants seem to see the greatest promise and value in works that utilize the digital medium in ways that can’t be replicated in traditional art. For example, Kane’s piece “Right Place, Right Time” is a composite image of 24 different digital layers, each programmed to synchronize with an hour in the latest 24-hour cycle of bitcoin price volatility. As the value of bitcoin changes, the image morphs, using Kane’s proprietary software to run continuously for the next ten years.

“I write generative algorithms and paint with these algorithms, layering them in the same way I would with paint,” says Kane, who thanks in part to blockchain technology is able to work full-time on his digital art. “When I sell an NFT, it represents an original artwork. It’s just as good as an oil painting, if not better.”

Vanessa Sungcang, a 39-year-old mother of four who lives on the outskirts of Manila and runs a small business, has been struggling to stay afloat during the pandemic.

“Even though my husband is still working, the impact is great,” says Sungcang, who sells homemade frozen foods and home supplies, and also works as a massage therapist. “Because of the lockdown we were not able to go out, and people were not spending. The items that we had [from the store], we actually used for our needs.”

Yet in a country where nearly one-third of families have reported food insecurity, Sungcang considers herself one of the lucky ones. She was one of 733 women in Manila and Cebu selected to participate in a COVID-19 emergency relief program run by the Grameen Foundation, in which micro-entrepreneurs received the equivalent of $100 to spend on food, medicine, home goods, and business supplies.

Sungcang spent half of her funds on groceries for her family and the remaining portion on ingredients for her frozen-food business. The aid has helped sustain her storefront and allowed her to repay loans.

Critically, the aid program wasn’t based on cash, which is often susceptible to fraud, middlemen who take cuts, or mismanagement. Instead, it was distributed in cryptocurrency, which participants accessed on their phones through a digital wallet called Valora or through SMS. The funds could be redeemed to purchase goods in certain stores or online. More than $76,000 was distributed, helping about 5,100 financially vulnerable people maintain a semblance of normalcy.

The success of the program highlights the potential critical role that cryptocurrency could play in the delivery of aid in developing countries efficiently, securely, and at low cost. What’s more, the aid program serves as a proof-of-concept for the use of cryptocurrency more broadly, especially in countries that rely heavily on remittances from citizens who live or work abroad.

To create a less expensive, more accessible disbursement mechanism for the COVID-19 relief program, Grameen and several companies from the 130-member Alliance For Prosperity worked with Celo, an open, decentralized blockchain platform. Using Celo Dollars — a type of cryptocurrency called a stablecoin that is pegged to the U.S. dollar — and technology from partner financial institutions like BeamAndGo, participants could redeem funds at 170 stores, either in person or for delivery.

“This ensures that the beneficiaries’ basic needs are taken care of without worrying about standing in long lines, supply shortages, and contracting COVID-19,” says BeamAndGo CEO Jonathan E. Chua. “For many, participation in this program was their first interaction with a digital and online platform.”

Celo’s Valora wallet application operates much like Venmo or Cash App. “I’m very happy with Valora,” Sungcang says. “When my husband and I were positive for COVID and couldn’t go out, it helped us.” Indeed, Celo reported a 98% onboarding success rate even though participants were brought onto the platform remotely and in an average of 20 minutes.

While many users were unaware that the app’s underlying technology was built atop a cryptocurrency, the program’s overseers were able to leverage the benefits of blockchain technology to track activity and ensure the aid was received and used.

Proponents say the system’s transparency is a huge boon, as traditional aid programs are susceptible to leakage and fraud, including fraud by staff members who aren’t properly vetted, by unauthorized aid recipients, and by others who may impersonate members of an aid organization to gain access to funds.

When fraud is detected in traditional aid programs, tracing and recovery can be slow as it often requires the assistance of intermediary organizations. Since there is no guarantee that lost funds can be recovered, some aid organizations don’t even bother to spend their time and resources on it.

Celo detected a single case of fraud and reacted quickly. Will Le, partner of ecosystem building at Celo, says the organization was able to “track down exactly where the money went and then call up the thief and confront her.”

Le, who has participated in traditional aid programs in other parts of the developing world, says any delay in tracking down misappropriated funds makes recovery more difficult. “I would have killed for this level of transparency in other projects I’ve worked on,” Le adds.

When considered at a larger scale, the technology supporting the COVID-19 emergency relief program has the potential to significantly change the microfinance industry, remittance culture, and the distribution of aid. “There will be more transparency into the movement of money, because a lot of these organizations are still generally cash-based,” said Gigi Gatti, director of technology for development for the Grameen Foundation, of relief and aid programs. The lower costs could help recipients build up their savings.

Participants were enthusiastic about the pilot program, though in this first iteration there was a limited number of merchants where recipients could spend their Celo Dollars or cash out funds. Participants said they would have wanted more integration between Celo’s Valora wallet and other mobile money services they use, so they could top-off their accounts or pay some bills directly, changes that are likely to come as the product develops.

The Philippines is a particularly attractive market for this type of cryptocurrency-based system. Its ultimate benefit could be increased access to critical services for people previously excluded from the financial system. “In the Philippines, there’s a willingness to try new technology,” Le says. Only a third of aid recipients had used mobile money before, and only half had ever purchased anything online.

The impact of greater financial inclusion could prove to be cultural as well as economic. “Sometimes we make assumptions about folks who are living in financially excluded communities” Le says. “People believe that the reason they don’t have a bank account is because they don’t know how to do X, Y, or Z. But I think the gap is not so much ignorance as opportunity. If we can make the process easier and bring more options, I think that’ll go a long way.”

For Sungcang, cryptocurrency has already delivered tangible benefits, keeping afloat a small business that helps her put four children through school. Like many female entrepreneurs in the Philippines and around the world, Sungcang’s work and financial planning are central to her family’s livelihood, and the collapse of her business would have been devastating. She’s grateful for the Valora app and only wishes more people could benefit from it. “Every time I speak about the app to other people, it’s kind of saddening because they are not yet aware,” she says.

What if a city could address some of its civic needs by letting its residents invest directly in the priorities they care about the most? And what if those same residents could reap the financial rewards of their investment?

As he studied these questions, Ben Bartlett, a member of the city council in Berkeley, Calif., zeroed in on a way to do just that through a new type of municipal bond issued and managed through blockchain technology.

Following Bartlett’s lead, Berkeley is ready to embark on an innovative experiment, dubbed the Community Microbond Initiative, to test his idea.

Municipal bonds are a massive, $4 trillion market and one of the primary vehicles by which states, cities, and counties finance infrastructure and other projects. Because the interest they pay is often exempt from federal taxes, they’re attractive to many types of investors.

Most bonds are underwritten by financial intermediaries who impose high fees to administer them. For that and other reasons, they’re usually sold in denominations often exceeding $5,000, which makes them out of reach for millions of ordinary citizens.

By using the decentralized and public digital ledger known as the blockchain to manage municipal bonds, Berkeley hopes to dramatically lower the cost of issuing and managing them. At the same time, it could use the blockchain to sell the bonds directly to consumers in small denominations, turning them into “microbonds.”

That would allow ordinary residents to purchase bonds to help crowdfund priorities they care about — anything from housing, support for small businesses, and sustainable energy improvements, to infrastructure investments like new fire trucks.

Based on comparable “A” rated municipal bonds, microbond holders would earn interest at rates that are roughly triple the 0.35% interest of an average 5-year CD, and that interest would be tax-free.

“Residents will get a piece of the assets, furthering our economic justice goals,” Bartlett says. That would make the city and residents partners in “wealth building and poverty alleviation,” he adds.

A modern twist on an old practice

The use of small-denomination municipal bonds to get residents involved in supporting local initiatives is not new. Jurisdictions ranging from Anaheim and Los Angeles to Bergen County, N.J., and New York City have used so-called minibonds for years.

“The idea of minibonds is to try to connect the public to the projects that are being financed through their tax dollars,” says Todd Ely, a professor at the University of Colorado, who has studied minibonds. “There’s a civic benefit to having people gain financially from projects they support. And if your local government is going to pay interest for borrowed funds, why not make sure it stays local and goes back into the community?”

That said, minibonds have remained a niche offering, in part because traditional municipal bonds, despite their fees, are a relatively efficient way for governments to raise the sizable sums needed to finance infrastructure projects, Ely says.

While minibonds are often sold in denominations of a few hundred dollars, Berkeley’s planned microbonds would go a step further. The use of a blockchain would allow the city to automate many of the administrative tasks involved — everything from tracking owners to paying interest and accounting for any secondary sales of the bonds — for a fraction of the cost. As a result, it could issue bonds in denominations as low as $25.

“Technology has the potential to eliminate some of the transaction costs that have limited the popularity of direct bond sales,” Ely said.

A pioneering project to issue blockchain-administered government bonds in Austria was based on the Ethereum blockchain.

Microbonds are unlikely to grow in size to satisfy the major financing needs of most bonds, Ely says. But the instruments could gain a place alongside traditional municipal bonds, perhaps as bond underwriters carve out a small portion of their offerings for minibonds or microbonds that are earmarked for specific projects whose benefits a jurisdiction wants to highlight and promote, allowing residents and others to vote with their wallets.

Making microbonds happen in Berkeley

The city of Berkeley received proposals last year from organizations seeking to administer the microbonds, including some that have teamed up with major banks. It planned to reopen the Request for Proposals (RFP) process for three weeks due to disruption from the pandemic and will soon be making its choice, Bartlett said.

Blockchain microbonds would still be subject to the legal requirements that apply to other types of municipal bonds, which in most jurisdictions include voter approval.

Bartlett got interested in the idea of blockchain-based bonds a few years ago while he was working at the California Clean Energy Fund, helping to finance electric-vehicle infrastructure. After the tax cuts of 2017 made it harder to finance affordable housing projects, several advocates began discussing the mechanisms for crowdfunding bonds. In 2019, Bartlett was appointed to the California Blockchain Working Group, which was established by Governor Gavin Newsom to study the use of blockchain technology in the California economy and government.

Whether it’s help for the homeless, support for small business or other initiatives, Bartlett says, “the proceeds from the microbonds can be used to facilitate our social goals. The applicants have some real cool ideas.”

Initially, the project will be focused on a pilot in which the bonds will be used for a purchase that’s already been approved by the city. Berkeley’s finance department is currently seeking to identify an appropriate item, which Bartlett says is likely to be between $2 million and $4 million.

If the blockchain microbond initiative succeeds, Bartlett hopes it will be replicated around the country. “Our initiative will address the fear of doing something experimental in this environment,” he says.

Ely says creating a model for other cities to follow, or better yet, a technology that others can adopt, could well become the project’s most enduring impact. “I appreciate places like Berkeley that are willing to experiment,” Ely says. “Creating a product that someone can repurpose, a system that can be replicated, has a value.”

Blockchain Microbonds Vs. Traditional Municipal Bonds

For seven months during the COVID-19 pandemic, Brian Barmen, a 23-year-old college student in Nairobi, was stuck back home in Kericho, six hours north of Kenya’s capital, living with his parents, two brothers, and cousin, all of them for the most part unemployed.

Even in Kericho, where tea is a major cash crop, gainful employment is elusive. “It’s really hard to get a job here,” says Barmen. “You are competing for very limited spots.”

When a friend told Barmen about the chance to do “microwork” on his phone through a pilot program run by cLabs, a U.S.-based startup building on the Celo blockchain, he jumped at the opportunity. He logged onto Toca, the mobile platform created by cLabs that uses cryptocurrency to enable payments to workers around the world. Using his phone, he was able to complete simple tasks, such as transcribing receipts and identifying images, for around a dollar an hour. He put in roughly 24 hours of work in a week.

While the pay sounds meager by U.S. standards, in Kenya, where a third of people get by on less than $2 a day, it represents nearly double the minimum wage.

Development experts and organizations like Mercy Corps and the United Nations World Food Programme have been exploring the use of digital microwork that supports “impact sourcing” — getting work into the hands of people for whom it could make the greatest impact — for years as a way to generate supplemental work and income in some of the world’s poorest and most remote regions.

But the growth of digital microwork has been stymied in large part by a critical challenge: figuring out a way to make small payments to people around the world securely and efficiently. Few people in those regions have access to financial services, and when they do, fees can gobble up much of their earnings.

Cryptocurrency, which enables secure and seamless payments across borders at virtually no cost, has long held the promise of addressing that critical shortfall. The Toca app pilot put that promise to the test, and because of its success, Mercy Corps, the global humanitarian aid NGO, agreed to partner with cLabs to expand the program in 2021 to address the needs of vulnerable populations struggling with economic impacts of the pandemic.

“We work with many unemployed and underemployed youth, many of whom don’t have access to financial services and infrastructure, but they do have access to a phone, which can give them new income opportunities from anywhere in the world,” says Alpen Sheth, senior technologist for financial innovation at Mercy Corps Ventures.

The pilot program used a digital wallet and a type of cryptocurrency called stablecoins, Sheth says, “to test and evaluate whether we can provide them direct access to their earnings, even if they don’t have access to a bank account, which the majority of Kenyans don’t.”

Kenya is just the kind of place where impact sourcing could make a huge difference. Forty percent of the population is under the age of 15, and the youth unemployment rate hovers at around 35%. At the same time, around 97% of the population has access to a smartphone, creating a massive opportunity for the kind of microwork that Barmen performed.

Much smartphone-enabled microwork involves massive data categorization projects that cannot be done easily by computers and are broken down into small tasks split among thousands of people. While it may seem routine busywork, it is increasingly critical to U.S. companies for the development and training of artificial-intelligence algorithms. All the major tech companies including Facebook, Microsoft, and Google rely on some form of microwork to help develop machine-learning algorithms and tasks like content moderation and sentiment analysis.

“The demand for this type of machine-learning work is increasing at a very fast rate,” says Will Le, partner of ecosystem building at Celo.

In the past, if Barmen wanted to do this kind of work, he would have had to set up an account with a payment app like PayPal, a process that’s virtually impossible for him. “When you apply for an account, you almost never get approved in Kenya,” Barmen says. In response, an entire shadow industry has developed that sells existing accounts to people wanting to do online work. But the going rate for one of those is around 5,000 to 10,000 Kenyan shillings, the equivalent of $50 to $100, which most young people in Kenya simply can’t afford.

What’s more, most established digital-payment platforms have per-transaction fees that can be as high as $5. With the Toca app, stablecoins can be converted to M-Pesa, a mobile money-transfer service found on virtually every block in Nairobi. Withdrawal fees were less than a penny per transaction, plus 2% of the transfer amount, still significantly lower than alternatives.

The Mercy Corps pilot program suggests cryptocurrency-based systems like Toca have the potential to put microwork on a path to expansion around the globe.

Precise, up-to-date figures about the market for microwork are hard to come by. In 2015, the World Bank estimated the market to be a modest $400 million, but predicted it could quintuple by 2020. Other reports suggest that more than one million people around the globe had benefited from digital microwork by 2015, and that its impact is especially great in the world’s most disadvantaged regions and with populations, such as those in refugee camps, that because of circumstances are unable to engage in regular work.

In recent years, as tech companies sought to build increasingly advanced machine-learning algorithms built upon larger and larger datasets, the demand for microwork has been growing. And as the practice becomes more common, so too does the chance for tech companies to tap it for more complex tasks that require participants to categorize video and even virtual-reality streams. And as companies categorize increasing amounts of essential data, the benefits of microwork could greatly expand.

For Kennedy Muthiani, 24, a recent college graduate in Nairobi, the Toca app was a chance to earn extra cash while he was completing his studies in analytical chemistry. During the first weeklong pilot, he earned 6,400 Kenyan shillings, roughly $64. “With this I can work anywhere. I just fish out my phone and do a few tasks in the queue at the supermarket or in the lift at school to earn a few coins,” he says. “I can pay off my bills at the moment and still have something left over.”

Muthiani has done microwork before, using services that rely on more traditional forms of digital payments. He says he often would have to wait until he’d made at least $300 to access his earnings. Sometimes withdrawals were limited to three-day windows at the start and middle of the month, no matter how much he’d earned. “Here you can cash out anytime, any amount,” he says. “It’s your money and they give you the power to control your cash.”

Celo’s Le points to another benefit: Microwork that is more distributed across the globe would undoubtedly lead to more accuracy in artificial-intelligence algorithms that are sometimes plagued by bias. “Getting a diversity of workers isn’t just important for an impact-and-inclusion perspective,” he says. “It’s also important for a quality-of-product perspective. It makes products better at reading data from other parts of the world.”

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