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2022 was the year the wheels fell off the metaverse bandwagon, which had been the most hyped narrative as the year began. By far the worst-performing sector in blockchain, the average drawdown was 89%.

Even Facebooks grand plans to dominate the metaverse are in disarray; its losing more than $1 billion a month, while the flagship Horizon Worlds attracts fewer than 200,000 users per month.

But amid all the gloom, there are still miles of runway left from unprecedented fundraising and signs from The Sandbox, play-to-earn games and niche metaverse platforms that 2023 will be much more productive.

Sbastien Borget, chief operations officer and co-founder of The Sandbox, has been on the road a lot lately visiting the companys new offices. He speaks from Argentina when we talk just before Christmas about the performance of metaverse platforms in 2022. 

Many pundits say its been a mixed year at best for adoption, pointing to DappRadar statistics that appeared to indicate daily average visitors to The Sandbox were as low as 500, with just 50 people wandering about Decentraland. However, both companies actively pushed back on these stats, claiming the figures only reflected the number of daily users who made a transaction not the number of daily visitors overall.

Borget is dismissive of the low figures quoted and says there are on average 30,000 visitors every day to the metaverse platform. He expects a surge in user numbers when the platform goes mobile later this year.

That will make a big difference. 30,000 is still a small number when compared to Facebook for example, he says.

But when you enter The Sandbox, you see people running around it is full.

The Sandbox Alpha Season 3 has claimed 17 million visits since Aug. 24, a threefold increase over Season 2. Thats even more astonishing when you consider the word Alpha means its still in the earlier stages of development.

So, while 2022 was definitely the year that the word metaverse became a household name and was narrowly beaten to the Oxford Dictionarys word of the year by goblin mode theres hope that 2023 will see it gain wider adoption. McKinsey Global revealed that investors had tipped $120 billion into developing metaverse tech by June, and even though funding subsequently fell off a cliff, thats a lot of runway to produce the goods in 2023.

The Sandbox is one of the metaverse OGs, founded four years ago, hosting impressive land sales topping $530 million, and attracting big names, such as SnoopDogg.

Borget points out that staffing has doubled over the previous year, and the project has a financial runway of at least five years. The big push to attract more users is coming from design studios and builders who are using their digital land to create experiences.

There are 230 studios currently building on Sandbox, and that is only the beginning. We also see cultural experiences becoming popular when different nationalities have created a home from home in the metaverse, says Borget.

Can metaverse replace the real world?

Upland, also founded four years ago, is a virtual property trading game mapped to the real world on the EOS blockchain platform and is often described as Monopoly on the blockchain. The Sandbox and Upland are both parts of the Open Metaverse Alliance, which is chaired by Upland co-founder and CEO Dirk Lueth.

When we founded Upland in 2018, very few people had even heard of the word metaverse, says Lueth, noting that these days, the future is at least envisioned Id call that progress.

He says the high point is the attention from non-crypto native audiences and brands. $2 billion has been spent on virtual land across metaverse platforms in the past 12 months as people and companies race to get a foothold in this new virtual territory. 

At Upland, we are proud to have the largest number of unique landowners [more than 290,000] who come to socialize, create value, and build communities, says Lueth.

There is a core segment of users who are creators or meta-entrepreneurs who are building their own businesses in the metaverse. Artists can create decor items and sell them to other users, while others have opened shops for secondary sales of NFTs. One of the big factors drawing users in, and keeping them engaged, are the virtual communities that are emerging. In Upland, they are called nodes. 

We also find that users who are part of communities tend to stay more, and much of their activity is around building their communities.

Some of them have game nights, create charity fundraising events together, make governance decisions about what to build in their neighborhoods, and even elect representatives. Some communities are formed around similar interests like racing, which is a feature in Upland. Theyve created racing leagues, are building their neighborhood tracks and creating digital assets for rewards, says Lueth.

Digital goods as the killer app

Digital ownership is often touted as the breakthrough factor for mass adoption along with the interoperability of assets across platforms. However, Alien Worlds chief marketing officer Kevin Rose points out that a lightsaber from one world would not necessarily translate into a medieval tournament. It doesnt always make sense, he argues.

Alien Worlds is an NFT-driven game in which users collect and trade unique digital items minted primarily on the Wax blockchain. Players compete to earn Alien Worlds in-game token, Trilium (TLM), which is needed to control one of the six rival DAOs.

Marja Konttinen, marketing director of the Decentraland Foundation, puts forward a compelling case for digital ownership in a different context: fashion. Decentraland is a 3D virtual world browser-based platform that opened to the public in February 2020.

Lets look at one use case for the metaverse where ownership will be fundamental: fashion. If you dont have a wallet to log in, it will be hard for you to experience digital fashion at its finest because you cant claim any wearables to add to your wardrobe, says Konttinen.

Others are banking on a combination of community with the appeal of new experiences made possible through fast-developing technology. Unlike most other metaverse platforms, which are still accessed via screens, Somnium Space is an immersive virtual reality-based metaverse built on the Ethereum blockchain. It launched in 2017. Interviewing its founder and CEO Artur Sychov entails a chat with his avatar.

Somnium Space is creating its own custom VR headsets. Since Sychov spends as many as several hours each day in his, he is well placed to provide feedback on comfort and features.

Compared with some of the bigger names, Somnium Space is still scaling up. There have been more than 250,000 downloads so far, which translates into 80150 daily visitors in VR and another 1,0002,000 users on the screen-based web client.

Immersive is what Somnium Space is all about, and visitors can compete in sports, attend discos, and actively participate in whatevers going on.

Since its VR, if I am kayaking, then I am moving my arms and it is tiring same as in real life, says Sychov.

Thats the power of VR if Im dancing, then Im dancing not just hitting a button that causes my avatar to move. People understand that you are actually present with them at social events or meetings.

Sychov views the future of metaverse platforms, such as Somnium Space, as dependent on the people they attract and their ownership. He says that 90% of landowners on the platform have bought their land to build on it, giving the platform stickiness and keeping the owners coming back from more.

Sychov has augmented the land with a new concept of worlds. Entry is via a stargate, and inside these new worlds, there is no limit to the space, building or action. He shows me how his avatar steps inside a gate to a world and immediately is in a new space. 

Individuals and companies are buying these worlds its all about building, he says, echoing Borgets excitement over the increased activity by design studios over in The Sandbox. It might still be crypto winter, but thats when the builders emerge. 

Great minds think alike:

Play-to-earn builds the metaverse

The other important development bringing us closer to the metaverse is the play-to-earn phenomenon spear-headed by the blockchain game Axie Infinity. The huge growth during the pandemic, and subsequent sharp decline after, did not dampen the enthusiasm of Yield Guild Games (YGG) for the sector.

The Guild brings players together to learn and earn in blockchain-based economies like Axie and rents NFTs to new players so they can get started. It now encompasses more than 80 games in the sector.

Co-founder Beryl Li is bullish on the future of the P2E industry and says the bear market is a time to prepare for the good times ahead. 

Those who recognize the opportunity in Web3 are harnessing the bear market as a time to upskill and further educate themselves, to ensure they are well-positioned to capitalize on the growing skills demand of the decentralized, global digital economy, says Li.

The guild has developed educational opportunities, including a partnership with Nas Academy to launch the Web3 Metaversity, which provides opportunities for Guild members to learn crypto-native skills. 

Less grinding, more fun

Another approach to clean up the bad rap of P2E games might be to change the focus of the tasks used to earn coins, says Rania Ajami, co-founder of Metropolis a 360 curated universe that blends e-commerce, gaming, art and experiences that span both the digital and real world. Instead of money being made from grinding play, she argues that P2E could be reimagined. You could utilize your skills as a digital artist to create unique assets for players, or your abilities in marketing to help a small business grow in the metaverse. 

Or if you are grinding plays, perhaps those plays can be used as resources to create art or items or animations. Long story short, P2E is a very interesting concept for the metaverse, but only if it is reimagined to provide some sort of greater value in art, business or development of a metaverse world in some way, argues Ajami.

Metropolis was launched in June 2022 in one of the toughest bear markets but still sold out two NFT drops, including an initial sale of 5,000 passports at an average of 0.12 ETH each followed by a sale of 450 properties averaging 0.75 ETH each.

Ajami says users are drawn to Metropolis World because of the immaculate art and the depth of storytelling. 

Weve created a world where people are excited about living in because theres so much already there as opposed to a blank canvas in which you are expected to do all the heavy lifting yourself if you want to take part, she says.

The metaverse is not just about creating a video game. Its building a virtual world with all the depth and functionality of the physical one. People want a digital world that enhances their digital life instead of replacing it, and 2022 proved that again and again.

Furthermore, we are seeing more and more traditionally Web2-focused brands moving into the metaverse like Disney, Starbucks and even Time Out, which is featuring metaverse-based content for their users with Metropolis World. We just keep seeing more adoption of Web3 technologies in various ways across just about every industry, Ajami says.

Niche virtual reality

New metaverse platforms are also being created around niche sectors, such as design and intellectual property. Zara Zamani, co-founder of Neoki Metaverse, looks to intellectual property as a glue to hold her new community together. 

Our vision in Neoki is to offer a profoundly immersive design-based metaverse to democratize the design industry, says Zamani. Neoki is a multi-metaverse looking to support designers across sectors.

Rising successful metaverses are those focusing on a smooth transition and bridging from Web2 to Web3 not only in tech aspects but also in business models and mentality. This can translate to securing as many IPs as possible now in order to be able to create relatable but extended life experiences for users, she says.

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MetaMetaverse was formed by crypto OG Joel Dietz to provide metaverse as a service. As such, he views the development of the sector continuing in multiple ways from gaming, hanging out with friends, attending events, such as concerts, and shopping, 

The possibilities are truly endless in what you can do, he says. For example, we have already seen multiple high-profile artists, such as Travis Scott and Ariana Grande, perform virtual shows in the popular online game Fortnite.

He also views the role of visual art as being important.

Weve seen a rise in virtual art galleries, showcasing mixes of priceless art and NFT collections that people can access, admire and purchase, Dietz says.

MegaFUDiverse

Decentralands Konttinen perhaps gets why there is so much FUD about metaverses in general. Its been vastly oversold and is tied in users minds to the ambitions of the somewhat unpopular Facebook founder Mark Zuckerberg.

People think that the entire metaverse is one company. Misinformation is spreading about metaverse users, and media companies and competitors running with the erroneous narrative.

Its a very good point. Interviewing the founders of diverse metaverses really makes it difficult to pinpoint what metaverse platforms are the best or will succeed in the future. Its like going to the theater or reading a book what one person likes is very different from anothers taste.

Konttinen also wonders about how to create better metrics to measure the success of a platform.

I hope we can coalesce around an answer next year of how to measure a user in the metaverse. What is an active user in a virtual world that isnt based on an advertising model of tracking and selling behavioral and demographic information of its uses? Is an active user someone who returns every day? Is it someone who moves more than one parcel? What we do know is that metaverse is such a powerful concept that the worlds biggest social media company is all-in on its development, she says.

So, what will the successful metaverse of the future look like? Thats the trillion-dollar question.

Dietz points out the estimated global metaverse market size grew from $63 billion in 2021 to over $100 billion in 2022. Considering all the doom and gloom, this is an impressive feat. There are even forecasts the metaverse could be worth well over $1 trillion by 2030.

All we know is that the early movers will have an advantage as long as they can build a community and give them reasons to return. And if their communities can make money and grow the platforms economy by helping build the virtual world, then the platform might take on a life of its own and grow organically, tailored to the needs and desires of its users.

Having taught and studied token economics at the University of Nicosia, Ive found that students often have some decidedly muddled beliefs about how what tokens are and how business and token economies work.

Unlike microeconomics and macroeconomics which are based on decades of research, debate and inquiry that have produced some commonly accepted principles tokenomics is a much newer field of study full of people without economics experience.

There are many self-professed experts who provide advice that sounds fine and is often even sensible in theory but that fails in practice.

When designing a token economy, what you really want to focus on is:

• Is the economic strategy repeatable?
• Is there some way of diagnosing when and how to deploy the strategy for your token and the estimated value of doing so?
• Is there research that validates the strategy so you can talk about it more credibly?

Deflationary tokens

Take, for instance, the idea held dear by many that deflationary tokens have an absolute advantage. Deflationary means an ever decreasing supply of tokens, which in theory increases the purchasing power and value of each remaining token. Inflationary means the opposite: an ever increasing supply which, in theory, reduces the value of each token.

Youll hear commentary along the lines of how deflationary tokens empower a crypto projects value from blockchain pundits such as Tanvir Zafar celebrating the limited supply of Bitcoin and the deflationary supply of Ether following the Merge.

Its an idea even propagated by a widely recognized community for tokenomics best practices, the Tokenomics DAO, which has a Tokenomics 101 page that states: 

People who understand Bitcoin will see great value in the fact that it is so simple, elegant and has a limited total supply. Bitcoins tokenomics have created digital scarcity that is enforced (through token incentives) by the network.

But while many token designs emphasize deflation, they are not optimally designed, according to Will Cong, the Rudd family professor of management and faculty director of the FinTech at Cornell initiative at Cornell University.

Taking their cues instead from tweets and community ideologies, many platforms also cant even write down a logical objective for their token supply and allocation policy, Cong continues.

Focusing on whether a token is inflationary or deflationary shifts attention to second-order issues. The price of a token can always adjust to meet supply, and each token can be arbitrarily fractionalized, so a fixed supply is a moot point if the token does not provide value to end-users. 

In fact, some inflationary coins with robust burn rates may regularly switch between being inflationary or deflationary, like Solana, explains Eloisa Marchesoni, a tokenomics consultant. The inflation rate started at 10% and will reach its final rate of 1.5% in about 10 years, but there are also deflationary features, like a percentage of each transaction fee getting burned.

With enough transactions per second, the transaction fees that are burned could be even higher than 1.5% per year if many transactions occur, which would bring Solanas inflation rate to 0% and make it deflationary in the long run.

Token price falls and deflation

Although cryptocurrencies behave very differently than traditional asset classes according to research by professors Yukun Liu and Aleh Tsyvinski they are heavily influenced by momentum and market size. In other words, investor sentiment and the number of users on a platform are significant predictors of cryptocurrency returns and volatility.

Fluctuations in the valuation of traditional asset classes may not have a direct effect on crypto, but they can indirectly affect it through spillover effects. For example, changes in interest rates will dampen the risk appetite of investors who are heavily exposed to sectors like real estate.

In this sense, even if a token has deflationary properties, a common macro shock that stifles aggregate demand renders these deflationary properties less useful since the decline in demand lowers the price of the tokens, and as a result, they cannot buy as much.

That said, in general, the cryptocurrencies with the highest market cap are also the most resilient to the current global recession, so we are mainly talking about Bitcoin and Ether.

Novelty tokenomics

Many tokens with novel tokenomics have risen with transient social media momentum but subsequently collapsed as the fads passed.

SafeMoon relied on heavy selling fees and deflationary mechanics to convince holders that the price would go up endlessly even though the protocol never actually identified the problem it was actually solving, says Eric Waisanen, chief financial officer of Phi Labs Global.

Similarly, Olympus DAO inflated their OHM token in accordance with its price, even advertising (3,3), a misrepresentation of simple game theory, which told holders that if none of them sold, theyd all get rich.”

Another big shortcoming of tokenomics strategies is their emphasis on holders staking their tokens to earn a high yield. A large yield that lasts for a day, or even a month, is not helpful for consumers and investors who take the long view. Instead, it attracts the wrong crowd.

The use of staking options to lure extractive users into the project usually does not end up well, causing volatility or the risk of market prices and token price fluctuations, which will stress the whole tokenomics and may end up breaking it if not adequately tested already with simulations under extreme conditions, Marchesoni explains.

Take, for instance, Helium, a project that uses open-source technologies to create a decentralized and trustless wireless infrastructure. Its tokenomics strategy offers people the possibility of becoming a validator by staking at least 10,000 of its native HNT token, but those who do risk significant volatility by locking up their tokens for months perfectly demonstrated by the fact its price went from over $50 to $2 within the space of approximately one year. 

Other projects such as the business-focused VeChain ecosystem, which specializes in supply chain tracking have endeavored to address the volatility in token prices by creating two separate tokens. The first, VTHO, is used to pay for network access and deals with the predictable component of supply and demand for the product or service. The other, VET, serves as a value-transfer medium, with VET stakers generating VTHO.

What APR is too high?

While proof-of-stake protocols such as Ethereum rightly incentivize staking because it secures the network, the emphasis can get misplaced the further down the line you go. 

Now were seeing inflation rates well over 20%. Evmos, an EVM-compatible chain in the Cosmos ecosystem, currently has a 158% APR for staking. Similarly, layer-2s are giving staking rewards just for holding a token without having a blockchain to secure, Waisanen says. 

These APRs for holders are misleading because the supply of the tokens continues to grow, but the liquidity of the token is constant, so these APRs are not sustainable.

Moreover, when you see high yields, you have to ask yourself how they are sustainable. Ethereum co-founder Vitalik Buterin summed it up best on Twitter during 2020s DeFi yield farming craze, stating:

Honestly I think we emphasize flashy DeFi things that give you fancy high interest rates way too much. Interest rates significantly higher than what you can get in traditional finance are inherently either temporary arbitrage opportunities or come with unstated risks attached. 

While these incentives have been abused, staking can be important for securing a network and ensuring price stability. 

Too much emphasis on tokenomics has been placed on generating returns for early adopters and users of tokens rather than driving utility values, says Gordon Liao, chief economist at Circle.

In this deep crypto winter, the sentiments around tokens have entirely shifted. Even VCs are starting to place more weight on the equity components rather than the token component when considering new investments. Some protocols have even opted to airdrop USDC instead of their protocol-specific tokens.

Crypto airdrops

Some projects have turned to airdropping users with tokens for marketing purposes. And while my research suggests that airdrops, on average, have a positive effect on market capitalization and volume growth, how the airdrop is done also matters. 

For example, those that use bounties or establish requirements that involve boosting and posting on social media to claim the airdrop tend to perform worse. Airdrops on decentralized exchanges and those that involve governance tokens tend to perform better.

Uniswap and Ethereum Name Service launched successful airdrops where the greedy users were converted into active members of the community, thanks to the great game-theoretic model that these projects had put in place, says Marchesoni.

There was great turmoil on Sept. 17, 2020 when Uniswap airdropped its UNI token, but it was also only a matter of time until most users cashed out. But over two years later, there is still a group of dedicated UNI holders, and tokens are still being claimed today. 

Uniswap remains the leading decentralized exchange, and its UNI token provides governance rights to those willing to get involved. The Ethereum Name Service airdrop was also fairly successful, turning many recipients into active members of the community thanks to its game-theoretic approach to the airdrop.

Admittedly, however, there have also been many failed attempts at airdrops, including the most recent APT airdrop by buzzy project Aptos, set up by some of Metas former Diem team. It airdropped between $200 million and $260 million in tokens, but when news of FTX hit with FTX Ventures co-leading its round of funding the momentum dried up, and people began to sell the token while they had a chance. As in comedy, good timing is essential, and projects need to recognize the broader economic environment that theyre operating under, who they accept capital from, and which blockchain they build on. 

Are crypto tokens like stocks?

A final misconception is that tokens are equivalent to stocks. While governance tokens or even NFTs can appear to inherit similar features as stocks such as governance rights or dividends most have not.

The vast majority of NFT art projects […] convey no actual ownership for the underlying content, according to Alex Thorn, Galaxy Digitals head of research. There is nothing stopping nonfungible tokens from conferring greater rights and benefits, but collections have historically not been designed as such. Similarly, DAO governance tokens can provide dividends from project revenue, but many tokens, including Uniswaps and Optimisms, do not. 

Professors Cong, Ye Li, and Wang have shown in their research how tokens can solve important principal-agent problems, particularly for startups, but the reality remains that many tokens are receiving valuations commensurate with corporate stocks, which is not sustainable.

Token utility

Many projects should ask whether they need a token in the first place. Even if they do, they often struggle to articulate why. Indeed, a Web3 organization can easily exist without a token. For example, OpenSea and Rarible are both NFT marketplaces, but Rarible has a token and OpenSea does not. The answer really depends on the organizational objectives and strategy.

Because the incentives for launching a new token are so high, there has been a proliferation of tokens. If they were to take a step back, most founders would quickly realize that they do not actually need a new token and that building on an existing crypto ecosystem would be a much more sustainable choice in the long run, says Christian Catalini, founder of the MIT Cryptoeconomics Lab. To date, only a handful of networks like Bitcoin and Ethereum have proven the value and usefulness of their native token.

Projects that have a native token need to be thoughtful about anchoring its price in real assets. Some stablecoins, for example, hold reserves in fiat currency to hedge against the volatility of other crypto assets. While there is an active debate about the composition of reserves and how to signal proof of reserves, some collateralization is important for token price stability. In the absence of some stable collateral, a shock to the system can lead to the collapse of a token. The collapse of the Terra ecosystem and the role that FTT played in the fall of FTX are instructive.

Catalini commented that: In the summer of 2021, we wrote a paper outlining the key weaknesses of algorithmic stablecoins, and how they inevitably lead to death spirals. The paper and insights were widely shared with regulators, academics, & industry participants well before the Terra/Luna meltdown. Sadly, the structure of the FTT token and how it was used as collateral suffered from the same fatal flaws. Here, the collateral for both Terra and FTX was tied up in their own native tokens, which collapsed in price too.

Why tokenomics is important

To be sure, tokens provide a handful of advantages that traditional systems do not provide, but it is important to know when and why. First, having a token that is native to a blockchain provides a common system of account that reduces the probability that assets and liabilities will be mismatched in different units of account. And since native tokens can be linked directly to the history of activity on a blockchain, they provide a trustless mechanism for facilitating exchange that is insulated from the fluctuations in other asset prices in the economy.

Such benefits are especially important for creating markets over areas that may not have had a price mechanism rationing supply and demand. For example, there is a lot of optimism that tokens could help create a market for credibly trading energy or emissions credits. Existing implementations of emissions trading have been challenged by compliance costs and liquidity, which tokens could help counteract by providing a common and credible unit of account.

Second, tokens can help secure credible commitments on both sides of a trade. Although the use cases of smart contracts are still limited and complex rules and contingencies have yet to be fully implemented, they reduce the risk of either side reneging, according to Cong, Li and Wang.

Consider an entrepreneur who distributes tokens to investors for an innovative new blockchain. Insofar as the founder succeeds, there is much less chance to cheat or mislead the investors since the tokens are fundamentally tied to the intellectual property and technology stack of the blockchain.

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Third, tokens can reduce transaction costs and bring together heterogeneous buyers and sellers on a platform built around a specific economic transaction, according to additional research by Cong, Li and Wang. In other words, they provide a measurement tool for differentiated buyers and sellers to coordinate around shared perceptions of value.

For example, consider the Akash Network in the Cosmos ecosystem a cloud computing provider with a live service offering a decentralized alternative to Amazon Web Services and Google Cloud. Even in a declining market, demand for Akash services is growing because of the security and price advantages decentralized compute offers, says Lex Avellino, founder and chief marketing officer of Passage a metaverse platform thats also on Cosmos.

Thats where the value comes from, regardless of token sentiment [] Web3 builders need to address traditional market concerns of value and demand before speculative tokenomic systems, he says. Although transactions could be completed with fiat currency, tokens provide a platform-specific tool to conduct economic activity.

Further study

Academic institutions are beginning to offer curricula on the economics of distributed ledger technologies, including crypto, although the curricula are still extremely nascent. The University of Nicosia, for example, was one of the leaders in the launch of a masters program on blockchain and digital currency. Select classes at other leading institutions exist, including Decentralized Finance: The Future of Finance a set of four courses taught by professor Campbell Harvey at Duke University and a digital finance seminar series led by Agostino Capponi at the Columbia University Center for Digital Finance and Technologies. 

Much more work remains to be done in educating people about the economics of tokens. Crucially, entrepreneurs and participants in the sector should view tokenomics as a mixture of economics, finance and marketing, drawing on established best practices and theories, rather than trying to invent new ones that have already been shown risky or ineffective.

On Oct. 1, 2019, Cointelegraph Magazines founding editor, Jon Rice, pressed publish on the first-ever feature story for the publication a story by Swedish fintech writer Jinia Shawdagor about the countrys embrace of a cashless economy.

The brainchild of former Cointelegraph CEO Jay Cassano who was managing editor at the time Magazine was designed to fill a major gap in crypto media with in-depth features exploring all angles of the issues in a thoughtful, considered way. While its easier to get traffic writing breathless stories about Bitcoin price predictions, Magazine is an attempt to give readers and the industry a more intelligent approach.

I came on board after meeting the team at Cointelegraphs conference in Singapore. Due to an amusing mix-up between Austria (where a story they wanted to cover was based) and Australia (where I actually live), I was commissioned to write Magazines seventh-ever published article, Blockchain startups think justice can be decentralized, but the jury is still out. 

This stroke of good fortune led me to become a staff writer, and later to take over as editor after Rice moved on (hes now editor-in-chief of Blockworks). Three years on, Magazine has amassed a great team of regular contributors, including Blockland author Elias Ahonen who joined after being interviewed for a story on physical Bitcoin Andrew Singer, Max Parasol of the RMIT Blockchain Innovation Hub, Christos Makridis of Stanford University, and freelance crypto writers Jillian Godsil and Julian Jackson. Magazine is always looking for more contributors, so if you would like to write for the publication, get in touch.

Without further ado, here are some of the highlights (and a couple of lowlights) of the first three years of Cointelegraph Magazine.

Andrew Fenton, Cointelegraph Magazine editor

The most popular stories

WTF happened in 1971 (and why the f**k it matters so much right now)

The most consistently popular story on the site explores whether former U.S. President Richard Nixons decision to get rid of the gold standard, which backed U.S. dollars with gold, caused a host of social and economic problems. Since 1971, productivity increased while wages flatlined; GDP surged, but the share going to workers plummeted; and house prices went through the roof. Is it causation or merely correlation?

How to prepare for the end of the bull run, Part 1 and Part 2

Essential reading before the next bull run, we spoke with some of the most respected pundits in crypto including Filbfilb, Mati Greenspan and Scott Melker about how to play the inevitable crash. TLDR: Always take profits on the way up.

Toss in your job and make $300K working for a DAO? Heres how

Nataliya Ilyushina and Trent MacDonald transformed their own academic research into a fascinating article about how some of the employees involved in the great resignation transformed their lives by working for DAOs. (Readers also flocked to our similar explainer on how to set up a DAO, How to bake your own DAO at home With just 5 ingredients!)

Childs play: Gajesh Naik, 13, manages a fortune in DeFi

The headline says it all: A 13-year-old kid from Goa in India is managing a million-dollar DeFi platform. Would you trust a seventh grader with your life savings?

5 big questions answered

Can Bitcoin survive a Carrington Event knocking out the grid?

Is Bitcoin a religion? 

What the hell is Web3 anyway?

Should crypto projects ever negotiate with hackers? 

What really goes on at a crypto OTC desk?

10 great features

The FBIs takedown of Virgil Griffith for breaking sanctions, firsthand

Author Ethan Lou attended the infamous North Korean crypto conference alongside Ethereum developer Virgil Griffith, who is now serving five years in prison for helping the country evade sanctions using crypto. Lous article portrays Griffith as so dangerously naive that he volunteered much of the evidence the FBI used to convict him.

Ethereum is eating the world You only need one internet

Zero-knowledge proofs and recursive scaling mean the entire worlds financial system could theoretically run on Ethereum. Reader feedback was very positive, with many commenting this was one of the few things ever written about zk-Rollups that attempted to explain it in simple terms for ordinary people.

NFT art revolution: Beeple on his 5,040-day labor of love

Magazine profiled NFT artist Beeple shortly before he found global fame for auctioning his Everydays work for $69 million. He already knew it was going to be a big deal, telling Magazine it was Christies first totally digital auction and that it would accept Ether. There will be no physical piece; theyre literally just auctioning off a JPEG. And so, I think that will be a very big moment, and big validation for this space.

The lizard people invented Bitcoin: Crypto is a hotbed for conspiracy theories

With the pandemic getting into full swing in 2020 and paranoia running rampant on Crypto Twitter, Magazine decided to find out why crypto fans are drawn to conspiracy theories. It turns out there are some very good reasons, not least because there really are shadowy actors manipulating events behind the scenes in crypto.

How Silk Road made your mailman a dealer

One of Magazines earliest published stories explores how Bitcoin came to public attention after being adopted for use on the darknet marketplace Silk Road. Containing a detailed first-person narrative on how one actually bought drugs or other illegal stuff on the darknet, its perhaps not surprising that the author remained anonymous.

The crypto effect: Trading altcoins at the edge of addiction

Photojournalist Matt Danzico looked at how traders were spiraling into addiction and the emerging treatment options to wean them away from their next crypto rush.

Block by block: Blockchain technology is transforming the real estate market

Imagine owning a token representing a two-millionth share of the Empire State Building. Analysts say that tokenized real estate could be worth $1.4 trillion if it captures just half a percent of the global property market.

Is Ethereum left and Bitcoin right?

Does the battle between conservative Bitcoiners who want to preserve the best money in history and progressive Ethereans who want to push things forward mirror our divided political culture? Yes, it does.

Soulbound Tokens: Social credit system or spark for global adoption?

When Ethereum co-founder Vitalik Buterin unveiled his Soulbound Tokens paper, there was a lot of heat but not much light shed on how theyd actually work in practice. Magazine spoke with Buterins co-author Glen Weyl to get the lowdown on this important new development.

Crypto kids fight Facebook for the soul of the Metaverse

Meta is throwing everything it has into dominating the Metaverse like Facebook dominated social for so long, but Web3 proponents are fighting to make it open source and decentralized.

Most fascinating people

Dmitry Buterin: Vitalik Buterins dad revealed his own fascinating life story as a computer scientist and entrepreneur who left Russia to make it in Toronto. He spoke about raising Vitalik, psychedelics, libertarianism and philosophy.

Damien Hirst: Magazine spoke with the legendary British artist in his West London studio ahead of the launch of his innovative The Currency NFT project.

Roger Ver: Bitcoin Jesus dropped a bombshell that rather than go to prison in 2002 for selling firecrackers, hed considered killing himself to be cryogenically revived at a later date.

Peter McCormack: The podcaster told a story about how his flirtation with using Bitcoin to buy cocaine on Silk Road left him hospitalized and how he made and lost a fortune twice.

David Chaum: The crypto pioneer whose work inspired the cypherpunks told Magazine about how he risked a lifetime in jail laying the foundation for Bitcoin.

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Carl The Moon Runefelt: The social media influencer genuinely believes that he manifested his crypto wealth simply by believing he would get wealthy, recalling the premise of the pseudoscientific bestseller The Secret.

Tim Draper: The former Bitcoin billionaire (down to half a billion now) shared his tips for investing success and his glass-half-full philosophy. Instead of looking for what could go wrong, he thinks: What if it works and something really extraordinary happens?

Lushsux: The controversial Melbourne street artist has been engaged in strategic trolling for a decade now and more recently began to make a name for himself and a small fortune with NFTs.

Chris Blec: DeFis loudmouth troublemaker is a decentralization maxi. Is he good or bad for decentralized finance?

Griff Green: The DOGE-loving hippy white hat hacker who quickly replicated The DAO hackers exploit to steal as much of its Ether before the hacker could get away with the lot.

The worst: Rogues gallery

January and February 2021 were something of a low point for Magazine, as three profiles of industry figures came out in quick succession who went on to become the biggest crypto villains of 2022: Celsius founder Alex Mashinsky, FTX and Alameda founder Sam Bankman-Fried and Member of the European Parliament Eva Kaili who was recently charged after investigators allegedly found bags of cash from bribes in her apartment.

Reading them back, the Mashinsky profile from January 2021 stands up okay and included criticism of the firms abrupt $20 million raise, the absurd cult around him, rumors Celsius was taking risks, and a choice quote from podcaster Peter McCormack, who said the blokes a weirdo and he needs to get his act together.

A month later, the SBF profile was far too willing to take his effective-altruism spin at face value and likened it to robbing from the rich to give to the poor. Maybe without the robbing part, Bankman-Fried said, without a trace of irony. In reality, prosecutors say he was robbing from the poor FTX users so Alameda could make risky bets.

That same month, the biggest crypto proponent in the European Parliament, Kaili, possibly shed light on why she might prefer (alleged) cash bribes to crypto ones, telling Magazine that between me and you, I think the best way to get the ones that want to tax-evade is to put them on blockchain, because nothing is ever gone forever.

Best of the global coverage

While much of crypto media is focused on the U.S., Magazine has made a conscious effort to report on the best stories from around the world.

In Georgia, crypto is a crucial tool for refugees escaping the war

Cointelegraphs European editor Aaron Wood relocated from Saint Petersburg in Russia to Tbilisi, Georgia at the start of the Ukrainian invasion. He shared the story of how Russian refugees used crypto to move assets across borders and stayed afloat by trading crypto for cash at Tbilisis physical exchanges.

Crypto in the Philippines (Part 1) and The ethics of hiring cheap Filipino staff (Part 2).

The first part of our series looked at crypto adoption in the Philippines, while the second looked at the ethics of crypto projects hiring cheap Filipino labor. The latter story was named one of the best articles of the month in February 2021 by the Association of Cryptocurrency Journalists and Researchers.

Inside the Iranian Bitcoin mining industry

Tehran-based journalist Saeed Jalili went deep inside the Iranian Bitcoin mining industry, which is dominated by illegal, underground mines.

Thailands Crypto Utopia 90% of a cult, without all the weird stuff

Magazine visited Thailand to cover the crypto digital nomad scene and stumbled across this insane story about how Bitcoin OG Kyle Chasse set up a libertarian Bitcoin commune. The tale involved unchecked merrymaking, crypto influencers, police grillings, seasteading, a reported $20,000-a-month burn rate and a major collision between idealism and reality.

What its actually like to use Bitcoin in El Salvador

Joe Hall spent two weeks in the Central American country trying to pay for everything with Bitcoin. It didnt work out so well, even at Bitcoin Beach.

Our Man in Shanghai

Our popular China-based crypto news round-up from Our Man in Shanghai ran throughout 2021 but was put on ice following the great China crypto crackdown. Its returning soon with a wider focus on Asia and a new writer who isnt physically based in China and, as such, doesnt need to fear repercussions for speaking their mind.

Crypto City Guides

Magazines guides to the crypto history, businesses, meetups, services and education in cities around the world kicked off with Melbourne (Australia) in August 2021. It has since visited Vancouver (Canada), San Francisco (U.S.), Prague (Czech Republic), Miami (U.S.), Dubai (UAE), Austin (U.S.), New York (U.S.) and Tokyo (Japan).

Steve Newcomb is a Silicon Valley veteran with a long list of achievements. He built software for trading energy in the 90s, was a pioneer in adding email to phones, and helped create the back end of the Bing search engine under Peter Thiels mentorship. Today, he heads up development for Berlin-based Matter Labs, which is building scaling solutions for Ethereum.

I was very much a skeptic when it came to cryptocurrency and blockchain, explains Newcomb, zkSyncs chief product officer. He adds that it took two years of study before he understood the topic and the benefits to his satisfaction. 

Calculating that Ethereum had a 65% market share of the layer-1 market, Newcomb was convinced that it held the greatest promise in becoming the de facto world computer. But he describes blockchain as being slow and cumbersome today as the internet was 25 years ago, so he set to work scaling it up to one day to become as fast as Web2 is now.

Layer 2s to the rescue

As a veteran of the dot-com era, Newcomb sees the current state of the blockchain environment not just Ethereum as similar to that of the internet in 1995, when the World Wide Webs 25,000 websites could be accessed by average dial-up speeds of less than 30 kilobits per second. 

Its slow as molasses. Our very well-known Ethereum internet computer that claims to have the power to change the world runs at a grand total of 15 transactions per second, and we have 4,000 legitimate projects on Ethereum very, very similar to 1995.

Just 10 years later in 2005, websites numbered over 100 million, and speeds had increased at least thirtyfold. We had SSL, we had HTTPS by then that little lock icon appeared in our browser. Amazon happened, Google happened, he lists. Today, in 2022, there are over 1 billion sites, and speeds over 200 megabits are common even on mobile devices far superior to anything Nokia engineers could have even dreamed of 20 years ago.

Just like the advent of SSL and HTTPS, which made the internet secure allowing for online shopping and the safe transmission of private data Newcomb is convinced that the layer 2s that make crypto secure are where 10x moments are happening.

Also read: Attack of the zkEVMs! Cryptos 10x moment

He identifies five types of layer-2 solutions: state channels (Raiden Network, Perun), plasma (Plasma Cash, Plasma MVP), sidechains (Skale, Gnosis, Loom), Optimistic Rollups (Arbitrum, Optimism, Boba), and zero-knowledge rollups (Scroll, Matter). Newcomb has some strong opinions to share.

If you think that the goal of layer 2s is to scale Ethereum while maintaining its decentralization and security, sidechains do not achieve this. They have far less security than Ethereum does, because their functional chain is not on Ethereums chain, he states matter-of-factly. 

He feels similarly about state channels and plasma, arguing that they just literally dont check the boxes. This leaves only Optimistic Rollups and zk-Rollups in Newcombs good graces. His passion comes across as a rather assertive, perhaps unfair, dismissal of a significant portion of the layer-2 landscape but lets save that discussion for a future article.

My mission is to make sure that Ethereum wins. I want it to be the first that gets it to go from 15 to 1,000 or 10 million transactions per second. I want to be in the room when it happens.

Serial founder

No stranger to technology, Newcomb has fond memories from the 70s when at 6 years old he would solder motherboards with his father, who worked for an agency I cant name. He describes a desire from an early age to be part of history, which propelled him in his career. In his view, one should find out what they think the most important thing happening is, and then participate in that thing in whatever way they can. Cellphones were the first of these grand phenomena.

When I set out on my career, I asked myself: Is this something thats going to affect millions of people? Is it a big deal? Can I add value in some way?

In 2000, Newcomb founded LoudFire, a company that aimed to build consoles that would control smart homes, which he describes as an abject failure except that we realized how to take email from a computer and put it on your Nokia phone, which was a revolutionary combination of two previously separate technologies. Naturally, the firm was sold to Nokia in 2002, which was the pre-iPhone juggernaut dominating the mobile phone industry at the time.

In 2008, he founded Powerset, a natural language search engine that was essentially sold to become a central component of Microsofts Bing. He recalls pitching the project to investor Thiel by having him type a search and then asking him to select whether Googles results or those from Newcombs solution were better. He chose us 70% over Google, Newcomb recalls, after which he promptly had $800,000 in the bank and a new mentor. 

Two of my junior engineers split off to create a small company called GitHub, he remarks.

Jingles and resumes

Newcomb describes himself as having been something of a troublemaker growing up, applying to Salisbury University in Maryland on the basis that it was close to a beach where he could spend his days mostly ignoring school while majoring in accounting.

In the 1980s, he wrote an algorithm to automatically generate the scripts for used car dealerships TV and radio commercials with cheesy music and some cheesy sales guy, charging thousands a pop. His second business while in university was effectively a pre-internet version of LinkedIn, charging students to distribute their resumes to other universities across the region via a system of interconnected printers.

Upon graduating, Newcomb joined the energy company Statoil in 1993, reasoning that it seemed like an important industry to get into, as the U.S. government had just deregulated the energy markets. At just 21, he says he was trading $600 million worth of energy deals per year, and he learned to code in Object Pascal on the side in order to make his job easier by automation and easier control. 

As the company began using his software to trade billions in annual volume, Newcomb says he realized the true power of coding and fell in love with software, eventually being promoted to head of engineering for North America. In 1998, he joined Proxicom, where he led the production of trading systems for the energy sector. By 1999, he was responsible for AT&Ts internet and streaming video strategy.

Also read: Ethereum is eating the world You only need one internet

The impenetrable door

With his history as witness, Newcomb does not think small. For him, the end game of Ethereum is security so perfect that no quantum computer can break it and decentralization so good that no nation-state can stop it in other words, a private internet computer that cannot be hacked by any computer or stopped by any nation-state.

I want people to understand that this is more important than technology; this is possibly as important as what comes after capitalism and democracy, he says. He elaborates that when a new technology comes along, it normally replaces an incumbent, as when iPhone replaced Nokia.

What is the incumbent that blockchain replaces? If you think about it, its government. 

If thats true, there is a desperate need for adults in the room, and Newcomb quips that he is finally old enough to be considered one. Imagine we built a door that can never be knocked down. What would people do in their homes? he asks, describing the encryption of Ethereum as an impenetrable door behind which people can trade and interact freely in such a way that no government, institution or authority can reach them a blockchain that runs on its own and is almost free to use.

If you have a private blockchain and people decide to do business on it, then governments no longer have a way to tax people and governments are gone. Well, maybe. History is being made one way or another, and Newcomb is doing his best to be part of it.

Ranking rollups

So, what are these rollups to begin with, and why are they better, according to Newcomb?

According to Ledger Academy:

Rollups roll up or compile a bunch of transactions and turn them into one single data and submit it to the Ethereum mainnet. They take the transactions out of the mainnet and process them off-chain, convert them into one single piece of data, and submit them back to the Ethereum mainnet. This is why rollups are also called off-chain scaling solutions.

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There are two primary types: Optimistic Rollups and zk-Rollups.

According to Newcomb, Optimistic Rollups, as used by Optimism and Arbitrum, ultimately depend on a sophisticated game theory, which effectively allows everyone to use the blockchain. And then, after the fact, they check to make sure that there is no fraud. 

With this system, you could be maybe 99.999% sure theres no fraud, but you cant be 100%. Its the very best game theory we have, and it does scale Ethereum by a factor of seven, maybe up to 10. Though he concedes that it passes as a scaling solution, Newcomb expresses concerns about settlement times at increased levels of scaling, describing the process as increasingly hairier and saying that he couldnt understand how it scales beyond the original 10x.

Zk-Rollups, on the other hand, check for fraud using mathematics something called a ZK proof that isnt 99.999% accurate. It does not use game theory. It is literally mathematically perfect. There are competing zk-Rollup layer 2s from ConsenSys, StarkNet and Polygon.

Clearly, they are Newcombs preferred solution, one that he says was previously thought to be too expensive and 10 years away from effective implementation but weve solved those things much faster than anyone predicted.

Zk-Rollups, for me, represented both scale and security combined at unlimited scale. We theoretically could get up to millions of transactions per second, making this a real internet computer, and we could do so while perfectly maintaining security.

Zk-Rollups are not a singular project but a technical solution being worked on by various separate teams. Of these, Newcomb lists his top three (working on EVM-compatible solutions): Matter, Scroll and Polygon. He considers Matter, which he works for, to be nine to 12 months ahead of Scroll and Polygon, with other solutions being roughly one to two years behind a view he has arrived at via a five-point list of magic ingredients he believes are needed for a ZK solution to be adopted.

Five points

Firstly, an L2 solution should be general purpose, meaning that any DApp or smart contract can be built to interact with it, as opposed to accommodating only special use cases such as NFTs. 

Secondly, the solution should be EVM-compatible, meaning that like with BNB Chain, Polygon, Solana and Avalanche, Ethereum projects can be easily ported over. Bitcoin, Monero, Litecoin, Cardano and XRP Ledger are totally different and are examples of non-EVM compatible chains.

Thirdly, the solution should support Solidity, the programming language used to develop smart contracts on Ethereum. Supporting JavaScript for the web equals supporting Solidity for crypto, Newcomb reasons.

Fourthly, a ZK-proof solution needs to be open-source, or the community of crypto will become riled up against you, as it would not fit the ethos.

Lastly, Newcomb emphasizes that there must be a plan for tokenization that benefits the ecosystem: Two-thirds of your tokens should be dedicated to the benefit of the ecosystem, not to the benefit of the shareholders of the original company building the layer-2 solution.

The actual best case is that ZK becomes a standard. Thats why we open-sourced it, so that it can become a public good. Our hope in the future is that there are no other protocols it is just the protocol.

Whatever layer-2 solution(s) end up taking center stage in the coming years, what Newcomb looks forward to most is the public nature of progress that is inherent to blockchain as opposed to previous eras of technological development. Engineers used to see things privately and talk about them after. We get to see progress live on-chain.

Magazine: Animoca was a successful mobile gaming company, with 10 million downloads and various apps in the top 10 on Apples App Store. Then you were suddenly thrown off the store in 2012. How did that change your views on Big Tech?

Yat Siu, Animoca co-founder: The fact that platforms could become as powerful as they became the App Store, Google Play, Facebook, you name it caught many of us by surprise. Open source had become the predominant form in which code was written, and it was kind of a wake-up call when Apple basically just decided to push the button and get rid of us.

We didnt fully know the exact reasons, but there was no discussion, negotiation or process. Hundreds of people were potentially out of work, and millions of customers lost access to the apps they loved because of the decision of some person or some small group of people who can never be held accountable. And that, to us, was basically a shock. Its not that we saw blockchain and decentralization as the solution back then its just that we knew there was a problem.

Deplatforming users with no explanation seems very authoritarian, like having rulers but not courts and no solid laws.

Exactly. Blockchain is not only a technological solution but also, in many ways, a political-socioeconomic movement. Thats when people get into it. They dont get into it because Oh, look, its a decentralized ledger. I can have copies of everything! No, they get into it because it means freedom. It means a kind of digital sovereignty they yearn for because they lost it during the transition to the digital world.

It took us a year and a half, or maybe even two years, to get back into the App Store. We were leading the space when we got kicked out, and then it was impossible to claw back our market standing because by then, the competition, by the grace of Apple, ended up basically dominating the space. 

But youre not a Bitcoiner?

I had a hobby mining rig and experimented with Dogecoin just because it was fun and silly. But because it was so financial in nature, it didnt click for me. We werent from Wall Street, we didnt have that lens. But when NFTs came about with CryptoKitties, thats when we understood, oh, this is culture. 

It was 2017, so we were pretty late. We didnt see the light because of Bitcoin, we saw the light because of NFTs and what that could mean for ownership over virtual assets. By early to mid-2018, we were all-in on blockchain. Thats when we acquired The Sandbox and when we invested in OpenSea, Dapper Labs, WAX, Sky Mavis (Axie Infinity), and others.

So, you just invested in any project involved with NFTs or the Metaverse?

Well, there werent that many at the time. And you could say, this is like some crazy bet we took. But it wasnt a bet to us. It just felt right, that this was the path to go.

I bought my very first virtual good in a multi-user dungeon in 1990 or 1989. So, this idea of paying money for virtual goods has been normal to me for decades. But now that you have the ability to own it and have composability on top of that, it all sort of blew our minds. 

If in-game ownership is such a natural concept for gamers, why have so many U.S. gamers rejected NFTs outright?

I think the reason why so many in the West, particularly in the U.S., are rejecting NFTs is not because of the fact that NFTs give you ownership. I think the rejection is partly due to shifting sentiments about capitalism. For the first time in my life, Im witnessing a very strong anti-capitalist sentiment in America.

The consumer in Asia, however, looks at capitalism as a net good. Things like democracy and property rights are fairly new concepts. Only four decades ago, South Koreas economy was the same size as North Koreas. Now its among the top 12 to 15 countries in the world. Consumers in Asia have seen capitalism work for them.

In the U.S., capitalism, especially in the past few decades, hasnt worked in the same way. It has exacerbated inequity. In this context, crypto, which NFTs are part of, risks becoming viewed as a rich mans toy that spreads the same kind of inequity in the virtual world.

The news headlines focus on things like a $300,000 Bored Ape NFT and skew perceptions about the entire NFT industry. An average gamer sees this and doesnt appreciate that the average NFT is actually a $5 or $10 in-game item. Its like thinking that the entire car industry consists of only Lamborghinis.

What is your conception of the Metaverse? A lot of people talk about it without clearly defining what it is.

I think that were already in a kind of pre-Metaverse. Among the top 20 countries in the world, we spend, on average, nine to 10 hours a day online. Thats more time than we spend at work. But its not a Metaverse that we as consumers have ownership of. So, thats why I describe it as pre. The open, true Metaverse has to be one in which you have ownership. Without ownership, its meaningless.

Is the Metaverse a virtual reality space? Is it screen-based? Is it augmented reality, with the Metaverse overlaid over the real world?

I think everything you just mentioned is a vehicle to experience the Metaverse, but its not the Metaverse in and of itself. I go back to this principle of were already kind of in the Metaverse. When youre in front of a big screen or even a mobile phone, the way youre engaged in your game, its already immersive, and the connections youre making with other people are also real. So, I dont think the specific interface method matters. We prefer this sort of quasi-hybrid interface anyway.

My conception of the Metaverse is an interoperable digital space with an economy that individuals contribute to and create because they can verifiably own what they produce via NFTs.

The Metaverse is like a community nation-state. What gives it value is its community and the network effects embedded in these communities. In order for it to have meaning and value, it needs to have ownership, which then gives rise to all these other rights and freedoms and makes the community powerful.

Social media brings together people from radically different backgrounds and perspectives who would never meet in real life, and they clash. Do you think that in the Metaverse, communities will coalesce around shared values and outlooks in separate virtual geographic regions?

Coalescing around our own values is what humans do all the time, and I think the same will happen with the Metaverse. The problem with social media companies is that theyve weaponized this effect because they put these groups together.

It wasnt so much a problem with the communities as much as the platforms themselves. They created algorithms that, in order to maximize engagement, ultimately brought out the worst in us because they would reinforce our existing ideas and prevent new or different ideas from coming through.

And we also lost the ability to have civil discourse because we have nothing to lose and no accountability Im behind a platform, and I could be anonymous and free of all consequences. Now, whats encouraging is that these detriments of social media are not necessarily true in the open Metaverse. If I own a parcel of land in The Sandbox, as an owner in that space and a stakeholder in its success, I dont want to spoil it. 

Do you think Metaverse users will also be manipulated into engagement by an algorithm serving up outrage bait?

In the future, particularly when experimenting with DAOs and a coin for governance, those algorithms could actually be driven by the communitys goals instead of a centralized platform chasing the maximum possible engagement regardless of the social costs.

You could argue that the original construction of Facebook was as a platform to serve everyone on it. But it just ended up serving a very small group of people while everyone else was milked for data, attention, outrage, etc. What would Facebook look like if it actually served its more than 2 billion members?

The algorithms were devoid of morality or ethics because the people involved in them had one motivation: profits. Thats shareholder capitalism. With Web3, through token ownership and NFT ownership, you automatically participate in stakeholder capitalism, which is much more inclusive and representative. 

Would decentralized governance of the Metaverse help to humanize the virtual world?

I think so. The humanization of the real world started when societies acknowledged that rights must be universal, not just for a privileged few.

In the digital world, we have somehow subordinated our digital freedom, almost like this type of freedom isnt important. Why is it okay for Apple to decide every little thing about what we should experience in the App Store? Why is it okay for Facebook to be the arbiter of what we can or cannot see? We would never accept those forms of control in the physical world.

But once you realize that you can have similar freedoms in the digital world as you do in the physical world, you dont want to go back to the previous repressive system. 

Its not the companies that will make the shift its the end users, who will, over time, choose to use games or social media platforms in which they actually have a say and where their rights to ownership and freedom are intact.

How are we going to attract users to these new platforms when all their friends and 20 years of data are on Facebook, Instagram and Twitter?

I think this is the point where we need to understand that our data and our time have real value. When Facebook was a company that was barely making millions of dollars, we didnt notice or care because there was little or no value to our data and time. Now Facebook makes $120 billion a year.

If the incentive on offer is ownership, I think many people are willing to start fresh in a new system. Look at it from the perspective of a migrant: I could have my assets or real estate or other property in one place, but Im still willing to move somewhere else and give everything up because it has a better framework.

To me, that is the essence of the switch from Web2 to Web3.

The open Metaverse requires some level of interoperability being able to take your NFT assets from one game or website to the next, even if it’s owned by a different group. Are there any current examples where you can do that?

There are some initial case examples.

But the key thing is that the paradigm of ownership doesnt mean that you are forced to create an API or framework that another party has to adopt. Its up to the other party to adopt your assets in ways that make sense to them.

The fact that we own cars makes it possible to have everything from Uber or Grab to companies making baby car seats. They didnt go to Ford and say, Can you please adjust your car design so that my baby seat will fit?

The baby-car-seat companies just built baby seats based on how cars were designed, not the other way around. And thats how we see permission in the decentralized world as well.

One example is the YGG [Yield Guild Games] gaming guild.

The one where they rent out expensive Axie creatures so new players can use them to make money in the Axie Infinity game?

That is a result of the network effect in action. YGG created a business model that is almost Uber-like, based on the ownership of Axies and which adds value to the NFTs and to the gaming system in a manner that none of us imagined was feasible at the time.

I suppose another example is Bored Apes. What do you think of BAYCs idea of handing over the intellectual property with the token? There are now platforms where you can hire out your Bored Ape for an ad or to attend a party.

Indeed, thats why my Bored Ape #9730 was on the runway at New York Fashion Week with Vivienne Tam! Packaging commercial IP rights within an individual NFT is a more powerful way to prove ownership (and therefore enforce it) than the traditional approach of Oh, you infringed on my rights, so please show me the contract that you signed and Ill take you to court.

All these novel characteristics are already available on-chain. And the freedom to do so is powerful, as now buying an NFT confers all of these additional rights on top of it. So, I think what Bored Apes has done is nothing short of revolutionary in terms of how we think about IP rights. And, of course, many other companies are now taking a similar approach.

Video games tend to have relatively short lifespans because the only way the publishers make money is by pumping out a new title or inflating the economy. If we have user-created economies evolving inside a game, will those games be around for longer?

Yes, and there are already examples of user-driven in-game economies, even though theyre not on-chain. Second Life and Eve Online are over 20 years old and still growing. Second Lifes GDP is over $620 million. Its bigger than its ever been. You cant name many other games in a traditional context that have gone on for 20-plus years and are still thriving. 

Minecraft is another game with longevity and a particularly interesting case because of its degree of decentralization and open-source approach. Thats how contributors on SourceForge are able to make mods or experiences such as Mineplex.

What you are seeing in both those cases are network effects that can accrue thanks to a degree of control over players digital goods.

Except that Minecraft has explicitly rejected NFTs.

I think that is more a problem for Minecraft than it is for NFTs.

Minecraft expressed a value statement that is political, even if it doesnt fully comprehend that yet. The decision was a centralized one no public debate took place. It was a preference choice and not necessarily an informed one. Instead, Minecraft chose to inflict damage on a community that had innovated by integrating NFTs with Minecraft.

At the end of the day, I think Minecrafts decision hurts the users.

Will the games that stick around and evolve economies eventually all join up and become the Metaverse?

They have the potential to do so, and in some ways, thats already happening. Thats why we refer to the open Metaverse based on genuine digital ownership. The ownership paradigm is a bit like why monarchies inevitably transform into democracies: If they dont, then theres a revolution, or they simply collapse under their own weight. 

When you look at markets in Asia, especially South Korea and Japan, the most prominent Web2 game companies are already planning, have announced or are implementing Web3 strategies. This is the shape of the future, and its not a distant one its near-term.

I was talking about the Metaverse with someone, and they asked if were just going to recreate the existing world there and have rich areas and poor areas. And I thought, Yeah, probably.

Digital slums? I dont think that we can entirely remove inequity from our lives. Unfortunately, if you believe in capitalism, then there is going to be some degree of inequality. The critical consideration is: Whats the opportunity for someone who is on the bottom end of the spectrum to advance upward? And I think the Metaverse provides one of the best paradigms for solving this thanks to things like tokenization and play-and-earn, NFTs as a form of ownership, IP, and commercial rights management, data as equity, and so on. There are multiple pathways and opportunities for participation.

Also read: Billions and billions: How brands take blockchain from niche to normal

Our time is valuable in the sense that someone will pay us for it. And so I think the idea of universal basic equity that is derived from our time is a more sustainable concept than universal basic income, which leans heavily toward an ultra-socialist approach where it becomes an entitlement you get for doing little or nothing. But in the Metaverse, you need to actually do something for that equity, since the more you contribute and participate, the more valuable your data becomes.

The people currently working on the Metaverse appear to be mostly be Asian developers and white developers. Is there a possibility that this could lead to structural or systemic problems?

One of the things I really love about decentralization is that if a community doesnt speak for you, you can just make your own community. The cost of making a token isnt expensive, nor is the cost of building a community. So, if you have a community that doesnt speak to you because its very Asian, male, Caucasian or whatever then youre totally free to set up your own community spaces in an entirely decentralized fashion, at a relatively low cost.

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If I want to build a community just for Filipinos, or for just four people in Nigeria, I can do that relatively easily.

What do you think is the time frame for the open Metaverse? What are the big events that were likely to see in, say, two to five years time, or 10 years time?

I think in two or three years, we will get to hundreds of millions of users playing blockchain games, largely thanks to the arrival of AAA quality games to blockchain, which better appeal to traditional gamers. 

Adoption and usage wont be as dependent on initial sales, NFT drops and the financial structures that we see today in blockchain games. Instead, they will be games very much like traditional AAA games, and the blockchain layer will be there to provide ownership and other important utilities but will not be the main feature.

Itll be where people are enjoying the game for free but owning the NFT. And then they can trade it afterward. I think well hit several hundred million users in the next two or three years. Were going to see mass adoption happening through games, but also education is an area that were betting on as well.

When do we get to the actual Metaverse? Do we wake up one day and all the games are interoperable and were all living in it?

I dont know that all the games will be interoperable, and probably not quite in the sense that we imagine today.

I also think that the mass genesis of interoperability will probably emerge from indie game developers. The big game companies have less incentive to push interoperability because they have established monopolies and are quite happy with the status quo.

What I think we will see emerge is various different games with modest user bases in the thousands or tens of thousands of users with reasonably good economies. They wont be billion-dollar businesses, but they will grow and thrive because their assets will also be adopted and used in other games.

Are we going to see standards developed for interoperability? 

I think there will be standards. In fact, thats what were already working on, for example, through the Open Metaverse Alliance, which also includes The Sandbox, Upland, Alien Worlds, Dapper Labs and many others.

However, as I said earlier, I think the greatest way to mainstream adoption wont come because weve created a standard it will come because of ownership and freedom of composability. Someone else out there in the world is going to come up with use cases for NFTs in a manner that we couldnt have imagined. 

Someday soon, someone is going to say, I can do this really cool thing with your gaming assets that you never thought of, and suddenly, its going to blow up.

Also read: Blockchain is as revolutionary as electricity: Big Ideas with Jason Potts

 This hour-long interview has been edited for clarity and length.

I attempted to spend two weeks travelling in El Salvador living on Bitcoin. I tried to pay for every single thing with Bitcoin, or Satoshis, small amounts of Bitcoin. Spoiler alert, I failed. 

Outfoxed by car hire companies (fortunately my car of choice was not Fiat); stubborn restauranteurs, a parking meter, pupusas, and a fancy dress shop where I was obliged to purchase a multicoloured wig with a $5 bill, I could not survive in Bitcoin Country on Bitcoin alone. 

So where did I go wrong? How did this happen? Isnt El Salvador supposed to be Bitcoin Country? Is Bitcoin broken? Am I a scammer? 

First up, theres no denying: El Salvador is unashamedly a Bitcoin destination. From Bitcoin conferences, big name Bitcoiners, ubiquitous Bitcoin accepted here signs, a laser eyed President and oodles of Bitcoin investments streaming into the country like transactions into the Bitcoin mempool, the nation is the first and greatest sign of Bitcoin adoption worldwide. 

Moreover, lets not forget the motivations behind the the Ley Bitcoin, or Bitcoin Law, voted in on June 8th 2021. In a statement, El Salvadors National Assembly, shareed: 

With the aim of generating employment opportunities, promoting true financial inclusion and generating economic dynamism, the deputies of the Legislative Assembly approved the Bitcoin Law.

Considering the laws three goals, its mission accomplished. El Salvadors GDP is hockeysticking higher; job creation has ticked up; tourism soared over 30% just this year and figures for the government supported Bitcoin wallet, Chivo, would suggest that the country is banking the unbanked. 

In addition, I have plenty of personal anecdotes of friends and Bitcoin people who emigrated to El Salvador, established businesses in El Salvador, or simply visited the country for the first timewhen never in a hundred years would El Salavdor feature on their bucket list holiday destinations prior to Bitcoin. But when it comes to paying in Bitcoin, its tough. 

Bitcoin was mapped out as a peer-to-peer cash electronic cash system, the first line of the Bitcoin White Paper states. 14 years on, and one year after El Salvador announced Bitcoin as legal tender for payments, its not quite there.

Upon closer observation of the Bitcoin Law, it becomes clear that Bitcoin as a medium of exchange is not the priority. Under article 7, the law states: Every economic agent must accept bitcoin as a form of payment when it is offered by someone who purchases a good or service. However, it doesnt say how to do so, what to do with Bitcoin earned or why they should HODL or spend Bitcoin For me personally, what on earth should Salvadoreans on the ground should say to me when can I arrive at the counter and say Puedo pagar con Bitcoin? (Can I pay with Bitcoin).

As a result, and unsurprisingly, my experience using Bitcoin varies wildly. From Bitcoin maximalist coffee shops running Lightning full nodes to cash-in-hand street merchants on volcano trails who literally cannot access the internet, El Salvador has certainly put a spell on magic internet money. I hope this article sheds light on the experience of paying in Bitcoin across the country: an investigative report, light-hearted entertainment, and maybe a handy guide for your trip to spend Satoshis in Bitcoin Country. 

Know what youre doing; Focus 

The Lightning Networkthe layer-2 payments network built atop Bitcoinis fast, secure, and near free to use. It blows away Mastercard, Visa and any other legacy payment rail in terms of cost and efficiency. Personally, I believe its only a matter of time before retail, and in particular, micropayments, upgrade to the Lightning Network. Remittance payments are the first moversas weve seen with Strike and CoinCorners moves into Africabut retail is catching on. Once you see it in action, its hard to put the toothpaste back into the tube.

Nonetheless, the user experience (UX) of Bitcoin applications and wallets using the LN require some rehearsal. Over the two weeks in El Salvador, I made several mistakes scanning QR codes, interacting with waiters, tipping people and trying to live on a Bitcoin Standard.

Plus, I discovered new UX traits specific to emerging countries. Did you know that dark mode as a default in applications is awful for hot, tropical countries? In a field under baking sun, with dust and dirt in my eye, dark mode is like wearing a blindfold. Looking at you, Strike. Or, did you know that cracked phones screens make it harder to scan QR codes? This happened a few times during my trip. 

Lightning Charges

I finished my first meal in the birthplace of Bitcoin adoption in El Salvador, El Zonte or Bitcoin Beach and was eager to pay in BTC. I devoured shrimp tacos with a seaview at Olas Permanentes, a beach hotel, and went to pay. Lightning invoice, scan, pay, done. So easy.

I then tipped the water: he fired up a QR code for me to scan. Jetlagged, bleary eyed and over confident following my successful first payment I scanned the QR and clicked send. I had forgotten the Bitcoin mantra, of Dont trust, Verify and got stung.

The waiter had created a basechain invoicenot Lightningon his wallet of choice, Bitcoin Beach Wallet. I dont know why he did thatmaybe it was an accident, maybe it was his lack of understanding. Either way, it meant that I paid a 10,000 Satoshi feeabout a dollarand the transaction took 10 minutes to confirm. Silly Joe.

I soon observed that confusion around Lightning and Bitcoin Basechain is prevalent across El Salvador. In videos where I go to pay, I often followed with the bizarre inquiry when said out loud, Where is Lightning? Instincticly, El Salvadoreans would generate a QR code without checkingor because the in app UX favoured Bitcoin Base Chain over Lightning. Frustratingly, the government wallet, Chivo does this, for example.

Few Salvadoreans realised that these two English words (yes, not only do Salvadoreans have to learn Bitcoin, they also have to learn English) refer to entirely different processes. After a while, and typically while in smaller stores, bars and restaurants, I manually selected on peoples phones the Lightning option when payingas they simply didnt know what to do when I specified. I tried to explain the difference between Bitcoin and Lightning when my energy levels and patience would allow. Which leads me onto the next point.

Share your Bitcoin knowledge with El Salvador

Aged 21, I spent a year in Mexico City working as a teacher. Despite nearly a decade since this vibrant period of my life, I was often teleported back to moments in which I ventured explaining maths and science problems to students in heavily accented Spanish. Much like in Mexico, walking Salvadoreans through the differences between Bitcoin base chain and Lightning was rewarding and usually finished with a fist bump, a chuckle or a sigh of relief. Generally speaking, the Salvadoreans jumped at the opportunity to learnand inevitably, the lightbulb would go offand theyd wave me on my way.

But it left me wondering, why did this keep happening? Why did no one know relatively basic tenets to Bitcoin understanding? Undoubtedly, its because no one had taken the time to explain Bitcoin to them. And yes, maybe they should take their education into their own hands and become Sovereign Indivduals, but earning $20 a day, its unlikely theyve found the time or motivation to read the Bitcoin Standard cover to cover. In the end, when an overly enthusastic spanish speaking Westerner arrives on their doorstep, and who could finally explain what on earth this Bitcoin thing is, they latched on. Or at least, they showed appreciation for my efforts. 

Converserly, in the big chains where Bitcoin more or less worked, I was a borderline nuisance. In some stores, Bitcoin was poorly implemented, barely understood and scarcely used. Take SuperSelectos, one of El Salvadors largest supermarket chains. At this brightly lit and lino floored outlet, the Lighting Network option was a clunky, manual digital payment path.

Or, in retail behemoth Walmart, the only options for foreigners paying in Bitcoin was over the basechain. Chivo works, but Chivo is only available to Salvadoran residents as you must provide government issued details. As per article 7 of the Bitcoin Law, it is possible to pay in Bitcoin in these stores, but why would you inconvenience yourself and the store when paying in dollars is so much quicker? 

By comparison, I was lovin the LN experience in McDonalds. I paid at a McDonalds touch screen menu for a couple of coffees, and were I to race someone using a credit card or cash, I would have won. Comfortably.

A checkout experience smoother than a McFlurry and faster than a drive through, it seems McDonalds is using El Salvador as a testbed for Bitcoin and Lightning adoption. If it works well, they might copy paste the experience to other Bitcoin-hungry jurisdictions worldwide. Personally, the payment journey in El Salvador beats the checkout experience I enjoyed in in Switzerlands, Bitcoin friendly city, Lugano where LN payments went live this autumn. As a result of the slick checkout, McDonalds became my go-to coffee pitstop when bombing across El Salvador. 

As for the other major brands in El Salvador, I scratched my head: what conversations are taking place in head offices regarding to Bitcoin payments, and therefore Bitcoin adoption? Are sales teams undergoing Bitcoin education programmes, are data analysts crunching numbers on Bitcoin base chain vs Lightning payments; are businesspeople taking this Bitcoin adoption thing seriously? 

Speaking of driving, the gas station experience was another bumpy road. The first petrol station I stopped at on the first day, globally recognised Texaco, was staunchly anti-Bitcoin. I know in hindsight that their lack of Bitcoin is technically breaking the law. In any case, I consulted Rikki and Laura, the travelling experts behind the Youtube series, Bitcoin Explorers to find out where I could trade digital energy for hydrocarbons. 

I gleemed that at smaller Mom and Pop gas stations, its a question of patience, education and insistencebut you can get there. Its just like the experience in smaller retail and hospitality spaces. 

At the Uno gas station, perhaps the countrys third most popular fill up spot, there are signs saying Chivo accepted here. However, in reality, Chivo accepted here means that at some point, the option to pay in bitcoin was included on a point of sale screen somewhere. The attendants might have an idea about Bitcoin; they might even hold some BTC, but they also might not. In my case, they struggled. 

Fortunately, I had a wonderful time explaining to my charming attendant the difference between Bitcoin and Lightning; his eyes smiled at me as he said Im learning so much! as we went through another one of my crash course lessons on Bitcoin and Lightning. I managed to pay in Bitcoin, but again, the process was slow as there are so few people in the know. 

A final thing on payments: to get into the national parks, they accept cashnot Bitcoin. An oversight on the governments behalf. I asked some of the staff why I was expected to pay in dirty dollar bills to get into the Santa Ana volcano trail, and one of the guides said its because the internet is too patchy. I was pleasantly surprised by the quality of mobile data across the country, but its true that in certain placesnotably high up or near volcanoes, reception dropped out. It didnt stop me from sending Sats at 2,300 metres, to my guide, however. 

Its still very very early

A dear friend, Obi Nwosu, of Gridless Bitcoin mining and Fedimint custodying, compared the introduction of Bitcoin to El Salvador as like trying to teach an entire population a new language. To continue Obis metaphor, we are effectively looking at the adoption of French in a country that one year ago with the exception of ze petit French village of Le Zontecould not observe the difference between a pain au chocolat and a croissant. 

One year on, the entire country recognises the French flag, President Macron and maybe they can hum the Marseillaise; plus a healthy majority can say Je mappelle Jos et jai 29 ans. But theres a very select, elite flew who are bilingual French speakers. That kind of expertise, or language fluency in Bitcoin takes hundreds of hours of effort, education and conviction.

Fortunately, a group called My First Bitcoin or Mi Primer Bitcoin, has realised the enormous potential of Bitcoin education in El Salvador and has rolled out Bitcoin diploma programmes. I attended the graduation ceremony for the third group of kids aged 13-15 in El Pacheco, in the outskirts of San Salvador and was impressed with their use of Bitcoin. 

I interviewed a few of the children in Spanish to query their understanding of Bitcoin. Naturally, I sent them a few dollars in Bitcoin as thanks (but also to see how quickly they created invoices). I was blown away by their confidence and ease of explaining complex topics such as hot or cold wallets. These guys were freely transacting and paying with Bitcoin, encouraging signs for the future. As an aside, I was the first English person the kids had ever met or interacted withso inevitably they asked for selfies and photos!

Furthermore, while Bitcoin is indeed a new language; a new means of transacting, its also a very young technology. Bitcoin needs time to iron out and grapple with UX issues and amass and take advantage of more user feedback. Companies who take the Bitcoin Bull by its horns now will undoubtedly reap the rewards as and when the country warms to Bitcoin payments, or when a price uptrend comes back around.

Take Latin American telecoms company, Claro, who adopted Bitcoin as a payments route early on in the countrys Bitcoin journey. The process of topping up a sim card is now easier and faster than using traditional payment methods. Paying with Lightning is ahem, Lightning Fast. No need to fill out credit card detailsyou simply copy paste or scan a QR code and youve paid.  

Bitrefill, a crypto payments company thats heavily invested in El Salvador through billboards, sponsorships and influencer marketing, is another company taking a longer-term view on living on crypto. The company seamlessly connects big brands to cryptocurrenciesyes, cryptonot just Bitcoin, with giftcards. 

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I used Bitrefill with taxi company Uber as I couldnt find the pay with Bitcoin option in the Uber app one night. It could also be user error, though; I was mildly intoxicated after a few cervezas at the conference. Notwithstanding, I found the Bitrefill app easier to navigate and I was well practiced having used the app around the world previously. I also bought an AirBnB voucher through Bitrefill in a couple of clicks to book a stay near San Salvador airport as again, AirBnB and local Bitcoin payment options appeared too complicated at first look.  

Interestingly, Bitrefill have amassed swathes of data on crypto payments including Bitcoin, Lightning, USDT and many more. Early in 2022, Bitrefill CEO, Sergej Kotliar said that the Lightning Network is like teenage sex: everyone claims theyre doing itbut its far less common than teenage angst would lead you to believe. In El Salvador, if I can continue with the crass analogy, then the Lightning Network is like marital sex. Most people know its there; some people pretend it isntand it is certainly not very cool to talk about it.

Recognition is the first step to acceptance

When I travel to new countries or cities, I like to try to register and understand Bitcoin sentiment. I stand in the street wearing a smile and a Bitcoin t-shirt, holding a microphone. I ask people what they think of Bitcoin, and I try to brighten peoples day by giving them some free moneyusually its the first time theyve ever interacted with Bitcoin. Heres an example from France.

In the above example in France, some people have never heard the word Bitcoin before; few people recognised the logo; most didnt know that Bitcoin is valuable. In El Salvador, I bet that every single Salvadorean knows that Bitcoin is money. I stood in San Salvador for a few hours asking peoples opinion on Bukele. If they answered five questions about their country, Id send them $5 in Bitcoin. This deal was quick and easy, plus sending people money was faster still they logged into Chivo (if they remembered their password) and I sent the Satoshis.

The point is, although paying with Bitcoin is hard right now, Im also being demanding. The mere fact that Salvadoreans can point to the Bitcoin B and understand what it is shows how far ahead El Salvador is on the Bitcoin adoption curve. In one year, Bitcoin payments in El Salvador has surged from a tiny surfer community on the beach to being accepted means of payment in most places. 

So what its actually like to use Bitcoin in El Salvador? Well, Bitcoin Country is a place where, if you put in the Proof-of -Work, you can pretty much live off Bitcoin. I cannot say that about any other continent, country, or region in the world. And trust me, Ive tried plenty of places. 

A highly profitable trading strategy was how hacker Avraham Eisenberg described his involvement in the Mango Markets exploit that occurred on Oct. 11.

By manipulating the price of the decentralized finance protocols underlying collateral, MNGO, Eisenberg and his team took out infinite loans that drained $117 million from the Mango Markets Treasury. 

Desperate for the return of funds, developers and users alike voted for a proposal that would allow Eisenberg and co. to keep $47 million of the $117 million exploited in the attack. Astonishingly, Eisenberg was able to vote for his own proposal with all his exploited tokens.

This is something of a legal gray area, as code is law, and if you can work within the smart contracts rules, theres an argument saying its perfectly legal. Although hack and exploit are often used interchangeably, no actual hacking occurred. Eisenberg tweeted he was operating within the law:

I believe all of our actions were legal open market actions, using the protocol as designed, even if the development team did not fully anticipate all the consequences of setting parameters the way they are.

However, to cover their bases, the DAO settlement proposal also asked that no criminal proceedings be opened against them if the petition was approved. (Which, ironically, may be illegal.)

Eisenberg and his merry men would reportedly go on to lose a substantial portion of the funds extracted from Mango a month later in a failed attempt to exploit DeFi lending platform Aave.

How much has been stolen in DeFi hacks?

Eisenberg is not the first to have engaged in such behavior. For much of this year, the practice of exploiting vulnerable DeFi protocols, draining them of coins and tokens, and using the funds as leverage to bring developers to their knees has been a lucrative endeavor. There are many well-known examples of exploiters negotiating to keep a portion of the proceeds as a bounty as well as waiving liability. In fact, a report from Token Terminal finds that over $5 billion worth of funds has been breached from DeFi protocols since September 2020. 

High-profile incidents include the $190-million Nomad Bridge exploit, the $600-million Axie Infinity Ronin Bridge hack, the $321-million Wormhole Bridge hack, the $100-million BNB Cross-Chain Bridge exploit and many others.

Given the apparently endless stream of bad actors in the ecosystem, should developers and protocol team members try and negotiate with hackers to attempt to recover most of the users assets?

Should you negotiate with hackers? Yes. 

One of the greatest supporters of such a strategy is no other than ImmuneFi CEO Mitchell Amador. According to the blockchain security executive, developers have a duty to attempt communication and negotiation with malevolent hackers, even after they have robbed you, no matter how distasteful it may be.

Its like when someone has chased you into an alley, and they say, Give me your wallet, and beat you up. And youre like, Wow, thats wrong; thats not nice! But the reality is, you have a responsibility to your users, to investors and, ultimately, to yourself, to protect your financial interest, he says.

And if theres even a low percentage chance, say, 1%, that you can get that money back by negotiating, thats always better than just letting them run away and never getting the money back.

Amador cites the example of the Poly Network hack last year. After post-facto negotiations, hackers returned back $610 million in exchange for between $500,000 to $1 million in bug bounty. When such an event occurs, the best and ideal, the most effective solution overwhelmingly, is going to be negotiation, he says.

For CertiK director of security operations Hugh Brooks, being proactive is better than reactive, and making a deal is only sometimes an ideal option. But he adds it can also be a dangerous road to go down.

Some of these hacks are obviously perpetrated by advanced persistent threat groups like the North Korean Lazarus Group and whatnot. And if you are negotiating with North Korean entities, you can get in a lot of trouble.

However, he points out that the firm has tracked 16 incidents involving $1 billion in stolen assets, around $800 million of which was eventually returned.

So, its certainly worth it. And some of those were voluntary returns of funds initiated by the hacker themselves, but for the most part, it was due to negotiations.

Should you negotiate with hackers? No.

Not every security expert is on board with the idea of rewarding bad actors. Chainalysis vice president of investigations Erin Plante is fundamentally opposed to paying scammers. She says giving in to extortion is unnecessary when alternatives exist to recover funds.

Plante elaborates that most DeFi hackers are not after $100,000 or $500,000 payouts from legitimate bug bounties but frequently ask upward of 50% or more of the gross amount of stolen funds as commission. Its basically extortion; its a very large amount of money that is being asked for, she states. 

She instead encourages Web3 teams to contact qualified blockchain intelligence companies and law enforcement if they find themselves in an incident.

Weve seen more and more successful recoveries that are not publicly disclosed, she says. But its happening, and its not impossible to get funds back. So, in the end, jumping into paying off scammers may not be necessary.

Should you call the police about DeFi exploits?

There is a perception among many in the crypto community that law enforcement is pretty hopeless when it comes to successfully recovering stolen crypto. 

In some cases, such as this years $600-million Ronin Bridge exploit, developers did not negotiate with North Korean hackers. Instead, they contacted law enforcement, who were able to quickly recover a portion of users funds with the help of Chainalysis.

But in other cases, such as in the Mt. Gox exchange hack, users funds amounting to approximately 650,000 BTC are still missing despite eight years of extensive police investigations.

Amador is not a fan of calling in law enforcement, saying that its not a viable option.

The option of law enforcement is not a real option; it is a failure, Amador states. Under those conditions, typically, the state will keep what it has taken from the relevant criminals. Like we saw with enforcement actions in Portugal, the government still owns the Bitcoin theyve seized from various criminals.

He adds that while some protocols may wish to use the involvement of law enforcement as a form of leverage against the hackers, its actually not effective because once youve unleashed that force, you cannot take it back. Now its a crime against the state. And theyre not just going to stop because you negotiated a deal and got the money back. But youve now destroyed your ability to come to an effective solution.

Brooks, however, believes you are obligated to get law enforcement involved at some point but warns the results are mixed, and the process takes a long time.

Law enforcement has a variety of unique tools available to them, like subpoena powers to get the hackers IP addresses, he explains.

If you can negotiate upfront and get your funds back, you should do that. But remember, its still illegal to obtain funds through hacking. So, unless there was a full return, or it was within the realm of responsible disclosure bounty, follow up with law enforcement. In fact, hackers often become white-hats and return at least some money after law enforcement is alerted.

Plante takes a different view and believes the effectiveness of police in combating cybercrime is often poorly understood within the crypto community. 

Victims themselves are often working confidentially or under some confidential agreement, she explains. For example, in the case of Axie Infinitys announcement of funds recovery, they had to seek approval from law enforcement agencies to announce that recovery. So, just because recoveries arent announced doesnt mean that recoveries arent happening. Theres been a number of successful recoveries that are still confidential.

How to fix DeFi vulnerabilities

Asked about the root cause of DeFi exploits, Amador believes that hackers and exploiters have the edge due to an imbalance of time constraints. Developers have the ability to create resilient contracts, but resiliency is not enough, he explains, pointing out that hackers can afford to spend 100 times as many hours as the developer did just to figure out how to exploit a certain batch of code.

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Amador believes that audits of smart contracts, or one point-in-time security tests, are no longer sufficient to prevent protocol breaches, given the vast majority of hacks have targeted audited projects.

Instead, he advocates for the use of bug bounties to, in part, delegate the responsibility of defending protocols to benevolent hackers with time on their hands to level out the edge: When we started on ImmuneFi, we had a few hundred white-hat hackers. Now we have tens of thousands. And that is like an incredible new tool because you can get all that enormous manpower protecting your code, he says. 

For DeFi developers wanting to build the most secure outcome, Amador recommends a combination of defensive measures:

First, get the best people to audit your code. Then, place a bug bounty, where you will get the best hackers in the world, to the tune of hundreds of thousands, to check your code in advance. And if all else fails, build a set of internal checks and balances to see if any funny business goes on. Like, thats a pretty amazing set of defenses.

Brooks agrees and says part of the issue is there are a lot of developers with big Web3 ideas but who lack the required knowledge to keep their protocols safe. For example, a smart contract audit alone is not enough you need to see how that contract operates with oracles, smart contracts, with other projects and protocols, etc.

Thats going to be far cheaper than getting hacked and trying your luck at having funds returned.

Stand your ground against thieves 

Plante says cryptos open-source nature makes it more vulnerable to hacks than Web2 systems.

If youre working in a non-DeFi software company, no one can see the code that you write, so you dont have to worry about other programmers looking for vulnerabilities. Plante adds, The nature of it being public creates those vulnerabilities in a way because you have bad actors out there who are looking at code, looking for ways they can exploit it.

The problem is compounded by the small size of certain Web3 companies, which, due to fundraising constraints or the need to deliver on roadmaps, may only hire one or two security experts to safeguard the project. This contrasts with the thousands of cybersecurity personnel at Web2 firms, such as Google and Amazon. Its often a much smaller team thats dealing with a big threat, she notes

But startups can also take advantage of some of that security know-how, she says. 

Its really important for the community to look to Big Tech firms and big cybersecurity firms to help with the DeFi community and the Web3 community as a whole, says Plante. If youve been following Google, theyve launched validators on Google Cloud and became one the Ronin Bridge, so having Big Tech involved also helps against hackers when youre a small DeFi project. 

In the end, the best offense is defense, she says and theres an entire population of white-hat hackers ready and willing to help. 

Theres a community of Certified Ethical Hackers, which I am a part of, says Erin. And the ethos of that group is to look for vulnerabilities, identity, and close them for the larger community. Considering many of these DeFi exploits arent very sophisticated, they can be resolved before extreme measures, such as waiting for a break-in, theft of funds and requesting a ransom.

In a massive solar storm, which would be hugely damaging to a modern economys infrastructure, the blockchain parts might well be the only parts that survive. Jason Potts

What was the Carrington Event?

In a November 1859 meeting of the Royal Astronomical Society, British astronomer Richard Christopher Carrington reported to the esteemed scientific body that in the forenoon of Thursday, Sept. 1, in taking my customary observation of the forms and positions of the solar spots, an appearance was witnessed which I believe to be exceedingly rare.

The phenomenon caused brilliant auroras across the globe, some as far south as Cuba, that were so bright observers were able to read newspapers by their light at night.

It was the most intense geomagnetic storm in recorded history, likely the result of a coronal mass ejection from the sun colliding with the Earths magnetosphere and one with worrying implications for the cryptocurrency industry were it to happen again today. A storm of such intensity would have the potential to affect the majority of electrical systems in use today: satellites, internet service providers, power supplies and all forms of communication.

The geomagnetic disturbances were so strong that telegraph operators in the United States reported sparks leaping from their equipment, which in some cases even caught fire. Telegraph systems across Europe and North America failed.

Similar events were seen throughout the 20th century. In 1921, a solar storm was broadly observed in and around New York City in the United States. The electrical disturbances knocked out the signal and switching operations of the commuter rail system, blowing fuses and setting the signal tower of Grand Central Terminal on fire. Telegraph wires crackled as communications ground to a halt.

And in 1989, a storm knocked out power across large sections of Quebec in Canada. Scientists believe that an event even more massive than the Carrington one occurred in 774, called the Miyake Event.

As Mississippi State University professor David Wallace wrote on Astronomy.com, the potential ramifications could be disastrous:

It is only a matter of time before Earth is hit by another geomagnetic storm. A Carrington Event-size storm would be extremely damaging to the electrical and communication systems worldwide with outages lasting into the weeks. If the storm is the size of the Miyake Event, the results would be catastrophic for the world with potential outages lasting months if not longer.

What would happen to Bitcoin after a solar flare?

From in-home personal computers to the internet and the birth of cryptocurrencies, an economic and technological revolution occurred around the turn of the 21st century, one that relies entirely on an interconnected web of global communications systems.

Within these systems, traditional payments providers like credit card companies, banks or remittance firms form payments stacks blocks of trusted, interconnected entities that process and settle electronic payment transactions. 

Amazon Web Services experts have reported that most of this is still stored on aging banking systems first built in the early second half of the 20th century. While some banks have attempted to upgrade, the vast majority stuck with the tried-and-true mainframe, which they rely on to this day.

In contrast, Satoshi Nakamoto aimed to create a payments system that is decentralized and distributed across a network of computers, or nodes, rather than relying on a verticalized system stored in a single-entity server or data center. There is no single point of failure when it comes to the Bitcoin networks ledger a trait that leads many to characterize the network as more robust and flexible than other payment systems.

So, which would fare better in a Carrington Event? Or would both fail to survive?

Sunspots and the golden question

The traditional payments system has certain redundancies and safeguards built in to ensure that the networks, and their nodes, are protected from extraneous events such as hackers, weather, power outages, power surges and other force majeure.

But a Carrington Event-level solar storm presents an extreme scenario on a much vaster scale, the effects of which experts can still only estimate despite years of constant study.

Were monitoring the sun continuously, William Murtagh, program coordinator at the U.S. National Oceanic and Atmospheric Administrations Space Weather Prediction Center, tells Magazine. Another event will happen its only a matter of when and how intense it will be.

When it comes to solar magnetic events, scientists at SWPC look for large sunspots, some larger than the earth, which tend to form at the end of the 11-year solar cycle when the suns dipole magnetic fields (think the North and South poles) flip entirely.

Sunspots emerge all the time, Murtagh notes, but are mainly observed when the sun is close to its solar maximum the apex of the 11-year-long solar activity cycle. The next such maximum is slated to occur sometime between 2024 and 2025. 

Were watching it closely, and all of a sudden, the eruption occurs, Murtagh states. When this eruption occurs, then we get a variety of emissions. We get the electromagnetic emissions, speed-of-light loads.

Were feeling it here on Earth, and its affecting some technologies a couple of hours later energetic particles flowing in from this eruption. So, now were talking about subatomic particles. Were getting protons and electrons come flowing in, and that will impact other different types of equipment, like satellites, like our astronauts in space, like airplanes flying over the polar region. All can be affected by these energy particles.

Trailing these light-speed projections from the sun are a billion tons of plasma gas and magnetic fields erupting from the flare source, otherwise known as a coronal mass ejection, or CME. The sun essentially shoots a magnet into space.

The CME comes to earth as a magnetic host with magnetic fields, so now Ive got two magnets, he says. When they couple in just the right way, [] intense currents will form and manifest themselves right here on earth, flow to the ground depending on the conductivity of the soil beneath us and then can damage equipment like the electric power grid.

So, if we do get a Carrington-class event, how big of a radiation storm could we get? Thats really the golden question here, right?

Scientists have looked at a variety of indicators to try to glean what effects such an event could have, everything from ice samples to tree rings, and have identified some events that help them understand how big, big is. 

NOAA is currently engaged in the space weather benchmarks initiative started by the White House to get a better sense of the consequences of these space weather events.

Could a solar flare wipe out Bitcoin?

We do know there would be significant ramifications for our tech-reliant economy and communications systems. Anything dependent on the united electricity grid and global internet would be especially vulnerable.

So, how would cryptocurrency fare? Jason Potts, a professor at the Royal Melbourne Institute of Technology and the co-director of its Blockchain Innovation Hub, tells Magazine that a Carrington Event-level solar storm would certainly affect anything that relies on electronic infrastructure for its administrative capacities, including mainstream finance and crypto.

But the difference is that the crypto or blockchain economic infrastructure is distributed, he says, adding:

This is the same reason that the internet is robust. It was designed as a networked communication system in the 1960s to be able to withstand a nuclear attack that took out many communication relays. But provided there was enough redundancy in the network pathways, a message could get through.

According to Potts, the thousands of distributed Bitcoin nodes give the network a much better chance of surviving a catastrophic event, as an attack will almost certainly fail unless it can take out all of them. If just one survives, that whole system can be reconstituted from that seed.

What happens to Bitcoin if the internet goes down?

There are projects that provide a connection to the Bitcoin blockchain without the requirement of internet access, providing yet another level of redundancy.

Fernando Nikoli, director of marketing and communications at Blockstream, tells Cointelegraph that Blockstreams mission is to broadcast the Bitcoin network around the world via satellite, 27/4, 365.

It protects users against network interruptions. We started recording certain regions of the world that, for whatever reason, dont have a reliable internet connection, whether it be because theyre very rural areas where the infrastructure is not very well or theyre in a location where the government or some kind of entity controls the internet in a more authoritative way than perhaps what we are used to in the West, he says.

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Blockstream employs five satellites that it updates continuously to transmit the Bitcoin blockchain to users. Downloading the blockchain from one of the satellites is no more difficult than setting up a satellite TV box.

Nikoli says, Just get a regular dish that you usually use for catching TV channels, and you just need to be able to point it toward whatever satellite is best, and you can just connect there with a very cheap laptop.

Once a user downloads the blockchain, they can start verifying their own transactions on the laptop connected to the satellite. If for whatever reason the internet is shut down or is just not connecting, well, the satellite is really a good backup, Nikoli adds.

Potts notes that true decentralization of a blockchain network is important, as having nodes spread through the four hemispheres of the earth would ensure security and safety through redundancy, concluding:

Maybe some on Mars would be good too. Blockchains are not fast or efficient, but they are robust. In a massive solar storm, which would be hugely damaging to a modern economys infrastructure, the blockchain parts might well be the only parts that survive enough to be reconstituted.

The big question: Will you really need Bitcoin if the world is burning?

Bitcoins decentralized, modular nature gives it the best opportunity to relocate and improvise based on available connectivity after a significant geomagnetic event.

However, if a Carrington-level event renders every telephone and computer in an entire hemisphere inoperable and knocks out the power grids, society could be thrown back to preindustrial times.

The big question then becomes: Even if the Bitcoin ledger survives, who will have time to use it when we are scrambling to rebuild society?