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Blockchain game developers are turning to gaming guilds for market research and to enable players to help create better games.

Blockchain gaming guilds are the continuation of an ancient tradition. Guilds have existed since the beginning of capitalism in the fourteenth century. The most popular European artisan guilds were seven major guilds of Florence known as Arti Maggiori, which helped refine and improve crafts and trades from medicine to banking and weaving.

Can blockchain gaming guilds perform a similar role to help refine and improve games and gameplay? Were in the middle of rapid experimentation to find out. 

Colin Goltra, chief operating officer of Yield Guild Games a decentralized autonomous organization says that similar to the ancient guilds, a gaming guild is a group of players who pool their resources and collaborate to achieve greater rewards. They work with valuable in-game digital assets in games developed by decentralized communities.

As the blockchain gaming sector grows rapidly, guilds have positioned themselves as key entry points for new players, offering unique feedback loops with informative insights into game design, future gameplay and education around blockchain features of games.

Gaming guilds onboard new players

Up to date and accurate research on blockchain gaming guilds appears thin on the ground. According to BreederDAO figures, a Philippine-based blockchain gaming startup, the top 25 guilds had a potential base of 900,000 players by the end of 2021, but only 89,935 scholarships were operating. However today, YGG alone has 30,000 scholarships so those numbers are out of date, but it seems safe to say there is likely still a large untapped base out there. 

Fundraising figures are also opaque. BreederDAO estimated that guilds raised more than $500 million by 2021, but DappRadar reported that guilds raised more than $320 million by the end of 2022. Adding to the fun, the World Economic Forum released a report at the end of 2022 suggesting the figure was closer to $200 million over the previous couple of years. Either way, the top guilds are well-funded despite significant revenue declines due to the impact of crypto winter. Most of the 24,000 guilds in the market right now are micro guilds of 10100 players, while only 1% are in macro guilds with more than 1,000 players. 

Gaming guilds provide education and tools, starting at the very beginning by equipping noob gamers with an understanding of NFTs and how crypto-enabled platforms work, through to much more advanced strategies on how to profit from gaming. One of the benefits is creating strong and loyal communities that pursue the goal of wider adoption of crypto and Web3 technology.

In contrast to Web2 games, Web3 gaming communities take on a different character, explains Goltra. YGG offers a pool of active gamers, and as a leading DAO in the blockchain gaming space, they ultimately want to bring all of their player interactions and data on-chain.

If you can train a community to interact with on-chain games, playing with digital assets on-chain, then you have created a unique group of gamers that can generate real rewards. 

Shadow Legacy gaming guild

Shadow Legacy Guild has carved out a patch for blockchain gaming in the Eastern European market, which founder Pawel Padziunas says was underserved for a long time. They now have over 6,300 members and 19,000 Discord members, focusing on esports, tapping into players on demand and renting options. 

Padziunas believes the player acquisition feature with early game support, including testing the game, the game economy and promotion of game potential is a vital component of their guild mechanics.

The first thing that the guild does is education. They help players to understand and navigate the game, he says, adding there is a big learning curve for players to understand the longer-term value of Web3 games. Like Goltra, he believes the sense of community is part of the appeal and purpose of guilds. 

Building a community around the game is important for guilds, too, and the gamers need to feel a sense of fun and want to spend time with other players, he says. Shadow Legacy Guild prioritizes this over the potential financial rewards for players.

For us, collecting or ownership of assets is not a must. This is a shift to a model where earning is an additional option or a bonus. The focus on education allows guilds to communicate a clear value proposition outside of the financial incentives, he says. 

This is an important point, as a purely mercenary approach to gaming is not sustainable.

If the game is built around earning, only then it will eventually collapse, as everyone will want to remove everything valuable from the game, Padziunas says. 

Good games are better than good money

Kieran Warwick, CEO and co-founder of Illuvium, which bills itself as an open world exploration, NFT creature collector and autobattler game, sees gaming guilds as key facilitators in the Web3 gaming space.

They have an impact on the onboarding of players, engagement and education, he explains. In fact, most developers and founders Magazine spoke to for this piece were in agreement that making good games was more important than making good money.

When someone starts to speak about education, its clear that their mindset is in the right place, rather than only want to do a cash grab of some sort, or even worse leveraging people that are less financially stable for their own gains, says Karl Blomsterwall, CEO of Nibiru Software the Web3 developer behind the strategy game Planet IX.

That said, guilds need to appeal to players who are playing for rewards specifically, those who are experimenting with NFTs and those who just want to have fun. 

Planet IX is a trading and strategy-based game built around NFTs. It promotes a sustainable future, attaching tasks to a digital rendition of the world. Blomsterwall believes that ownership of assets within the game is a fundamental part of the appeal.

In Planet IX, there are over 1.7 billion NFTs, and there is a lot of trading to be done. For us, there is a role where the guild supports this trading, acting almost like a broker, helping players to trade and taking over that process if a player doesnt want to deal with that activity of play, says Blomsterwall. 

For people to feel comfortable spending the time playing a game and spending the resources to really participate in the game, then, of course, there needs to be a level of trust that they will be rewarded for this time.

Gaming guilds shape the future of games

Gaming guilds can crowdsource feedback for game developers to help them design the mechanics of games. The large pools of players guilds have access to mean this feedback loop can be an invaluable form of market research. 

Gamers can be incentivized on a new level. Game developers can share with their players, and this helps players to be part of the process Once you develop a game with a strong community, you will see that they are involved in the game like never before and can have an impact on the game, says Padziunas.

As a new business model, many dont understand that it is a business. Incentivizing players with rewards and the cooperation that comes with this community bonding works for all parties involved: game developers, players and guilds. 

Furthermore, guilds can set up shop within the gameplay itself. In The Bornless, a Web3 horror gaming franchise, there are unique locations called Safe Houses that guilds can hire out to allow players to get acquainted with the game quickly from within the gaming environment. 

Safehouses are the hub of our game, explains Josh Palumbo, head of business development at The Bornless. Guilds and players can start off with smaller free versions and upgrade or work toward larger ones. Players will also be given the option to join larger safehouses and access many extra features of the game.

The Bornless name the guilds that they work with Factions (of the Order of Solomon), which Palumbo explains is mostly a branding decision. There was a small part of that decision that wanted to stray away from using the term guilds, as they have gotten some slightly negative connotation in Web3 recently, being seen as rewards farmers.

For many new gamers it is their first time playing with NFTs, and they may not feel comfortable with the high upfront cost of in-game assets. As part of a guild, they can opt to rent an NFT, which makes the asset more attainable for beginner gamers. 

Solomons wisdom on governance

The partnership model that The Bornless has adopted is a unique way to entice new players to engage with in-game scenarios and the wider community. They are working with over 60 Web3 guilds currently and have introduced a Solomons Council, which provides feedback regarding gameplay and future story plots. 

This council is made up of select guild partners that meet about once every two to three weeks. They get insights into alpha in development that we dont share publicly; we gather their feedback, and eventually, they will be able to make different sorts of governance decisions in regards to gameplay, features, explains Palumbo.

The whole purpose of the council is to garner a really robust social environment within the game itself where factions will be incentivized to grow, expand and progress. They then will be able to compete against or with other factions through a variety of special events. 

We believe that players seek out social relationships in gaming, and this gives them a way to contribute towards meaningful progression in the game with their friends, shares Palumbo.

Gaming guild eSports for the fun of it

Its a similar strategy in the esports gaming segment, where GoodGame Nation (GG Nation for short) highlights the fun elements of competitions rather than a very transactional relationship with the gamer, explains co-founder Manan Mehta of some other guilds. 

What were catering towards is competition, affinity, culture, creation fandom, and thats actually what will enable Web3 games to succeed, continues Mehta. 

GG Nation builds micro guilds for the student population in India and has a network of players across all major college campuses. For GG Nation, esports dont just revolve around tournaments, but coaching, training and education are key components.

For Mehta, celebrating the pure enjoyment of playing is more practical than trying to make money from it.

Its a utopian viewpoint to imagine that just by purely gaming, you could earn a living out of it, he says. 

That was doable in the pandemic because there was nothing else to do. However, were seeing that as the world opens up and the economies have opened up, you cant just game and make a living.

That said, the bar is pretty low for students when it comes to earning money.

If a student earns about $200 once while gaming, thats great money for a student, whereas $200 for an average guild participant is not good enough, and they would rather be going back to work.

GG Nation focuses on about 10 games that are attractive to the student population, so they arent overwhelmed by the number of games on offer. Mehta says they dont want to become a game discovery engine.

DAOs support the lifespan of games

Gaming guilds are often decentralized autonomous organizations, which means that games can potentially become user-generated content and just keep on evolving. Animoca chairman Yat Siu hinted at this when he spoke to Magazine recently, pointing out that Second Life and Eve Online are now two decades old and are still going strong because they are sustained by user-generated content. 

Although the road to fully decentralized games is full of hurdles, we are already seeing gaming communities step up and take on more decision-making in relation to games.

A recent example is when the Illuvium game developers suggested a battle with Su Zhu, the controversial 3AC founder, last month, they knew that it would be controversial in the eyes of their community. 

Illuvium PR stunt

Illuvium is a blockchain game set in a fantasy world where players hunt for powerful creatures known as Illuvials. It is being developed by the Illuvium DAO.

Kieran Warwick, co-founder of Illuvium, concocted the idea to battle Zhu in the game to promote the newly launched Illuvitar NFT collectible game.

However, the Illuvium community raised concerns about the PR stunt and associating its good name with Zhus, given 3ACs bankruptcy destroyed many in the industry. The DAOs five-member governance council then voted on a proposal that the originally presented d1sk battle shall be canceled, which was upheld with four votes. Warwick was delighted and used the decision to cancel for publicity instead. 

This is more like representative democracy than direct democracy, but it does appear to have reflected the wishes of the community. Warwick is also the CEO and sits on the council with the other nominees, who were voted in by tokenholders. 

All of the typical activities you find that are run by C-Suite executives are now managed by the Illuvium council that vote in a transparent way and keep the community involved.

The DAO is now trying to improve on the model, with the community proposing a new governance structure that would add four sub-councils: Game, Marketing, Strategy and Community.

Warwick is a true believer in decentralization, and all of the discussions that happen in their meeting chambers via Discord are taken to an on-chain voting mechanism. 

He is excited about the future and notes that it is a complete flip on what traditional company structures are. It is a bottom-up approach that can be extremely fascinating to watch and as long as you have positive participation from the community, the future is bright, he adds. 

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Polygon Miden founder Bobbin Threadbare reveals exclusive details about Polygon’s most innovative ZK-rollup yet.

ZK-rollups are the hottest thing in Ethereum right now, having seemingly appeared out of nowhere in late 2018 to fundamentally reshape the Eth2 plan to scale via sharding alone.

Zero-knowledge, or validity proof rollups, essentially perform the computations for many thousands of transactions away from Ethereum and then write a tiny cryptographic proof back to the blockchain that verifies those transactions were performed correctly. Its much faster and cheaper than using the base layer and has the potential for virtually unlimited scaling.

To an outsider, it looked like the technology went from 0 to 100 in a couple of years, but from the perspective of Polygon Miden founder Bobbin Threadbare, it doesnt seem fast enough.

Your internal perception is that its moving slowly, he says. People say, Were going to be doing this in a year, and it takes longer because people overestimate [how quickly it can be done].

But if you take a step back out of your own bubble, I do think that the tech is moving at an amazing pace. A lot of the things were doing now did not exist 10 years ago or even maybe like eight years ago they were just theoretical concepts.

So, its not often that you see that something goes from pure theory that is probably not practical or maybe we can do it in the long term future to OK, were doing it now, and there are now billions of dollars riding on it.

Polygon Miden at StarkWare Sessions

Magazine catches up with Threadbare at the StarkWare Sessions in Israel. Since Polygon Miden is a competing ZK-rollup solution to StarkWares tech, this is a little like interviewing the CEO of Pepsi at a Coca-Cola convention. But it turns out zero-knowledge proofs are not as cutthroat as sodas.

On the technical side, there is a lot of collaboration, Threadbare explains. If you follow Twitter, you may get an impression that people are at each others throats all the time, but you know, its Twitter more than anything.

He points out that all of the projects are building open-source technology (or plan to make it open-source). Were not building like Web2 walled gardens here, he says, adding that various projects dont necessarily perceive other rollups as their technical competitors; we learn from each other more.

Polygon is the 8th-most valuable project

Polygons MATIC became the eighth-most valuable cryptocurrency in the world thanks to its current Ethereum scaling solution, but Polygons founders knew ZK-rollups could potentially render the network obsolete and spent some of their massive war chest on a ZK tech acquisition and hiring spree.

The Polygon team’s approach is essentially to throw a lot of stuff at the wall and see what sticks. Their zkEVM project has just launched on mainnet in beta, and it enables any Ethereum Virtual Machine-compatible project to scale on its new network.

Other ZK flavors at Polygon include Zero (recursive scaling), Hermez 2.0 (an EVM-compatible solution focused on decentralization and a proof-of-efficiency consensus) and Nightfall (Optimistic Rollups meet zero-knowledge cryptography).

Threadbare, who was working for Facebook at the time, was headhunted to develop his open-source ZK technology into Miden.

This strategy made sense to me; the space is very early, he says. I mean, in all honesty, they didnt even require that I use STARKs, or SNARKs, or anything. STARKs (zero-knowledge Scalable Transparent Argument of Knowledge) and SNARKs (Succinct Non-Interactive Argument of Knowledge) are the two different types of ZK proof systems.

They were very open to whatever technology because nobody had the answer. Hopefully, now we have more of an answer than we did like a year or two years ago.

What is Polygon Miden?

Polygon Miden is essentially the Polygon version of StarkNet. It enables a bunch of transactions to be processed off the main blockchain, and then validity proof demonstrating the transactions are computed correctly, to be written back as a single transaction on Ethereum.

STARKs have some advantages over SNARKs in that less trust is required for the setup, and theyll be resistant to quantum computer attacks. However, STARKs have much, much larger validity proof sizes, which is more expensive to write back to Ethereum.

In another similarity to StarkNet, which uses the Cairo programming language and virtual machine instead of Solidity and EVM, Miden uses its own virtual machine. For both projects, this is a gamble, as it makes it more difficult for Ethereum projects to port over to the rollup. On the other hand, it means Polygon Miden can scale faster and further by enabling it to escape Ethereums constraints.

Within Polygon, we do think about How do we expand Ethereum?, and there are multiple dimensions, Threadbare says. So, scaling is one dimension but also features and other things that are not easy to do on Ethereum, such as privacy and parallel processing, would be another dimension, and this is where Miden comes in.

Magazine later asks StarkNet co-founder Eli Ben-Sasson for his assessment of his competitor, whom hes known since the first StarkWare Sessions four years earlier.

I think Miden is amazing, says Ben-Sasson. I have a lot of respect for all of those working within the framework of general validity proofs.

Having said that, and with all due respect, I do think that, as far as VMs and feature-laden compute frameworks go, I think that Cairo is better. And Ive said so to Bobbin.

Threadbare isnt a cryptographer; hes a hands-on builder and says the instant he learned about ZK-rollups, he knew it would be the answer to blockchain scaling because it removes one of technologys greatest inefficiencies requiring everyone on the network to process each transaction.

Once I learned about ZK tech, it became almost obvious that this is going to be the end game. Because in the blockchain, basically, you have the same computation that everybody has to reexecute. And this is so wasteful. When you see this technology where you only have to execute once and everybody can verify your computation exponentially faster, thats almost like an obvious thing that needs to be done.

Run smart contracts locally with Polygon Miden

With Polygon Miden, anyone will be able to run a smart contract locally and just send the proof to the network, which enables transactions to be run in parallel, rather than sequentially. If Polygon Miden had stuck with the EVM, that would be very difficult, and that limits throughput.

With Ethereum currently processing a dozen or so transactions a second, thats not a problem, but when TPS ticks over into the thousands, it will be. You need to be able to process transactions in parallel because, in a single thread, theres only so much you can do, he says. I dont think you can go much more than a few thousand TPS without parallelizing things.

Being able to execute transactions locally means you can run arbitrarily complex computation, and it places almost no burden on the network, he explains, pointing out that running a 3D physics engine is impossible on Ethereum right now, but will become possible with Polygon Miden. The design space opens up, he says. That enables a bunch of new use cases, but it also helps with privacy if I dont have to actually reveal the computation.

Like zkSync Era and StarkNet, the plan is to launch with a centralized prover and then gradually decentralize. Eventually, all of Polygons ZK solutions will become interoperable, with MATIC remaining the key token. However, native account abstraction means users could pay with other major tokens, too.

Who is Polgon Miden founder Bobbin Threadbare?

Threadbare (not his real name) was born in the Republic of Georgia in the dying days of the USSR in the 1980s. He moved to the United States when he was 17 to study computer science in San Diego, later attending business school at the University of Chicago. He was a consultant for five years before he launched a Web2 startup that calculated user trustworthiness and reputation scores for things like P2P transactions. He started exploring blockchain in 2018 as a way to avoid having to store a large database of user information.

Self-sovereign identity is one of the things that was very interesting to me, he says. 

And then I got very deep into the technical aspects and then came across zero-knowledge proofs. Once I understood what they can do, the identity use case wasnt all that interesting anymore. I thought there are much bigger and more interesting things you can do with them.

He stumbled across a blog about STARKs by Ethereum co-founder Vitalik Buterin, and that set him off down the rabbit hole. He actually had a code written that demonstrates a very basic proof-of-concept of how it works and that was, for me, very, very useful.

Threadbare took the code and rewrote it in another language so he could understand how it worked from the inside out. A born tinkerer, he started improving aspects to make them more general. Before long, hed built a basic general-purpose prover for STARKs and posted it on Eth Research.

A lot of people were interested in zero-knowledge proofs at that time, but there were not a lot of tools, especially around STARKs. And I just got lucky in the thing that I picked to learn and build on because it fascinated a bunch of people.

Even Vitalik himself basically sent me a message on Eth Research, saying, Hey, who are you? What are you doing? It was Buterin who introduced him to StarkWare, and they invited him along to the first StarkWare Sessions four years ago. 

Threadbare started creating ZK tools and libraries. He developed the AirScript and AirAssembly domain-specific languages, which in turn led him to develop the Distaff Virtual Machine in early 2020 so people could code without having to learn those new languages.

Facebook experimented with ZK-rollups

But as the pandemic started, he took up a job as a core ZK researcher for Facebook, working on the Libra cryptocurrency project. Part of the appeal was working alongside and learning from real cryptographers, and he helped build the open-source Winterfell STARK prover and verifier.

Facebook didnt actually need one or plan to use it. I dont want to say that it was just for the hell of it, he says. The thought was it was going to be used at some point in time. But it was probably fairly clear this is not going to be used in the next two to three or maybe even five years time frame.

Ultimately, regulators did not approve of the social media giant launching a private currency, and Libra transformed into Diem and then quietly disappeared. Around the same time in 2021, Polygon co-founder Mihailo Bjelic was assembling his crack team of ZK developers and remembered the shadowy anon whod posted a bunch of useful ZK tech like Distaff on Eth Research. So, he got in touch, totally unaware Threadbare was working at Facebook.

For his part, Threadbare was totally unaware Polygon even existed but started holding regular calls every couple of weeks with Bjelic to talk about their scaling plans and sketch out a possible collaboration.

Polygon zkEVM? Nope, Polygon Miden is something else

They discussed building a ZK EVM, but Threadbare was keen to use his own virtual machine and combine STARKs with the power of recursion. Thats where you take a bunch of validity proofs, each representing a bundle of transactions, and produce one validity proof that proves all other validity proofs were done correctly. Suddenly, the fact the STARK-proof size is 50100 times bigger than a SNARK-proof size was a lot less important.

Thats one of the reasons I went the virtual machine route because if you have the VM, its much easier to have this infinite recursion because if you think about it, when you have a virtual machine that is Turing-complete, it basically it can execute any program.

You just write a program that verifies itself, and you kind of have infinite recursion at this point in time. And that was appealing to me.

This talk of infinite recursion recalls Declan Fox, product manager for rollups at ConsenSys, who told Magazine last year that ZK-rollups and recursion meant it was theoretically possible for the entire worlds financial system to run on Ethereum.

Infinite scaling is unfortunately still limited by data availability on Ethereum which refers to how much data needs to be, and can be, written back to the chain. The new rollup-focused roadmap will increase the amount of data each block can carry by 160 times. Even that probably wont be enough.

There are still limitations like nothing is infinite, he says. Assuming the blockchain and the crypto space succeeds the demand for TPS will be hundreds of thousands or maybe millions of TPS eventually, so I dont know if the base layer will always be able to provide this much data availability.

But hes very hopeful well see a huge amount of adoption within the next 10 years. 

Hopefully, if we are successful, Ethereum will be the most secure base layer, and there will be a thriving rollup ecosystem that caters to different things, and hopefully, Polygon will be a big part of that ecosystem.

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Are crypto auditing incentives designed to make the client happy rather than deliver bad news? What happens if you don’t pay out bug bounties?

Blockchain exploits can be extremely costly; with poorly designed smart contracts, decentralized apps and bridges are attacked time and time again.

For example, the Ronin Network experienced a $625-million breach in March 2022 when a hacker was able to steal private keys to generate fake withdrawals and transferred hundreds of millions out. The Nomad Bridge later that year in August experienced a $190-million breach when hackers exploited a bug in the protocol that allowed them to withdraw more funds than they had deposited.

These vulnerabilities in the underlying smart contract code, coupled with human error and lapses of judgment, create significant risks for Web3 users. But how can crypto projects take proactive steps to identify the issues before they happen?

There are a couple of major strategies. Web3 projects typically hire companies to audit their smart contract code and review the project to provide a stamp of approval.

Another approach, which is often used in conjunction, is to establish a bug bounty program that provides incentives for benign hackers to use their skills to identify vulnerabilities before malicious hackers do.

There are major issues with both approaches as they currently stand. 

Web3 auditing is broken

Audits, or external evaluations, tend to emerge in markets where risk can rapidly scale and create systemic harm. Whether a publicly traded company, sovereign debt or a smart contract, a single vulnerability can wreak havoc.

But sadly, many audits even when done by an external organization are neither credible nor effective because the auditors are not truly independent. That is, their incentives might be aligned toward satisfying the client over delivering bad news.

Security audits are time-consuming, expensive and, at best, result in an outcome that everything is fine. At worst, they can cause a project to reconsider its entire design, delaying the launch and market success. DeFi project managers are thus tempted to find another, more amenable auditing company that will sweep any concerns under the carpet and rubber-stamp the smart contracts, explains Keir Finlow-Bates, a blockchain researcher and Solidity developer.

I have had first-hand experience with this pressure from clients: arguing with developers and project managers that their code or architecture is not up to scratch receives push-back, even when the weaknesses in the system are readily apparent.

Principled behavior pays off in the long run, but in the short term, it can come at the cost of profitable clients who are eager to get to market with their new tokens. 

I cant help noticing that lax auditing companies quickly build up a more significant presence in the auditing market due to their extensive roster of satisfied customers satisfied, that is, until a hack occurs, Finlow-Bates continues.

One of the leading companies in Web3 auditing, CertiK, provides trust scores to projects that they evaluate. However, critics point out they have given a stamp of approval to projects that failed spectacularly. For example, while CertiK was quick to share on Jan. 4, 2022, that a rug pull had occurred on the BNB Smart Chain project Arbix, they omitted that they had issued an audit to Arbix 46 days earlier, according to Eloisa Marchesoni, a tokenomics specialist, on Medium. 

But the most notable incident was CertiKs full-scope audit of Terra, which later collapsed and brought half the crypto industry down with it. The audit has since been taken down as they have taken a more reflective approach, but bits and pieces remain online. 

Terra-fied

Zhong Shao, co-founder of CertiK, said in a 2019 press release:

CertiK was highly impressed by Terras clever and highly effective design of economy theory, especially the proper decoupling of controls for currency stabilization and predictable economic growth.

He added, CertiK also found Terras technical implementation to be of one of the highest qualities it has seen, demonstrating extremely principled engineering practices, mastery command of Cosmos SDK, as well as complete and informative documentations. 

This certification played a major role in Terras increased international recognition and receipt of investment. The recently arrested Do Kwon, co-founder of Terra, said at the time:

We are pleased to receive a formal stamp of approval from CertiK, who is known within the industry for setting a very high bar for security and reliability. The thorough audit results shared by CertiKs team of experienced economists and engineers give us more confidence in our protocol, and we are excited to quickly roll out our first payment dApp with eCommerce partners in the coming weeks.

For its part, CertiK argues its audits were comprehensive and the collapse of Terra was not down to a critical security flaw but human behavior. Hugh Brooks, director of security operations at CertiK, tells Magazine:

Our Terra audit did not come up with any findings that would be considered critical or major because critical security bugs that could lead a malicious actor to attacking the protocol were not found. Nor did this happen in the Terra incident saga.

Audits and code reviews or formal verification cant prevent actions by individuals with control or whales dumping tokens, which caused the first depeg and subsequent panicked actions.

Giving a stamp of approval for something that later turned out to be dodgy is not confined to the blockchain industry and has repeated itself throughout history, ranging from top five public accounting firm Arthur Anderson giving the nod to Enrons books (later destroying parts of the evidence) to rating agency Moodys paying out $864 million for its dodgy optimistic bond ratings that fueled the housing bubble of 20082009 and contributed to the Global Financial Crisis.

So, its more that Web3 audit companies face similar pressures in a much newer, faster-growing and less regulated industry. (In the past week, CertiK released its new Security Scores for 10,000 projects see right for details).

The point here is not to throw CertiK under the bus it is staffed with well-intentioned and skilled workers but rather that Web3 audits dont look at all of the risks to projects and users and that the market may need structural reforms to align incentives.

Audits only check the validity of a contract, but much of the risk is in the logic of the protocol design. Many exploits are not from broken contracts, but require review of the tokenomics, integration and red-teaming, says Eric Waisanen, tokenomics lead at Phi Labs.

While audits are generally very helpful to have, they are unlikely to catch 100% of issues, says Jay Jog, co-founder of Sei Networks. The core responsibility is still on developers to employ good development practices to ensure strong security.

Stylianos Kampakis, CEO of Tesseract Academy and tokenomics expert, says projects should hire multiple auditors to ensure the best possible review.

I think they probably do a good job overall, but Ive heard many horror stories of audits that missed significant bugs, he tells Cointelegraph. So, its not only down to the firm but also the actual people involved in the audit. Thats why I wouldnt ever personally trust the security of a protocol to a single auditor.

zkSync agrees on the need for multiple auditors and tells Magazine that before it launched its EVM compatible zero knowledge proof rollup Era on mainnet on March 24, it was thoroughly tested in seven different audits from Secure3, OpenZeppelin, Halburn and a fourth auditor yet to be announced.

White hat hackers and bug bounties

Rainer Bhme, professor for security and privacy at the University of Innsbruck, wrote that basic audits are hardly ever useful, and in general, the thoroughness of security audits needs to be carefully tailored to the situation. 

Instead, bug bounty programs can provide better incentives. Bug bounties offer an established way to reward those who find bugs they would be a natural fit for cryptocurrencies, given they have a built-in payment mechanism, Bhme continued.

White hat hackers are those who leverage their talents to identify a vulnerability and work with projects to fix them before a malicious (black hat) hacker can exploit it. 

Bug bounty programs have become essential to discovering security threats across the web, generally curated by project owners who want talented programmers to vet and review their code for vulnerabilities. Projects reward hackers for identifying new vulnerabilities and upkeep and integrity maintenance on a network. Historically, fixes for open-source smart contract languages e.g., Solidity have been identified and fixed thanks to bug bounty hackers.

These campaigns began in the 90s: there was a vibrant community around the Netscape browser that worked for free or for pennies to fix bugs that were gradually appearing during development, wrote Marchesoni.

It soon became clear that such work could not be done in idle time or as a hobby. Companies benefited twice from bug bounty campaigns: in addition to the obvious security issues, the perception of their commitment to security also came by.

Bug bounty programs have emerged across the Web3 ecosystem. For example, Polygon launched a $2-million bug bounty program in 2021 to root out and eliminate potential security flaws in the audited network. Avalanche Labs operates its own bug bounty program, which launched in 2021, via the HackenProof bug bounty platform.

However, there is tension between the extent of the security gaps they believe they have found and how significantly the issue is taken by projects. 

White hat hackers have accused various blockchain projects of gaslighting community members, as well as withholding bug-bounty compensation for white hat services. While it goes without saying, actually following through with the payment of rewards for legitimate service is essential to maintain incentives.

A team of hackers recently claimed that it was not compensated for its bug bounty services to the Tendermint application layer and Avalanche.

On the other side of the fence, projects have found some white hat hackers are really black hats in disguise.

Tendermint, Avalanche and more

Tendermint is a tool for developers to focus on higher-level application development without having to deal directly with the underlying communication and cryptography. Tendermint Core is the engine that facilitates the P2P network via proof-of-stake (PoS) consensus. The Application BlockChain Interface (ABCI) is the tool with which public blockchains link to the Tendermint Core protocol.

In 2018, a bug bounty program for the Tendermint and Cosmos communities was created. The program was designed to reward community members for discovering vulnerabilities with rewards based on factors such as impact, risk, likelihood of exploitation, and report quality. 

Last month, a team of researchers claimed to have found a major Tendermint security exploit, resulting in a services crash via remote API a Remote Procedure Call (RPC) Tendermint vulnerability was discovered, impacting over 70 blockchains. The exploit would have a severe impact and could potentially include over 100 peer-to-peer and API vulnerabilities since the blockchains share similar code. Ten blockchains in the top 100 of CertiKs Security Leaderboard are based on Tendermint.

However, after going through the proper channels to claim the bounty, the hacker group said it was not compensated. Instead, what followed was a string of back-and-forth events, which some claim was a stalling attempt for Tendermint Core, while it quickly patched the exploit without paying the bounty hunter their dues. 

This, among others that the group has supposedly documented, is known as a zero-day exploit.

The specific Tendermint denial-of-service (DoS) attack is another unique blockchain attack vector, and its implications arent yet fully clear, but we will be evaluating this potential vulnerability going forward, encouraging patches and discussing with current customers who may be vulnerable, said CertiKs Brooks.

He said the job of security testing was never finished. Many see audits or bug bounties as a one-and-done scenario, but really, security testing needs to be ongoing in Web3 the same way it is in other traditional areas, he says. 

Are they even white hats?

Bug bounties that rely on white hats are far from perfect, given how easy it is for black hats to put on a disguise. Ad hoc arrangements for the return of funds are a particularly problematic approach.

Bug bounties in the DeFi space have a severe problem, as over the years, various protocols have allowed black hat hackers to turn white hat if they return some or most of the money, says Finlow-Bates.

Extract a nine-figure sum, and you may end up with tens of millions of dollars in profit without any repercussions. 

The Mango Markets hack in October 2022 is a perfect example, with a $116-million exploit and only $65 million returned and the rest taken as a so-called bounty. The legality of this is an open question, with the hacker responsible charged over the incident, which some have likened more to extortion than a legitimate bounty.

The Wormhole Bridge was similarly hacked for $325 million of crypto, with a $10-million bounty offered in a white hat-style agreement. However, this was not large enough to attract the hacker to execute the agreement.

Compare this to true white hat hackers and bug bounty programs, where a strict set of rules are in place, full documentation must be provided, and the legal language is threatening, then failure to follow the directions to the letter (even inadvertently) may result in legal action, Finlow-Bates elaborates. 

Organizations that enlist the support of white hats must realize that not all of them are equally altruistic some blur the lines between white and black hat activities, so building in accountability and having clear instructions and rewards that are executed matter. 

Both bug bounties and audits are less profitable than exploits, Waisanen continues, remarking that attracting white hat hackers in good faith is not easy.

Where do we go from here?

Security audits are not always helpful and depend crucially on their degree of thoroughness and independence. Bug bounties can work, but equally, the white hat might just get greedy and keep the funds. 

Are both strategies just a way of outsourcing responsibility and avoiding responsibility for good security practices? Crypto projects may be better off learning how to do things the right way in the first place, argues Maurcio Magaldi, global strategy director for 11:FS.

Web3 BUIDLers are generally unfamiliar with enterprise-grade software development practices, which puts a number of them at risk, even if they have bug bounty programs and code audits, he says. 

Relying on code audit to highlight issues in your application that aims to handle millions in transactions is a clear outsourcing of responsibility, and that is not an enterprise practice. The same is true for bug bounty programs. If you outsource your code security to external parties, even if you provide enough monetary incentive, youre giving away responsibility and power to parties whose incentives might be out of reach. This is not what decentralization is about, said Magaldi.

An alternative approach is to follow the process of the Ethereum Merge. 

Maybe because of the DAO hack back in the early days of Ethereum, now every single change is meticulously planned and executed, which gives the whole ecosystem a lot more confidence about the infrastructure. DApp developers could steal a page or two from that book to move the industry forward, Magaldi says.

Five lessons for cybersecurity in crypto

Lets take stock. Here are five broad philosophical lessons we can take away.

First, we need more transparency around the successes and failures of Web3 cybersecurity. There is, unfortunately, a dark subculture that rarely sees the light of day since the audit industry often operates without transparency. This can be countered by people talking from a constructive point of view about what works and what does not work. 

When Arthur Anderson failed to correct and flag fraudulent behavior by Enron, it suffered a major reputational and regulatory blow. If the Web3 community cannot at least meet those standards, its ideals are disingenuous.

Second, Web3 projects must be committed to honoring their bug bounty programs if they want the broader community to obtain legitimacy in the world and reach consumers at scale. Bug bounty programs have been highly effective in the Web1 and Web2 landscapes for software, but they require credible commitments by projects to pay the white hat hackers.

Third, we need genuine collaborations among developers, researchers, consultancies and institutions. While profit motives may influence how much certain entities work together, there has to be a shared set of principles that unite the Web3 community at least around decentralization and security and lead to meaningful collaborations.

There are already many examples; tools like Ethpector are illustrative because they showcase how researchers can help provide not only careful analysis but also practical tools for blockchains.

Fourth, regulators should work with, rather than against or independently of, developers and entrepreneurs.

Regulators should provide a set of guiding principles, which would need to be accounted for by developers of DeFi interfaces. Regulators need to think of ways to reward developers of good interfaces and punish designers of poor interfaces, which can be subject to hacking and expose the underlying DeFi services to costly attacks, says Agostino Capponi, director of the Columbia Center for Digital Finance and Technologies.

By working collaboratively, regulators are not burdened by having to be subject matter experts on every emerging technology they can outsource that to the Web3 community and play to their strengths, which is building scalable processes.

Fifth, and most controversially, DeFi projects should work toward a middle-ground where users go through some level of KYC/AML verification to ensure that malicious actors are not leveraging Web3 infrastructure for harmful purposes.

Although the DeFi community has always opposed these requirements, there can be a middle ground: Every community requires some degree of structure, and there should be a process for ensuring that unambiguously malicious users are not exploiting DeFi platforms.

Decentralization is valuable in finance. As we have seen once again with the collapse of the Silicon Valley Bank, centralized institutions are vulnerable, and failures create large ripple effects for society. 

My research in the Journal of Corporate Finance also highlights how DeFi is recognized as having greater security benefits: Following a well-known data breach on the centralized exchange KuCoin, for example, transactions grew 14% more on decentralized exchanges, relative to centralized exchanges. But more work remains to be done for DeFi to be accessible.

Ultimately, building a thriving ecosystem and market for cybersecurity in the Web3 community is going to require good-faith efforts from every stakeholder. 

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Bitcoin adoption has the potential to take off in Senegal, where people are eager to get away from the volatile and colonial local currency.

Dakar, the capital of the West African nation of Senegal, now boasts an annual Pan-African Bitcoin conference, over 10 merchants accepting Bitcoin, a local peer-to-peer BTC exchange and a budding Bitcoin community.

Whats more, the speed at which Bitcoins progress is unwinding is staggering. The city hosted the DakarBTC Days conference just 10 months after the countrys first in real life Bitcoin meetup. All of this is despite a brutal bear market that has put a big dent in Bitcoin adoption.

Why is Bitcoin bubbling in Senegal? Is this country on the path to hyperbitcoinization, or at least more entrenched Bitcoin adoption and use? Could Senegal be the next country to follow in El Salvadors footsteps?

I wanted to find out. I had missed out on the inception of Bitcoin Beach in El Salvador in 2019, so I wanted to explore what a bottom-up, Bitcoin-circular economy might look like in West Africa. This is that story so far.

A colonial currency

The West African Economic and Monetary Union CFA franc is an awful currency. The French created it; they control its conversion rate; they even design and print the notes for use in Africa. A Frenchman sitting in the historic university town of Clermond-Ferrand conjures up the designs in use on CFA notes used by millions of Africans across 13 countries despite the fact that they might never have set foot in Africa.

The CFA is currently pegged to the euro at a fixed rate of 655.957 to one. In 1994, the peg with the former French franc was slashed from 1:505 to 1:100. The currency devaluation, instigated by France and in collaboration with the World Bank and the International Monetary Fund, wiped out the savings of the Senegalese people. To cap it all off, French officials sit on regional central bank boards across French-speaking Africa and still hold substantial powers, including veto rights.

Alex Gladstein of the Human Rights Foundation once explained, Unlike a typical fiat currency, the system was far more insidious. It was monetary colonialism.

From Cuba to Turkey, South Africa to Serbia, I have never seen a greater demand or need for monetary emancipation than in Central or West Africa, and the most likely candidate for West Africas economic and monetary freedom is Bitcoin.

Making lightning connections

On Twitter in January 2022, I noticed that a few bars in the ex-pat area of Dakar have begun accepting Bitcoin. You can pay for a crpe or a bissap (a refreshing local drink made with hibiscus flower) over the Lightning Network, at a spitting distance from the beach. 

My thoughts immediately go to El Salvadors grassroots adoption initiative, Bitcoin Beach, the efforts of which culminated in Bitcoin becoming legal tender in El Salvador. I know at once that I must speak to the person behind these efforts. 

A tall, softly-spoken Senegalese man who spent a chunk of his professional life working in France, Nourou (not his real name), is a Bitcoin advocate like no other. 

He returned to Senegal in 2021 and was disappointed to see that his friends and even family members had lost money to Ponzi schemes like Petronpay things like that or limo and other popular crypto scams in Africa. So, we set up the Bitcoin in Senegal community, he tells Cointelegraph.

I was the first one in our first e-meet on Clubhouse. We were maybe three or four, but I kept going with two sessions per week, then one session per week because we used to have 10, 20 […] sometimes hundreds of people listening in.

He arrived in Senegal at the onset of COVID-19. However, the pandemic chaos did not dash his dreams of making Bitcoin the go-to currency in his homeland.

Peer to peer

While traveling in Senegal in February 2022, I attended the countrys first-ever Bitcoin meetup. Not only was this a milestone event in of itself as previously meetups were conducted online or on the application Clubhouse but the caliber of the guests in attendance is jawdropping. 

The room is brimming with nonfungible token promoters, Bitcoin maximalists, entrepreneurs, central bankers and even professors from Dakars most prestigious universities. The atmosphere is a stark contrast with the Bitcoin meetups I usually attend in Europe or America, where, to be frank, its a bunch of white Millennial males preaching the fall of fiat currencies.

I also see Nourou onboard three more restaurants onto the Bitcoin network. Interestingly, a lot of these merchants use Bitcoin in its purest form: a peer-to-peer cash system. 

They accept Bitcoin-based or Lightning transactions, and they hold onto it with the intent of using Bitcoin as money in a circular economy. Nourou is building an app that allows merchants to cash out into local currency and offers a personalized service where they can get their hands on cash if need be. 

I left Senegal in March 2022 with a spring in my step. I felt inspired by the fact that, in the places that need it most, there are enthusiastic Bitcoin people devoting their time and efforts to educating others about money and, ultimately, Bitcoin. 

Now, fast-forward to August 2022, and I couldnt quite believe that Nourou is texting me, saying he had plans to host a Bitcoin forum in Senegal. It will be the first time that Bitcoiners from all over the world would assemble on the African continent to share their passion for Bitcoin and strategize how best to adopt the currency. 

I vowed to myself that I absolutely must attend. Not only is this a country that Im increasingly attached to but I fully want to observe, participate and report on the Bitcoin movements in Senegal and greater West Africa. 

Dakar Bitcoin Days 

Dakar Bitcoin Days gathered enthusiasts and economists from across Africa, in a pan-African celebration of magic internet money. From Cameroon to the Congo, Mali to the Ivory Coast and the Central African Republic, there were interested parties from all over the continent. As Nourou says in an interview while pointing at the continent of Africa, Africa will fly if we all go together.

France is the official language in Senegal, while Wolof is by far the most widely spoken. One of the unique and well-thought-out aspects of this conference is that there are Dakar Bitcoin Days talks in three languages English, French and Wolof with events in the latter attracting the highest attendance. 

The conference features beginner-friendly seminars that touch on the economy, finance, security and Bitcoin fundamentals. For experts, panels on cryptography take place, while debates such as Is Bitcoin Halal? provide cultural insights into using Bitcoin in Senegal, a 97% Muslim country. Plus, the demographics skew incredibly young: The average age in the country is roughly 19 and the conference is brimming with students and young people.

During the conference and in conversations, Nourou shares his vision for Senegal with me. Senegal will lead West Africa out of the darkness of currency colonization, he explains. However, there needs to be a level of decentralization in the messaging regarding Africa:

I want the message to switch. Africa is not a country it is a continent. Thats why we call it Dakar Bitcoin Days: If you come to Senegal, you will meet Senegalese; if you go to Mali, you meet Mali people.

There might be some similarities, such as some shared histories and overlapping cultures in Africa, but he explains that Africa is just as varied or more than Europe. Much like Bitcoin, the movement is decentralized. Each region and area of Africa will eventually run with and adopt Bitcoin.

Thats not to take away from the tremendous sense of Pan-Africanism that Africa benefits from. Its something that that Europeans or Americans as a continent may not relate to. I am British and European, but I do not relate with a Serbian the way that a Senegalese may relate to a Zimbabwean, despite being thousands of miles apart.

Bitcoin in Senegal

During the conference, I also set out to interview merchants who accept Bitcoin. I speak to the owner of a French ex-pat bar that has recently begun accepting Bitcoin. Despite being completely new to decentralized currency, the proprietor, Gary, is happy to see new customers coming to his bar thanks to Bitcoin. While we were there, we managed to convince him to accept Bitcoin at his brand-new tattoo parlor.

Senegalese surf team coach Rene Laraise managed Pranha, the first restaurant to accept Bitcoin. As one of Senegals best sporting exports after football (Senegal won the African cup of Nations in 2022), hes a leader and a trusted voice in the community. 

I also interview Mama Bitcoin, who has been trading Bitcoin for fish on the Atlantic coast for the past three years. Its a visionary move in a country where cash reigns king and banking services are generally for the financially privileged. Banks in West Africa charge high fees and incur strict user requirements: Withdrawing cash, for example, can cost a few dollars. 

Throughout my second trip to Senegal, I give out Bitcoin to more than 70 people. The process is simple: I ask them to download a Lightning wallet, usually Wallet of Satoshi, and they tap receive.

The wallet is custodial, meaning they dont actually hold the keys to their Bitcoin. As a result, they are trusting that Wallet of Satoshi will not perform a Sam Bankman-Fried and run off with the funds, but for newbies, I think its a great place to start. 

I send them a few thousand satoshis, which is maybe a dollar or two in Bitcoin. I find it easy to hand out sats in Senegal in comparison with other countries to which I travel. People are eager to get hold of money, and they are eager to learn, trade or simply save with a currency that cannot be debased or stolen in the way that the CFA can.

I gave away sats on the beaches, on the sidewalk, during the conference, in restaurants and bars, to taxi drivers, and in tips to the hotel staff. 

For the most part, I give Bitcoin to young people, boys and girls aged anything from 16 upward and young men. Whereas the average age in the United States is about 40, Senegal is a very young population. Its no surprise that a mobile native, internet-based currency would fly if it was given the right to take off in Africa. 

It makes me wonder, Why are people so keen to get hold of Bitcoin here? Well, its because, in the West, we buy Bitcoin through exchanges; a select few individuals buy peer-to-peer, and a tiny slither of Bitcoin enthusiasts actually earn Bitcoin. In West Africa, its very hard to get your hands on the coin. 

Worse still, its very hard to secure Bitcoin. None of the established hardware wallets like Ledger, Trezor or ColdCard ship to Senegal. Ledger sponsored the conference and may start shipping to West Africa, but its currently a serious pain point.

In light of these barriers and opportunities, it gives greater credence to the idea that a Bitcoin-circular economy could take off in Senegal. People want Bitcoin; there are no exchanges to buy from, and international tourists coming to Senegal can spend Bitcoin. Bitcoin could, therefore, tread a path to becoming peer-to-peer money, as its white paper intended, in the country.

Mobile money meets Lightning

Plus, mobile money networks have taken root and flourished across Africa. First rising to fame in Kenya, where the globally recognized mobile money company M-Pesa was founded, mobile money companies have popped up across Africa like Apple Stores in European cities. Most Africans nowadays have a smartphone they might not have regular electricity or access to free drinking water but they can get online.

Failing that, it is highly likely that individuals possess an SMS mobile phone: an old-style phone that can send and receive texts. Thanks to mobile money, users can send and receive payments much like a bank transfer. You can simply text your friends phone with credit. In Senegal, the biggest mobile payments company is called Wave.

The Wave logo is found in taxi companies, restaurants, bars and cafs. Its a bit like the Lightning Network, but its slower, a lot more expensive, and it uses local currency.

I try to track down an employee at Wave to orange-pill them and introduce them to the Bitcoin network and as luck would have it, I bump into one in a bar while watching the World Cup. I immediately ask him to download a wallet and sent him some Bitcoin. The internet connectivity was very patchy where we sat, so it wasnt the best, and it took a few seconds, cue Network Error.

I connect to the bars WiFi and send him the Bitcoin. He was impressed and said hed come along to the conference the following day, but I didnt see him again. 

There was a funny moment during the interview with the marketing director from Wave. He shared that he met and hung out with Satoshi in Senegal. Apparently, he was a VC kind of guy who went around, drunk as a skunk, partying and investing in companies. 

However, it gets me thinking you have a country that is accustomed to transacting via mobile phone, using nothing but a mobile number. Thats despite the fact that the UX for mobile money is quite clunky. Yet everyone and their goat (yes, I try to interview a goat about Bitcoin see our documentary), knows how to use it. 

Senegal has a power-sapping currency, a young, digitally native population, Bitcoin leaders and mentors in respected positions in society, an annual conference, an increasing number of merchants accepting Bitcoin, and as evinced: It is culturally acceptable to send money via mobile phones. 

Its another instrument in Africas Bitcoin toolbelt and a way in which the continent could effectively leapfrog the developed world. Why cant we leapfrog mobile money with the Lightning Network?

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Female crypto founders are banding together to unlock the secrets of success in a male-dominated venture capital world.

Bridget Greenwood is the founder of The Bigger Pie, a U.K.-based networking organization that supports women in blockchain globally. She says that even venture capitalists with the best intentions still end up funding male founders at disproportionate rates.

I stumbled over the appalling statistic that of all VC funding [in the U.K.], only 3% goes to female founders, 8% goes to mixed teams, and the rest goes to all-male teams, she explains to Magazine.

And that initial figure has gone down to 1.5% over the pandemic.

In more difficult times, it seems that VCs are falling back on what they know which is to fund male founders. This is doubly frustrating, as research looking at the impact of COVID-19 points to the benefit of feminine leadership during challenging times.

According to data from Pitchbook, the trend is international. Last year in the United States, startups with all-women teams received just 1.9`%, or around $4.5 billion, of the $238.3 billion in allocated venture capital. The 2022 figure was down from the 2.4% achieved the year before. 

Seeking to actively change this reversal, Greenwood founded The 200Bn Club with Amber Ghaddar. The initiative takes its name from a 2022 report on female entrepreneurs commissioned by the U.K. government and completed by Alison Rose, CEO of NatWest. A key finding was that investing in female entrepreneurship would add between 200 billion and 250 billion pounds to the countrys GDP.

Greenwood and Ghaddar embarked on a three-month research journey, during which they spoke with academics, investors and VCs. Ghaddar had already successfully raised money for her company, AllianceBlock, so she personally knew some of the struggles.

As Greenwood summarizes, We got two key points from our research. The first is that you need a warm introduction. A lot of the VC world is all about networking, and so we have gathered some 200 VCs to be part of our network so we can create these warm introductions.

The second point is harder to overcome and happens during the pitching process. As soon as it becomes apparent the founder is a woman, then the unconscious bias kicks in.

Pitching stage

Research published in Harvard Business Review singles out the pitching stage as a significant barrier for women. In essence, it says that men are asked promoted questions, whereas women are asked preventative questions which focus on risks and put founders in a defensive position.

Why is this important? Well, regardless of whether you are a man or a woman, if you get asked preventative questions, you are five times less likely to raise money, period,” says Greenwood.

However, the good news is that if you understand and recognize a preventative question, you can then learn to answer in a promotive way so that you give yourself a much better chance at success. But this needs to be taught.

At The 200Bn Club, female founders are coached on how to best pitch to VCs, which also includes the somewhat controversial concept of not pitching like a woman.

While earlier research suggested that investors exhibit bias against women due to their sex, more recent studies have found that the picture is more complicated than that, and that being a female entrepreneur does not diminish interest by investors in and of itself.

A team of Canadian and American researchers conducted an experiment that found investors are actually biased against displays of feminine-stereotyped behaviors by entrepreneurs, whether from men or women. The research, titled Dont Pitch Like a Girl, found that behaviors coded as feminine were associated with negative perceptions about the entrepreneurs business competency.

Now, that doesnt sound any better from a gender studies perspective, but from a practical standpoint, it means female founders can work around the issue by using more masculine-stereotyped behaviors while pitching.

It turns out that while female founders are happy to talk about their team, they are much more self-effacing when it comes to speaking about themselves. And since the VC wants to invest in the leader, this is a damning habit for female founders, Greenwood says. 

We work with our female founders to deliver the pitch with confidence, assurance and faith in themselves. And we help them answer the preventative questions in a promotive fashion.

ConsenSys on equality

Thessy Mehrain, co-founder and CEO of Liquality, has a background that makes her uniquely positioned to understand the system and how to disrupt it. She spent six years creating products at JPMorgan in the U.S. and joined the Occupy movement after the financial crisis, and it was from there that she discovered Ethereum.

So, I totally fell in love with Web3, but I also didnt want to be part of something that creates technology that repeats what we have in the legacy world, she tells Magazine.

While still working at JPMorgan in 2015, she heard Joseph Lubin, the founder of ConsenSys, speak at a fintech conference and was blown away by his vision. Shortly after, she jumped ship to ConsenSys and began working on a project to explore swapping between Bitcoin and Ethereum in a decentralized manner without a middleman. That project evolved in time into her startup, Liquality.

In 2016, Mehrain also created the New York-based Women in Blockchain group to help address gender inequality in the sector. The group now boasts 3,000 members.

Working at ConsenSys provided her with great support, access to technology and a co-founder Harsh Vakharia, who also previously founded the startup Etherbit. Coming out of ConsenSys, Mehrain recognizes she had many advantages over other unaffiliated projects.

The pair successfully raised $7 million in 2021. When asked if she experienced different treatment as a female founder, Mehrain replies: 

How would I know? I was never raised as a man. However, coming out of ConsenSys definitely gave us an edge and warm introductions. It was at that point, during our raise, that I became aware of the dominance of men in this space. At Liquality, we are focusing on the Global South, so we knew from the get-go that we needed to have diverse representation in our funders. That changed our thinking and our outreach.

We knew that diversity makes products more sustainable its not just the right thing to do, its the right thing to do in business terms. We needed to explain that to our investors. But its more than having diversity at the cap table, its what you build afterwards.

Mehrain and her co-founder have assembled a team that reflects the culture in which they want to grow. We work hard at this. Its not an afterthought. For example, we have a female engineering lead and a lot of strong female engineers but that took work. 

We are creating a legacy as we go. Its very important so the next generation of women founders and leaders have role models and supports to help them.

Corporate backgrounds help

A strong corporate background can also help female founders navigate the stormy VC waters. Ayelen Denovitzer was previously with Bain and Revolut, and co-founding Solvo has been her first startup role. She raised $3.5 million led by Index Ventures over just three weeks last year.

Denovitzer did not notice any limitations due to being a woman, but she is also happy to debunk some common urban myths.

There is this notion that female leaders are more risk-averse and are more emotional when it comes to decision-making, but I think that is largely debunked. Of course, there is unconscious bias, but we are making inroads on those notions too, she tells Magazine, noting that individual differences are much more salient.

I believe it is more down to individuals how we mix. I am much more methodical than my co-founder, which is a me thing rather than necessarily a female thing.

Like Mehrain with Liquality, it was important to her that the VCs at the cap table reflected the projects ambitions. Solvo is a retail-facing financial app that aims to bring the best features of crypto without the complexities and jargon.

So, we needed retail-facing VCs to come onboard, says Denovitzer.

Finding the right fellow co-founders is another element more important than gender. Helena Gagern and Grace Wang, co-founders of Web3 messaging app Salsa, both agree.

We had shared values which was of top importance to us both and similar energy levels, Gagern tells Magazine.

They bonded over a pilot project during two weeks in Austria, where they learned about passion, energy and pragmatism. They knew they would work together on a bigger project, which turned out to be Salsa, for which they raised $2 million.

We were fundraising in a bear market and initially were looking for $500,000. 

However, the co-founders quickly realized that this amount was too little and jumped it up to $2 million which quite possibly ensured their success. 

Another element of their success was that they had met their investors in real life at conferences over the past two years. Those warm introductions went a long way to smooth the path to success.

I didnt feel being female was a disadvantage, but I did strongly feel the underrepresentation. This pushed us to approach female VCs as a priority, says Gagern.

Benefits of being a female founder

Wang tells Magazine that there are a host of benefits to being a female founder. Once you get over the imposter syndrome issue, being a woman can make you stand out in a male-dominated space. All-female teams are rare, and so we pushed this to our advantage. And we also reach out to other female founders helping each other.

But why the focus on female entrepreneurship? Aside from offering gender equality, there is data that points to female founders achieving better results. According to a study from the Boston Consulting Group, businesses founded by women produce twice the revenue from every dollar in funding than men. Given that they also receive less than half the funding, thats a better bang for your VC buck.

Statistics compiled by Springboard, which helps accelerate the growth of women-led companies, suggest that even a little bit of gender diversity helps and that startups with at least one female founder outperformed all-male founding teams by 63%. 

Finally, Mehrain is pragmatic in this gender-balancing game and says men often want to help but just dont know how.

You know, white males are the best allies. Right? Tell them what to do, tell them what is needed. Make them allies and really have them understand how important this is. Then its a win-win for all.

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How governments decide to go after crimes committed with crypto could color the industry’s public perception and how the space is regulated.

On the evening of Jan. 7, Anatoly Legkodymov, founder of the cryptocurrency exchange Bitzlato, was arrested in Miami. The following day, the United States Department of Justice (DOJ) unsealed a complaint in federal court charging him with conducting a money transmitting business that transported and transmitted illicit funds. According to the DOJ, Bitzlato failed to meet U.S. regulatory safeguards, including Anti-Money Laundering requirements. 

Less than a month earlier, former FTX CEO Samuel Bankman-Fried was arrested in the Bahamas. In a statement, U.S. Attorney General Merrick Garland said, The Justice Department has filed charges alleging that Samuel Bankman-Fried perpetrated a range of offenses in a global scheme to deceive and defraud customers and lenders of FTX and Alameda, as well as a conspiracy to defraud the United States government.

Garland stated, The U.S. Department of Justice will aggressively investigate and prosecute alleged criminal wrongdoing in the financial system and violations of federal elections laws. But is it really a new day? Will U.S. law enforcement be able to go after alleged crypto criminals at home and abroad?

According to Oberheiden PC attorney Alina Veneziano, who represents executive clients under criminal investigation against U.S. Securities and Exchange Commission subpoenas and DOJ fraud allegations, the answer is yes.

Attempts to reign in this new, unrestrained industry were inevitable, Veneziano tells Magazine. She believes that federal government agencies are increasing their investigative efforts toward crypto crime and will utilize all the tools at their disposal subpoenas, summons and inter-governmental sharing of information.

 For example, only last year, the SEC increased the size of its Crypto Assets and Cyber Unit in an effort to investigate more fraudulent crypto asset schemes and better protect investors in the crypto markets. Veneziano also believes the Internal Revenue Service will further enforce U.S. tax laws for cryptocurrencies. 

Former federal prosecutor Grant Fondo also sees an increase in activity. Now a trial attorney and founder of the Digital Currency and Blockchain Technology practice at Goodwin, Fondo believes that this is the result of the current bear market, widespread acceptance of cryptocurrency and the governments obligatory focus on crime.

I think anytime there is a course correction and/or an economic event like a crypto winter, that can also increase activity […] When assets go down, people get hurt, and if people are mixing funds and things, it can create problems, Fondo tells Magazine. Add to that the prolific global adoption of crypto, more people involved and the DOJs concern about any asset used for illicit activity, and Fondo sees beefed up enforcement as an inevitability.

In 2021, the DOJ created the National Cryptocurrency Enforcement Team (NCET) to handle investigation and prosecution of criminal misuse of cryptocurrency. NCET would combine the expertise of the agencys Money Laundering and Asset Recovery Section and the Computer Crime and Intellectual Property Section. In 2022, the DOJ also created the Digital Asset Coordinator (DAC) Network. Under the leadership of NCET, designated federal prosecutors from U.S. attorneys offices around the country would be assigned to the DAC Network. Each offices DAC will be the digital asset subject matter expert and the first, investigative source of information. 

What types of crimes re they going after?

According to a DOJ report submitted to the presidential administration in September, the agency believes that cryptocurrency is the preferred payment method for ransomware and other digital extortion activities. As an example, the DOJ referred to a ransomware attack in May 2021 on the Colonial Pipeline. According to the report, the attack forced the company to shut down a gasoline and jet fuel pipeline for days. This resulted in fuel shortages around the country, including several airports. The attackers demanded and received a ransom paid in Bitcoin. 

The report also says, Cryptocurrency is used to raise funds for terrorist organizations and other nation state threat actors. The DOJ states that its largest cryptocurrency seizure disrupted the funding campaigns of ISIS and other terrorist groups. The agency took down a fraudulent ISIS website operation that purported to sell N95 masks and other protective equipment during the height of the COVID-19 pandemic.

The Department of Justice released photo of a group posting a request for donations and claiming to be a Syrian charity, but allegedly sought funds to support the mujahidin in Syria with weapons, financial aid and other projects assisting the jihad.

Veneziano believes that these crimes are not new theyve just adapted to cryptocurrency. We are likely not looking at the creation of brand new crimes but are instead more likely to see the crypto element incorporated into other offenses, such as crypto tax evasion, crypto theft, unregistered crypto offerings, crypto money laundering, etc. Due to the nature of the blockchain, it is likely to be confined to federal offenses as opposed to state crimes, Veneziano says.

Fondo suggests that wire fraud is also a big factor. So, youll notice in a lot of the criminal indictments, they allege wire fraud. Wire fraud is agnostic to the type of asset, whether its a security, a commodity, whatever doesnt matter. Historically, criminals would use the telephone, aka the wires, to commit fraudulent acts. Today, wire fraud refers to crimes committed using any type of telecommunications technology. According to Fondo, if you move digital assets around using the wires, and you commit fraud, its a crime, and most indictments in the crypto space fall into that category. 

For example, in a statement on Dec. 14, 2022, U.S. Attorney for the Southern District of New York Damian Williams announced charges in two separate indictments against the founders and promoters of two cryptocurrency Ponzi schemes known as IcomTech and Forcount, both with conspiracy to commit wire fraud. 

According to the DOJ, victims purchased IcomTech and Forcount investment products using cryptocurrency, cash, checks and wire transfers. They were then given access to an online portal where they could monitor dubious returns. While Victims saw profits accumulate on the schemes respective online portals, most victims were unable to withdraw any of these so-called profits and ultimately lost their entire investments. All the while, IcomTech and Fourcounts promoters skimmed hundreds of thousands of the victims funds, withdrew it as cash and spent the loot on promos for the Ponzi scheme, luxury goods and real estate. 

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What other agencies are involved?

Venziano believes that collaboration between government agencies on crimes is nothing new and should be expected in the crypto sphere. Venziano says, Consider a crypto fraud scheme involving a new token. The SEC will be involved if the token is unregistered and satisfies the definition of an investment contract under the Howey test, an analysis based on a Supreme Court decision.

She continues, The IRS will also be involved where there is tax evasion or the failure to report crypto sales and dispositions. Further, the DOJ may initiate an investigation where money laundering or other illicit activity is present. There is even a call for greater collaboration from the private sector to combat crypto fraud. Additional agencies, including the Financial Crimes Enforcement Network (FinCEN), the Federal Bureau of Investigation, Immigration and Customs Enforcement, the Secret Service and the Department of Homeland Security have all participated in cryptocurrency investigations. 

In the Bitzlato case, the DOJ teamed up with the Department of Treasurys Financial Crimes Enforcement Network. In a joint press conference with officials from the DOJ, Deputy Secretary of the Treasury Wally Adeyemo said that FinCEN is officially identifying Bitzlato as a primary money laundering concern in connection with Russian illicit finance. Adeyemo thanked the DOJ for being such great partners on this action but also on going after this ecosystem more broadly.

Do politics affect who the government investigates?

According to Fondo the answer is yes and no. The DOJ is part of the Executive Branch of government and the president nominates its leader, the Attorney General. The U.S. Senate is tasked with confirming the presidents nominee.

Generally, it is an agency that is agnostic in a sense as to who the president is, Fondo says. When he was a federal prosecutor, Fondo believed that he was completely immune to whoever was in the White House. On the other hand, whenever national actors are involved, Russia or China for example, Fondo says that a potential case escalates in significance. Since the DOJ gets lots of leads and complaints, so they have to prioritize resources and decide which ones to pursue.

A case that involves a national actor, stealing trade secrets, stealing assets, funneling assets (to Russia) to fight, say, the war in the Ukraine, that will rise well above something else thats an otherwise more typical crime. So, in that way, the DOJ is more political.

Fondo also believes that when there is a national scandal, like Enron, Bernnie Madoff or the fall of FTX, the government is more apt to jump in and get more involved. When something hits the press, like a major incident, there is more pressure to get charges more quickly, Fondo says.

Venziano points out that crypto activity isnt limited by geographic borders and can affect overseas markets in a matter of seconds. Crypto activity can certainly affect international politics, demanding cooperation between the United States and enforcement agencies in other nations. Take the Bitzlato case as an example. The DOJ received significant operational and informational assistance from other agencies both domestic and international including Customs and Border Protection and also EUROPOL and Dutch and Belgian authorities, Venziano says.

In the U.S., there are no federal laws on the books specifically regulating the use of cryptocurrency. Different regulatory agencies have taken responsibility and have written rules for the oversight of different digital assets. Sooner or later, Congress is expected to move legislation to the presidents desk, formally defining cryptocurrencies and how they are to be regulated.

In the meantime, Fondo believes that the lack of clarity, and even disagreement among regulators, leads to ambiguity that crypto-centric companies struggle with. In essence, its hard to follow the rules if you dont know what they are, especially on the civil, as opposed to the criminal, side of things.

Nonetheless, he believes that the industry has matured in recent years, and there are a lot of great actors out there trying to do the best they can with regulatory uncertainty, but also trying to meet the demands of the market. But, when theres a situation, a crime is a crime is a crime. If the government sees something that looks like fraud, it doesnt really matter what the asset is, and they think its significant enough and worthy of chasing, theyll do it.

So you’ve struck it rich in crypto? You’ll want to head to one of these countries to keep your newfound wealth.

Tax is a nightmare for compliance. And crypto taxes which include a variety of innovative mechanisms and products that have no analog in traditional finance are 10 times worse.

Complicating matters even further, the global industry operates across borders and jurisdictions. But there are definitely better and worse countries for the newly crypto-rich to base themselves as tax havens even Americans who get followed around by the IRS with its hand out no matter where they are.

(The information provided is not legal or financial advice and should serve only as a starting point for further research.)

To start off, we need to define what income and capital gains are.

What is income for crypto tax?

Income tax generally covers things such as wages, dividends, interest and royalties. Within the context of digital assets, these might include income earned via mining, staking, lending, crypto-denominated salaries and even airdrops. 

In many jurisdictions, these would be taxed according to the market value on the day they were received. You can often subtract expenses (such as the cost of electricity for mining).

What are capital gains for crypto tax?

Capital gains are the profits from selling things like stock or a house. They are usually calculated on the difference between the price you bought something for and how much you sold it for. In most cases, capital gains are taxed at a much lower rate than normal income, and the sale of cryptocurrency and NFTs generally count as capital gains. 

Jurisdiction matters for crypto taxes

The first issue is whether one needs to pay tax at all. In certain countries, including Bahrain, Barbados, Cayman Islands, Singapore, Switzerland and the UAE, no capital gains are generally levied on things like stock or digital asset sales. For most people, determining the country of their tax residence is as simple as answering where do you live?

For the lucky few in crypto whose portfolio has gone stratospheric, its fairly natural to want to move to a country that will tax them less. Strategically shopping for favorable jurisdictions is comparatively easy for those in the blockchain industry, as their wealth is less likely to be tied to a physical business or assets.

Sadly, American citizens are at a distinct disadvantage because, unlike most countries, the U.S. levies taxes according to citizenship in addition to residency. Even American citizens born abroad must pay U.S. taxes even if they never set foot in the United States. They do, however, have the option of being taxed as a resident of Puerto Rico, a U.S. territory that is not a state. Perhaps fittingly, its name is Spanish for Rich Port. Herv Larren, a dual U.S. and French citizen, lives on the island. He is the CEO of Airvey.io, which advises Web3 companies, and says:

This is the best tax residency for Americans they can keep their U.S. citizenship while benefiting from these tax advantages.

Puerto Rico is a crypto tax haven

Larren explains that, due to a 2012 law called Act 60, companies moving to or establishing themselves in Puerto Rico can pay a corporate tax of 4% far lower than on the mainland. Theres also a 0% capital gains tax.

These incentives have been created by the government of Puerto Rico to stimulate job employment and growth on the island by focusing on promising fields like the blockchain industry particularly, he says, explaining that the island is envisioning itself as one of the crypto capitals of the United States. 

In order to demonstrate tax residency, U.S. citizens should set up a primary address, a drivers license and a local voter ID in addition to physically spending six months of the year on the island, Larren explains. 

On the other side of the world, the United Arab Emirates is another tax-friendly jurisdiction attracting crypto wealth, notes Soham Panchamiya, a lawyer at Reed Smith LLP in Dubai.

As more countries begin to regulate and tax cryptocurrencies, investors will need to navigate complex tax laws and potentially incur higher tax liabilities, he says. At the same time, he argues that governments should ensure that policies are not made needlessly complicated.

The taxation of crypto globally has significant implications for both individual investors and governments alike.

For Panchamiya, increasing regulation by governments can be taken as a sign that the industry is maturing. While the UAE draws industry players with 0% personal tax, he expects that the government is likely to benefit from the introduction of corporate tax later this year.

Are crypto-to-crypto trades taxable?

Outside of the few no-tax jurisdictions, crypto-to-crypto trades are mostly taxable, but some countries do not tax them, explains Filip Kraljikovi, an expert on cryptocurrency taxation. He worked as a lawyer and manager of corporate taxation at KPMG in Croatia before joining crypto tax automation firm Taxtris as a tax and legal manager. 

Countries that do not tax crypto-to-crypto include France, Austria, Croatia, Poland and, as of 2023, Italy, he says. In such jurisdictions, no taxes are levied as long as crypto assets stay in the metaverse and do not get exchanged for fiat. 

According to Kraljikovi, this type of treatment is gaining favor, and there are direct efforts to implement it EU-wide because taxing crypto-to-crypto swaps produces cash flow problems for people in the industry. Notably, most major jurisdictions like the U.S. and the U.K. currently consider trading Bitcoin for Ether a taxable event. Even something as innocuous as wrapping ETH into wETH can be interpreted as a trade, as the Australia Tax Office has spelled out (sparking considerable debate):

When you wrap the ETH you have created a different asset for Capital Gains Tax (CGT) purposes. This means that converting ETH to WETH triggers a CGT event and you have to work out capital gains tax when you convert.

In many jurisdictions, there is also a difference in tax treatments between short-term and long-term capital gains. In the United States, long-term capital gains get a discount, but selling before 365 days taxes the gains at the same percentage as regular income, which means that the effective tax rate can double. Canada does not differentiate between long- and short-term capital gains, taxing them all at half the rate of income tax.

Crypto tax capital gains rules in Europe

Germany and Croatia also differentiate between short- and long-term gains after 12 and 24 months, respectively, the rate is 0%, Kraljikovi explains, adding that, because Croatia does not tax crypto-to-crypto swaps, it is possible to pay no tax even without holding the original asset for a year. Its also notable that Germany allows up to 600 euros of tax-free short-term gains per year.

In Croatia, if you are happy with your gain in Bitcoin, you can just transfer your position to stablecoins and wait one to two years to realize your tax gains tax-free.

Im not paid for advertising Croatia, but its a favorable place for crypto traders, Kraljikovis says. Even when not using the crypto-to-crypto two-year method, taxes on crypto capital gains are about 10% depending on the city one lives in, he explains.

Some jurisdictions are of course less favorable. In addition to taxing crypto gains at 30%, India has also imposed a 1% tax deduction at source (TDS) on each trade, claiming it would help them track the movement of funds, with exchanges saying that such moves are likely to severely affect business. 

A similar 0.11%0.22% VAT on all crypto transactions has been imposed by Indonesia, which Kraljikovi describes as a method for the government to track all crypto transactions by imposing a reporting requirement via the otherwise small tax.

Adding to this, India treats cryptocurrency in a way comparable to lottery tickets and other gambling, whereby losses cannot be deducted from gains. Basically, everybody trading crypto in India fled from local crypto exchanges and started using decentralized apps, Kraljikovi observes. 

According to Kraljikovi, Estonia is the only European country currently restricting the deduction of losses. Youre only taxed against your gains, but any losses that you realize are not tax deductible, which is kind of weird from an accounting perspective but thats their position. Marko Jukic, CEO of automated tax reporting software provider Taxtris, mentions that there is currently an active lobbying effort to change this.

Another pitfall that investors should be wary of is the risk of being classed as a professional trader, as opposed to a casual trader or hobbyist. Many governments make this differentiation, but the line can be very blurry and is largely up to tax authority interpretation. 

There are certain factors to take in like the number of transactions, size of transactions, regularity. All these factors can influence the determination of the government, Kraljikovi explains. Those who go pro, even against their will, might have to report all their trading gains as income tax, which carries a much higher rate and otherwise be far more stringent in their accounting. You will have to behave as a company or as a craftsman depending on jurisdiction.

How are capital gains calculated?

There is not one single answer. When it comes to calculating taxable gains, the critical step is to calculate the cost basis, which is the amount local tax law considers an asset to have been bought for. There is a good deal of variance between the accounting methods used by different countries. Some countries even let you choose the method as long as you are consistent.

First-in, first-out, or FIFO, is among the most common methods and means that gains are calculated by assuming that the earliest acquired units of an asset are sold first. This means that a person who bought 1 BTC for $10, one for $100, $1,000 and $10,000 over a five-year period and sold one of them in 2022 for $20,000 would be taxed as if they sold the first Bitcoin purchased for $10, resulting in a taxable gain of $19,990.

Average cost is another method, which would calculate the average cost of the assets as the purchase price. Per the previous example, where someone purchased a total of 5 BTC for $11,110, the average price per Bitcoin would be $2,222, meaning that the taxable gain from selling a fifth of holdings in 2022 would be slightly lower at $17,778.

Last-in, first-out (LIFO) sounds nearly the same as FIFO but is effectively the opposite, resulting in a vastly more favorable outcome for our trader, whose taxable gain would now be only $10,000 since the profits are calculated from the most recent purchase opposed to the earliest one.

The tax agencies of many jurisdictions, including those of the U.S., U.K., Australia and Japan have issued guidance explaining that taxpayers can choose one of these methods, with certain limitations and usually provided that they then stick to that method. However, Canada requires the use of cost averaging because the Canadian Revenue Agency (CRA) views cryptocurrencies as commodities and taxes them as such.

Though most readers capital gains will fall under one of these accounting systems, there are outliers, such as the French method, which is close to the average cost calculation. Poland and Hungary have their own methods based on cash flow and revenue expense, but European countries otherwise tend to follow the standard methods, Kraljikovi notes.

Whether you use FIFO or LIFO, capital gains are typically calculated by adding up all the years losses and gains followed by subtracting the total losses from the gains. As such, it is possible to find that the net gains are negative, in which case no taxes would apply and losses could possibly be counted against gains in the following year, again depending on the jurisdiction. An exception to the above can be found in India and Estonia, which Kraljikovi says do not allow losses to be deducted from crypto tax calculations.

Crypto tax loss harvesting

If the market goes down, you can sell assets to create a loss to offset gains, Kraljikovi remarks.

This is called tax loss harvesting and can sometimes result in even a large net gain becoming tax-neutral through the reduction of capital gains liability. It can be employed strategically at the end of the tax year because taxes are usually calculated on an annual basis. Immediately in the new tax year, both the gaining and losing assets can be rebought.

In the U.S., tax loss harvesting is banned for securities but not for crypto, so people in crypto usually sell off their loss positions before the tax year ends.

This, however, is illegal in the U.K. and Ireland, Kraljikovi notes. They will spot the loss and rebuy happening within 30 days and disallow the losses, he says, adding that similar restrictions will likely arrive across the European Union. Its a matter of time before countries figure that out and apply that anti-abuse rule, he predicts. In fact, President Joe Biden has proposed making the practice illegal this year. 

Can NFTs be tax-loss harvested? 

There is no accounting method for NFTs because they are nonfungible, so you can always easily identify profit for fungible assets like Bitcoin, you dont know which Bitcoin you sold, which is why the FIFO method exists, Kraljikovi reasons. 

That said, he describes NFTs as a complicated conversation Europe, for example, does not have much of the guidance or terminology sorted out. More or less, they are treated like cryptocurrencies, Kraljikovi says, implying it is largely a default position in the absence of clarity.

When it comes to NFTs, its also worth noting that some countries such as Spain, Poland and Belgium treat at least their initial sales in the same way as the provision of virtual services, like a Netflix service, Kraljikovi expands. In these cases, Value-Added Tax (VAT) applies.

Wealth taxes

There is a third type of tax in addition to income and capital gains, and thats the wealth tax youre paying taxes based on your portfolio value on a specific date, Kraljikovi adds. For example, Spain, Switzerland, the Netherlands, Norway and Argentina collect wealth taxes that are based on the net wealth of taxpayers each tax year. 

Norway, for example, charges a flat 0.85% of wealth above an approximate $160,000 threshold, meaning that someone with net assets worth $1 million at tax time would be expected to pay over $7,000. These rates go as high as 3.5% in Argentina and as low as 0.1% in some areas of Switzerland, sometimes starting at a much higher threshold than Norways. Its coming to Italy next year.

While the valuation of fungible cryptocurrencies is relatively straightforward, valuing NFTs for wealth taxes is a different story. In traditional markets, if no liquid market is present such as for property, software or intellectual property, financial experts can be hired to estimate value based on evidence like supporting documentation and expert witnesses. 

At this point, however, Kraljikovi notes that NFT valuations are a conversation between the tax authority and the individual. NFTs are very minor sources of tax revenue now. Tax authorities are looking to spend their time where they can harvest the most, he observes.

Evaluating jurisdictions for crypto taxes

If you made money with crypto, then proactive planning regarding crypto taxation liabilities is likely to pay a worthwhile return no matter where you live. Some of these strategies like tax-loss harvesting or taking advantage of long-term capital gains may fall into the try this at home category, whereas more advanced methods like jurisdictional arbitrage may require one to venture from the home port and set up camp in a faraway land when it comes to personal tax residency. For those with serious capital, the setting up of an off-shore entity in a friendly jurisdiction may also be an option, albeit with many caveats.

In regard to personal taxation, it is rather objective to say that some countries are more advantageous than others from the perspective of a cryptocurrency investor. 

The likes of the United Arab Emirates, Singapore, Switzerland and various Caribbean islands, including Puerto Rico, naturally get an A grade due to the near lack of tax liability. On the downside, these A-grade tax havens often come with considerable living costs.

Countries like Croatia, France, Austria, Poland, Italy and perhaps Germany rate highly, in the B range, due to the lack of taxation on crypto-to-crypto transactions or other workable solutions like discounts on long-term capital gains.

The U.S., U.K., Canada, Australia and much of Europe fall into the C category due to disadvantageous rules, variably including the taxation of crypto-to-crypto trades and swaps as well as restrictions on tax-loss harvesting.

India and, surprisingly, Estonia can be placed into the D category primarily due to the ineligibility of deducting investment losses from gains, thus making compliant trading particularly impractical. The F grade naturally goes to those countries that disallow the trading of crypto altogether, which we might interpret to mean a tax rate of 100%.

All of these ratings can of course change as new laws and practices are introduced. While higher and less permissive taxation may increase government income, they may similarly drive both brain drain and capital flight whereas the introduction of policies friendly to the digital asset industry can be expected to promote its growth within national borders. These are complex and politically charged issues for countries to consider.

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From the epic highs of the top of the bull market, many in the crypto space are now facing tough times that can take a toll on mental health.

With so many struggling to maintain emotional well-being during this crypto winter, self-improvement and mental health experts can help navigate the ups, downs and soul-shattering experiences that a long-term bear market can bring.

Mental health professional Elizabeth Sterbenz and wellness thought leader Srikumar Rao discuss with Magazine how to cope with the depreciation of crypto portfolios, move forward and illuminate intuitive happiness. Sterbenz is a licensed psychotherapist in California specializing in individual, couples and financial therapy. Rao is an international speaker and executive business coach with a PhD from Columbia University. He teaches a course at the Kellogg School of Management at Northwestern University that merges Eastern philosophies with modern business practices.

Learn how to ride a tsunami

Rao believes that crypto traders, developers and community members have been hit by a tsunami. They are struggling through a long-term crypto winter that shows no immediate signs of warming. They also celebrated a two-year NFT boom that was quickly followed by a devastating bust.

The community was recently gobsmacked when major figures in the cryptocurrency industry, like Sam Bankman-Fried and Do Kwon, were accused of fraudulent activities, discrediting the industry and harming investors. 

And the hits keep coming. Just weeks ago, the United States Department of Justice and other international authorities took down a Hong Kong-based crypto exchange and arrested its founder in Miami. 

Rao believes that the bear market can be used as an opportunity to learn how to surf the top of the tsunami while calmly observing whats happening below. He says one can achieve this by accepting that winning is not a requirement for happiness. Happiness doesnt come from making the right trade or a lot of money. According to Rao, thats a false belief:

The thought that you have to have something happen in order to be happy, its just false. But you believe in it so strongly because you never really thought about it independently. Youve just been carried on by the mass hysteria. 

Sterbenz takes it a step further, suggesting its unnecessary to go it alone, especially in these tough times. I think you have to be able to kind of trust, you know, having a good financial adviser. Thats an important part of your team.

She believes getting sound, objective financial advice will provide peace of mind. Relying on someone else to help assess trades and to help make decisions about overall financial situations provides a feeling of being covered. You can then set your financial worries aside and focus on your well-being, Sterbenz says. 

Rao claims its also important to recognize that cryptocurrency has no intrinsic value. The value is only what people believe it is. Large numbers of people agree that a particular token has a particular value at a particular time, but the moment people dont feel that way anymore, the coin ceases to have the same value.

Rao says, If you accept that up front, before you make the investment, and you say that what could have happened did happen, and it happened when I made the wrong trade, thats okay. Ill recover. Ill move on, and I never really needed this to work out to be happy in the first place.

How to deal with the crypto corruption shakeout

Many of the crypto communitys worst fears were realized when FTX imploded and its founder was arrested, as well as when Terra crashed and subsequent charges were filed against its former CEO. Uncertainty about the inevitability of stricter federal regulatory efforts further validated those concerns.

Crime is now, undeniably, a part of the crypto ecosystem, just as it is part of the traditional investment arena. Thats a tough pill to swallow, and even meaningful regulatory crackdowns are cause for concern.

Nonetheless, Sterbenz suggests that this is nothing to be ashamed of and doesnt mean participating in crypto is disreputable or embarrassing. Comparing the situation to those critical of traditional investors after historys largest Ponzi scheme was exposed, Sterbenz says, Thats also like saying, like Bernie Madoff, I told you all these stocks were a scam. You should be putting your money in the mattress.

According to Sterbenz, its important to separate from the bad behavior of unscrupulous characters and simply accept that there will always be bad actors.

Rao believes blaming lousy luck or crypto losses on those bad actors certainly wont lead to happiness or peace of mind. He says that when the universe, or its participants, doesnt play by the rules and things go the opposite way, its easy to assume the sky is falling. Distress and unhappiness can quickly follow. 

And you blame it all on an outside force. I am unhappy because so and so did such, and hes a downright scallywag. And because hes a scallywag, hes now being investigated. But, in the meantime, the markets are gone to hell! Rao says. Instead, he suggests anchoring yourself in the idea that youre only involved in crypto because thats where your path is taking you. Me playing this game is something I do because its my path in life, and Ill enjoy playing the game. I dont necessarily have to win for it to bring me satisfaction or joy, Rao says.

Thats great, but Im rekt!

According to Rao, traders who have lost it all must accept that they believed something, perhaps all of their lives, that turned out to be disastrously untrue. Happiness cannot be found in a successful trade any more than it can be lost by a bad one.

Rao says, The thing to do is not beat myself up and shoot second arrows at myself. Simply recognize that this was wrong. It was a sharp cut with a knife, but now that I have received it, I can see how clearly I was wrong. Let me pick up the pieces and not make that same mistake again. Tomorrow is another day, and I dont have to let todays residue poison tomorrow. 

Although its not easy, Rao suggests looking at awareness like its a flashlight. A flashlight illuminates whatever it shines its light on. If you illuminate it on the big gains you once had and neglected to sell, and now its all gone, and youre behind where you started, youre shining the flashlight of your awareness on something that you defined as wrong in your life, Rao says. Thats an inefficient strategy. Instead, he suggests shining the flashlight on what to do next. Youre not starving, youre not being foreclosed and thrown out of the house or even if you are, nobodys holding your hands in a vice while they rip your fingernails off, Rao says.

For those really struggling with severe anxiety or depression, Sterbenz recommends therapy and believes that professional help can be a gateway to personal growth. If one is not experiencing a severe clinical need and therapy isnt necessary, she suggests focusing on the concept of radical acceptance. 

According to the Berkeley Well-Being Institute, radical acceptance is accepting what is not under your control and embracing what is happening now in a non-judgmental way. Radically accepting emotional or physical pain can reduce the suffering they cause. If you were involved in any of the cryptocurrencies that have been affected by this, you can move forward from there. Other people have also been affected by this. You made the best decision you could at the time, Sterbenz says. 

Reach out for help 

If crypto traders or holders are experiencing thoughts of self-harm, Sterbenz says, Get help immediately. She suggests going directly to a medical professional or calling a trusted friend.

The crypto community has previously shared resources such as international aggregators of suicide hotlines during bear markets when a number of hodlers who were underwater expressed harmful thoughts.

Regarding such thoughts, Sterbenz says, They do pass. It does not feel like that when youre in that moment. It does not feel like those two to five minutes are going to end. Therefore, she believes its most important to have people around you who will do the best for you.

Sterbenz also believes that family and friends shouldnt hesitate to reach out to loved ones who might be considering self-harm. She says that many people think talking about suicide makes it more likely something will happen. And that is really not true, Sterbenz says. She recommends directly asking those struggling if they are thinking of hurting themselves. Thats not gonna make them more likely to do something.

Lady of Crypto, a trader and Twitter influencer, also advocates for mental health. She tells Magazine, It was an incredibly tough time in the crypto space, and so many people were affected. Ive had friends who have struggled, and Ive seen how people can become shadows of themselves and be pushed to the edge. To see these messages on Twitter really is heartbreaking. No one should ever be in a position where suicide is their only option. I just thought if I kept my inbox open and could make a difference to even one person, it would be worthwhile.

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So, wheres the happiness after all?

According to Rao, one cant look for happiness. It cant be discovered in a favorite altcoin, and it wont suddenly appear when Bitcoin finally breaks $100,000. Rao believes that happiness is not something to be sought after. The more one seeks happiness, the more it runs away. Happiness just happens. Its not an aspirational goal but springs out organically in adopting a certain mindset.

The mindset youre gonna occupy as a crushed crypto trader is: Okay, Ive blown a big chunk of my fortune and net worth away. Its very unfortunate, but thats the way the universe went. And I can now cry myself to sleep every night and make matters a whole lot worse, or I can shine the flashlight of my awareness on the fact that Im still healthy. Im still whole. Ive learned a very expensive lesson, Rao says.

Focus on what to do next. Even if yesterdays red candles insistently keep trying to grab ones attention, Rao suggests recognizing this as mental chatter. Instead, focus only on what to do going forward.