Farcaster Comes For Twitter

ETH isn't a security I Robinhood <> Metamask Partnership | Solana goes down | Bitcoin miner growth

Decential Media
A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

  • ETH isn’t a security

  • Farcaster

  • Robinhood <> Metamask partnership

  • Solana goes down

  • Bitcoin miner growth

  • Crypto: The Game

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The Latest

Why we don’t think ETH is a security

There’s been some revived talk this past few weeks over the status of Ether, the cryptocurrency native to the Ethereum blockchain. Is it a security?

CNBC noted that there’s good news/bad news on this front. The bad news first: as long as Gary Gensler is head of the U.S. Securities and Exchange Commission, Ether will be persona non grata. After an SEC official said quite plainly that Ether is not a security, Gensler has muddied the water. Look how he tried his best to prevent a Bitcoin exchange-traded fund (ETF), and Bitcoin has long been accepted as a commodity.  

The good news: there are currently ETFs based on Ether futures. The SEC lost big in court when the agency was told it made no sense to have approved a Bitcoin-futures ETF, which it did, and not allow a cash version. The SEC has approved Ether-futures ETFs, just to say that again.

Then the other day, Fortune ran a story with the headline “SEC may be forced to declare Ethereum a security after controversial new launch,” which has something to do with the new Prometheus offer to custody Ether. I can’t read the story because it’s paywalled, and, you know, but it’s curious that the idea of custody here seems to imply Ether is a security. Do we think everyone who owns gold – an obvious commodity – stores it under their bed or a few feet below the backyard? Maybe that’s too easy an argument to debunk, I don’t know, but it’s not difficult to poke holes in the argument Ether is a security.

There are a few intriguing wrinkles here, though, and I know a bit about this history. Unlike Bitcoin, Ether was pre-mined, meaning some of its supply was simply created out of thin air. This was done to fund the software development for the blockchain, as many Eth devs had maxed out credit cards, only promises that they’d get paid, and bills that didn’t stop coming due.

Yes, it’s true, there were also some savvy sugar daddies like Joe Lubin and Anthony Di Iorio (who both made out like fucking bandits on their Ethereum investments). The pre-mine though cast a much wider net for people to get paid and it worked. It must be said the Ethereum co-founders and everyone involved in the very early stages got away with one, as it took the SEC several years to catch on to what they were up to, and by then Ether was being created through a proof of work mechanism just like Bitcoin. That implies a degree of decentralization, as computers all over the world secured the Ethereum blockchain by that point. That decentralization was a big reason the SEC official, Bill Hinman, said in 2018 that Ether isn’t a security.

So for all the Ether heads out there, you probably won’t get any definitive answer on this question as long as Gensler is at the SEC, but he won’t be there forever and the deck certainly seems stacked in the second-largest crypto’s favor.  – Matthew Leising, editor in chief, Decential Media

Social media dept.

Farcaster

Farcaster has become a viral hit in the world of crypto. Daily active users have rocketed from 2K to 30K in under a week. Is the hype worth it? Before we dive into it, let’s give a quick rundown of what Farcaster is. Farcaster is a protocol for building sufficiently decentralized social networks. It utilizes Optimism as the underlying blockchain, but not everything occurs on-chain. For example, only creating an account, paying rent to store data, and adding account keys occur on-chain. All of a normal user’s actions, such as posting a new message, following another user, and reacting to a post, occur off-chain. However, these off-chain systems achieve security by relying on signatures from on-chain systems.

If all of that doesn’t sound too exciting for you yet, that’s completely fair. But there’s more. Farcaster is only really a back end, which acts as a database that stores information such as accounts, posts, interactions, and more. How does all that information get displayed? That’s where clients come in. The most popular one right now is Warpcast, built by the Farcaster team. It looks like a blend of Twitter and Reddit, aka something that users are familiar with already. But more importantly, anyone can build a client, meaning that if Warpcast shuts down, you can always access the protocol through another client interface. You can’t say the same for Facebook (sorry Meta), because if the company were ever to shut down, a) you would lose access to your entire account as facebook.com would no longer exist, and b) every single data point related to your account would also cease to exist as Facebook wipes their servers. One can clearly see the advantages of social networks being on-chain.

Onto the most exciting feature of Farcaster, Frames, which allow developers to build applications into an iFrame. Any user can interact with an iFrame in Warpcast. Yes, that means that any post can now be turned into an interactive application. I cannot overstate how big of an unlock that is. In traditional social media websites, such as Twitter, every time you want a user to do something else, you need to post a link, and after the user clicks the link, then and only then can they execute an action such as sign up for your website, buy a product or place a sports bet. However, in Farcaster, you can interact with any of these applications directly in the client. Not much has been built yet, but the possibility of thousands of developers building fun apps within a social media “website” is exciting enough for me.

Just as a fun thought exercise, here are some things that a developer could potentially build. For example, if you run a podcast, you can now post that to Farcaster, and allow users to mint/collect these episodes, all enabled by crypto rails because every Farcaster account has an associated crypto wallet. For example, if you were a sports league such as the NFL or NBA, you could live stream your games live within Farcaster, and bringing that one step further, you could build prediction markets that allow users to bet on the sports games, all within a single post. You can build token-gated communities, where the tokens are directly purchasable within Farcaster. You can build interactive games within a post. You can build a music streaming service. You get it. The possibilities are, quite literally, endless. If you can code it, you can will it into reality.

Out of all the social media related protocols such as Lens and friend.tech (RIP), Farcaster looks like our best shot at displacing Facebook thus far. Will it ever expand past the crypto-native users and community coming from Twitter? I think it has a chance, as Frames fundamentally allow developers to build attractive and viral applications to cater to any possible user base. There have already been several Frames hackathons, with many unique ideas being incubated. Godspeed Farcaster, and good luck. We could all use a little less Twitter bot spam, and a fun social media protocol to get addicted to. — Joseph Cooper, Decential Media

Quick Bits

Robinhood <> Metamask

  • Robinhood Connect, an on-ramp solution launched by the platform, has integrated with MetaMask. The partnership will allow MetaMask users to purchase crypto through Robinhood’s order engine.

  • The partnership allows the firms to access each other’s users while improving the experience for the average retail degen. Setting up a Coinbase account is a fairly new experience, and many more Americans likely have a Robinhood account ready to go.

Solana network outage

  • We definitely jinxed this one with our subject line “Solana stands the test” last week. Solana suffered an outage on Tuesday morning, which required a network restart.

  • Having said that, Solana hadn’t gone down for the past year or so, which is an improvement from its early days. However, we'll need much stricter liveness guarantees for blockchains to work, especially ones with mainstream adoption. For example, Visa has only had 98 minutes of downtime in 12 years.

Bitcoin miner growth

  • CleanSpark, one of the larger Bitcoin miners, has made further acquisitions. The latest is the purchase of three mining facilities for $19.8M in cash and will increase its hash rate by 2.4 EH/s, representing about a 30% increase.

  • This comes ahead of the halving, which is slated to occur in ~70 days. And to give you a picture of the amount of infrastructure investment that has been occurring, a dozen Bitcoin miners have purchased ~$1.2B worth of mining machines in 2023.

And last but not least

Crypto the game

Crypto: The Game, is a massive crypto survival game, incubated by Delphi. With contestants paying 0.1 ETH to play, the prize pool is now well above $100K, and only 179 players remain. Once a player joins, they are assigned to a tribe. Every day, a tribe faces an “immunity challenge” that ranges from going on digital scavenger hunts to competing in digital arcade games. Whichever tribe wins the daily challenge receives “immunity” while the remaining tribes will vote out some of their players. For example, one challenge was finding a code hidden in Chris Dixon’s new book “Read Write Own” in a bookstore in New York. This is a fun real-world experiment, especially since players’ locations are shared real time on a map. Is it a good game? Only time will tell. But given the hype that it has received on Twitter, it would appear that at least some are interested in the Survivor-like game. What type of doors does this open up? Crypto has always presented itself as a novel social coordination mechanism, and perhaps the most attractive interface for that is a game. Imagine city wide meetups, events, restaurant discovery, movements, all facilitated through on-chain rails presented in a game interface. At this point you’re asking, why does this need to be on-chain? It doesn’t really. But incentives are a key component of getting humans to do things, and having these incentives be decentralized assets on decentralized infrastructure makes a fair amount of sense, as you don’t want anyone controlling the entire “prize pool.” On the other hand, it would just be really cool if there was a global game that recreated the Pokemon Go buzz when Central Park filled up with thousands of players all vying for a chance to capture Snorlax that was built on crypto rails.

There’s another interesting component to this story, which includes AI agents and prediction markets. What does the intersection of a game, AI agents, and prediction markets look like? It’s a fun story, so stick around. Anish Agnihotri, co-founder of a crypto AI protocol, added 200 of his own contestants to the game. Here’s the kicker. All of the contestants were AI agents. Upon finding out, the game developer kicked all the AI agents out and chose to withhold the ~$50K that Anish paid for his AI agents to enter the game, as it apparently violated the terms of service. One of the benefits of blockchain is permissionless interaction, and one of the exciting possibilities is having AI agents transact for us, whether that’s making financial transfers or preventing malicious activity. Thus, kicking players out for being AI agents seems, if anything, a very lame action in what could have been a very exciting experiment. The follow-up to this story is that Anish then put up $15K against him winning on Polymarket, and voters had the opportunity to bet for him at 10:1 odds, meaning that they would have received a payout of 10x if Anish won. Suddenly, it’s in players’ incentives not to vote out Anish if they bought the Anish will win side of this bet. And voila, Anish just effectively bribed players and influenced in-game behavior through prediction market bribery. — JC

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.