The Web 3 is still rough around the edges, but the growth of value has been immense. Fertile ground for scams. This piece aims to achieve two things:
How to avoid potential scams, and;
How to avoid your company looking like a scam.
This is based on years of watching the crypto space, from ICO pump & dumps to the NFTs & DAOs of today, so I’m not talking about any company in particular. However, should you have the feeling what I say applies to your own, then following the advice laid out here can improve your public perception.
No way to check transactions ‘on-chain’
NFTs took off in a way other digital goods didn’t, because they’re verifiable and you can actually own them in your own wallet. When a platform, for example an NFT marketplace, doesn’t make it possible to track this info (for example via Etherscan), you lose all the major benefits of NFTs. There’s no transparency and there’s no guarantee that the NFT will live beyond the lifespan of the platform in case of bankruptcy or an actual scam. This is really important, because projects will fail. Nearly half of all 2017 ICOs had failed by mid-2018.
No roadmap, whitepaper, explanation
Transparency is key. It’s early days. Things are clunky, they might break, and there are scammers around. The crypto space addresses this with loads of transparency through whitepapers and wikis that explain exactly how things work, what they plan to do in the future, and even the smart contracts that power it all. I personally wouldn’t spend money anywhere where this is missing. It’s such a basic thing.
The crypto space is young, but it’s easy to build a network. When that network is missing, it suggests being new to the space, not understanding it well, or perhaps not having the intention to. What can compensate for it is a network in another domain, like music, sports or art, so that their reputation can be checked.
No team page on the website
This is not a must, but when all else is missing I want to know who are staking their reputation. I want to find these people on Twitter, Discord, LinkedIn and see who they’re connected to. Basically: who’s handling the money I spend?
Fake social media followers
It’s not that hard to figure out when post likes & follower counts just don’t add up. There are also tools to figure out what % of an account’s followers are bots. To me this often feels like someone trying to buy legitimacy instead of earn it. Scammers tend to move fast, because they need to pull the rug before people bail out.
Err on the side of caution
There are plenty of platforms that do things well. Don’t let FOMO get the better of you. Steer clear of platforms that tick the above boxes and give them time to sort things out. Help your friends do the same. It’s estimated that 80% of 2017’s ICOs were scams with $9 million being lost to them daily (2019). Lots of people trying out the promises of Web 3 got burned immediately and the whole space became known for it.
In the platform economy, your account, your username, your social connections: none of those belong to you. If you break the terms of service, or are merely suspected of doing so, the platform may revoke any or all of those and take away everything you’ve created or built (after it has reaped the benefits in terms of ad dollars from it).
I understand why people may be skeptical of NFTs and smart contracts, but I feel the budding Web3 solves issues left unsolved by the Web 2.0… and the space is heating up as creator economy trends coalesce.
“Would you consider selling the URL?”
A few years ago someone reached out to me to see if I’d be willing to part ways with my 3-letter username on a platform. I wasn’t really, but was open to consider it. I also knew that if I wrote that in an email and the platform to which I had registered saw that email, they’d have cause to revoke my account.
The URL, or the part of the username in there, is not mine to sell. It’s owned by the platform. My account, with all the content I had created and followers I had attained, was equally not mine to sell. Sure, it happens all the time, but with risk.
There are multiple reasons for platforms’ prohibition of selling accounts or any aspects directly related to account. The reason most talked about is to prevent scams like fake followers, astroturfing or username squatting. The other reason is because these platforms depend on data monopolies to survive.
Data monopolies & walled gardens
Early in the web 2.0 days, there was this dream of open APIs, services talking to each other, people forging completely new services by leveraging APIs. It wasn’t just a dream. People did so. Loads of cool hacks and apps launched this way – some survived by pivoting away from external APIs, most died. What happened?
In short, advertising happened. It seemed like the only viable business model at a time before most people were used to doing payments online. A time before modern smartphones. It doesn’t feel long ago, but the internet was such a different place. When you want to make money with ads, you need eyeballs and you need data; lots of it. That means people need to spend time on your platform, so their eyes are there and their data is yours. And so is their ad revenue. External APIs got crippled.
The pandemic has accelerated the rise of the creator economy. It has made calls for fair compensation louder (see Spotify). It has made people go direct to their audience via newsletters instead of relying on Twitter or Medium. It has made people experiment with more direct forms of monetization through livestreams, virtual events, and fan communities on Patreon and OnlyFans.
And then there’s NFTs.
Your username as an NFT
We’re all familiar with the headlines of NFTs being sold for millions. Let’s look at the extra utility and how it matches creators’ demands for more autonomy & ownership of their data and the value they generate.
Recently I created a web3 primer video to set folks up with a crypto wallet and buy their first NFT using ENS. ENS lets you register a legible name as an NFT, like basgras.eth, that points to your wallet address (a hash code) in a way similar to how an email address points towards a mail server or a domain name points towards a host.
Services that support ENS allow people to display their .eth name as their usernames. So if someone wanted to ‘buy my URL’ or username on a service, I could just sell the NFT which only ever belongs to the person in whose wallet it sits.
What if we apply this concept of data ownership to more forms of data? We can apply it to social graphs via the community tokens someone holds in their wallet. Some of those community tokens may be specific to a small group of friends, like a group chat on Facebook or Telegram. Want to take those connections elsewhere? Just join another service and it automatically connects the holders of those tokens.
What about other data, like your posts? I expect they’ll become portable as NFTs with the media hosted through IPFS. It won’t be the incumbent platforms making the first step here. The autonomy and portability of NFTs will have to be created outside of them, so that they have no choice but to integrate them. That sets a new standard: “wait, I can bring my NFTs from outside in, but I can’t take my content out?”
This tension field is emerging and will likely strand incumbents somewhere between web2 and web3. How far it goes in terms of decentralization depends on the business models that get enabled (can this become bigger than advertising?) and how effective the trends are at confronting concentrations of power. What’s certain: People will expect to have more of a say over their data and they’ll expect ownership over the context in which they create value, which will become normalized through DAOs.
Facebook wasn’t MySpace’s web 2.0 successor: they were both web 2.0. Facebook’s web 1.0 predecessor was Geocities. The web 3 leap is larger: the successors to Spotify, Facebook and Twitter will look nothing like them, but will be able to solve the same problems & address the same needs. This time around, you’ll be able to move your data out. The incentive not to do so? You’ll own a part of them.
The current NFT furor is partially fueled by early crypto buyers converting virtual money into something that might retain value better: art. This has been the case pre-Bitcoin, as this BBC article from 2017 about traditional art investments points out well:
“As art has no correlation to the stock market, it means paintings can go up in value even when the market crashes, making it a good diversification for an investment portfolio.”
One of the reasons why people are excited about blockchain is the fact that it allows for further decentralization of the web. Whereas the ‘web 2.0’ focused on feeds, social data, APIs and ultimately led to the creation of mega-platforms, discussions around the current ‘Web3’ tend to focus more on protocols, not platforms. That’s exciting, because we’re discussing the building blocks of the next generation of connected applications and their infrastructure.
One of the concepts the Web3 enables is the ‘internet of value‘: an internet where anything of value, from money to intellectual property, can travel as fast as information itself. Currently, transactions of money often flow slowly since they move through centralized bodies (hello, last year’s royalties) and that’s exactly where technologists hope to reduce friction.
This is also why there’s so much talk about trust. Systems, and the networks that support them, need to carry a certain legitimacy for people to adopt them.
One of the most exciting developments in the internet of value, and one that may shape fan culture for the next generation, is that of social tokens. Oversimplifcation: a creator of music sells ‘tokens’ to a community of fans, in order for those fans to unlock perks. These tokens become more valuable as the creator becomes more successful. If you thought BTS fans were everywhere already: just imagine a scenario where they’re holding tokens and the more popular BTS get, the more valuable their tokens get.1
Here’s my concern, though:
Many of these communities (and economies) are currently designed in a way that you have to buy yourself in by converting cryptocurrency into tokens or earn your way in by creating value for the wider network. The latter phenomenon can be seen in ad-free free-to-play games like those of Supercell, where the majority of users create valuable context for a small minority of users to spend their money. After decades of creating value on other people’s platforms and then having to pay to reach your own audience (e.g. Facebook), the token model is a very welcome change – but how do we make it inclusive?
Not everyone is able to buy themselves in early. While it’s true that you don’t always have to buy yourself in, e.g. in the case of Audius airdropping tokens to its users, the amount of effort required to earn your way in later on may increase with the value of tokens. Yet it’s not exactly about effort.
The goal is typically to make sure that those that provide an adequate amount of value to the network or platform get a token, so they can share in the overall value of the network. Kind of like getting a share in Facebook for posting cat pictures that get tons of likes (or your own music). However it’s not just a share: tokens often represent access. Access to communities, access to voting on the future of the network, access to features or perks, etc.
Tracking value
For the sake of inclusivity, it’s crucial that such systems accurately track and compensate value creation. But value is abstract, as anyone familiar with discussions about the value and price of music will know. Unfortunately, many systems are set up with the assumption that all value will be fairly compensated. While I admire the idealism and drive behind them, it does mean that people will be left out – either because they can’t afford to buy themselves in, or because they don’t get awarded a token for the value they create. For example, the person posting cat photos in the above example might get a token, but the people who took those photos don’t get anything.
The NFT market currently also has this problem, with minting fees being a barrier to entry to many artists who can’t afford it. This is an issue that’s being addressed, but for the time being it can be prohibitively expensive to mint NFTs on some of the more popular blockchains like Ethereum. Meanwhile, theMint Fundis a great example of an initiative that helps artists fund their NFTs, placing emphasis on the underrepresented.
Without taking these exclusionary issues into consideration when designing systems, we risk the next generation of internet culture to be one of currency and speculation. An internet where people with less money (fiat or crypto) get locked out or have less power over the platforms they use, despite perhaps creating more value that can’t be translated into currency.
That’s possibly still a step up from the internet of extractive megaplatforms like Facebook. Plus, if a platform or community decides that’s actually the way they want to work, that’s fine. However, there are a lot of instances where this is not an explicit decision, but rather something that’s believed will be resolved in the future through improvements in technology.
We messed this up with the web 2.0, where the promise was an interoperable internet, but we ended up with an internet where a few platforms extract value from everyone at the cost of privacy and the value of content. 20 years later, we have another shot at this. Let’s get it right this time. From the start.
While user-centric payments definitely make the landscape fairer and realign incentives by making sure the money generated by fans of certain artists actually end up in those pockets, it’s definitely not a silver bullet solution to make up for the difference between desired and actual revenue artists receive from streaming services. In other words: for the vast majority of artists, the immediate change in royalties from a shift to user-centric would be negligible.
Furthermore, it’s complex to negotiate, as SoundCloud’s VP of content partnerships Raoul Chatterjeepointed out during a recent session of the UK streaming inquiries:
“The whole investigation into user-centric is a very detailed and complex investigation that needs to be taken. It’s one potential path we’re exploring… and it would require industry-wide conversations and support to be impactful.”
SoundCloud is doing ok (especially compared to a few years ago), is reporting growing revenues, but it’s losing relevance. SoundCloud does not have time for lengthy negotiations. As a platform, they’ve lost their footing at the center of music subcultures and the longer it takes for SoundCloud to regain its position, the harder it will become.
Keep the lawyers at the (virtual) negotiation tables, but in the meantime, claw your way back.
Firstly, where do music scenes go to connect to stay connected with each other in 2021? I’ve argued that Instagram has usurped community building from SoundCloud. Of course it should be noted that TikTok is playing an increasingly important role there, especially for certain genres. To a lesser degree, groups on Facebook, Telegram, and Discord form places for people to share their latest tracks, get feedback, find people to do collabs or exchange remixes with, etc. As such, they’re also great places for fans to keep track of the latest developments in music.
Secondly, where did musicians turn when they struggled to make ends meet with just the income from Spotify, Apple Music, YouTube, etc.? They turned to Bandcamp in a massive way. SoundCloud, with its creator-centric roots, wasn’t well-positioned yet to accommodate these artists, because what it offers artists hasn’t changed much from its early beginnings. In 2020, being creator-centric meant helping creators make money – and SoundCloud didn’t have much to offer beyond what it offered artists since the service’s early days. That is: a place to upload your music and present it to other people. That addresses a pre-2015~ market need: making music easy to access. Access has been solved. Monetization hasn’t.
Another place that made music easy to access, YouTube, has been SoundCloud’s most important competitor. YouTube, since its early days, has offered social functionality similar to SoundCloud’s, in that one can follow creators (once innovative! Spotify only launched this 4+ years after launch), comment on tracks, and see other users’ profiles.
By 2021, YouTube’s suite has evolved to include membership clubs with monthly fees, monetization through content identification, and livestream monetization through social features that make fans more visible in the chat (similar to Twitch).
This is the landscape SoundCloud must address & find relevancy in.
SoundCloud was strongest when it catered to its early adopter users or users who exhibit that type of behaviour. Behaviour commonly associated with early adopter users is word of mouth, being a power user, and a willingness to overlook certain flaws as long as the product delivers exceedingly well on its core value proposition. These users are not well-addressed, since the value proposition has diluted over time in order to target wider audiences (e.g. through its Spotify-like subscription service). SoundCloud has made some great initiatives to woo creators in recent years, but the unifying aspect for all users on the platform is its listening experience – and that’s a social one.
People go to SoundCloud to discover new music. To find what’s ‘Next Up’ before it’s uploaded anywhere else. If you’re into a particular type of music, you’ll follow many of the same artists as other fans of that music and you’ll see some of those fans appear in the timeline comments on tracks.
Timed comments on Masayoshi Iimori’s track Alcohol.
On profiles, which have the same feature sets for fans and for artists, this social functionality is also present by displaying who someone follows and is followed by, as well as any tracks they’ve liked and comments they’ve left. For users who don’t upload any music, the main profile real estate consists of reposted tracks (similar to a Twitter user who only retweets). All of that is social.
Do the majority of users explicitly engage in social behaviour on the platform? Unlikely and it’s probable that a small minority of users create most of the (visible) activity, as on Twitter. SoundCloud is a community product where a minority of users create the value that the majority of users get off of the platform. Unlike Spotify, which tries to help users get as much value out of the catalogue as possible, SoundCloud should focus on the value users can get out of communities and the artist-fan relationship.
Lessons from gaming
This is not dissimilar to what fueled the success of games like Farmville or Clash of Clans. In free-to-play games, the majority of users will never spend any money. Instead, they create value for the ecosystem, so that a minority of users becomes willing to spend (big).
In order to leverage these dynamics, and create revenue for artists, SoundCloud must double down on social. How?
Step 1: Leaderboards on tracks and profiles. Show off the top fans of tracks and artists. Dedicated fans will want to earn their spot as the top fan. It’s not just fans: if you’re part of a certain music scene and want to make sure you’re ‘seen’, you’ll play new tracks on repeat, so you appear on the leaderboards on day 1. (just imagine K-pop stans, if you find it hard to imagine how fan communities would approach these types of dynamics)
This functionality already exists inside the stats dashboards artists have access to. All SoundCloud needs to do is make leaderboards visible on the various pages and perhaps create a setting so people can exclude themselves from public leaderboards.
Screenshot of the top listeners of a particular track in a 7-day time period (stats dashboard).
Step 2: Track and profile pages as real estate. Leaderboards create social competition and a way for fans to earn status. Now comes the monetization: let fans pay to claim pages in a non-obtrusive way, similar to how YouTube’s Super Chat feature lets you claim visibility in a chat during a livestream. You could let artists set prices or create some type of market dynamic for this.
Step 3: Place activity & payment on the same currency. As in gaming, certain users will spend more time creating value through activity and other users will fuel the economy through payments. By creating an on-platform currency, SoundCloud could reward active users with tokens that accrue value as people purchase tokens to spend on the platform with ‘real money’.
The tokens could then help artists mint their work as NFTs and create a more sophisticated dynamic for ‘tracks as real estate’. Basically, artists could earn money from playback, from selling tracks as NFTs, and by making commissions off of people speculating and reselling music NFTs (a commission percentage can be defined in the smart contracts associated with an NFT). From here, SoundCloud could come to function more as a protocol and create a metaverse-friendly version of its other early value proposition: music playback that embeds everywhere. This time with music as a vanity item that all can enjoy, but can only be owned by one person at a time while always staying associated with the creator – even when NFT ownership transfers from one person to another.
As the user-facing part of the platform shifts towards creating more value from the artist-fan relationship and the activity inside fan communities, subcultures, and scenes, lawyers can negotiate with industry gatekeepers to change royalty administration to a user-centric model.
Some of the above is actually what the Audius protocol is trying to accomplish. You could also go a lot further than what I’ve described, as Audius intends and as Mat Dryhurst explored in his essay SoundCrowd: Tokenizing & Collectivizing Soundcloud. Long term blockchain visions aside, for 2021, being a creator-centric company means being a company that helps monetize, so SoundCloud must focus on the short term and employ an “opportunities multiply as they are seized” type of strategy. That means: not standing still to evaluate distant forks in the road, because what you do along the way will determine the paths you can take from that fork.
User-centric is too slow for SoundCloud
Is user-centric streaming the right thing to do? Yes. Will it help SoundCloud in the short term? No, because artists will not see significant enough returns in order for them to drive more traffic to the platform.
Spotify is cool.. but @Bandcamp put double glazing on my house this year.
How can SoundCloud be as significant to artists as Bandcamp was in 2020?
SoundCloud must emphasize its community nature, since that’s how the type of value can be created that part of its core users will pay for. That won’t be most of the audience that SoundCloud has been marketing its music streaming subscription to (which can’t beat catalog-centric Spotify or value gap YouTube).
The platform must be selective about what type of behaviour it wants to cater to and the value it can create out of that. For that, it makes sense to use its DNA as a social music platform – something that Spotify, Apple (through Ping & Connect), and others have not been able to figure out. It needs to focus on the users that can amplify community excitement around significant monetization functionality and help make SoundCloud as culturally relevant as it was half a decade ago.
Signed,
A long term SoundCloud user with a 3-letter username: Bas (and more recently Viva Bas Vegas).
