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Future of the Creator Economy: How Individuals are Utilizing Social Tokens

Social Tokens are probably one of the most overlooked phenomena in the web3 space. Yet, they give much power to content creators and are well worth our attention. First things first, what are social tokens? A social token is a type of cryptocurrency used to monetize a brand. Social tokens are a sweet spot between DeFi (decentralized finance) and NFTs. They can be used as personal or community tokens.

The Purpose of Social Tokens

Any brand, community, or influencer can easily create a social token using platforms such as Rally or Roll. While many celebrities are currently using web2 platforms like Instagram to connect with their fans— this method can come with inconveniences.

Fans can get locked into one platform, making it difficult for brands and creators to carry their fans to other platforms. Another issue with using web2 platforms is that the brand or creator’s value accrued is entirely decided by intermediary platforms and corporations. They decide how much of the revenue to share (if any) and have complete control over artistic expression. 

Social tokens enable creators to bypass the existing system and give the ability for creators to connect with and reward their fans directly. They can also monetize their clout by building independent digital economies. People get to create micro-economies built on fandom, rewards, and ownership in this new tech frontier. 

This is a great way to unite the fragmented fan base across platforms and create a gatekeeping mechanism to offer exclusive content. 

How Influential People are Using Social Tokens 

RAC – Music producer 

RAC

Reward early supporters 

Musician RAC has been a pioneer of crypto and creator economy. He was one of the first people to utilize social tokens and create a direct line of connection with his fans. He launched $RAC token in 2020 and sent it to his loyal fans from Bandcamp, Patreon, and Twitch. $RAC tokens are not buyable, only earned. RAC rewards $RAC holders by unlocking access to different perks and content. Since then, he also launched rac.os, a hub for token holders. 

Duncan Robinson – Basketball Player 

<div class =”code”><p class = “twitter-tweet”>https://twitter.com/rally_io/status/1494767567357030406?ref_src=twsrc%5Etfw</p></div>

Bring your fanbase together 

Miami Heat shooting guard Duncan Robinson became the first NBA player with a social token after announcing the launch of $DBO. Holders of the token get exclusive access to limited edition merch, private in-person events, secret episodes of The Long Shot podcast, and access to private channels on his Discord. Fans can gain $DBO by playing roles in the ecosystem, such as being discord moderators.

Kevin Chou – Entrepreneur 

<div class =”code”><p class = “twitter-tweet”>https://twitter.com/KevinChou/status/1453432815761215496?ref_src=twsrc%5Etfw</p></div>

Sell your time 

Founder of Rally, Taki App, and GenG. esports, Kevin Chou launched his $CHOU token, which reflects his interests and background in crypto and entrepreneurship. If you have some $CHOU tokens, you can use them to get meetings with him for founding advice, receive feedback on an elevator pitch, or even get him to retweet a post. 

Roberto Carlos – Football Player 

Create a hub for your life-long fans 

<div class =”code”><p class = “twitter-tweet”>https://twitter.com/Oficial_RC3/status/1498332155570982912?ref_src=twsrc%5Etfw</p></div>

Considered one of the best left-backs, former Brazilian football player Roberto Carlos launched his own social token, $RC3, to reward his fans who supported him throughout his career. By holding the tokens, fans will receive access to signed merchandise, private NFT drops, Zoom calls, private chats, and other additional perks. 

Portugal. The Man – Rock Band 

Maclay Heriot

Give exclusive access to your fans 

A band utilizing social tokens is Portugal. The Man. By holding its $PTM token, fans of the band can show support and get exclusive content, access to private events, VIP channels on Discord, merchandise, and presale codes of their future concerts. Especially for upcoming artists, social tokens are a great way to create a close fanbase because, for the first time, fans can be a part of the artists’ progress. If the artist becomes well-known, the token’s value will also increase, thus creating a positive-sum situation. Social tokens enable fans to invest in artists. 

Alex Masmej – Crypto OG 

Alex Masmej

An honorable mention is Alex Masmej, who created the first social token. After wanting to raise money to move to San Francisco, he decided to tokenize himself and sell 10% of the $ALEX token supply for $20,000, which sold out in 100 hours.

He promised holders a return in profit from his future income in return. He also worked on creating value for his token owners by launching a newsletter, a private Telegram group, and a liquidity mining experiment.

The most interesting was a voting system where he let people choose his daily habit.

<div class =”code”><p class = “twitter-tweet”>https://twitter.com/AlexMasmej/status/1278367473176322050?ref_src=twsrc%5Etfw</p></div>

The Future of Creator Tokens

While we see some exciting experiments with social tokens, it’s still in its infancy. Here, we talked about individuals creating their tokens. There are also communities doing the same, and one could imagine platforms creating their in-platform ecosystems by utilizing this concept. It’s an area that is still so new and undefined— you can create any community you want utilizing social tokens, so let your imagination run free.

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Finance NFT

What is Zcash?

If you have ever used the Bitcoin or Ethereum blockchain, then you know that any transactions that occur on the blockchain can transparently be tracked and verified. But, what if you don’t want your transactions to be displayed for the world to see? That is where Zcash comes in.

Zcash is a fast and confidential cryptocurrency with low fees. Zcash uses the zk-SNARK security protocol to ensure that any party involved in a transaction is verified without revealing any information about the transaction to the other party or the network.

Still curious to know more about this extremely secure cryptocurrency? Continue reading below to learn all about Zcash.

What is Zcash?
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Zcash is forked from the original Bitcoin blockchain, aka an Altcoin. This means that a team of developers made a change to the Bitcoin blockchain’s protocol to create a new version of the blockchain, which is known today as Zcash.

Eli Ben-Sasson, Alessandro Chiesa, Christina Garman, Matthew Green, Ian Miers, Eran Tromer, and Madars Virza, who are scientists from MIT, Josh Hopkins, and other respected intuitions noticed in 2014 that there were security flaws in the original Bitcoin blockchain.

That’s why they decided to create Zerocash, which was later rebranded to Zcash, in 2016.

With Zcash, you can pay your friends, family, and service providers while taking advantage of Zcash’s shielded transactions that keep all your financial information private and in your control.

Also, you can use Zcash at many of your favorite stores and online retailers. From buying bagels to buying a beach vacation, Zcash is accepted by many retailers.

Understanding Zcash

At its core, Zcash is similar to Bitcoin with a maximum supply of 21 million coins, and approximately 14 million coins in circulation at the time of writing this. The main difference between Bitcoin and Zcash, however, is that Zcash encrypts its transaction data, whereas Bitcoin does not.

With that, the entire Zcash blockchain is encrypted, plus the security protocol zk-SNARK adds even more anonymity and security for its users.

Moreover, Zcash currently utilizes a proof-of-work (PoW) hashing algorithm called Equihash, which is incompatible with mining hardware and software used to mine Bitcoin.

However, a blog post published on November 19, 2021, by the company, stated they are working on transitioning from a PoW algorithm to a proof-of-stake (PoS) algorithm in the next three years, which is more environmentally friendly and efficient.

How does Zcash work?
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When it comes to using Zcash, you have two options to choose from.

  • Transparent addresses (t-addresses): mean that addresses can be tracked on the Zcash blockchain similarly to the Bitcoin blockchain.
  • Shielded addresses (z-addresses): are encrypted using zk-SNARK transactions, meaning you can’t see the data on the blockchain so transactions sent to them are not visible, nor are the funds a z-address holds.

That means if a t-address sends funds to a z-address, public eyes are not able to see where the funds were sent to. Likewise, if a z-address sends funds to another z-address, the transaction is completely shielded from the view of public eyes. This creates one of the most privatized and secure ways to send and receive cryptocurrency.

To use Zcash, you will first need to get your own Web3 wallet, and then purchase Zcash from any of their supported cryptocurrency exchanges.

After purchasing your own Zcash, you can use it to buy various goods and services, or you can exchange it for another type of money, including US dollars, Euros, or another fiat currency.

The future of Zcash

Considering Zcash was created to be an efficient, safe, and anonymous way to transact, Zcash aims to be around for years to come. And although Zcash is one of the top privacy coins available on the market, the developers promote complying with all regulatory requirements.

How safe is Zcash?
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Compared to a credit card or cash, Zcash is much more secure because it is attack and censorship-proof, private, and only auditable with the users’ permission. Even when compared to Bitcoin, Zcash is more secure thanks to its encryption and an extra layer of security through zk-SNARk.

Below are some of the key features of Zcash’s safety.

  • Decentralized and attack-resistant
    Zcash is decentralized, meaning that it is maintained by a network of people and machines, not a centralized entity like a bank. Also, there is no central database, single point of failure, and no authority that can shut it down, you are in full control of your money.
  • Private addresses & transactions
    Zcash’s privacy means that users can send and receive cryptocurrency without disclosing any information about the transactions. However, if users want to be more transparent, they have that option as well.
  • Audit- and regulation-friendly
    Private addresses and transactions can be disclosed by users if they need to share information or comply with third-party audits and regulatory requirements.

Zcash is likely one of the most secure and confidential forms of cryptocurrency on the market with many pros that users can benefit from. As the world continues to evolve and accept cryptocurrency as a form of payment, I wouldn’t be surprised to see Zcash at the forefront of the market. 

Their dedication to security and privacy is admirable, and their commitment to comply with all regulatory requirements is promising.

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What Is Fully Diluted Market Cap in Crypto?

Trying to determine the future value of a cryptocurrency can be difficult, especially if it is a new token. However, metrics like fully diluted market cap can help you make the best decision when it comes to investing in crypto.

A fully diluted market cap in crypto is the total value of crypto at today’s token price if the total supply of cryptocurrency were in circulation. To determine the fully diluted market cap, multiply the token’s current value by the total supply of cryptocurrency.

What is fully diluted market cap in crypto?
Coinmarketcap.com

A cryptocurrency’s fully diluted market cap is just one piece of the puzzle when it comes to determining the overall risk and value associated with buying crypto.

Not to be confused with market cap or circulating supply, a fully diluted market cap is an estimate of what the market cap will be once all the tokens in a project are in circulation. In other words, you are predicting the future market cap of a cryptocurrency.

Fully diluted value (FDV) = Maximum supply of a tokens x Current market price

To calculate the fully diluted market cap of a cryptocurrency simply multiply the token’s individual value by the maximum supply of tokens.

For example, if there are 100,000 tokens total in a project, and the token price is at $5.00 each, multiply 100,000 tokens by $5.00 to determine the fully diluted market cap of $500,000.

Limitations of fully diluted market cap
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Determining the fully diluted market cap of a cryptocurrency can be a good factor to help you decide if a cryptocurrency might be a good investment or not, however, there are some things that the fully diluted market cap does not take into consideration, including:

  • Future developments of the project
  • Additions or departures from the development team
  • Future market relevance of a project
  • Competitor cryptocurrencies

In addition to these factors not being taken into consideration, a fully diluted market cap does not take into account the effect that an increase in token supply will likely have on the individual token value. 

Rather, if a token has a circulating supply of 50,000, and a token price of $5.00, it’s assuming that the token price will remain at $5.00, even once the maximum supply of 100,000 is in circulation. However, this is generally not the case.

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That being said, a fully diluted market cap cannot be the sole metric used to determine if a cryptocurrency project will be a good investment or not.

There are several other factors that play a role in the overall value of cryptocurrency, and the fully diluted market cap is just one of them. To learn more about how to do your own research in crypto, make sure to check out our guide.

Also, if you are considering investing in crypto, consider trying one of the safest investment strategies, known as the dollar-cost averaging method.

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What Is Circulating Supply in Crypto?

Investing in cryptocurrency can be overwhelming. Knowing all the different terms such as circulating supply, can help you make better investing decisions though.

Circulating Supply in crypto is the total number of coins that are currently available for trade and are circulating in the market and in the general public. When a new crypto is released, only a certain number of tokens go into circulation. The circulating supply is always less than the fully diluted supply.

What is circulating supply in crypto?
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Below is a more in-depth explanation of circulating supply and why it is important.

When a cryptocurrency is launched, not all of the tokens are launched at the same time. Generally, a set amount is launched initially, then over a period of time, the remaining tokens are mined into the blockchain. 

For example, Bitcoin is mined approximately every ten minutes until it reaches its fully diluted amount of 21 million coins. Also, coins may be burned to permanently reduce the total supply in circulation.

It’s important to note that the circulating supply only refers to the total amount of coins available to the public, not the fully diluted (max supply) overall.

Why is circulating supply important in crypto?
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The circulating supply is important in crypto because once multiplied by the per-unit price, investors can better understand the approximate valuation of various cryptocurrencies, also known as the market cap. To do this, simply take the circulating supply and multiply it by the current market price of the crypto.

So, if there is a circulating supply quantity of 100,000 crypto coins and the current market value of the coin is at $5.00 each, that means the market cap is $500,000. Figuring the market cap is important because it can be used to help determine the overall risk and stability of crypto that you might be considering investing in.

Generally, a cryptocurrency with a greater market cap (greater than $10 billion) means that it is less likely to be affected by significant fluctuations in the market, hence it may be a safer bet in terms of investing.

Whereas a cryptocurrency with a lower market cap (less than $1 billion) is greatly affected by significant fluctuations, such as if a holder with a lot of tokens sold off their supply.

Ultimately, the circulating supply of crypto is an important metric to know, especially if you are considering investing in crypto.

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What Is Market Cap in Crypto?

With so many different cryptocurrencies flooding the market, it’s important to understand ways that we can determine the risk and potential upside of various cryptos. That’s why market cap in crypto is important to understand.

Market cap in crypto is the total dollar value of a token multiplied by the total amount of currency that’s currently in circulation. A cryptocurrency’s market cap highlights the long-term stability of an asset. Generally, crypto with a large market cap indicates more stability, smaller caps are more susceptible to market sentiment.

What is market cap in crypto?
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In general, most people tend to look at the market cap as an estimate of the overall stability of a cryptocurrency. The thought is, the greater the market cap, the better a cryptocurrency will perform overall in a volatile market. 

Bitcoin is a good example of crypto with a large market capitalization, which seems to do well overall. However, that’s not to say that it doesn’t have its ups and downs.

What about circulating supply and fully diluted supply? Great question! Circulating supply is the total supply of cryptocurrency that is currently flowing through the market. Fully diluted supply is the total supply of crypto, including the amount that is not currently circulating in the market. 

Depending on the preferred method of who is supplying the market cap data, some will measure the cap using the currently circulating supply, while others will use the fully diluted supply.

Make sure you are aware of how a market cap is being measured if you are using the data to help with an investment decision.

Why is market cap in crypto important?
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Market cap in crypto is important because it’s used as a tool to measure the overall potential of a certain cryptocurrency and to compare value across other cryptocurrencies. Market cap can help indicate the growth potential of certain crypto and whether it’s safe to buy, compared to others.

Below is an example of how you can use market cap to help compare value across various cryptocurrencies:

  • Say Cryptocurrency A has 200,000 coins in circulation and each coin is worth $1, it’s market cap is $200,000.
  • Say Cryptocurrency B has 50,000 coins in circulation and each coin is worth $2, it’s market cap is $100,000

This shows that even though the individual price of Cryptocurrency B is higher than Cryptocurrency A, the overall market cap of Cryptocurrency A is double Cryptocurrency B’s.

It is still important to note that many cryptocurrencies’ market cap still fluctuates drastically because the overall market is extremely volatile.

What can you do with market cap knowledge in crypto?
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With the knowledge of a cryptocurrency’s market cap, you are able to compare the total value of one crypto with another, allowing you to make better investment decisions. Cryptocurrencies are classified into three categories according to their market cap.

Small-cap: Small-cap cryptocurrencies have a market cap lower than $1 billion and are at the highest risk for fluctuations based on market sentiment.

Mid-cap: Mid-cap cryptos have market caps between $1 billion and $10 billion. Mid-cap cryptocurrencies generally have greater potential upside, but also higher risk.

Large-cap: Large-cap cryptos, like Bitcoin and Ethereum, have a market cap of over $10 billion. These are considered to be the lowest risk investments because they have already proved a positive track record of growth. Also, large caps can withstand higher volumes of investors cashing out without the price being impacted too much.

Knowing what market cap in crypto is and how it can help you determine risk when investing in cryptocurrency is important, especially considering how volatile the current market is.

Always do your own research, even if a certain crypto has a large market cap.

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What is KYC in Crypto?

With all that is happening in the world, as well as new technologies, many people are turning to cryptocurrency exchanges to invest their money. Considering crypto’s decentralized economy, however, many users have a problem when it comes to KYC.

KYC, aka, know your customer, refers to a cryptocurrency exchange’s obligation to perform certain identity and background checks on its customers before allowing them to use their platform. KYC is used to deter money laundering and other illegal activities that may occur when using crypto exchanges.

What is KYC in crypto?
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KYC is required by many cryptocurrency exchanges in the U.S. and is used to combat potential money laundering activities in the crypto space and beyond. The problem is that many people who are currently involved in crypto and its surrounding technology are all for decentralization, which revolves around anonymity.

For crypto exchanges, KYC is a way to identify and confirm that a customer is who they say they are. It’s a multi-step process that helps to prevent the creation and use of fraudulent accounts.

Some of the most popular cryptocurrency exchanges including Coinbase, Binance, Kraken, and Gemini abide by KYC regulations to stay compliant with the law.

That is why you will notice that many crypto exchanges require your name, DOB, address, a copy of your ID, as well as a picture of you holding your ID to prove it’s not stolen.

Why do crypto exchanges require KYC?
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Cryptocurrency exchanges require KYC to establish the legitimacy of a customer’s identity and identify risk factors. KYC procedures help prevent identity theft, money laundering, financial fraud, terrorism financing, and other financial crimes.

Moreover, cryptocurrency’s decentralized aspect opens the door to even more financial crime opportunities. If you know the government, they like to have their hands in just about everything, and in the case of KYC and crypto, even more so.

If crypto exchanges didn’t adhere to KYC law, they’d simply be breaking the law and would be heavily fined for their negligence. 

A prime example of this comes from BitMEX, the cryptocurrency and exchange derivative platform that was fined a hefty $100 million by the Commodity Futures Trading Commission (CFTC), in August 2021, for failing to implement anti-money laundering and KYC programs.

That being said, we can’t be mad at the cryptocurrency exchange, they’re just abiding by the law.

What are the pros of KYC in crypto?
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It goes without saying that there are many pros when it comes to KYC in crypto, including:

  • KYC limits fraud caused mostly by identity hiding
  • KYC prevents money laundering and other illegal financial behavior
  • KYC increases the country’s stability and investment by making the financial structure more trustworthy and less volatile
  • KYC reduces the uncertainty and helps institutions to lend more to clients while increasing profits
  • KYC helps investors assure the security of their personal data and prevents fraudsters from gaining access to their accounts
  • KYC enables clients to recover their accounts if access is lost
  • Without KYC, vendors have no idea who their consumer is, making it impossible for them to defend themselves from harmful behavior.

KYC doesn’t only benefit exchanges and the government, more importantly, they protect the customers who are using these crypto exchange platforms.

From assisting in a swift recovery of stolen funds to allowing customers to exchange larger sums of money in a single transaction, KYC is beneficial for everyone.

What are the cons of KYC in crypto?
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Given the digital state of crypto, and all that’s involved in the new digital economy, some may argue that KYC has cons as well, such as:

  • KYC is seen as an extra hurdle to accessing the cryptocurrency and Web3 space
  • Investors may be concerned about the privacy and security of their personal data as a result of the KYC procedure

If you ask me, the pros of KYC far outweigh the cons, especially when it comes to crypto. Most of us will just have to learn to live with KYC laws until something better is implemented.

Otherwise, there are some options to completely avoid KYC when it comes to cryptocurrency exchanges.

How to avoid KYC in crypto
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Keep in mind that KYC is a good thing for users of crypto exchanges, but, if you are completely against KYC, I understand.

Always do your own research before trading any kind of cryptocurrency and make sure you’re aren’t breaking any local laws. This article is strictly for entertainment purposes only.

To avoid KYC in crypto, you will need to find a non-custodial crypto exchange (custody of the wallet is 100% in your control). A good non-custodial crypto-exchange platform encrypts private communication, keeping your fiat-based identity secret.

Although I won’t mention any specific non-custodial exchanges here, they do exist. I’m going to leave it up to you to find one that works best for you and your situation. 

Also, keep in mind that laws and regulations are always changing. So, just because a crypto exchange advertises no KYC, that doesn’t mean it will stay that way.

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More and more crypto exchanges are beginning to implement KYC due to the government cracking down on exchanges that don’t currently perform KYC checks.

As the crypto space continues to evolve and become adopted by the masses, I expect the government to get involved as much as possible.

That being said, I think KYC is a good thing overall, but only time will tell if there are better options to achieve the same results, with less invasion of customers’ privacy.

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How NFTs Play a Role in Corporate Brands

Many corporate brands are starting to utilize NFTs in their business strategy, and we are beginning to see how NFTs either positively affect a brand’s reputation or negatively impact the brand. So, how do NFTs play a role in the corporate world?

“Just Do It.” “I’m Lovin’ It.” “The Happiest Place on Earth.”

You know who I’m talking about without naming the organization. A simple slogan is powerful enough to convey a clear connection to a corporation and communicates with us information about this brand.

“Just Do It” is more than a fitness encouragement from Nike; it is a trigger in our minds that Nike sells clothing and equipment engineered to the exact specifications of championship athletes. 

“The Happiest Place on Earth” calls Disneyland to mind, but more than that, it makes us want to go experience Disneyland because we trust and believe going there will make us happy.

The words “I’m Lovin’ It” motivate me to drive to the golden arches because I know a tasty burger and fries are waiting for me (especially late-night).

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It is not just the mental bridge between slogan and company that matters. It is the belief that the company can deliver on its word.

If executed well, a simple phrase and a jingle can spark belief and spring us to action for buying a burger or booking a trip. This is the power of a positive brand. Brand is communicated to us through many avenues. 

Why do I trust and believe that Nike, Disney, and Mcdonald’s will deliver a quality service? The following is an inexhaustive list of ways we shape our thoughts about a company and its brand:

  • Atmosphere and perceived culture of the store or website
  • Quality of the product or service
  • Credible opinions of others
  • News about the company
  • Personal interactions with company representatives
  • Company advertisements
  • Comparisons with other companies we’ve experienced

Our trust is built through many factors, and it is also built over time. My grandma used to say to me, “Trust is built in drops and lost in buckets.”

We may require several positive promptings before we’re willing to give a company a try, and then several more before we’re won over by a brand. However, it usually only takes one bad experience or story for us to cut a brand cold turkey.

Building a strong positive brand is one of the most important things a company can do and should be a priority for any company. But, how do NFTs play a role in the corporate world?

How do NFTs affect corporate brands?
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In 2022, NFTs are following a similar meteoric rise as the network effect seems to show a familiar adoption rate as social media. NFTs have become a new way for corporations to engage their supporters, form defined groups, and create new revenue streams.

NFT ownership and engagement has skyrocketed in the last year, and there are no signs of slowing down as more and more prominent corporations and retail investors begin collecting and launching their own genesis NFT projects. Many have compared this boom to the social media spike in the 2010s.

Over the course of that decade, we saw Twitter become a nascent idea where people questioned “Who wants to read my personal thoughts,” to becoming the matured melting pot for thought leaders and everyday folks to exchange ideas (and memes), while also mounting into the central hub for the geopolitical landscape and corporate communications.

Twitter, and other social media platforms, have become a conduit for non-stop, highly strategic branding. And now something similar is happening with NFTs.

How corporate brands are utilizing NFTs
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NFTs are a way for thoughtful brands to rapidly make a splash in their respective sector and cultivate a mass following in a short period of time, and allow corporations to reward their most attentive supporters through limited-edition access and utility.

Furthermore, NFTs might also affect brands negatively because of their short-term focus, extractive behavior, greed, and a lack of understanding of the technology and use cases that prevents a successful project execution.

Some companies will use NFTs to create communities within their supporters, defined by the advantages of holding a certain token. If an NFT allows for discounts, meetings with executives, additional physical products shipped, or digital products airdropped, the token will be more highly coveted and, as a result, may increase in price.

The ability to effectively deliver value through the streams of communication that NFTs offer will grow a brand’s reputation and prominence. The inability to effectively deliver value to customers and believers who buy tokens and invest in the community will hurt corporate brands.

If done effectively, the brand is spread and strengthened. If executed ineffectively, the brand is spread and harmed. NFTs currently have an outsized (and growing) level of attention that there is certainly the spotlight will shine bright on corporations who enter the space – for better or worse.

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Many see NFTs today and doubt their longevity, believe they have no place or compare them to a pyramid scheme. Simply put, NFTs are the newest in a long line of tools to be utilized by companies for the positive advancement of their corporate brand and reputation.

As corporations begin to launch NFT projects, it will become clear which companies do so in an intentional way that brings real value to their customers, and which companies squander the opportunity by releasing an NFT project that offers little to no actual value.

The organizations that release a quality project will further their brand using the contextual technology of our day, and the companies who poorly execute their NFT project will be forced to spend time rebuilding their brand and reengaging their disgruntled customer base.

It may be hard to believe, but I am certain we will see several blue-chip or Fortune 500 organizations severely botch their first NFT project by chasing the short-term dollar signs.

Mark Osis, Blockchain and Digital Assets Consultant, Deloitte

More than NFTs are a way to create cash, they are a vessel through which to distribute a trustworthy brand. And trust is lost in buckets.

This will have negative ramifications and ripple effects throughout their whole business. For your sake and mine, reader, I hope we avoid purchasing those NFTs, and I really hope we avoid creating those NFTs.

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What is Dollar Cost Averaging in Crypto?

Let’s say you want to invest in a cryptocurrency like ETH, but you’re unsure of when the best time to invest is. The mathematically smartest way to do this is by implementing the dollar-cost averaging investment strategy.

What is dollar-cost averaging in crypto?
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Dollar-cost averaging (DCA) is an investment method in which you invest a set amount of money in smaller increments at regular intervals. This allows you to profit from crypto market downturns without putting too much cash at risk at any particular moment, allowing you to maintain more liquidity and still profit from market increases.

DCA is not a new strategy, in fact, this investment method has been used for quite some time in the stock market with great success. When using the dollar cost averaging method, you are buying in at both the highs and the lows in the market.

Ultimately, DCA averages out your investments so that over time you are putting money into your choice of crypto, without being drastically affected by extremely high or low points, as much as if you were to invest a large sum all at once.

How do you use dollar-cost averaging in crypto?
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To implement the dollar-cost averaging method, simply choose a set amount of money you want to invest into your choice of crypto, over a set period of time. Then, regardless of where the market sits, you keep investing your money until you reach your set time.

It may be a good idea to create a spreadsheet to keep track of your investments as well. Once you start investing, the most important thing to do is stay committed to your goal. This can be the hardest part of the dollar-cost averaging process, but it will be worth it in the long run.

The temptation to withdraw money from your investments once you began profiting can be hard to resist, but it’s critical that you stick to your plan in order to earn the most, and minimize your risk.

Is dollar-cost averaging a good idea?
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Dollar-cost averaging is a good idea because it allows you to invest smaller amounts of money over a longer period of time, eliminating the fear of losing all your money. Also, it’s easier to commit to investing a small set amount of money as opposed to large sums of money all at once.

Although investing large amounts of money all at once has the maximum gains if done at the right time, DCA has been proven to avoid major losses. DCA is also important because it eliminates the physiological barrier to investing.

As well, instead of wasting your time watching the market for dips every day, you can spend your time more wisely learning a new hobby or increasing your knowledge in other ways.

How often should you invest in dollar-cost averaging?
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You should utilize the dollar-cost averaging method as often as needed to achieve your financial goals or as your wallet allows. This may equate to days, weeks, months, or even years of investment strategy.

Keep in mind that trading platforms such as Coinbase and Gemini charge a fee each time you submit a transaction. So if you are transacting often, you are going to incur more fees when using the dollar-cost averaging method. It may be wise to extend your transactions into monthly or even bi-monthly increments to avoid these fees.

If you are investing in crypto on a weekly basis and you are paying a fee every time, this will cut into your overall profit, so transacting less frequently may be the best way to optimize your DCA investment strategy.

Also, considering that DCA is generally a long-term investment strategy, your profit gained overtime should more than cover the cost of any transaction fees you may incur.

Example of dollar-cost averaging in crypto
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If you are looking to utilize the dollar-cost averaging method in crypto, you can use a cryptocurrency exchange such as Coinbase or Gemini to set up recurring purchases of your choice of crypto. This allows you to effortlessly invest in crypto without having to do anything except reap the profits.

For example, a person whose dollar-cost averaged into Bitcoin by purchasing $5 weekly in 2020 would have earned $692 from a total investment of $275, yielding a 160 percent return.

Is dollar-cost averaging crypto safe?

Dollar-cost averaging cryptocurrency should be approached with extreme caution and thoughtfulness. Not all crypto will result in a good return on investment. Always do your own research (DYOR) before decding to use the DCA investment strategy for investing in crypto.

However, if you DYOR and invest in a sustainable cryptocurrency, the DCA strategy is one of the safest investment strategies known in the game.

Final thoughts

Overall, if you are interested in investing in crypto but you don’t want to risk losing all your hard-earned money, then dollar-cost averaging might be the best option for you.

Simply choose your crypto, decide how much money you want to invest, and then figure out the best increments in which you want to buy crypto and for how long. Play your cards right and you may just end up with a good hand.

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Finance NFT

Intro to Taxes in Web3

Filing your taxes can be a stressful time of the year for many, and if you are involved in Web3, it can be even more stressful. Thankfully, we had the opportunity to chat with Alex Roytenberg CPA about filing your taxes and how to include your Web3 transactions.

Alex is a tax CPA based in New York with over 20 years of experience. He has worked for Morgan Stanley, Goldman Sachs, and PWC to name a few, and currently runs his own practice called NFT.CPA.

He has been involved in crypto and defi since 2018, and more recently he has taken the plunge into the NFT space in late 2020. You can listen to the entire interview we had with Alex on Spotify, or for a quick run-down you can read this article. Let’s get into it.

Here is an interview we had with Alex regarding everything Web3 and taxes.

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If you are an NFT investor or collector, then the episode below might be better suited for you!

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What should you know when filing your NFT and Crypto taxes?

One of the main things that you need to know regarding Web3 and taxes is that you need to report all your crypto activity to the IRS. This is because the IRS considers every single transaction a taxable event. 

How is the IRS going to know if you don’t report your crypto activity? It’s simple, the IRS is doing a lot of the same investing and purchasing of contracts with a lot of the same software vendors used in blockchain activity.

Moreover, everything on the blockchain is recorded publicly, meaning anyone can easily view your transactions.

How do your report NFT and Crypto activity to the IRS?
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When it comes to reporting your transactions, all the reporting is done on your 1040 personal tax returns, however, the way your report your activity depends on whether you are a creator, investor, or run a business. Let’s break it down by each category.

  • Creator (LLC or sole proprietor)
    NFT creators who sell their own NFTs are considered to be a business, so it will go on your Schedule C.
  • Investor
    As an NFT investor who buys and sells NFTs, it will go on to what’s called your Schedule D as capital gains and losses.
  • Defi
    If you are into defi and you create interest or dividends, this will go on your Schedule B.
  • Staking and mining
    Staking and mining crypto can either be reported as Other Income Schedule One, or Schedule C.

Ultimately, how you choose to report your earnings depends on what you are doing in the Web3 and crypto space. One important note that Alex made is when filing your taxes, one of the first questions asked is; “Do you have any virtual currency?” It’s a simple yes or no question that you must answer honestly. 

The reason being, is at the end of your tax return on your 1040 you sign the tax return under what’s called perjury. What that means is you’re saying that you’ve completely and honestly answered everything on your tax return. 

If there’s anything that’s out of place and you’ve signed it, the IRS can come back to you and audit you for those purposes, and say that you’ve committed some sort of fraud. So, at the very least, make sure that have answered those questions honestly.

What’s needed to file your NFT and Crypto tax returns?
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According to Alex, every accountant will take a slightly different approach when filing your NFT and crypto tax returns, however, there are some key necessities regardless of who you use to file your returns.

For Alex, the first thing he requires from his clients is all of their Web3 wallet addresses. Once attained, he will then go in and do a data aggregation that will scrape the blockchain to get all of your transactions.

The data aggregation will cover most of your blockchain transactions, however, there may be some transactions that are in question, meaning you might need to provide more clarity as to what those transactions are.

It’s important to note that you only need to provide your Web3 wallet address and never your secret phrase.

Should you hire a CPA or do it yourself?

Determining whether or not you should hire a CPA is all a question of complexity. Everybody’s situation is different. If you have very few transactions (0-250), you can do it yourself. If you have a significant amount of transactions (300 +), you may want to consider hiring a certified professional.

Filing your own NFT and Crypto taxes

It’s possible to file your own NFT and crypto taxes using software providers like Zenledger and Cointracker, which can be used with a tax service such as TurboTax. Keep in mind that this option is most suitable for those who have 100 or fewer total transactions, and under $20,000 in profit.

If you have more than that or you have other complexities, doing your own taxes using these software providers might not be the best option for you because you may experience errors that will require manual adjustments that need to be made to the transactions.

What are some common filing mistakes?
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As if filing your taxes isn’t already stressful enough, when you add NFTs and crypto into the equation, there’s room for even more error. Here are some of the most common mistakes when filing NFT and crypto taxes according to Alex:

  1. Not submitting all your wallet addresses

If you don’t submit all of your wallet addresses, not only will it be impossible to file your taxes accurately, but eventually it will become known that you have additional wallets by looking at your transactions on the blockchain.

It’s important to be upfront about all your wallet addresses and be sure to report all of them to avoid future problems.

  1. Commingling wallets (this can create complexities on the reporting side)

Commingling your Web3 wallet with others is not a great idea because this will cause complexities when it comes to reporting, this goes for both personal and business transactions, and will ultimately become an issue.

For example, let’s say you and a couple of your friends want to buy a VeeFriends NFT. So, everyone sends you the ETH to make the purchase. This is a bad look in the eyes of the IRS because they might think you received that ETH as compensation and then purchased your own NFT.

This commingling of wallets causes issues from a reporting standpoint as it will likely be difficult to explain, especially when you consider that audits don’t occur six months after a transaction, rather, audits usually happen two to three years later once you have completely forgotten about the transaction.

Instead, Alex recommends creating a separate stand-alone wallet for those specific transactions to make them easier to track.

  1. Not keeping a proper record of your transactions

It’s important to keep track of all your NFT and crypto transactions. Some people like to keep an Excel spreadsheet with every transaction detail that occurs, but Alex says it really depends on your transaction volume.

Although an Excel spreadsheet is an option, Alex recommends using an automated data aggregator to keep track of all your transactions. The reason being is that if you are manually entering all of your transactions, you are leaving more room for error as opposed to letting the software track it for you automatically.

What is considered a loss in the Web3 space?
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The way that the IRS looks at everything is it’s all denominated in U.S. dollars. For example, say your purchase 1 ETH for $3500, and then you instantly purchased an NFT for 1 ETH, there’s no gain or loss on that transaction.

But, let’s say you sold that NFT six months later for 1 ETH when ETH is worth $2,900. In U.S. dollar terms, the IRS would actually consider that a $600 taxable loss. 

The big thing to remember is, the more cash you’re able to monetize from an NFT, the better you are from an end-of-day cash position, opposed to trying to maximize as much of a tax write-off as you can.

It’s similar is how tax rates are less than 100%, which means that you’re getting less of a write-off against your taxes. When you sell something for a loss, that is considered tax-loss harvesting. So, it reduces your taxable income, not your overall tax bill.

Let’s say you have a $50,000 tax bill because you made $100,000 in profits. Additionally, you have a $10,000 loss that you were able to capture from an asset that’s down. It doesn’t make your tax bill go from $50,000 to $40,000. Rather, it takes your taxable income from $100,000 to $90,000.

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Additionally, Alex recommends that you take 30-50% of your revenue and convert it to USD to cover your tax bills. This is important because the value of crypto could drop, and then you are left with less revenue to cover your taxes.

How are airdrops taxed?
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If you are someone who does airdrops, you want to talk to an attorney to make sure the NFTs you are airdropping aren’t considered a security. Since someone is holding your NFT, it’s possible that the IRS will consider it a security.

If your attorney decides your NFT airdrops are not a security, then you might be eligible for tax deductions based on your efforts to provide airdrops to your holders. These efforts can come in the form of marketing expenses, gas fees, and other expenses.

Some NFT attorneys that Alex recommends reaching out to regarding NFTs include Jacob Martin, Moish Eli Peltz, and Alex Lazard.

Long-term vs short-term capital gains
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If you are an investor and you hold your NFTs for over one year, you do get a the benefit of a lower tax rate because your NFT would be considered a long-term investment. Likewise, if you hold your NFT for less than a year, you will be taxed at a higher rate for short-term capital gains.

Alex’s advice however is to consider the value of your NFT investments. If you expect the value to drop more than 10-15% from wherever your NFT sits, you’re better off selling your NFT and taking the short-term capital gains rate as opposed to waiting a year and selling to receive the benefit of long-term capital gains.

The saving in tax rates (24% long-term vs 37% short-term) on a federal perspective, can’t make up for the difference in cash if it drops more than 15%.

Overall, the goal is to hold your NFT to benefit from the lower tax rate of long-term capital gains, but at the same time, you want to be aware of the economics of your particular NFT investment.

Key takeaways from Alex
  • If you don’t have the money to pay your tax bill, you should still file your tax return simply because that will eliminate the penalty that comes with not filing your tax return.
  • An extension is an extension to file, not an extension to pay. Meaning that filing an extension isn’t going to give you an extra six months to pay your tax bill.
  • Your extension will not be valid if you don’t pay something to the IRS.
  • If you are filing your own extension, make sure to file with the IRS and your state.

At the end of the day, filing your taxes can quickly become overwhelming especially when you involve crypto-related transactions. However, knowing what to expect and how to be prepared can save you a lot of stress, time, and money.

Categories
Finance NFT

NFT Taxes for Artists: What You Need to Know

As artists around the world are turning to NFTs and blockchain technology to make a living selling their art, many of them are curious to know how to report their sales on their taxes.

Well thankfully, I had the opportunity to sit down and chat with Alex Roytenberg, the NFT CPA for NFT.CPA, about this exact topic. Let’s get started.

Are NFTs taxed for artists?

When creating NFTs as an artist, all NFTs that you create and sell are taxed as ordinary income. For example, if you create a piece of art in the real world and sell it to someone, the money you earn is taxed as ordinary income. It’s the same case when selling your own NFT art.

To be completely clear, all tax returns are based on the USD price at the time of the transaction. Meaning, if you sell an NFT for 1 ETH when ETH is valued at $1,500 you will be given a gross income of $1,500.

Also, if you work with contractors and you pay them in crypto via the blockchain, you are still required to issue a 1099-NEC to those individuals so they are able to report their income to the IRS.

Alex also recommends having some sort of legal entity structure around it; “There is the concern, especially with the 10,000 mint PFP projects as to whether or not something is to be considered a security”, said Alex. “So even though you’re an artist and the only thing you might be thinking about is the art and the creative side of things, you also need to be aware of the tax and legal ramifications of hey, I want to do an airdrop to all the holders, that can cause issues,” he explained.

Something else that NFT artists need to keep in mind is that “If you are working with international contractors or international artists, you need to be careful with any sort of form of reporting that might be necessary because of funds going across international lines.” said Alex.

Keep in mind that If you have a partnership or an S Corp, taxes are due on March 15, 2022. For personal returns or if you have a C Corp, taxes are due by April 15, 2022.

What is tax deductible as an NFT artist?

As an NFT artist, your materials and supplies are considered tax-deductible. Likewise, if you go to a networking conference as a way to help sell your NFT art, that is a deductible event as well. Also, the gas fees associated with your NFT art (minting, selling, sending) are all tax-deductible.

Moreover, if you pay someone a commission or fee to set up a transaction for a sale to happen, that is also considered a tax-deductible expense. The same goes for the developer who wrote the smart contract, if they are a contractor, then the contractor’s service is deductible.

Many artists might have fiat-based expenses such as internet service, marketing-based expenses, advertising, etc, these expenses are all tax-deductible as well.

What if you don’t report your NFT income on your taxes?

Of course, many of you are wondering what happens if you don’t report the money you’ve earned as an NFT artist? Who’s going to know, right? Wrong!

If you are an NFT artist and you don’t report your income from your NFT sales, you are “opening up a can of worms”, said Alex. By choosing not to report your NFT sales, you are exposing yourself to the chance that if the IRS decides to audit you, the likelihood of increased fines and penalties that come with not reporting your income accurately is increased.

That being said, if you report your income but it’s not completely accurate, the fines and penalties that the IRS could impose would be significantly less than not reporting your income taxes at all.

“Choosing not to report your income tax at all is considered fraud, and the penalties can be as much as 25 percent per year, as well as the interest which could be an additional 25 percent per year,” said Alex.

With that, I believe the most important thing to take away from this article is that if you are an NFT artist, not only do you need to be extremely thoughtful with everything you do, but you need to ensure that you file your taxes accurately.

At the end of the day, it’s up to you as the taxpayer to ensure you file your taxes truthfully, not anyone else.