The Breakdown - Apple’s Monopoly App Store Tax Coming to Crypto?

Episode Date: December 3, 2022

This episode is sponsored by Nexo.io, Circle and Kraken.   On today’s episode, we catch up on the crypto industry, including: Apple’s dust-up with Coinbase around fees for NFT transfers Stripe’s new fiat-to-crypto tooling for developers  Fidelity opens retail trading of bitcoin and ether  First U.S. hearing on FTX    - Nexo is a security-first platform where you can buy, exchange and borrow against your crypto. The company ensures the safety of your funds and keeps innovating with products like the Nexo Wallet - a non-custodial smart wallet that allows you to create your Web3 identity. Get early access at nexo.io/wallet. - Circle, the sole issuer of the trusted and reliable stablecoin USDC, is our sponsor for today’s show. USDC is a fast, cost-effective solution for global payments at internet speeds. Learn how businesses are taking advantage of these opportunities at Circle’s USDC Hub for Businesses. - Kraken, the secure, trusted digital asset exchange, is our sponsor for today's show. Kraken makes it easy to instantly buy 185+ cryptocurrencies with fast, flexible funding options. Your account is covered by regular Proof of Reserves audits, industry-leading security and award-winning Client Engagement, available 24/7. Sign up and trade today at kraken.com/breakdown. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell and research by Scott Hill. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. Music behind our sponsors today is "Back To The End" by Strength To Last. Image credit: Pablo Monsalve/Getty Images, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, Circle, and Cracken, and produced and distributed by CoinDesk. What's going on, guys? It is Friday, December 2nd, and today we are talking about Apple's battle versus Coinbase. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation. Come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, happy Friday. Today we are catching up on tons of news from around the crypto world. And where we're going to start is with a battle

brewing between Apple and basically the entire crypto space. Coinbase has disabled NFT transfers on its iOS wallet, citing a dispute with Apple over their in-app purchase policy. On Thursday, Coinbase tweeted that Apple is demanding that blockchain gas fees are paid using Apple's financial rails, which would enable Apple to extract its 30% App Store tax. Yesterday, Coinbase Wallet tweeted, You might have noticed you can't send NFTs on Coinbase Wallet iOS anymore. This is because Apple blocked our last app release until we disabled the feature. Apple's claim is that the gas fees required to send NFTs need to be paid through their

in-app purchase system so that they can collect 30% of the gas fee. For anyone who understands how NFTs and blockchains work, this is clearly not possible. Apple's proprietary in-app purchase system does not support crypto, so we couldn't comply even if we tried. This is akin to Apple trying to take a cut of fees for every email that gets sent over open internet protocols. The biggest impact from this policy change is on iPhone users that own NFTs. If you hold an NFT in a wallet on an iPhone, Apple just made it a lot harder to transfer

that NFT to other wallets or gifted to family and friends. Simply put, Apple has introduced new policies to protect their profits at the expense of consumer investment in NFTs and developer innovation across the crypto ecosystem. We hope this is an oversight on Apple's behalf and an inflection point for further conversations within the ecosystem. Now, this is just the latest in a month-long scuffle between Apple and the NFT community. In October, Apple changed their terms of service in order to explicitly require in-app NFT purchases to pay the Apple tax.

Now, that move surprisingly divided Web3 commentators. Some thought the move would cripple the ability for Web3 games and apps to monetize via NFTs, pointing to the same incompatibility between using Apple's payment rails and crypto-native applications that Coinbase has highlighted, but others were more optimistic that the change would bring the issue to a head, forcing Apple to move on from its gray area policy on crypto apps and take a clear stance, which could potentially pave the way for Web3 games and apps to build within an explicit Apple infrastructure. Now, even beyond crypto, tensions are mounting around Apple's 30% App Store tax in general. Elon Musk has recently been questioning the policy

in a very loud way, even claiming that Apple had threatened to pull Twitter from the App Store. Indeed, that little tete-a-tete required Elon to go meet with Tim Cook to de-escalate it. In the wake of that meeting, Elon tweeted, good conversation. Among other things, we resolved the misunderstanding about Twitter potentially being removed from the app store. Tim was clear that Apple never consider doing so. Still, the crypto community is pretty nervous. Chris Cantino writes, Coinbase and Ledger are now unable to push iOS updates unless they disable sending NFTs in app. Assume this will spread to MM, Rainbow, etc. Thankfully, seed phrases are portable and sensor-resistant. Move your trading to desktop or throw your Apple devices in the trash. Others reiterated the technical

dubiousness of all of this. Jonah Erlich writes, Apple is blocking a Coinbase wallet release until they pay 30% of gas fees for NFT transfers. This is the the equivalent of Apple demanding you pay them 30% of your AWS bill. Journey Crypto said, how did no one at Apple look into how ETH gas fees work? One of the biggest companies in the world and they're not doing some basic research. Either that or they're starting a war on crypto and NFTs. Would they really expect Coinbase to pay out of pocket? So here we're sort of in a position to ask, does Apple really not get it? Or two, does Apple get it and is throwing around their app store monopoly to try to either extract more or force out payment competitors? Whatever the case,

there is clearly a broader issue here. Evan Greer from Fight for the Future says this is why crypto projects need to stop saying code is law and recognize that actually law is law, and they should be fighting to pass the Open App Markets Act and end Apple's monopoly abuse. Tim Sweeney from Epic Games says if they can lawfully add a 30% tax to all NFT transactions, then they can lawfully add a 30% Apple tax to all online banking and stock trading transactions. The App Store monopoly is seizing control of the American economy. Apple must be stopped. Now, on a more positive note, payments firm Stripe have unveiled their project to facilitate

Fiat to Crypto payments for companies in dozens of countries. The product is a customizable software widget that can be built into a decentralized exchange, NFT platform, or wallet, and is designed to allow customers to instantly purchase crypto and Web3 apps. Stripe says that its customizable onramping service will handle KYC, payments, fraud, and other compliance issues. Functionally, this product will allow crypto projects that take credit card payments for the purchases of tokens and NFTs, which could significantly reduce the friction of onboarding new users. Jennifer Lee, a project manager at Stripe, said in a blog post that, quote, it's extremely difficult to get end users on chain, that is, to fund their wallets with

the crypto required to interface with Web3 applications. Developers have to wrestle with rampant fraud, navigate complex KYC requirements, and somehow still offer a seamless high-conversion payments experience so their users can actually use their Web3 apps. Jen Terry, another product manager at Stripe, said super excited to share what I've been working on recently, Stripe's new fiat to crypto-onramp. As a Web3 developer, you can embedding the on-ramp in 10 lines of code right inside your DAP, wallet, NFT marketplace, etc. Web3 consultant Ryan Berkman's wrote, Stripe's embeddable crypto-onramp will soon be available as an eye frame on an anonymous basis without an API key. This allows Web3 IPFS app sites such as the Uniswap interface

to offer direct on-ramps without needing to register an app account or have an API key in the UI codebase. Finally, Phil Bonello from Plaintext Capital writes, We had Fidelity Add crypto trading for retail and Stripe Add Crypto onboarding in the same week, and barely anyone is talking about it. Well, Phil, let's talk about it, and let's go now to your first point. Investment Giant Fidelity has officially launched their retail crypto trading accounts. The service is currently available to a group of early access customers, but could eventually be rolled out to all of Fidelity's 40 million U.S. users.

The platform offers the ability, quote, to trade crypto with as little as $1, dollar, while also having an integrated view of both your traditional and crypto investments. As of launch, Fidelity won't allow customers to transfer crypto into or out of accounts. The first version of the product offers Bitcoin and Ethereum trading and will take no commission, instead factoring in up to a 1% spread on trades. The product is available in 35 U.S. states, including New York, which, as we know, has much tougher crypto licensing requirements than other states. Now, not everyone is super happy about this.

Fidelity recently attracted the ire of lawmakers with three senators writing to Fidelity's CEO, Abigail Johnson, asking her to reconsider offering Bitcoin investing in retirement accounts. New York Attorney General Leticia James took matters a step further, writing to members of Congress asking them to craft legislation prohibiting the purchase of digital assets and defined contribution plans and IRAs. But still, folks in the crypto space are a little bit more optimistic. Lawyer Haley Lennon writes pretty base that Fidelity still went live with Bitcoin today with everything going on. Love to see it. Alex Thorne, the head of firm-wide research at Galaxy Digital, said, just bought Bitcoin in my Fidelity account for the first time. Great experience. The floodgates are going to

open. Now, I actually think there's a lot to discuss here. The biggest overarching theme is actually one more example of Fallout from FTX. Even before FTX, there were reasons to think that Tradfai offerings like this would likely become the main future on-ramps for people first dabbling in crypto. Being able to manage crypto portfolios alongside stock and traditional asset portfolios is a significant UI upgrade for many. That plus the trust or comfort of working with a legacy institution meant that even before the collapse, this would be a strong offering. But take that and add the fact that now the exchange that was supposed to be the sterling, safe crypto exchange burned itself to the ground, and it opens the door even further for the Tradfive version of crypto to become the default

version. For many people, that's fine and it will be just another asset class, but there is certainly something potentially lost there as well. As we said, currently Fidelity's product doesn't allow you to transfer your Bitcoin out, for example. I think it's likely they add that in the future, but it's pretty fundamental. Anyways, this is just one more way in which the landscape has changed inside of a month. In an ecosystem where innovation is the norm, it's the basics that are in the spotlight. Nexo is a company that has never put the safety of clients' funds in question. With over 50 global licenses, $775 million in insurance, and a real-time audit of custodial assets,

nexo sets an example for security standards in the industry. Apart from keeping their 5 million clients safe, Nexo has kept building. They've just announced their non-custodial smart wallet. Visit nexo.io. That's nexo.io and sign up today. This episode is brought to you by Circle, the sole issuer of USC, and a leader in crypto that's held to a higher standard. USDC is a fast, safe, and efficient way to send money around the globe.

USDC is always redeemable one-to-one for U.S. dollars and has over $45 billion in circulation as of October 13, 2022. Plus, Circle posts weekly reserve reports and monthly attestations of reserve capital, letting users know that USDA is safe, transparent, and compliant with regulations. Just go to circle.com backslash transparency to see why USDC is a trusted staple coin. As one of the largest, longest-lasting and most secure exchanges, Cracken continues to set the industry example for transparency and trust. Regular proof of reserves audits verify your balances are backed by real assets.

Industry leading security keeps your funds and information safe. And award-winning client engagement teams are available for support 24-7. Buy crypto instantly with fast, flexible funding options on Cracken. Download the Cracken app on Google Play or the Apple App Store, or visit crackin.com slash breakdown to join. Interestingly, inside the crypto world, we're also seeing the beginnings of a reaction. What's a natural shift if people are worried about the founders of custodial exchanges stealing their assets? A move to non-custodial decentralized exchanges, of course. And that seems to be

exactly what's happening. Crypto user activity is moving on-chain as centralized crypto services collapse, according to research firm Bernstein. According to a report released on Wednesday, on-chain data has shown a surge in self-custody and use of defy spot and derivatives trading platforms over the past 60 days. Trading volume on Dex's reached 91 billion in November, which was a 79% increase over October. What's more a higher percentage of trading is happening on Dex's as opposed to centralized exchanges. In September, the percent of trading that was coming from Dex's was around 10.8%, while now it stands closer to 16.7%. Firm Bernstein said that this increase in volume is a positive development in quote, crypto's journey to rebuilding customer and policy makers' trust.

Ethereum-compatible Dexas saw the strongest increase in adoption in the last month, with Solana volume collapsing due to its ties to FTX and finance smart chain remaining relatively flat. The biggest spike in volumes happened in the middle of November as the FTX collapse was most acute. Uniswop, the most popular Ethereum decks, managed to exceed Ethereum volume on any centralized exchange other than Binance for one 24-hour period. Now, other players are potentially moving into the deck space as well. On December 1st, Pavel Duraf, the CEO at Telegram, wrote, Telegram's next step is to build a set of decentralized tools, including non-custodial wallets and decentralized exchanges for millions of people to securely trade and store cryptocurrencies.

This way we can fix the wrongs caused by the current excessive centralization. The time when the inefficiencies of legacy platforms justified centralization should be long gone. With technologies like Tun reaching their potential, the blockchain industry should be able to finally deliver on its core mission, giving the power back to the people. Now, there was a lot more he said in that threat as well. Telegram has sold more than a half billion dollars worth of users' names in less than a month through its blockchain-based platform called Fragment. Now, obviously, this is Telegram's second attempt at bootstrapping crypto infrastructure.

Fragment is built on top of the Telegram Open Network or TUN, which was abandoned by the company in 2020, amid intense regulatory pressure. Since then, the protocol has been kept alive by community maintainers. Bolstered by these strong sales, Derov laid out a plan for a more involved crypto buildout associated with Telegram. Of course, Telegram is already a highly used messaging app for crypto traders, for everything from news and discussion groups to organizing peer-to-peer OTC deals. Now, of course, if we are seeing responses to the chaos of the last month from TradFi and from within crypto, there is also a governmental response. The first hearing around FTX was held in the U.S. yesterday, and it was a bit frustrating. On Thursday, CFTC Chairman Rosten Benham appeared before a Senate hearing on the Agriculture Committee to discuss the FTX collapse. While Chairman Benham said that

his agency couldn't have prevented the collapse, as FTX was not regulated by the CFTC, he used the opportunity to renew his call for Congress to grant increased power to the CFTC, which would allow them to make the rules for crypto-spot markets. Interestingly, Benham continued to support the controversial digital commodities consumer protection act or DCCPA, which was sponsored by committee heads Debbie Stab now and John Boosman and endorsed and highly contributed to by FTCX. Benham said that the DCCPA would have prevented CFTC regulated firms from co-mingling customer and corporate funds, using customer funds to make loans to related companies, and required more robust corporate controls and auditing. Now, it's unclear exactly how Chairman Benham believes

the law would have assisted him in regulating a firm that was deliberately outside of U.S. jurisdiction and was breaking their own terms of service to send customer funds to Alameda research. Kristen Smith, the executive director of the Blockchain Association, said DCCPA would not have prevented the failure of FTX International. Jake Trevinsky piled on and said some of our policymakers appeared to inhabit a fantasy land in which the CFTC might regulate a Bahamian exchange. Now, Benham did acknowledge that the DCCPA required revisiting to ensure it fully addressed possible misconduct had regulated companies.

He said, quote, given the circumstances of the past few weeks, I think we should take a pause and look at the bill and make sure there are no gaps or no holes. At the same time, he urged haste in getting some form of crypto regulation passed. Quote, strengthening the bill and filling the gaps is one thing, we need to move forward as soon as possible. We don't want this to happen again in the next few months and have the risks of customers losing money because of these gaps. Of course, the most infuriating thing about the testimony was when Chairman Benham said, ultimately the collapse looked like a classic run based on a liquidity crunch. This, of course, is the same description being pushed by Sam in all of his.

recent media appearances. It diminishes his culpability in managing FTCS into insolvency through self-interested dealing with customer funds. CoinDesk opinion writer David Z. Morris has been beating this drum. This week on an appearance on CoinDesk TV, he said, describing this as a bank run is deceptive. Anyone who describes it as a bank run is helping Sam Bankman-Friedt can seal his crimes. That needs to be hammered home as hard as possible. A crypto exchange is not a bank. They should not be loaning your assets to anyone. Adam Cochran commented this on Well, saying it is pretty clear that Benham, one, pushes this angle because a bank run is something he can only have prevented with more oversight laws, whereas fraud is in his current domain, so if it was fraud, he failed, and two,

Benham met with them ten times on this clearinghouse application, and his staff met with them dozens of times on this, taking this seriously to give them the deepest access to U.S. derivatives markets. If this was fraud, his entire team missed it. Really slamming the point home, Nick Carter wrote, under normal non-fraudulent operation, a bank run is impossible for an exchange, becoming bank-like, illegitimately lending out client deposits requires fraud. So no, it wasn't a quote-unquote classic run, it was a classic fraud. Lastly, in one sort of painful moment that showed just how much learning there is left to go, Kansas Senator Roger Marshall asked if lawmakers should, quote, pause crypto markets until they can regulate them.

Benham said, I don't see how we can put a pause on it. Folks will find a way to get exposure. So, friends, we have a lot of work left to do. For now, I want to say thanks again to my sponsors, nexus.com.com, and crackin for supporting the show. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.