Crypto’s Under-appreciated Role in the Disruption of the Music Industry

The discussion of crypto’s place in the future of the music industry has been talked to death. It is obvious that change will occur, e.g. in the financing (investing) of entertainment, the payment for consuming content, and the distribution of proceeds. It’s the same process that has been applied to any asset of value that we have made crypto. That’s boring. Let’s not talk more about that.

Let’s talk about a more meaningful (profitable) use case of crypto in music industry: monetising experiences. Here’s the thing: whilst the conversation about crypto in music is mostly about improving/modifying pay-out for intellectual property rights for the music via crypto, most of the money in music is no longer made with intellectual property. It’s made through experiences.

That means, whilst crypto innovations in the music industry is great – it will no doubt democratise creation, reduce the leverage of middlemen and return revenue to pivotal players like artists and songwriters, it won’t fix a huge chunk of the industry, where most of the money is made.

But Denise, you say. What about 360 deals? What about rights based on performance and concerts. Yes, they do exist. Yes, crypto is helping there too. But that’s a stop gap measure for fixing the real issue. The fact is, for the music industry, value is moving away from traditional ways of monetisation, to new, experience oriented modes. We won’t democratise creation unless people want to get into the music industry at all – which they won’t want to be, no matter how large a slice of a non-existent pie they will get via crypto disruptions.

The challenge then, for meaningful use of crypto in music is double:
A. How to monetise these new experiences (this isn’t crypto-specific, but also a challenge for new disruptions in music generally)
B. What place does crypto play in this?

A. is the fundamental problem we, not just crypto, need to solve. Change will not just come from creating new value, i.e. creating new activities, but from capturing it, i.e. convincing consumers to pay for existing value. For this reason, crypto is best suited to lead the revolution.

Obvious reasons
• Microtransactions allow us to monetize everything
• Smart contracts allow that process to be friction free
• Doesn’t require trust

• Secure store of value
• State-free (esp as experiences are individual, and transcend institutions)

Less obvious reasons

• Paradigm shifting nature of crypto encourages reassessment of our conceptions of value and increases willingness to pay
• “Ownership” is a valuable thing: scarcity and immutability are key!
  • We crave experiences because we crave it’s scarcity
  • Ownership implies a level of scarcity greater than participation of an experience
  • Someone from my generation wouldn’t pay for streaming – music is overflooded on the internet
  • Cf 1990s when access to music was scarce, prices for albums were more expensive
  • Ownership is emotional – and emotional counteracts the rational model above that is squeezing profits out of the industry
• Consensus building:
  • While the internet is founded on openness, where any node can make a change; crypto is based on consensus where each node can only supply consensus for change
  • This very mechanism not only enables trust, but more importantly builds consensus  and we piggyback this technical mechanism to create a social consensus creating and capturing value for artists

Crypto as law – social constraints

All of this drives towards an overriding thesis – the reality of the need for trust, even in crypto. Whilst crypto does allow for all sorts of amazing new things, and few can argue that the unchecked tech companies of today should be allowed as large a reign as they are given, I think a blind argument and adherence to the platonic ideal of “trust-less”, e.g. decentralised, system is unlikely to materialise for a long time, and may even not be ideal.

Why trust-less is a constraint?

We’ve all heard of the Gartner hype cycle – and it’d be pretty much taken that crypto is just now climbing into the Slope of Enlightenment slowly. Being accepted by PayPal is huge. That said, it’s still not reached a mainstream enough position to be in the Plateau of Productivity.

The social element of all tech, including crypto
When it does – it needs to appeal at least some of the “mom and pops”. What do these guys want? One key thing to know, is that they aren’t really willing to accept outsized returns for outsized risk. They aren’t necessarily aiming to maximise return. So essentially, to get a foothold, crypto will have to serve function money cannot, or to be much “better” replacement.

They probably will not find it much better replacement, for widespread use:
• Lack of trust in the system – many people don’t understand how crypto network work. They’re unwilling to pay that extra price.
• Lack of ease of use – money being the incumbent is more likely to be more widely accepted.
• Lack of legal/other protections - for many defaults and disasters, there are little safeguards to protect them

Essentially, you are trying to replace trust in people, institutions, and intermediaries in code, and there are several issues in that. There are upsides too of course, but at the end of the day, a system of absolute trust in code is likely to meet the fate of that of the current hype around crypto in entertainment: it’ll catch some of the pieces, but miss much of the main action.

That is because while we can fix lack of trust and ease of use, we cannot fix the lack of recourse when the code fails – and the code must fail. It will fail in that it will necessarily deliver suboptimal outcomes itself. I say this because there will always be a need to override or intervene the rules of a crypto system, because no smart contract can account for all the possibilities. Without human intervention, crypto would be a series of irreversible if… elses…, something that jurisprudence has proved impossible.

So much in the same way no system of law exists without human intervention or participation, no system of code can exist too. The greatest irony is that for a system seeking to replace traditional institutions of trust, crypto must effectively be a reconfiguration of the world’s most traditional institution of trust.

“When that trust turns out to be misplaced, there is no recourse. If your bitcoin exchange gets hacked, you lose all of your money. If your bitcoin wallet gets hacked, you lose all of your money. If you forget your login credentials, you lose all of your money. If there’s a bug in the code of your smart contract, you lose all of your money. If someone successfully hacks the blockchain security, you lose all of your money. In many ways, trusting technology is harder than trusting people. Would you rather trust a human legal system or the details of some computer code you don’t have the expertise to audit?”

Where does this leave us? Reality and humans constrain its use undoubtedly.

But crypto is also not obsolete, because as reconfiguration, it can better serve some systems. Crypto can serve functions money cannot.

As a reconfiguration, crypto can learn from, and be compatible and complementary with existing systems of trust. Only when crypto becomes more law-like, can it catch a lot of the main action. Contrary to what crypto-evangelists might suggest, institutionalised crypto is viable.

In fact, not only is it viable, it is an under-loved area which can do a lot of good. On the most basic level, we see a lot of headway in China, e.g. state sponsored digital currencies and in issuing bonds (Bank of China). Most interestingly, we see its’ use in law enforcement itself – in capturing and indexing crimes during live-streaming. (Though one should not neglect that their astute grasp of the future of crypto is as much a function of the distrust in the populace, and systems of governance, as it is an understanding what it means to trust as a human.)