20 minute read
Payments
from SBC Leaders Issue 22
by SBC Global
JOSH KATZ: HOW NFTS CAN BE A KEY TOOL IN PREVENTING TICKETING FRAUD
YELLOWHEART’S FOUNDER
AND CEO sat down with SBC Leaders to share his belief that NFTs and digital assets aren’t being maximised within the sporting experience, as he outlined the role they can play in fraud prevention
BY JOE STREETER
The role of NFTs within the sporting experience has evolved dramatically in recent years. However, the digital assets could be about to take on a new venture and tap into the ticketing process.
Speaking to SBC Leaders, Josh Katz, Founder and CEO at YellowHeart, discussed his belief that they can be key within the ticketing journey, not only elevating the value of tickets but also acting as a key tool to prevent fraud.
SBC: To kick us off, can you tell us more about YellowHeart and your role in the industry?
JK: YellowHeart is a global marketplace for NFT tickets and music. Our primary focus is to connect artists and sports teams more intimately by cutting out the middle man and getting out of the way. Over the past few years, we’ve collaborated with world-renowned artists, such as Kings of Leon, Maroon 5 and Julian Lennon.
We’re currently applying our technology to the ticketing industry to combat fraud, scalping and forgery through immutable NFT tickets. The chaotic scenes witnessed at the
UEFA Champions League final in Paris demonstrated a need for events to evolve beyond legacy ticketing, which can be exploited by bad actors.
YellowHeart recently rolled out NFT ticketing pilots with two of the biggest hospitality companies in the world, MGM Resorts and Tao Group Hospitality, where NFTs were used as entry tickets to live events.
SBC: How has the role of NFTs evolved in recent years to beyond just digital artwork?
JK: Art NFTs brought this technology to the public consciousness, particularly their headline-grabbing sales. But beyond all the noise about vapid profile pictures and NFT drops that are one and done, numerous projects are working behind the scenes that add genuine utility to NFT tech.
We’ve seen NFTs being applied to sectors like real estate, trade finance, carbon markets, ticketing and other industries to disrupt and streamline legacy processes. Because of their immutable nature and the fact that NFTs permit digital ownership and record transaction data, we believe applying them to the ticketing industry is one of the most promising use-cases for NFTs and is an excellent example of their evolution away from being mere speculative art pieces.
But this isn’t to say that the artistic use of NFTs is without utility. Only last year, we combined utility with art for Jerry Garcia’s ‘An Odd Little Place,’ in which a plethora of NFTs spanning his early 90s portfolio were released, redeemable as NFT frames.
On top of this, a portion of the auction proceeds were donated to charity. We also recently airdropped token holders two new photos from legendary rock photographer Jay Blakesberg to celebrate Jerry Garcia's 80th birthday. Our Jerry drop is a perfect example showing that art-based NFTs can continue to provide utility long after the initial drop.
THIS ISN’T TO SAY THAT THE ARTISTIC USE OF NFTS IS WITHOUT UTILITY ART-BASED NFTS CAN CONTINUE TO PROVIDE UTILITY LONG AFTER THE INITIAL DROP
SBC: NFTs can obviously be useful tools to boost fan engagement, but what role can they play in adding security to the matchday ticket experience?
JK: NFT matchday tickets can eliminate ticket scalping and forgery since all transaction data is stored within the metadata of the NFT on an immutable blockchain. Our blockchain analytics can tell when someone from a single wallet address buys a large number of tickets but doesn’t redeem them — a typical sign that they’re planning to resell them on unauthorised secondary markets.
It’s also possible to program verified NFT tickets to be sold via authorised channels only or limit the number of tickets permitted per person to sidestep potential scalpers and scalping bots.
When NFT tickets are issued, they come with a unique identifier that will forever be associated with the person who buys them. This makes it impossible for someone to create a forged NFT ticket since it wouldn’t be recognised during the event checkin and would therefore be flagged immediately as a fake.
These are just some of the reasons why talk of digitising and tokenizing tickets to avoid counterfeiting is on the rise, particularly following the chaos of the UEFA Champions League final game in Paris. With the 2024 Paris Olympics gearing up to issue NFT tickets, we could soon witness the application of NFT tickets at large. Beyond tackling fraud, NFT tickets can also carry dynamic utility that traditional tickets cannot. For example, attendees of MGM Resorts’ recent Jabbawockeez show in Las Vegas were airdropped food and drink credits through their NFT ticket that we provided. NFT tickets can even be programmed to unlock access to unique perks such as meet-and-greet opportunities, giveaways, and mementos which is why a number of sports teams are starting to look into them.
SBC: At numerous major events in recent years, ticketing fraud has been a significant risk, how could NFTs have helped combat this?
JK: As mentioned, NFTs contain all of the prerequisite data needed to ensure they are legitimate. Pieces of paper can and will always be forged. It’s been estimated that 70% of the tickets were
fake at the recent 2022 Champions League Final in Paris. NFTs could have prevented this problem entirely.
SBC: Do you believe that NFTs could add value to matchday tickets?
JK: Absolutely. As we demonstrated during our collaboration with MGM Resorts, NFTs can be programmed so they dynamically react to ongoing usage. Once an NFT ticket is redeemed at a match, it can be updated to deliver food and drink credits, in-game seat upgrades, and even enter holders into a meet-and-greet and field access sweepstakes.
Moreover, following redemption, tickets can become digital momentos. Ultimately, we strive to emphasise that the value and utility of NFT tickets don’t have to end following the entrance to an event — instead of dying, they actually come to life.
SBC: Generally speaking, what role could NFTs have when it comes to growing the payment journey?
JK: When fans buy NFT tickets to sporting events, for example, the NFTs will forever be associated with their designated wallet. Any future purchases from the fan could be handled directly through the existing NFT, as opposed to them having to re-input their information.
Aside from general convenience, this also provides a more personal connection between the team and their fans and even opens up the possibility for fans to be granted exclusive access to perks for having purchased tickets previously (think meet-and-greets, seat upgrades, early access to merchandise, etc.).
As for buying NFTs, an overwhelming majority of our users take advantage of the ability to pay using a credit card. By offering this payment method, we’re essentially seeking to bridge the gap between blockchain and those with limited knowledge of the tech.
SBC: Can you tell us if there are any obstacles that are potentially hindering the entry of NFTs to the ticketing process?
JK: NFT ticketing is remediating the pain points of the legacy ticketing system, particularly for sports events and concerts where illicit ticket sales and scalping are rife. But as with any kind of development, there are inevitably unique challenges.
Contrary to popular opinion, it’s not a lack of adoption presenting a challenge; it’s about coming out on top over competitors that already have exclusive partnerships in place. It is a battle between the nuances of NFT ticketing technology and the endorsement of such. •
BOOM OR BUST: HOW WILL CRYPTO REGULATION IMPACT THE MARKET?
SINCE THEIR INCEPTION IN THE LATE 2000S, in the furthest corners of Web2.0, cryptocurrencies have taken on a life of their own. But as the age-old question of crypto regulation seems to be more of a realisation than a cliched talking point, how willingly will people adopt crypto as the future of currency as it is so often coined to be?
BY CALLUM WILLIAMS
Last April, former Chancellor of the Exchequer Rishi Sunak declared that he and the Treasury aim to make the UK a ‘global hub for cryptocurrencies’, with plans to form a regulatory framework on stablecoins whilst building jobs for the ‘businesses of tomorrow’.
Whilst Sunak may no longer hold the UK’s purse strings, and the country exists amid a cost of living crisis, progress is ongoing, with the first proposed crypto legislation unveiled in Parliament last July under a planned reform of the UK Market bill.
Yet, the acceleration of this crypto bill, despite intentions from the Treasury of its plans, begs the question, why is the UK government keen to regulate crypto currencies now? Why form a regulatory framework of digital assets during a ‘crypto winter’? How will this alter the population's understanding of cryptocurrencies as its own currency in the future?
“We believe it is too early to say what the potential impact will be given the very early stages of this bill. We will strive to engage collaboratively with the regulators to ensure revisions are made to protect the UK and crypto businesses operating here from legislation that may stifle innovation, trigger potential job losses and have a negative impact on the UK economy for businesses operating fairly within this sector.”
Su Carpenter will have a better
understanding than most of the intricate hurdles and obstacles that come with building a regulatory framework surrounding digital assets.
CryptoUK’s Director of Operations has worked for the crypto trade association alongside UK lawmakers such as the crypto asset taskforce, and the Financial Conduct Authority. Tasks include building definitions for digital assets, anti-money laundering methods and guiding lawmakers in
best practices for cryptocurrency adoption.
Now CryptoUK sees itself again working with UK regulatory bodies, but this time its efforts may push towards the country's first defined crypto regulation framework.
“Whilst this is still in the early stages and a second reading date has not yet been confirmed, we are currently looking at the specific areas of the bill, including the sections on crypto assets and stablecoins, to agree which areas we think are critical for an intervention,” said Carpenter.
“CryptoUK has had regular dialogue with Her Majesty's Treasury on a number of technical issues surrounding policy, especially with regards to stablecoins since the initial consultation in March 2020.
“We regularly speak with the key
UK regulatory bodies, sharing our concerns and those of our members, and ensuring we are seen as an educational resource to inform their decision making based on the feedback of our members and the wider crypto community.”
One of the biggest deterrents for potential crypto investors is not fully understanding how the market works. Education, Carpenter mentioned, is a fundamental aspect of the crypto market, having to constantly seek out new information due to its volatility.
Our eyes have also never had more exposure to different cryptocurrencies and exchange platforms, whether it be Bitcoin and Ethereum investors taking over your Twitter feeds, or high-profile businesses and sports teams like Manchester City joining forces with crypto platform OKX as its official training kit partner.
But no matter how much exposure forces the uninitiated person to cave into investing into crypto, not only is education of the market required, but education into trusted and secure crypto tokens and platforms is just as paramount.
As Carter explained: “Investors need to be alert to rogue actors and the news that is more often reported is around losses and scams. Investors need to know how to do their own research and due diligence on an organisation before choosing to invest, arming themselves with the knowledge to know exactly what they are investing in.
“You wouldn’t purchase shares in an organisation without knowing who they were or what they do and the same should apply to crypto and digital
assets. A better understanding of the sector is crucial and should play a part in a broader programme of financial education for all to allow for inclusivity and financial accessibility across all forms of assets and currencies.”
But whilst MPs discuss and debate the proposed crypto legislation, the elephant in Parliament’s room is the present state of the crypto market itself.
Currently, the market is undergoing a ‘crypto winter’ as, at the time of writing, Bitcoin (-34.8%), Ethereum (-43.1%), and DOGE (-59%) all suffered drastic losses in value over the last several months.
The crypto crash was partially kickstarted by the collapse of the TerraLuna and USD tokens which caused investors to lose huge amounts of money as the cryptocurrency ceased to exist. Terra’s collapse and the current economic climate of the market will no doubt cause concerns for potential investors, regulated or unregulated.
“As with all investments, crypto can be volatile, any downturn in the market is a cause for concern,”
Su Carpenter, Director of Operations - CryptoUK
expressed Carpenter.
But Carpenter was quick to assuage current investors, advising that due to current economic conditions of soaring inflation and a cost of living crisis, the sentiment from CryptoUK would be of
greater surprise had crypto not been impacted at this precise moment. She said: “We have seen downturns and recovery in the past and we cannot predict what will happen on the global stage and to the economy as a whole, but all investments carry a risk and crypto is no different. Sophisticated investors see crypto as a long term investment and we are not necessarily seeing huge amounts of offloading of crypto assets.”
The current crypto winter has clearly not deterred UK policy makers to attempt to form a legislation of digital assets, but if we take a brief trip across the Atlantic to the United States, the Securities and Exchange Commission has been rigorous in its attempt to gain a stranglehold on unregistered crypto asset service providers who they deem to be ‘securities’.
The SEC has already opened investigations into Coinbase regarding the trading of unregistered tokens on its platform, and is currently embroiled in a legal battle with Ripple Labs with similar claims regarding its XRP cryptocurrency.
US Senators are even inviting Apple and Google CEOs to engage in discussions on how the tech giants operate a framework to identify which crypto apps are secure or not.
Whilst the UK hasn’t displayed the same aggressiveness to crypto platforms, the introduction of the crypto legislation in the UK Markets bill suggests Parliament has become more vigilant.
Working in dialogue with UK lawmakers, Carpenter echoed Sunak’s previous sentiment that the UK is becoming a ‘global hub for cryptocurrency’ through innovation to establish the country as ‘world leaders in technology’.
She noted: “The UK Government has proposed to encourage innovation through sandbox environments into real, scalable solutions that will drive change and prove that the UK is embracing this sector as well-established world leaders in technology.”
The last thing the UK general public will be worried about right now is how much money they can invest into crypto, with gas and electric fees soaring and a looming recession.
And whilst the government shares much of that responsibility, lawmakers are actively seeking to envisage a future outside of these current economic challenges with the introduction of the crypto bill.
Crypto regulation may not birth an immediate boom, nor may it become the ‘future leader’ as Bank of England chief Jon Cunliffe depicts it to be. But it does signal the country's intent to become one of very few jurisdictions that are actively looking to transform their economic strategy. Whether it will bring about a future crypto revolution, remains to be seen. •
Rishi Sunak, former Chancellor of the Exchequer
THE STATE OF EVOLUTION OF AML REGULATIONS IN THE METAVERSE
FOR FINANCIAL CRIME EXPERT PEKKA DARE,
Vice President of the International Compliance Association, the metaverse could bring people closer than ever before. However, the space is also highly susceptible to money laundering. In this SBC Leaders exclusive, Dare explains why that is the case and what can be done about it
BY VIKTOR KAYED
Let’s set the scene. For several years now, betting and gaming operators have been coming up with new and innovative ways to combat money laundering. Task forces, new technologies, you name it and they’ve done it.
So how does the metaverse change this? The Web3 phenomenon is a whole new beast and arguably requires a whole new approach to AML and KYC practices.
Pekka Dare is the Vice President of the International Compliance Association, a global professional and membership body that delivers professional qualifications and accredited in-company training in governance, risk and compliance and financial crime prevention.
Providing guidance with new technologies for risk mitigation, Dare is no stranger to participating in discussions about the general safety of the Web3 environment.
In the metaverse particularly, Dare
sees “huge potential” when it comes to money laundering. This can be boiled down to the high-cost transactions that have become synonymous with the space.
“We’ve got a real problem around the growth of the metaverse with the real value of transactions coming in. You can create assets yourself and sell them. You can easily put money into the metaverse to buy virtual assets and then convert them back into real assets, moving that around,” he explained.
“It’s also been well documented that the estimated value of prime virtual real estate is soaring. So, I think the growth in the volume of virtual assets being sold means that it makes it easier to conceal money laundering. There’s just so much growth in terms of the value of transactions in the metaverse.”
This growth has so far been completely autonomous, lacking any kind of supervision. No regulator exists to control who or what this growth is being driven by. According to Dare, the lack of regulation, mixed with the fact that every interaction is facilitated by digital currencies, makes it really difficult to detect and monitor money laundering.
Currently, some attempts are being made to try to regulate virtual assets. Around a dozen countries are enforcing and supervising the Financial Action Task Force's ‘travel rule’ that ensures crypto asset firms monitor who their customers are, and who they are doing business with.
This is being led by the FATF with the goal of setting international standards under which all cryptocurrency providers and repositories of crypto assets are liable for regulation.
However, Dare says that while such rules are rolling out, “the technology is moving so fast that regulations can’t keep up with it”.
“All countries need to decide how to regulate individually. That’s where they struggle - how do they regulate when there isn’t necessarily one central organisation running a system?
“Yes, there are rules out there for buying and selling cryptocurrencies, but the rules are not being universally adopted and we’re in a state of evolution with those.”
Another hurdle to introducing a centralised regulatory body is the fact that the metaverse is not a single space, but a series of online virtual worlds. This requires an intergovernmental body approach, according to Dare, not only to mitigate financial crime but to also address wider issues such as consumer protection and child safety.
As the technology becomes more immersive, government-level coordination is necessary, which “unfortunately never moves quickly enough”, Dare added.
With so many uncertainties present,
how does one prepare an entry into the metaverse? Dare says that it’s actually quite similar to what a business would do in real life - a good, old fashioned risk assessment.
“What type of products are you going to offer in the metaverse, what type of customers are you going to do business with, decide where are the risks with these and evaluate what
are the controls you need to put in place,” he said.
“If you are regulated for financial services, are you going to just use the metaverse as a marketing tool or you’re actually going to try and sell products?
“All of this needs to be considered because effectively, you’re just using another channel - like having a physical branch or an online presence. So, definitely the first thing is to do a risk assessment.”
Definitely something to plan carefully,
as Dare believes that the responsibility of ensuring AML standards are met should fall on the companies providing services.
“If you’re selling virtual assets, like running an online casino for example, I would suggest that just like in the physical world, the responsibility to make sure you’re not dealing with criminals is with the firm providing the service.
“And then, there should also be some overarching central standard that regulates. It may be that we adapt to give new powers to existing regulators such as the Financial Conduct Authority in the UK. Only time will tell.”
With more pronounced AML and KYC metaverse checks in the pipeline, there is also the possibility of making them too stringent for the consumer. Dare’s idea of how to avoid this is to introduce a one-time approval of the user’s digital wallet, granting them unphased access to the rest of the metaverse.
“Take online gambling in the metaverse for example. We could get some kind of a joined up approach, so that if you’re using your digital wallet to gamble, and there’s a joined up recognition that it’s compliant to AML standards, the metaverse is open to you and you’re free to move,” he suggested.
“This would remove the need to constantly go through checks every time a different virtual store or a community is visited. For me, the thing that matters most is making sure digital wallets are regulated in a consistent way.”
But, at the end of the day, the metaverse is always undergoing a metamorphosis, drastically changing at a very rapid rate. What Dare has gleaned from all of his metaverse conversations is that “everyone is still learning”. Constantly learning about new technologies that “they would have never dreamed of a month ago”.
As exciting as it may be to see the space evolve so quickly, Dare agrees that this is also one of the main reasons that regulators might clamp down on it that much harder. •
