Cryptocurrency

X(XX) marks the spot: As porn moves toward crypto, so might the mainstream

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Adult entertainment has driven technology adoption before

Technology is often accused of being a solution in search of a problem. And perhaps there’s no better example than last week’s announcement about a leading porn site joining forces with a nascent cryptocurrency. “Pornhub subsidiary wants to pay you cryptocurrency for watching porn — but don’t get too excited” read the headline over at The Next Web’s Hard Fork.

The site in question is called Tube8 (surely NSFW), which apparently has 150 million “page visits” monthly and boasts of 10 million users. And the pitch is simple, users will be able to earn something called the Vice Industry Token, shortened as VIT, by streaming and “interacting with” videos (this means apparently posting comments, clicking “like” buttons, et al. so keep your mind out of the gutter).

By now you’re very likely asking: Why do people need to get paid to watch porn? And they almost certainly don’t. Pornhub, which is the industry leader and owns many of the most popular sites, got 28.5 billion visits last year alone — about a thousand every second. It served 92 billion videos representing apparently 4.6 billion hours of porn viewing in 2017. (These stats were grabbed here.)

The vast majority of that content was consumed for free.

And yet there’s an interesting story here about the idea of trying to crack one of the internet’s greatest puzzles by using tokens. It dates back more than 50 years.

 

You may not have heard of Ted Nelson but there’s a near certainty you’ve been impacted by his vision. Decades before the dawn of the web, Nelson, then a student at Harvard, conceived of a “digital repository scheme for world-wide electronic publishing.” Within a few years, the idea had rattled around in Nelson’s brain long enough that he imagined a way to navigate that repository by having special functionality attached to certain words or phrases on a computer screen. Interacting with those words would instantly surface other information.

If this sounds familiar, it’s because Nelson was describing hypertext, or what we eventually came to know as “hyperlinks” and now just typically shortened to links. While his project never made the impact of Tim Berners-Lee’s World Wide Web, it most certainly played an influential role. (The h in http, of course, stands for hypertext).

But Nelson’s vision wasn’t merely around linking information. He foresaw the need to pay content creators for their work. Nelson coined the term “micropayments” to describe small amounts of money, easily transmitted, to allow those that read/listen/view content to compensate those that wrote/recorded/filmed it.

In Xanadu, did Ted Nelson, a payment scheme declare to be

Nelson saw micropayments as core to his Xanadu, the grand name for his grand project for a “digital repository… for publishing”. But while the web delivered much of his vision, micropayments have remained something of a Gordian knot online: There must be a way to solve the problem, but thus far we only have the wreckage of those who have tried and failed.

Which brings us back to Tube8 and the VIT. It’s not the first time cryptocurrency has been associated with pornography nor even the first we have heard of Pornhub getting interested in tokens. Back in April, the site announced it would begin accepting payments via the anonymous cryptocurrency Verge (VXG). The use case there was to pay for premium subscriptions using a method that wouldn’t leave a trace. You can actually use Verge today to sign up (the link is safe for work).

The process remains convoluted, of course, as with much around crypto. Verge recommends buying bitcoin or Ethereum at Coinbase and then using that crypto to acquire VXG through Binance. At that point you can download your Verge wallet, load the VXG into it, and spend it — at least at Pornhub. It’s exhausting just to think about.

The new VIT/Tube8 deal works in reverse. Instead of taking all sorts of steps to buy a product you can already buy with a credit card, the idea here is to seed VIT into the word by giving it to people who would do something anyway, i.e. watch free porn.

Of course if it works, there could be millions of VIT users. And from there the vice token could also be used as a payment mechanism, perhaps even encouraging holders of it to acquire more in exchange for other cryptos they already have or can easily get.

In the future, the VIT given away by Tube8 could allow purchasing content across the Pornub family. But more interestingly, it could go much farther than that.

A brief history of porn, technology catalyst of the digital age (and even the analog one!)

If you hadn’t heard of Ted Nelson, there’s a good chance that Harrison Marks is also an unfamiliar name. His rather colorful history dates back to 1950s London where, in his photo studio in Soho, Marks began taking “glamour” photographs of women. The euphemism referred to mid-century erotica and after publishing some of that work in a magazine he and partner Pamela Green called Kamera, Marks sets his sights on the technological revolution of his day.

The advent of 8 millimeter film made it possible to shoot movies without rather large, typically expensive professional equipment. Using 8mm equipment, Marks made “glamour home movies” with topless women. They were often filmed in his and Green’s kitchen (she was also one of the women on film) and were sold using the most high-tech methods of the day, including retail stores and mail order. Without Facebook ads and a website to promote them, Marks and Green often used the pages of their own Kamera magazine to do so.

But while their work would eventually make the move to 35mm, their pioneering use of 8mm helped boost that format and ushered in an era where porn would often lead the way in making “the next big thing” happen.

Video killed the … oh never mind

By the 1970s, adult firlms had made their way to movie theaters in what were often the least desirable neighborhoods of America’s cities. But then a revolution would happen that would forever move adult entertainment into people’s homes. The VCR was born and while it often cost more than one thousand 1970s dollars (almost $5,000 today) access to recent Hollywood movies, the ability to record TV and watch it later, and access to porn made it a smash hit.

By the decade’s end half of the videos sold were adult content and the porn industry’s selection of the VHS format for distribution helped kill Sony’s technologically superior Betamax.

By the time the internet had begun to go mainstream in the mid 1990s, porn was already one of the most popular forms of content online. “Marketing Pornography on the Information Superhighway: A Survey of 917,410 Images, Description, Short Stories and Animations Downloaded 8.5 Million Times by Consumers in Over 2000 Cities in Forty Countries, Provinces and Territories” was published in the Georgetown Law Journal. That same year, Gary Kremen, an entreprenuer behind the dating side match.com registered the domain name sex.com. Back then it was common for people to search for something by typing in a basic keyword, and people were clearly going to search for sex.

A gentleman named Stephen Cohen figured the same thing and fraudulently got Network Solutions to transfer the domain from Kremen to him and allegedly made between $50,000 and $500,000 per month just directing clicks from the sex.com homepage out to other porn sites. Kremen sued and in 2001 was awarded $67 million for lost income associated with that site.

At that point, there were an estimated 21,000 websites devoted to porn. Today, it’s estimated there are 4.2 million. While much of the revenue for online porn comes from advertisements run along with the adult content, there’s a huge business in charging people money to view it as well. And for that, we can thank the third obscure historical figure in our story: Richard J. Gordon. When Pamela Anderson and Tommy Lee taped themselves engaged in sexual relations back in 1995, they had no idea that Gordon would later be the man who would figure out how to charge people to watch them.

But that he did, and Gordon’s Electronic Card System led the way: “He was the house for Internet porn in the early days,” said an early employee. “At that time, if you had anything to do with Internet porn, you called Electronic Card Systems.”

Credit card companies don’t love dealing with porn sites, however, which meant businesses like Gordon’s had to act as middleman, charging hefty fees to deal with fraud losses, chargebacks, and the like. Today, one of the successors to Electronic Card Systems, ccBill, charges as low as 10.8% to work with “high risk” merchants like porn sites.

 

Which brings us back to Vice Industry Token, Verge tokens, and something that goes by the perhaps too on-the-nose name of Spankchain. With so many porn sites vying for a (somewhat) finite amount of human attention, it ain’t easy to make a living out there.

Chained melody might make sweet music for sex workers

The economics of porn are worthy of their own lengthy discussion, but consider some basics. Among the most popular places to view adult content are “cam sites” where models — mostly women — perform live for an audience watching their video stream. The basic business model is akin to Dropbox’s “freemium” style: You can join and watch for free, but if you want more, you’ve got to pay.

To do this, the viewer buys “tokens” (no relation to crypto tokens) that are the specific site’s currency. The site operator first has to pay someone like ccBill 10% or more of the total value of tokens purchased. Then they have to pay to host all the models in terms of bandwidth and other server expenses. Oh and they want to make a profit too. This leaves the models earning less than half of what their benefactors choose to contribute, whether for that special attention or just digital tips. Think of tipping in tokens as the modern equivalent of dollar bills at what amounts to the 21st century answer to “strip clubs.”

Spankchain wants to fix that via the blockchain and a smart contract built on Ethereum. Using their Vynos wallet, Spankchain hopes to make it possible to pay for content using micropayments that are both anonymous (shades of what Verge is aiming for) and also low cost for all involved. Ideally, sites could batch a bundle of small transactions to keep fees super low. But even without that, not having the double-digit hit of the credit card middleman is a step forward. Similarly, the loss of protections associated with credit cards, most notably the consumer’s ability to ask for a chargeback for nearly any reason, becomes a feature here and not a bug: Once you pay to view, you’ve committed whether or not the scenery was as expected.

There can be only one

We’ve looked at three initiatives already all basically focused on the same goal: making micropayments work online after all. If any succeeds, they could realize Nelson’s vision from the 1960s. They’d also keep Berners-Lee’s revolution alive against threats of the centralization of content as Facebook and Google continue to grab a bigger share of advertising revenue while nearly all other publishers struggle.

But for this time to be different, someone will have to rise above the noise of the countless crypto projects out there and become something of a standard. The failure of countless initiatives in the past likely explains why Pornhub has chosen to dabble with two crypto players at different ends of the value chain.

That decision limits business risk but doesn’t solve the greater problem. For a truly decentralized, low cost solution, consumers need to be able to take one wallet and ideally one token across all sorts of sites.

It’s a chicken-and egg problem that defies easy solution as even Apple, Amazon, and Google struggle to get websites and apps to accept their payment schemes. One clever solution has been the model adopted by Patreon, which turns micropayments into micro-subscriptions. Patreon allows creators to bill their fans monthly for access to any content they create, no matter whether it’s writing, video, images.

By centralizing the signup mechanism, a user only has to enter credit-card info once and by centralizing billing, Patreon can keep fees low-ish at a 5% rake. Of course, this isn’t anonymous and it’s fundamentally centralized so automatically anathema to much of the crypto/blockchain ethos. But it shows early signs of being effective and that has made it a go-to choice for content creators.

For a crypto solution to compete it will need to even cheaper and solve the problems Patreon still doesn’t handle. Selling single articles or videos, even a view thereof, has been the goal of micropayments since the 1990s. But most publishers have adopted their own subscription platforms that create binary choices like “here’s a month free, but then pay us $10 a month for as long as you want our stuff”. This kind of model is common with newspaper sites in particular though it often starts at 99 cents.

Underlying those teaser offers is often a limited amount of free articles, typically 5–10 per month, before you must subscribe. But the gap between free and $10 on a recurring billing is intimidating to users. If there was a common cryptocurrency well tuned for micropayments, the Los Angeles Times could consider offering say three free articles, perhaps the next few at 25 cents each, and then — using the same token that buys the a la carte posts — might offer to upgrade more frequent users to an all-you-can-eat model.

If every time someone wanted to patronize a publisher they needed a new token or wallet, they’d likely just give up — friction is too high. Price is also a potential problem: If every time you wanted to stream from a porn site you had to pay a significant fee, you might seek out something free instead.

That leaves tokens not only competing with one another, but also swimming upstream against the same forces publishers have been fighting since the middle 1990s. As Steve Wozniak said in the 1984 “information wants to be free because the cost of getting it out is getting lower and lower all the time” but what is less remembered is that he was responding to his own opposite notion:

Information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life

That’s almost certainly not true of a given moment of X-rated entertainment.; But the idea of information as valuable drives creators of all types and explains our seemingly endless appetite for content prurient and practical. We always want to know more, to see more. With these nascent crypto efforts, doing that might someday be more creator friendly, more anonymous, and even more secure. And we might have porn to thank — again.