Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, food, and whatever else made me think last week.

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In today’s post: Ransomware is triggering crypto regulation as governments contemplate digital currency landgrabs of their own; Unreal takes over Hollywood; ETFs are not a tax loophole to be closed; painfully slow Apple Pay adoption; the breadth and depth of YouTube's rapidly expanding business; the flawed nutrition industry; and much more below.

Stuff about Innovation and Technology
The Virtual Stage is Set
Unreal Engine, the gaming development platform from Epic, is fast becoming a default multi-platform enabler of video production for Hollywood. Netflix has partially funded a copycat of Disney’s StageCraft (see #276 for more) called Volume. The site, located in Germany, comprises a 4500-sq-ft circle surrounded by high-res LED screens, rendering real-time Unreal Engine backgrounds, and it’s being used on the new series 1899. The technique replaces the green screen strategy of adding effects post production, which, in turn, largely supplanted old-school set building (which is also still a thing of course!). The immersive, holodeck-like world allows actors and directors to become more tangibly immersed in the scene and have a better sense of what the final product will look like. Because of the Unreal Engine technology, it’s not just a static screen; for example, as you move the camera, the background evolves relative to the camera’s position, as if you were walking around in a real location. The availability of the technology is impacting the movie production process all the way down to the writing of the screenplay since ideas are now even less constrained by real-world filming. The accelerated shift to virtual sets would have likely taken longer if not for COVID curtailing on-location filming around the world.

What’s Wrong with Tap and Pay?
Seven years after the introduction of Apple Pay, it’s apparently a colossal market failure with only 6% of US iPhone users that have enabled Apple Pay utilizing the tap-and-pay NFC technology when it’s available. I find this a little hard to believe. I am such a fan of the competing Google Pay product on Android that I will avoid stores if they don’t have NFC payment options. Reportedly, 70% of US merchants are said to support Apple Pay, and I’ve rarely run into issues not carrying a credit card for the last couple of years. So, I am baffled by these low-adoption data (the survey doesn’t get to the root of the problem of why people aren’t using tap and pay). It’s also frustrating to see retailers like Home Depot rebuild their entire checkout system from scratch and put in brand new payment terminals that do not accept Apple Pay or Google Pay, like they did last year in my local store. According to the PYMNTS’ survey data, there is a growing usage of contactless card tapping at checkout from 4.6% in 2020 to 10.8% in 2021, which is encouraging, but still far lower than I would have expected.

YouTube’s Smorgasbord
Whenever I read about YouTube, I have a hard time getting my head around the scale of it. The platform now has a user base of 2B. According to YouTube’s chief business officer, around 25% of the content viewed on the app is from professional media, 25% music, and 50% from creators. Over the past three years, YouTube has paid out $30B to around 2M creators. While Twitch still dominates in live streaming, that standalone engagement mechanism is facing stiff competition from the variety of options that YouTube is offering creators for connecting with fans and monetizing content, according to this WaPo article. This Verge interview with YouTube’s chief product officer, while not particularly information dense, does help frame just how big YouTube is and how many areas the platform is involved in. As I pointed out in SITALWeek #307, based on YouTube’s $7B Q2 2021 revenues, they could theoretically be as big a content spender as Netflix and Disney. And, they also have a growing subscription business with 50M YouTube Music members.

Battery Blowout
In a blow to grid-scale battery storage deployments, the world’s largest facility, which I mentioned back in SITALWeek #310, has taken 300 megawatts offline after an unknown failure created smoke and overheating. Vistra claims to be working on the situation and hopes to have the facility back online, but they haven't given any timeframe for individually assessing the 100,000 battery modules.

Miscellaneous Stuff
Dying of a Misprint
As I was reading Gary Taubes’ op-ed in STAT last week about how the conventional wisdom of obesity and type 2 diabetes is fatally flawed, I couldn’t help but think that his focus (though perhaps not his basic conclusion) is, well, flawed itself. Taubes’ villainous view of carbs is that “People don’t get fat because they eat too much, consuming more calories than they expend, but because the carbohydrates in their diets — both the quantity of carbohydrates and their quality — establish a hormonal milieu that fosters the accumulation of excess fat.” I’ll come back to that argument after a brief rant: there is so much written about food “science” that anyone can find peer reviewed studies to support both sides of every diet advice paradigm. Most of these fad diet writers, bloggers, and podcasters are essentially one person saying “hey, this worked for me, so it will work for you” without any thought to the complex individual circumstances everyone faces. Take for example the “intermittent fasting” (IF) fad that is increasingly prescribed by nutrition book authors and a gaggle of podcasters which shares many similarities with an eating disorder: “According to the National Eating Disorders Association, people with anorexia nervosa generally restrict the number of calories and the types of food they eat, ignoring their bodies' hunger and satiety cues. They tend to be obsessed with issues concerning weight, calories, food and dieting. Anorexia is also characterized by disturbed body image and avoiding social situations that involve food. IF prescribes many of these features of an eating disorder”. Just because our ancestors lacked consistent access to breakfast and second breakfast doesn’t mean that recreating those circumstances on a regular basis is the optimal path for everyone. I am eager to see more data come in from wearables, continuous glucose monitors, smart toilets etc., and I suspect we will learn that what people should and shouldn’t eat for longevity/health will vary widely from person to person and even day to day. And, we are nowhere close to having those answers despite what some snake-oil peddlers believe they can discern from your DNA test. Most of the mainstream fad eating prescriptions all share one thing in common: try to avoid overly processed foods (i.e., if it comes in a bag, it’s probably not great for you to eat every day). Michael Pollan’s Omnivore’s Dilemma, (one of the books whose 2007 release coincided with a resurgence of pie-in-the-sky eating recommendations that, like everything else in the era of social networking, keep getting more and more extreme and silly), probably had the right advice: eat a wide variety of real food (Michael’s specific three-part advice is: “eat food, mostly plants, not too much”). But there’s the rub – eating real food is more time consuming and more expensive. So, to agree with Taubes’ assessment – that the obesity problem is caused by the type and quality of food people are eating – is to ignore that people are, in general, eating what they can afford and what they have time to prepare. Whole Foods founder and Libertarian John Mackey has made similarly ignorant comments in the past, suggesting that poor people just make uneducated food decisions. Processed foods are cheaper, faster, more calorically dense, less filling, and therefore much easier to overeat. Boosting consumer awareness by adding “glycemic load” info to nutrition facts is unlikely to magically change much of anything because obesity is, in part, a class and inequality problem, not just an ingredient problem. It’s a wage problem, an hours-worked problem, and an access to healthcare problem. It’s also a usefulness problem – as more of our jobs are taken by software and automation, we are probably increasingly inactive. And, maybe it’s a technology problem, with the allure of the screen beating the allure of the outdoors. All of these factors point to a political policy problem for a portion of the obese population (obviously I am generalizing a wildly complex dynamic). If we want to de-escalate the obesity crisis, we need more than scientific understanding – we need to create the circumstances for people to afford and have time to prepare meals made out of real food. And, maybe we need some help from Semaglutide. Unfortunately, in Taubes’ 5,000+ word op-ed, he didn’t once mention access to food, healthcare, or income levels, and neither are those key variables mentioned in the American Journal of Clinical Nutrition review paper he co-authored with 16 other people. It seems like a big missed opportunity to identify the root causes of why people eat a diet that can lead to obesity. If you've read this entire ridiculously long and rambling paragraph, there is a pretty good chance I've offended your senses in some small or possibly even large way, so I'll finish by quoting Mark Twain, who said: “Be careful about reading health books [and newsletters]. You may die of a misprint.”

Stuff about Geopolitics, Economics, and the Finance Industry
Don't Double Tax ETFs!
A Democratic tax proposal, which hopefully dies before it reaches the point of legislation, aims to eliminate the rational taxes of ETFs by making them more like mutual funds, which in taxable accounts are double-taxed on gains. ETFs (and Vanguard’s mutual funds, thanks to a patented system they’ve neglected to let the rest of the industry use for decades) shift around assets – rather than cash – to intermediaries so that investors only pay taxes on their gains when they sell the ETF (or Vanguard fund), just as with any stock transaction. Given ETFs are helping democratize investing for households with lower incomes and engaging younger generations in investing, hopefully lobbyists can actually do something worthwhile here and knock this idea down before it goes any further.

Fed Fears Upstart Digital Currency
IEEE reports on the rise of trust chains across the digital economy and why they are important. Trust chains, “which combine open alliance legal agreements (like Visa or Mastercard's legal agreements), distributed ledger technology (for example, blockchains like hyperledger), and end-to-end encryption—can handle not only payments but also finance, trade, tax, and audits in a uniform manner.” Globally, 86% of central banks are exploring the possibility of having digital central bank currencies that leverage trust chain technology. As I wrote last week, one of the likely motivations for a shift from cash to digital currencies is to enable central banks to take rates lower (which, as I pointed out, is a completely flawed mentality in a world dominated by technology-driven deflation for the foreseeable future, which requires more economic distribution than growth). Another motivation, as IEEE points out, is the desire to maintain a position as a leading world currency, in the case of the US Dollar and the Euro. Further motivations are to tackle money laundering, tax avoidance, and, depending on your local flavor of government, to track your every move and dictate what you can and cannot spend money on. As we might expect, when there is a government power grab to be had, the competing alternatives will face regulatory pressure, or even become illegal. And, right on schedule, the Biden administration is signaling they think stablecoins like Facebook’s Diem could “undermine the stability of the financial system”, as the WaPo reports. The Fed’s actual concern is that, since Facebook is a global company with billions of users, if Diem proves successful, it could become a global currency replacing the US Dollar, thus dethroning the Fed from their position of power. Facebook’s head of payments, David Marcus, said of US regulation in a recent Protocol interview:
“I think we're behind. I feel like we ought to create the appropriate regulatory framework for this innovation to happen in a way that is going to protect consumers. And I think we're not there. But to your point, I feel that we're having all the right conversations. So I'm hopeful that we land in a good place soon, and that we can stay in a leadership position in what is undoubtedly going to be one of the greatest areas of innovation in the next decade. If the U.S. misses the boat on innovation, and talent and companies flee to other jurisdictions that have more innovation-friendly environments, and with clearer regulation, we have a lot to lose.”
IEEE is calling for a “digital Bretton Woods”, a cross-nation collaboration to make the new digital currencies interoperable, suggesting that the digital version of the post-WWII agreement should include “technical and governance standards for all aspects of digital trade, tax, finance, privacy, and security in order to build a stable and inclusive world economy”. Clampdowns in the developed worlds by overly zealous regulators could give rise to a new, more powerful currency on an unstoppable decentralized trust chain arising in an emerging market – or perhaps even in a video game – that ultimately becomes a global digital currency for everyone.

Regulation to Rein in Ransomware
In other crypto news, the Biden administration’s rumored wide-ranging sanctions on crypto to stem the rampant ransomware attacks follow the path I thought we might go down when I wrote the following in July:
“Supply chain hackers that exploit widely used tools, hardware, or managed service providers represent a new type of broad threat against a multitude of companies and government organizations. It’s worrisome that criminal gangs are increasingly leveraging advanced tactics previously only accessible to nation-states. The situation is a crisis, and cyber security insurance is being priced out of existence. The likely solution is to rapidly accelerate the shift to the cloud. Any company with software running on on-site servers (i.e., units you can physically walk up to and turn on/off) should migrate to modern architectures as soon as possible. The cloud is not immune to hacking, but shifting to the cloud and implementing zero-trust security – focused on identity and encryption – solves many problems of legacy, on-prem systems. Migrating to the cloud also shifts the blame, which many boards will be keen to do given the lack of insurance available and the existential threat posed by hacks. In many ways, I believe we could see the next five years mirror the IT spending frenzy of the late 1990’s Y2K software overhaul. It also would not surprise me if we see large companies ask Western governments for help with crypto currency regulation to slow down the primary vector hackers are using to monetize their crimes. It may be necessary to regulate crypto to buy companies time to shift to the cloud.”

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