December 4th, 2022

Apple has no fundamental understanding of crypto based digital assets (or doesn’t care). Here’s why…

Apple once said that “In creating, the only hard thing is to begin.” They forgot to add “and get past Apple’s review process.” This Thursday Apple took a major position against cryptomedia by forcing Coinbase Wallet to remove the ability to send NFTs from their wallet app. In this post, I will break down why this doesn’t make sense from a technical perspective, and why following their logic leads to direct contradictions and a worrisome precedent.

Apple has received flack for many years about inconsistent and arbitrary app review rulings, whether related or unrelated to crypto. Tech news has been filled with stories about Epic, Spotify, and now even Elon fighting against Apples 30% tax on digital goods sold through iOS apps. Rulings like this are nothing new, and frankly at this point can be expected from Apple. But this ruling stands out from others in how clearly it illustrates Apple’s blind insistence on clinging to its chokehold, despite not understanding the technical requirements and implications of their request. It is disappointing to see one of the most innovative companies of our generation attempt to stifle an entire industry for the sake of profit, and in the process alienate both customers and developers.

Trying to understand Apple’s existing rules 🔎

Apple has been tight-lipped about its stance on crypto. They’ve likely been attempting to retain optionality as they watch how the crypto market unfolds, but in reality their silence is causing increasing frustration and confusion across consumers, developers, and investors. We got a glimpse of Apple’s thought process around NFTs when they updated the App Store Review Guidelines on October 24th, 2022. Amid other standard rule clarifications and further attempts to solidify their cut on digital purchases, Apple stated the following, which is Apple’s only direct reference to NFTs in their current guidelines:

Added to 3.1.1: “Apps may use in-app purchase to sell and sell services related to non-fungible tokens (NFTs), such as minting, listing, and transferring. Apps may allow users to view their own NFTs, provided that NFT ownership does not unlock features or functionality within the app. Apps may allow users to browse NFT collections owned by others, provided that the apps may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.”

Let’s break this down. The only actions that are explicitly prohibited are using NFTs to gate app functionality and circumventing in-app purchase for the purchasing of NFTs. Apple mentions that apps may use in-app purchases to sell the ability to perform actions around NFTs, but this belies a misunderstanding of the role of apps in crypto and NFT ecosystems: most apps that provide the ability to perform transactions related to NFTs such as minting and transferring do so for free. In other words, it’s not a service they sell. However, this is where we run into the elephant in the room: gas fees.

November gas fee analysis for parkerquinn.eth / ETH Activity by TITLES
November gas fee analysis for parkerquinn.eth / ETH Activity by TITLES

A quick primer on gas fees ⛽️

Any time a user performs any action in a crypto ecosystem, whether it is purchasing an NFT or just sending one to a friend, they must pay a transaction fee to the network, colloquially known as ‘gas’. Due to the decentralized nature of blockchains, there is no single entity that receives these gas fees, rather the recipient is chosen based on who in the network helped process that transaction (miners, stakers, etc). It’s kind of like paying your internet provider every time you send an email, rather than monthly.

As you can see above from my activity on Ethereum this past month (you can find yours here), many users end up spending a decent amount of money on gas fees alone. And whenever Apple sees money, they can’t help but take a bite.

From @bangeroooNFT
From @bangeroooNFT

Apple conveniently doesn’t mention transaction fees or gas anywhere in their App Store Review Guidelines, so let’s take a look at how Apple typically applies their tax, and how gas might play into the picture.

The implications for the future of crypto on iOS are troubling 🚨

Apple’s rules around in-app purchases and their resulting 30% cut (or 15% in some cases) generally state that digital goods and services that are purchased or unlocked in an app are required to use Apple’s in-app purchase technology. Furthermore, apps are not allowed to communicate to users how to purchase these digital goods or services outside of the app, making it difficult for companies to try to bypass Apple’s cut, although to be fair Apple has begun to ease up on this rule in certain circumstances, likely due to regulatory pressure. There are plenty of articles (and lawsuits) that do a great job of explaining how these rules, tax, and monopoly on the App Store stifle innovation and limit the potential for many business opportunities on iOS. But for the sake of this post let’s assume that it is a reasonable framework to build from.

NFTs are digital goods, therefore their purchase falls under Apple’s supposed jurisdiction. NFT marketplaces facilitate purchases between users, rather than selling NFTs to users directly, so there are already some questions around whether Apple should get a cut. Most mobile consumer marketplaces (Ebay, Uber, Depop, etc) consist of the transaction of physical goods or services, which are exempt from Apple’s rules, so there isn’t much of a precedent for whether Apple deserves to take a 30% cut of payouts to users. But again for the sake of argument, let’s give Apple the benefit of the doubt and assume that it is reasonable for them to take their cut. NFT marketplaces like OpenSea have played along and while their apps allow users to browse NFTs, the ability to purchase is notably absent.

According to Coinbase, Apple claims that the gas fees required to send NFTs in the Coinbase Wallet app need to be paid through their in-app purchase system. This means that they treat the service of sending an NFT as a digital service, and gas as a payment for that service. This is like Apple wanting to take a 30% cut of your internet bill because you use the internet to send emails through apps. Besides the obvious absurdity, there are a few major problems with that outlook.

Technical requirements and contradictions ⚙️

The first problem is one of logistics. Even if Coinbase wanted to give Apple a 30% cut of the gas fees, that isn’t technically possible. As mentioned earlier, Coinbase Wallet doesn’t receive that gas, rather it is paid into the network and distributed to various parties. Gas is paid in the network’s native token, and Apple doesn’t support payment through cryptocurrencies for in-app purchases. Gas prices fluctuate and often cannot be calculated exactly until after the transaction has gone through. These nuances prevent Coinbase from giving Apple a cut through the existing system, which is why Coinbase Wallet was forced to remove the feature altogether. In short, Apple has made no attempt to understand the technical implications of their request, let alone provide the infrastructure or guidelines required to fulfill it.

Even assuming that all of the logistical issues can be solved, we are left with an even larger problem of consistency. If Apple lays claim to gas fees for sending NFTs, how is that any different than gas fees for minting NFTs? For sending ERC20 tokens? For sending Bitcoin? Sending any crypto token, NFT or otherwise, requires a transaction fee - that is how blockchain networks work. Why then, does Apple not require exchanges like Coinbase (separate from Coinbase Wallet) to use in-app purchases to send Bitcoin from one address to another?

In the same set of changes made to Apple’s App Store Review Guidelines, they explicitly allow licensed exchanges to facilitate transactions of cryptocurrency, without requiring in-app purchases:

Revised 3.1.5(iii): “Exchanges: Apps may facilitate transactions or transmissions of cryptocurrency on an approved exchange, provided they are offered only in countries or regions where the app has appropriate licensing and permissions to provide a cryptocurrency exchange.”

By excluding some types of transaction fees from their voracious umbrella, Apple is directly opposing the notion that gas is a payment for a digital service. Why then should Apple take a cut of gas for some transactions but not for others?

Bringing it full circle 💫

Trying to answer that question will send you in circles. Why should Apple deserve a tax on the transfer of some assets but not others? If Apple wants to differentiate between different types of crypto tokens, then why won’t they provide any guidance on how to abide by their rules?

Either an overzealous Apple App Store reviewer tried to enforce a rule that they didn’t understand (which unfortunately is all too common, and has already happened to us at TITLES as we build discovery and curation tools for NFTs), or Apple is preparing to claim a tax on any and all use of blockchain protocols. That possibility is chilling, and unfortunately not out of line for Apple’s recent monopolistic App Store behavior.

A company as dominant as Apple attempting to tax a decentralized, open-source protocol directly opposes the very philosophy behind blockchain technology and decentralization. This will no doubt only add the recent swell of societal decentralization (which Packy McCormick beautifully describes, here). While I have a huge amount of respect for Apple and both its own innovation and the innovation it has enabled through its platforms, this decision is an industry-stifling mistake that illustrates how out of touch Apple has grown from the needs of some of its own customers and developers. Perhaps it all started when Apple built their new headquarters, because just like the Apple Park building is shaped like a big circle, so too is the argument for their recent ruling against Coinbase.

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