Posts Tagged

cryptocurrency

BitCoin Dip – What Happened?

Elizabeth Technology June 23, 2022

Terra’s “StableCoin”

A stablecoin is, in theory, just that – stable. It’s a crypto coin that is directly tied to a country’s unit of money on a one-to-one ratio. Terra’s stablecoin was equal to exactly one U.S. dollar before it tanked. Terra’s stablecoin was also tied to Luna – instead of being backed by a reserve of fiat money, stablecoins were produced out of coin mines, and Luna was backed by the stablecoin. Double-layering coins like this would, in theory, prevent wild fluctuations. It’s meant to serve as an anchor to the ‘real’ investment.

However. Being equal to a dollar does not mean it was backed by a dollar. If the stablecoin fails, then so does the real coin, and the stablecoin can fail for a number of reasons. In Terra’s case, it was a lack of liquidity.

Terra has had to dig itself out of holes before, but it never lead to the stablecoin failing. One time, they magicked a bunch of coins into existence to lower the rising price of the coin and reestablish stability; another, they absorbed a bunch of investor money to buy coins back and keep it from tanking. Terra had been fighting an uphill battle for a while now, but because it labeled itself as stable and kept afloat, investors and coin purchasers had no idea what the situation was, and that alone kept it up. Of course, if Terra had been honest, the market would have tanked sooner due to a loss of faith and a run to sell before it was worthless, so once they were underwater on their investment trying to buy up coins and keep the price stable, the end had already begun, and Terra tanked. As one of the oldest, stablest coins on the market, crypto forums began to panic.

The BitCoin Drop

Bitcoin has a history of soaring highs and trench-like lows. Famously, someone on the web sent 30 Bitcoins to pay a delivery driver for a pizza worth approx. 8$ some time in the 2010s. In 2010 proper, a Bitcoin was worth just 8 cents. When it skyrocketed to a whopping 250$ from 10$ in 2013, people who’d bought some couldn’t believe it. Many sold; many bought. The price continued to rise, going from 450ish to 900ish across 2015 to 2016, and then from 1,000ish to ­18,000ish in 2017 thanks to media attention and a growing awareness of the product. Of course, this high lead to a low as people sold and didn’t rebuy, and Bitcoin hit a low of 3,000ish in 2019 before going up, down, and up again across a handful of months before briefly stabilizing. Most recently, in the 2020’s, Bitcoin’s chart has looked less like a mountain range and more like a seismograph, with it’s value doubling, halving, doubling again, and then halving again across just months. As it stands now, in May of 2022, Bitcoin’s dip to less than half of it’s most recent high (now at approx. $29,000) means that companies who invested in it and who took it as payment have had a significant portion of their gains wiped. Tesla lost half it’s theoretical gains for the year in a few days purely by Bitcoin’s fall.

Along the way, other cryptocurrencies saw the potential in cryptocurrency, and started creating their own coins. The problem is that cryptocurrencies, which aren’t backed with much of anything at all, are prone to these extreme fluctuations by nature. One big investor selling a little too much at one time can completely wreck the coin’s value by creating a run on the coin. New entrants to the market are also notoriously prone to pump and dump schemes, further encouraging investors to sell at 10% down instead of waiting for it to recover.

All this to say that the big coins, Terra Luna, Bitcoin, Ethereum, and a few others were the most reliable, and if they’re tanking, everything else is tanking with them. Additionally, most people want the number to stop falling, or at least slow down, before they buy. Ironically, this makes reversal take longer: the more supply as people sell, the less demand there is to go around as people try to wait it out. If the coin isn’t well-known, today’s market won’t rebuy – people are sick of pump-n-dump schemes. The coin never goes back up. Bitcoin and Terra are well-known, but every dip is heartstopping because the gaps between spikes are getting bigger and bigger. Buying during the dip might mean spending 2,000$ on something that drops to 500$, and then doesn’t rise again for a year or more as was the case in 2018. Why buy something that has no brakes and continues to fall?

Doge

Bitcoin is not a canary in the coal mine – when things get to Bitcoin’s size, they become miners themselves. Doge, on the other hand, was a joke coin that turned serious when it’s value spiked and then became a sort of bitter aftertaste to a joke when the price dropped again. A well-loved canary choked to death by the mine operator that is crypto markets. Logically speaking, not every coin can go to the moon. People were seeing something in Doge that simply wasn’t there. Some investors treated it like a pump-n-dump with an uncooperative creator (who was generally not interested in being a public face for his coin and also didn’t want to defraud anybody, because he made the coin as a joke) others treated it as a hidden gem that could quintuple their worth after it spiked suddenly from less than a cent each to 63 cents over the course of a day or two. 20 doge coins worth a total of 16 cents were now worth 12.60$. for anyone who’d dropped 20$ on Dogecoin as a joke, that was a huge jump.

This ruined the doge coin community. At first, there was some idea that this would work out, they’d all have a good time with it and hold so it didn’t result in the death of the coin like it did for so many others, and then Elon Musk commented on it, and the coin blew, deflated to 30 cents, and then 20, 15, 10,  and now down to 8 cents. While that’s still 16x more than the coin was worth at the start, it’s not the epic peak devoted Doge fans believed they’d earn if they just held on in the face of an unforgiving crypto market.

Doge is not a victim of the Bitcoin crash because it already crashed- it was a harbinger of what would happen to Bitcoin if things continued as they were. Continue they did, and Bitcoin’s Doge-crash happened on a longer timeline. Will it bounce back? Will any of them? Nobody can say for sure. Terra, though, may never re-earn the trust it once had even if it does recover.

What is a DAO?

Elizabeth Technology March 16, 2022

Spice DAO bought a copy of Dune for around 100 times what it was actually worth. I covered that in an earlier article – but what is a DAO?

Take a DAO

DAO stands for Decentralized Autonomous Organization, which is sort of vague. Right now, every DAO does things a little differently, and determines their leadership in different ways. In theory, DAOs can range from totally democratic to monarch to parliament, split system decision-making based on how they determine power. Critical to their existence, though, is cryptocurrency. If a DAO is running off of real, regulated money, it’s not a DAO (because of the ‘decentralized’ part of the name) – it’s an investment firm. Or a club.

DAOs come together for all sorts of reasons, but one thing’s for sure – they’re colored by the space they’re in. Some sites claim they formed as a way to destroy hedge funds, and undercut investment firms, while others say they simply want to be those firms or funds without all of the red tape and societal hatred they’ve earned themselves in the years after the financial crisis in the US. They do, at least, almost always say they want to be better than the old guard, a more fair and equal place – but issues begin springing up almost immediately when you reckon with the how.

Voting Techniques

DAOs don’t exist just to exist, they do stuff. They buy stuff. They make projects. They do a lot of the stuff that ordinary startups and businesses do, but they do it outside of the constraints of things like tax laws and labor rules (which is a whole other story about ethics – and other people have explained it better than I ever could). Voting systems vary, but most are software enforced and somehow recorded on the blockchain. Why be a DAO if you don’t use blockchain, after all?

DAOs work by pooling resources together, whether that be crypto bucks, expertise in coding or other relevant fields, or other outside factors like purchased tokens that don’t translate directly into % of ownership like investment money would. They then form an autonomous organization, something that’s not quite a business, kind-of sort-of an investment firm, but no matter what you call them, they’re prone to high-risk behavior. Because crypto itself is prone to wild fluctuations (even Bitcoin, one of the oldest, has dropped double-digit percentages in the past two weeks) the vibe for investments and decision-making is now. Do it now, because you might not have the money to do it later. Systems that don’t do democratic-style decision making are even more prone – there’s a kind of leader who’s not afraid to burn other people’s money just because they can, and unfortunately the unregulated space of crypto stuff right now is incredibly attractive to that kind of people.

Not every DAO is like that, but right now there’s no safeguards within the ones that are. Other DAOs have methods that feel more fair on the surface, but may fall apart when looked at outside of a vacuum.  

For example, some DAOs work by counting held tokens as votes. Person A has 20 tokens, person B has 10 – person A is going to win the vote unless person B puts some serious efforts into lobbying other members into voting for what they’re suggesting.

This has serious flaws! In the crypto space, some people are so eager to ‘get in on the ground floor’ that they’re willing to take a pittance for supplying critical coding or expertise, for example. The difference between person A and person B might be more like 200 tokens vs. 1. Or half a token, or less.

So that doesn’t always work out. It turns into an oligopoly, and person B doesn’t feel represented. Person B may actually be most people in the DAO, but Person A just has so much money, their word goes no matter what.

The next technique seems more fair on the surface – everyone still pools the resources they want to pool, but each and every individual gets one, individual vote. However, the problem now is getting person A to agree to this system. Most DAOs have at least one ‘whale’ member, someone who was already independently wealthy and is for some reason or another looking to put that money into an organization. Power, owning something rare, or getting even more money are all relevant wants when someone wants to start or join a DAO, and the grassroots, ‘everyone’s-equal’ picture crypto enthusiasts try to paint doesn’t align with that reality. We’re watching a sturdier institution fold under the pressure of money right now, the thought that removing more of the safeguards that had kept it upright til the eighties would somehow fix that problem is foolish. At the heart of the DAO is not anarcho-capitalism, its feudalism, again. It’s feudalism hiding behind cool, illegible technology with whale users sucking in other members with the promise they can be a courtesan and not a field worker if they come to their land.

The third option also seems like a solution for the first option’s problems on the surface, only to also be a problem: burning the tokens to vote. If person A has 20 tokens and is only willing to burn 10 on the vote, Person B can burn all of their tokens and vote, and tie it up – they won’t have to lobby as hard to get enough votes to win. However, If B is not actively accumulating tokens and A is, then they haven’t actually solved the problem, they’ve just delayed it to the next decision where B has only enough money to buy one token at the market price while A still has 10 to use. Burning the tokens to vote discourages participation, anyway. If a DAO wants to claim fairness because every member can vote, this system is incongruent with that.

Every voting system has its problems. DAOs are just the worst expression of all of them, one where money directly contributes to how decisions about that money are made.

If they decide to use voting at all. It’s common, yes, because it attracts small fish with a sense of fairness and equity, but it’s not the only way DAOs form or make decisions.

DAO Rules

DAOs can be anything, and that anything means that they can stack themselves up however they like – if they want to have a board determined by people with one of 9 Very Important Tokens, they can! Unfortunately a lack of foresight infrastructure, blockchain enforcement of votes, and powerful software means that if one of those token holders goes missing, there’s no way to retrieve it from them. Depending on the DAO’s coding, it might not be possible to vote without it at all – if all members are mandated to respond in a system with no undo or back button, then they’re just… stuck there. This forces the rest of the DAO to make the decisions outside of the DAO, which is not good for anyone not on that board due to a lack of transparency, and ultimately destroys its original purpose.

Cryptocurrency is cool, but working with it is like carving into stone. People are already pointing out the obvious flaws of being able to mark a person permanently (This video by Davin Brown does a tremendous job at highlighting all of the issues with such a system, including union-busting, snubbing people who’ve donated to specific organizations, and doxing: https://www.youtube.com/watch?v=YQ_xWvX1n9g) and this is just one more to add to the pile.

The Source Of The Issues

Silicon Valley has a serious problem with chasing out ‘others’, even as much as it promises it doesn’t, in the same way premeditated murder still happens even though it’s illegal. This is not ideal. If someone in Troy’s leadership had been a craftsman, and knew the horse was waaay too light for the amount of wood it was supposedly made of, that horse – and the invading force – wouldn’t have made it inside. Getting new perspectives from outsiders to the industry is what makes some of the most successful businesses what they are! It’s not impossible for a DAO made up of crypto to do something new, but it’s significantly more likely they do something like spend too much on a concept book for Dune.

The benefits of working as a group come from levelling out every individuals’ peaks and valleys to make one being, one company, one organization, that’s perfectly average and not deficient in anything. To do that, the peaks and valleys of each contributor have to be in different spots.

In hyper-bro spaces like Crypto is and DAOs are right now, this is not going to happen to the extent it would need to. Again, even if Spice DAO knew they weren’t buying permissions for Dune, they spent literally 2 million pounds too much on it just to own the concept book. They overpaid severely. That wasn’t a sound decision even if they knew, fully, what they were doing. What was likely meant to be a ‘flex’ of how much money they raised instead turned them into an easy target for online scorn. Believe it or not, not all publicity is good publicity, especially when people are using you specifically to highlight all of the flaws of the product you’re working within. The people drawn to NFTs are the same people who spend money to show off, so without dissenting voices, stuff like this is going to continue to happen and lessen any legitimacy they might have.

As J.D. Powell put it when he started his company, the upper executives wanted things to be what they were not, and would demand that reality bent to what they wanted. We collectively know now that that’s not a productive way to do things, but for a bunch of engineers and beginning entrepreneurs, alongside wealthy investors, the odds that they’re going to have to re-learn this lesson the hard way are nonzero. Heck, even well-established businesses take their own crash-courses sometimes!

Sources:

https://ethereum.org/en/dao/

https://www.vox.com/recode/22907072/web3-crypto-nft-bitcoin-metaverse

RugPulls

Elizabeth Technology March 14, 2022

NFTs… are not doing so hot, reputation-wise.

The Classic RugPull

Believe it or not, when things are only worth as much as a group’s belief in them, not believing in those things makes them stop being worth anything. The first one to really hit pop-culture as a rugpull might have been SquidCoin, a cryptocurrency coin that hit the spotlight for being the worst possible understanding of Squid Games’s messaging about money and capitalism. SquidCoin grew in value, and a 45 degree line up is very attractive to new, inexperienced investors. Once the SquidCoin people made their money, they sold all of their stuff and left, leaving SquidCoin unsupported and the people who bought it with less money than they started with. The classic rugpull. It was a source of ridicule for people on the outside, who saw what had just happened with clear eyes – for people on the inside, it was easier to brush off this early warning and keep investing in crypto.

Ignoring the warning has not made the problem go away. Rugpulls continue to happen because NFTs and Crypto holds next to no actual liability or accountability for the owners. While thinking that internet creators should be allowed to stay anonymous is certainly good and pure-hearted, it’s also allowed the growth of a culture that shames people for, say, revealing information that was already public (https://www.vice.com/en/article/akvn5a/bored-apes-buzzfeed-and-the-battle-for-the-future-of-the-internet) and demanding to know where their money went. Anything less than total positivity and complete freedom for the creators of these projects is scorned. This is the sort of attitude that works for Banksy, not for financial institutions.

Doodled Dragonz

Doodled Dragonz is certainly one of the sourest rugpulls out there. Doodled Dragonz was an NFT project that promised to donate 100% of its profits to charities supporting critically endangered species (later choosing WWF instead), only to run off as soon as all the tokens were sold without making said donation. Abandoning a project doesn’t necessarily mean the NFTs generated by it are worthless (I think you can actually still buy other people’s Doodled Dragonz on SolSea), but it does mean the project’s not going to get any new support. If these become afflicted by link rot, they’ll just be gone forever. Besides, a market made purely of vibes isn’t going to support projects with no hype around them, which is ironic because these tokens are now actually scarce.

 In an NFT sense, that is.

Since you can still right-click/save.

Users who bought Doodled Dragonz now had a cheap NFT in their wallet that didn’t even contribute to the charities it promised it would.  

Later, they did the exact same thing under the alias of Balloonsville, a similar, cutesy project with balloons instead of dragons that also rugpulled. They then criticized the platform for letting this happen, which led to the platform (Magic Eden, for NFTs, which deals in SOL or Solana cryptocurrency) promising not to allow anonymous projects on said platform anymore. Again, anonymity is super cool, but it has a lot of potential for abuse when literally anyone can promise to sell things with no real consequences. Think about it – no other market lets things be so completely untraceable as crypto. Even places like Ali Express can be held accountable by their payment platforms! It’s hard to overstate just how little accountability crypto creators have right now.

At least this time, they allowed their buyers who bought the NFTs at first launch to get a refund if they sold for less than they bought it at as the original owner – the people who bought the tokens after the primary sale and tried to sell them again were illegible for the refund, though, so it still hurt a pretty good-sized chunk of people.

Literally named after the Guy

 MadoffCoin was clearly a scam from the get-go, but it promised it wasn’t. Does that mean anything, people wondered? In this totally anonymous, completely untraceable interaction, doesn’t a promise matter at all? The answer was no, although that was apparently only obvious to people outside the hype sphere. MadoffCoin rug-pulled almost immediately after starting up. The website’s been deactivated and the subreddit is close to dead. However, there’s a second MadoffCoin (spelled Madoff Coin this time) attempting to get started, promising that it’s designed to punish people who pull away from the project before everyone gets their investment back. For sure. Totally.

I’d hate to say that this wouldn’t work twice, because it has and continues to – the problem is that not everyone interested in crypto is fully informed of the risks by design. You don’t own the art you buy, and the coins are only expensive because of speculation. Even when they do understand it, their bluster often gets the best of them – a user on Tumblr compared what’s happening with MadoffCoin to Wile E. Coyote painting a tunnel himself and then running into it, insisting it’s still a real tunnel even as the Road Runner watches him make a fool of himself. As long as people keep ignoring warning signs and advocating for a lack of responsibility for the owners, this is going to continue to happen.

Sources:

https://www.vice.com/en/article/akvn5a/bored-apes-buzzfeed-and-the-battle-for-the-future-of-the-internet

https://web3isgoinggreat.com/?id=2022-02-06-2

The World of Crypto Scams

Elizabeth History, Trending July 12, 2021

Yep – it’s mainstream now.

 

What is Cryptocurrency?

 

A cryptocurrency is a digital currency protected by cryptography. Just like physical currency, the digital coin is representative of a certain amount of value – you own a Bitcoin, you have the equivalent of 36,000 USD. You own an Ethereum coin, you have the equivalent of about 2,500 USD.

Cryptocurrencies come with blockchains, which act as a sort of ledger for the transactions. The blockchains verify that transactions happened at the time and date the computers say it did. Each block in the chain contains the transaction’s identifying information (such as time, date, and hash) as well as identifying information for the block before it. Each block added to the end of the chain therefore reinforces the one before it, making data alterations nigh impossible.

The decentralized nature of the ledgers means that even if someone was to mess with the blockchain to steal a coin, it could be proven invalid almost immediately by others who have copies. Therefore, transactions are secure and un-duplicable, even with no central authority monitoring transactions for the users. Coins also can’t appear out of thin air under this system! You can’t spend a dollar twice in the real world, and with blockchain, you can’t do it digitally either! Bitcoin in particular rewards users for solving the blockchain and verifying the transactions on it are all complete and legit, although that takes an awful lot of computer power due to the math involved.

Cryptocurrency removes the third party, the bank, from transactions, allowing users to pass money to each other directly. No centralized authority needed! As long as the people using it agree that it has a certain value equal to something else (the way dollars used to be equal to a certain amount of gold, for example) the cryptocurrency will continue to function.

Unfortunately, no third party means no third-party protections, either. Money faces issues with valuation too, as inflation and deflation can wreak havoc on an economy, but the government will generally step in to prevent it from getting too out of control. The same isn’t true for decentralized crypto! If a big coin fluctuates, it generally fluctuates hard. Where the US dollar has stops in place, crypto doesn’t. Investing in crypto, therefore, is much more of a gamble than investing in bonds or stocks. It’s another form of currency speculation. The risks are great, but the rewards are great too.

 

The OG

 

Bitcoin was one of the first if not the first. It was created anonymously to avoid using third parties for international transactions online, which almost always came with long wait times and excessive fees. People used it for a number of things, but an unintended side effect of that ‘no third party’ thing from before is that Bitcoin was effectively untaxable and very difficult to track. As a result, it came to be associated with drug trades and other shady deals.  Don’t want anyone to know that your ‘gift’ package is actually mushroom spores? Does the seller not want to reveal where they live? Complete the transaction with Bitcoin, and nobody can watch the money change hands. The market needed a solid-but-untraceable currency, and BitCoin filled this niche.

Bitcoin exploded in value in the late 2010’s. People who owned Bitcoin were made millionaires overnight as 20$ turned into 20,000$. Ever since then, Bitcoin has been a looming presence in the online finance world – it’s effectively the shadow money from John Wick, but harder to forge.

 

Source: CoinMarketCap

 

The Second Gen

 

A cryptocurrency known as DogeCoin hit the news for making it to 50 cents a coin, from below one cent a few years ago. It’s really a special kind of coin: it launched as a joke after BitCoin made it big, it’s based off of an ancient meme, it’s not particularly well-backed… but it’s still there, and its age gives it a lot of clout and distribution. People in support of it call it ‘The People’s Coin’. It was much more accessible than Bitcoin due to its joke-based nature, and it was already public – it wasn’t shady to buy some as a joke.

The founder had a Twitter account before that was taken for granted. Its ownership isn’t perfectly distributed, but it’s much more diversified than any new coin could hope to be. This is important: where new coins are hitting the same value as DogeCoin, they aren’t nearly as stable because ownership is concentrated. Forget the spike, Dogecoin was within a few tenths of a cent of its average price for months beforehand. That’s incredible! DogeCoin was cheap, but it was well-known and decently solid, and word-of-mouth on its subreddit kept it stable until the spike. Smaller coins that don’t build a community around their use have no chance of achieving that.

 

Source: CoinMarketCap

The New Guys

 

Computers are better than they ever have been. The kind of computer needed to make a cryptocurrency is within reach for moderately wealthy people. However, now that the tech is available, everyone wants to make a coin. More specifically, they want to make money off of making a coin. The question is: how do they want to do that? Do they actually want to make currency, with what that entails? Could they want to make a safe, secure, and reliable coin that anybody could use, like BitCoin did? Do they want to make the coin as a ‘joke’ and accidentally stumble into wealth, like Dogecoin did? Or do they want to get a lot of money invested in their product very quickly, without much effort on their part, and then dump their own stock and leave with said money?

 

“Pump’n’Dump” Schemes

 

Demand = higher prices. The more demand there is for any one kind of coin, the better the price gets. BitCoin’s head start means that a single coin is worth tens of thousands (as of this article, July of 2021), because it’s widely accepted, widely trusted, and well-known, so it’s widely demanded as well.

Other big ones include Etherium and Maker, which are a couple thousand per coin each. These are also reliable, distributed coins that started early. For every success story, though, there are dozens of failures where people didn’t invest. DogeCoin could have been considered a failure a couple of years ago – the guy never got the value very high until recently, even though the concept was well loved.

How does someone make money off of a phenomenon that strikes like lightning? Spikes are completely unpredictable, even to experts. The answer is easy: some crypto makers simply make their own spikes! They pump their coin, and then dump their coin!

 

Steps to “Get Rich”

 

Step 1) Make a coin. Name it something catchy and/or stupid, or riff on another coin’s name to create bad-faith confusion. Hold a lot of it.

Step 2) Get people to buy it. Play off the name, pay celebrities, do whatever you can to hype this coin. Meme off it. Get people to buy it, even if it’s just as a joke.

Step 3) Wait until your coins are worth something. Dump them for cash. (This destroys the coin’s value).

Step 4) Disappear with the money while everyone is upset. They either quit and dump their coins themselves, crushing value, or stick around and watch as their coins become worthless.

As soon as the top of the pyramid dumps their coins, it becomes a race to the bottom for everyone else. After all, without the creators advertising it, hyping it, and otherwise managing it themselves, where is any new value going to come from? The users? If they stick around to bring it back up, users are going to bail the second they’ve made more than they put in, because the coin has destroyed their trust in it, and it will flatten out that way. There’s no way back up without top-down support. Everyone who didn’t get out in time loses their money.

 

Just the Actual Worst

 

Celebrities are being paid to endorse this. Soulja Boy tweeted out that he was interested in a coin only to realize a few minutes later that he’d also copy/pasted the instructions for tweeting, making it obvious that he’d been solicited to tweet about it. Soulja Boy also famously tried to release his own line of gaming consoles before being issued a cease and desist by Nintendo. Other notable crypto advertisers include various streamers and an adult actress or two, not people you’d expect to give financial advice.

What’s the common thread? These are the people the crypto makers hope they can get because their first picks – actual celebrities, trustworthy streamers, and financial experts – won’t take their deal. In fact, some of these people actively rally against the Neo-Crypto cause. You’d take advice from someone with a PhD in finance, and you might take advice from someone you’ve been watching on Twitch for years, but anyone else? Not unless they’re a big fan.

Youtuber Cody Ko points out that these people are mainly defrauding their own fans if the coin goes belly-up. What’s the plan then? That the fans just won’t hold this streamer/star/influencer accountable? As he says, repeating over and over that “You should buy this! It’s definitely trustworthy and suuuuper stable!” for pages, but only saying “This is not financial advice” every 6th tweet is not sufficient warning.

A fan is not especially stupid or wrong for looking up to their favorite streamer and buying coins based off of their ‘not-advice’ – they’re a fan. Of course a fan is going to listen to a streamer or role model, that’s why companies sponsor entertainers in the first place. These public personalities know that, and they’re either taking advantage of their unearned financial credibility, or deliberately ignoring everyone telling them it’s a bad idea. If these coin-hypers were really intent on their fans’ best interests, they’d clarify the risk, but they don’t. The danger of over-investing in a volatile product is being heavily downplayed to funnel more money into the coin. Everybody but the fan stands to gain from the fan’s ‘investment’, so they’re being incentivized to over-hype.

Digital currency is a powerful tool – it’s just a shame that it’s being treated like an investment instead of what it’s supposed to be, decentralized currency.

 

Sources:

Crypto Casey, via Youtube (https://www.youtube.com/watch?v=scZBwQW7h0E)

https://coinmarketcap.com/

https://www.wsj.com/articles/why-hackers-use-bitcoin-and-why-it-is-so-difficult-to-trace-11594931595

Cody Ko, via Youtube (https://www.youtube.com/watch?v=krAj42L6wR8)

What’s the Deal with NFTs?

Is it Bad for the Environment?

 

Well – that’s complicated. Blockchain technology already takes a lot of energy, but because it’s limited to the people and companies that can afford powerful computers, its impact is limited. However, that doesn’t mean it will stay limited. NFTs use a form of blockchain tech that’s less efficient than the kind cryptocurrencies use, so the power consumption of NFT tokens are going to be a little more intense than they are for cryptos. That’s on top of the cryptocurrencies and blockchain tech already in use. What happens when everyone wants a piece of the Bitcoin mining success? Or when everyone wants to create these tokens? The effects trickle down, and the fact that we’re seeing a power usage impact from the limited number available now doesn’t bode well. Computers are getting more powerful anyway, but this could create demand for computers that are powerful enough for NFTs but too powerful for anything else. Powerful computers still consume more power than less powerful ones, even if all else is running equal.

While energy demands are slowly being met with renewables, non-renewables still make up the majority of the energy supply in many places. In fact, many countries are actively resisting the switch. If NFTs need a noticeable amount of power to be feasible, they’re going to produce a noticeable amount of pollution. Not to mention the difficulty of finding and mining rare-earth metals for some of the computer parts. Some of those, like Yttrium, are more expensive than gold, and even rarer. The mining needed to supply bottleneck parts could turn into a disaster all on its own even if the power comes from non-polluting sources, unless suitable substitutes are found.

 

It’s an attempt at re-introducing scarcity

 

Much like signed works retain value, NFTs also retain value. In theory. What makes them special is the ability to hold value in digital space as a “rare” item, via blockchain technology attached to the item. This should be impossible in a world like ours, where a downloadable image can be copied limitless times. In fact, some people hate the concept for this very reason – there’s no actual scarcity! The quality doesn’t change, the picture doesn’t change, and having an NFT piece doesn’t give you the right to use the piece, it gives you the digital file and that’s it. It isn’t copyright. It’s creating a real, solid, theoretically permanent object in a digital, everchanging world with exactly the same properties as it’s copies, except for the token. It’s a digital Beanie Baby: scarcity for the sake of it.

Some say the current craze is almost certainly a bubble. If NFTs can be created out of anything, and it’s possible to make an unlimited amount… where does the value come from? A signed copy of an album is expensive because it’s rare, computers are expensive because they’re functional, but what does an NFT do? It’s not like BitCoin, which is the money, NFTs are a “real” object that has to be sold first for money. Hence the “non-fungible” part of the name. They’re subject to all the same things any one-of-a-kind item is, including becoming more common, and becoming unpopular. Eventually, the cost of the NFT might be tied to the real value of the item (good!), and most real items aren’t worth what that Nyan Cat token sold for (bad!).

This whole system, from the outside, looks like people with supercomputers trying to make something to sell to users who don’t fully understand it.

 

It’s Confusing

 

NFTs don’t do anything but store hypothetical wealth, much like signed pictures do. Unlike signed pictures, which are a physical item, other people can still view digital images of what you’ve got. It just won’t have the token. If people don’t care about the token, the token loses value.

Don’t let their newness confuse you – they’re only worth what the market says they’re worth. Right now, NFTs are being used like baseball cards and Beanie Babies, but disguised by the blockchain technology.

Many people conflate BitCoin with blockchain technology, and BitCoins cost a lot. Therefore, to investing newcomers, blockchain items cost a lot. The folks who mistakenly follow this train of thought buy these things on the bubble and think they’ve gotten a good deal. The second generation of NFTs has already experienced a price dip, and it’s not crazy to think they’ll stay down.

NFTs will have to gain value by being sold as unique items instead of relying on their newness to sell.

For example, a tennis player is selling tokens of her arm, the way old school baseball orgs would sell cards with their players on it. She’s a good tennis player, so people who like her will buy the NFTs at the price they think is acceptable, considering the rarity of the ‘item’, her arm. As long as people value her as a player, they’ll value the NFTs they buy from her. The same goes for baseball cards, resellers know popular players with few cards will sell for higher prices than unpopular players. They, in this case, hold some kind of value – but buying an NFT without looking at what it’s attached to, what’s supposed to give it it’s value, is like buying a blank index card at premium baseball card prices.

 

It’s…Doing Weird Things

 

Where real objects can be used as leverage, digital NFTs are a whole other world, legally and economically. To expand on hooking up NFTs to real objects, you don’t own the tennis player’s arm, just like buying an NFT of a picture doesn’t give you copyright permissions. Buyers own a token that represents ‘something’, not the ‘something’ itself.

Just like holding collectibles of any kind, holding NFTs is like holding stocks in something without any of the rights that come from holding stocks, and all of the liabilities. The price can do whatever it wants, it’s subject to fluctuations, and you have no say in what the artist or tennis player does, even if it reduces the value of your NFT. In essence, it’s a collectible market. This huge surge in pricing likely won’t stick around once people get used to the tech being here.

 

Bright Side

 

In a world where fake images are getting better and better, NFT tokens might help prevent some Photoshop fraud if applied correctly, which is valuable. NFTs can also follow contracts and other digital items where all parties should only have one primary copy. This huge hype around NFTs as an investment is overlooking many of it’s other benefits.

These NFT items aren’t like signed lithograph prints or limited edition cards, where illegitimate copies are much worse quality, the only thing that increases an NFT art’s value is the NFT. There are high-quality pictures of Nyan Cat all over the internet, for example. Once collectors figure that out, all but the first gen of Nyan Cat tokens should lose value: there’s no real scarcity, only imagined scarcity, created by people with powerful machines. If someone could have a print of their favorite artist’s work for cheap at the same quality and definition as the original, but without the artist’s signature, would they do it? A fair amount of people are going to answer “yes”. In fact, even if the quality is noticeably worse, most people will still take a poor copy over no copy. Look at how many people hang up flat pictures of Van Gogh’s work in their house!

Even beyond art, NFTs might struggle to keep footing with the physical item they’re attached to. If it’s really rare, the collector could sell it by itself without the headache of getting the token back, or negotiating with the buyer to prevent the (sold) NFT from losing value if that buyer wants to buy it and alter it. A whole new world of property law is on the horizon, and only time will tell how it goes.

 

 

Sources: https://www.bbc.com/news/technology-56371912

https://www.cnn.com/2021/04/05/investing/nft-prices-falling/index.html

https://en.wikipedia.org/wiki/Non-fungible_token (Wikipedia provides a good definition and additional reading on the tech behind NFTs, something other articles don’t do)