RAINA BLAND | REGULARS
Unless you live under a rock or have an aversion to being involved in pop culture, you have probably heard about cryptocurrency and NFTs. In June 2021, a doge meme NFT was sold for 4 million dollars, and a single Bitcoin was equivalent to thousands of dollars. That is when the world really started to notice and has since been asking, what are these curious things? NFTs' would not exist without crypto as they operate on a decentralised blockchain. The making of these instruments has been happening since the 1990s. Both of these financial products are the results of the digital age, mistrust of traditional institutions, and as always, capitalism.
This mistrust and aversion to traditional financing happened after the Global Financial Crisis in 2007-2008. In America, Banks were hesitant to issue mortgages to individuals because of the high risks. So banks created bonds. Bonds are bundles composed of thousands of individual mortgages. This was better for banks because there was more security. This meant that the bank wanted to create more mortgages for, of course, more money. For larger loans and more significant bonds, banks built larger houses that were expensive. They made lots of homes for a middle class that was virtually non-existent. Unemployment was up, the economy was in decline, and many people were struggling. There were a lot of houses that stood empty. People could not afford the homes on the market, and because the mega-rich were buying more houses than they needed, a false scarcity was created. This led to people defaulting on their mortgages and lots of bonds breaking. The banks were in big trouble, but they knew they would be okay because they had woven themselves so deeply into the functioning of the American economy they knew they would get a bailout. And they did. The Obama administration made a bailout of 16.8 trillion dollars. Not a cent of that went to any worker or person in need - it went straight to the banks. The people were pissed.
This is a pivotal moment in history. The deeply capitalist move enraged many and triggered a significant distrust in financial institutions and the government, hence why many people have turned to the digital market. Cryptocurrency is described as a 'digital asset' and can be used in metaverses. It acts in a decentralised way removing the pesky middle man (the bank or government). It can not be traced. This makes it perfect for the dark web. You can buy drugs, weapons, porn and only God knows whatever else using cryptocurrency. Cryptocurrencies are also stored digitally in crypto wallets to view your investments.
Created in 2009 by Satoshi Nakamoto, Bitcoin is the largest and most well-known cryptocurrency. When it was first made, it was worth about $0.30, now in 2022, it is worth $40k, according to DigitalCoinPrice. This is for two reasons: hype and scarcity. The hype is the virality of it all which has drawn the attention of the ultra-wealthy, crypto-bros and wealth wannabes. With more people buying it has become more expensive. The creation of new crypto coins is also decreasing, so the currency is becoming rare. These two factors explain the crazy inflation of the price of crypto. Unfortunately, this has made it a rich man's trade and isn't a fair game for everyone. It is also fertile ground for scammers to make their lucky day. In 2021 scammers stole $14 billion from buyers. This was double what they took in 2020. This was released in blockchain data firm Chainalysis's "2022 Crypto Crime Report". At the beginning of the crypto wave, some people genuinely found wealth and went from poor to rich. The bubble has now burst for most people as it has become too rare and expensive to afford.
Blockchain is the foundation of cryptocurrency. Very simply, a blockchain is a list. It is a list of transactions that anyone can view and verify. NFTs run on the blockchain too. NFT stands for Non-Fungible Token. Having an NFT means you are a certified owner of that digital piece of art. It certifies the authenticity and ownership of a token through the blockchain. "Non Fungible" means one of a kind, and the "Token" part of the name refers to the NFT being certified proof that the owner is the sole possessor of the digital property. An NFT can be anything digital - art, a GIF, or even a screenshot of a tweet. Keanu Reeves has criticised NFTs as Art is not about ownership, and NFTs can be easily be replicated by copying and pasting.
NFTs have been in the spotlight since the digital artist, Beeple (real name Mike Winkelmann) sold his now-infamous NFT Everyday – The first 5,000 days for a massive $69m. But are they really valuable? There is a scheme in NFTs called 'the Greater fool'. A creator of an NFT will buy their work and sell it back to themselves, increasing the price each time. They will then fool the next buyer, so they think the piece is more valuable. Lots of luxury brands and high profile celebrities are into NFTs, but just like crypto, you must ask yourselves, "is this a rich person's game?"
Not only are NFTs random enough as it is, but it also turns out the environmental impact is staggering. The verification process behind each NFT requires a massive amount of energy, as does storing all of this data. Cryptocurrency and NFT infrastructure rely on fossil fuels, which is quite the problem. ArtStation, an online marketplace for digital artists, even cancelled their plans for an NFT platform after severe community backlash from people who think dealing in crypto art is environmentally unethical. An artist on Twitter (@willowsquest) summarised crypto and NFTS as an "ecological nightmare pyramid scheme".
Do not be alarmed if you don't 100 per cent understand, because I barely understand myself. But what is important to understand is that Crypto and NFTs are products of our age that reflect the effects of capitalism and the digital world. I think these products are around to stay; whether they collapse or replace traditional financial institutions remains to be seen.