#crypto

So, About Those NFTs…

So, About Those NFTs…

NFTs, or Non-Fungible Tokens, are almost as popular to talk about as cryptocurrency these days! But where crypto has at least some analogy to the physical world (it’s all about the forms money can take), NFTs are an entirely different kettle of (virtual) fish. NFTs are about establishing a virtual asset that is unique in and of itself and has no interchangeable equivalent.

Coming back to one of my favorite resources, Investopedia, they say:

“Non-fungible tokens or NFTs are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions.”

A great definition, but that’s only if you know what “cryptographic asset,” “blockchain,” “fungible,” and “cryptocurrencies” mean. Let’s start there.

  • Cryptographic asset: A digitally expressed piece of information that uses cryptography such that it cannot be copied or duplicated
  • Blockchain: A technology in many ways like a database that has pieces of itself distributed across the internet that cryptocurrencies use to support their claim of being uber-secure and highly resistant to fraud.
  • Fungible: This basically means mutually interchangeable with another item. A dollar bill is a fungible asset—any one modern dollar bill (or bitcoin) is completely interchangeable with another modern dollar bill (or bitcoin).
  • Cryptocurrency: See more about this in our previous blog post. We describe crypto “as defined by Investopedia … is “a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.”

Back to what that means for an NFT: an NFT is a unique digital record for an object. You can buy or sell the NFT, but you can’t make duplicates of it, nor can you change it. And if you do buy or sell it, the original record gets a note that the exchange happened. Every future exchange adds another note, thus keeping the full record of everything that’s happened to that unique digital record.

The technology that enables this is called a blockchain, which as described above is a very special kind of technology that has no single, centralized “home” where all the data is ultimately stored. Blockchains are (often) decentralized, and everyone who engages with that blockchain is part of the process to validate the addition of any new information (or block) to the chain.

Now let’s talk a bit more about what you can do with an NFT. One popular use case is that of artists. Artists create things, but once their thing is sold (and sometimes even before that), they lose all control over that asset. If the asset is resold, the original artist usually doesn’t see any commission. An NFT can serve as a receipt that makes sure that every future transaction gives the artist some additional compensation for their creation. This is a potential game-changer for artists, but it’s not perfect. Here’s where we touch on some of the biggest misunderstandings in the NFT world:

The NFT is the receipt. It is not necessarily the actual item. Someone can create an NFT for a digital or physical object; that does not necessarily give the purchaser the right to have and hold that object. They may just have some percentage of the object or, in more nefarious situations, they may have been sold something the creator of the NFT has no right to actually sell. And for digital objects, assigning the object an NFT does not mean that all copies of that object are magically associated with that NFT.

Think of it this way. You have a photo on your phone that you received fantastic feedback on from your friends when you posted it to Instagram. You decide you want to make it into an NFT so you can sell it. You can do that … but all those copies already out there, which are visually indistinguishable from the original, are not protected. Don’t confuse an NFT with copyright!

That said, you may still have questions. After all, SURELY something that has net a person $3 million US dollars (way to go, Jack Dorsey of Twitter) must be something big! Right? Well, to be honest, I can’t explain that. The problem content creators like artists have when it comes to being fairly compensated for what they do is a problem. And if the world were a fair and reasonable place where NFTs would magically make the assets the NFT provides a receipt for somehow different (like different in appearance, or different in how people might see them online) then maybe this would justify the NFT craze.

The NFT is the receipt. It is not necessarily the actual item. Someone can create an NFT for a digital or physical object; that does not necessarily give the purchaser the right to have and hold that object.

Alas, the world is not a fair and reasonable place. Today’s use of NFTs often enters into the realm of the absurd. What many people are hoping for, however, is that NFTs will provide a powerful mechanism in the world of Web 3 to encourage more content creation with fair and enforceable concepts of ownership and compensation. 

If you’d like to watch a particularly entertaining skit on NFTs, Saturday Night Live recorded a fun session on it. If, however, you’ve got time and want a really deep dive into a skeptic’s view of NFTs, there’s a two-hour video on YouTube for you. Still, never let it be said that there aren’t some really strong voices out there in favor of NFTs: read about Animoca’s success in the NFT economy.

And if what you’d really like to do is to start investing now, well, as ya like. You might want to talk to your financial advisor.

Photo by Shubham Dhage on Unsplash

Posted by heather in Web3, Line Dancing

Cryptocurrency: Creepy…Or Awesome?

Crypto. Blockchain. Digital Currency. Bitcoin. From the front page of the New York Times to Reddit posts, lots of terms are floating around that most people know have _something_ to do with money and tech, but they aren’t quite sure of the details. And, given the host of ads that ran in this year’s Super Bowl, people are bound to become even more crypto-curious.

If you are one of them, this article is for you. We’ll start with a list of some of the more common words used in the media, and then talk about what this all actually means for the world today.

  • Crypto used to be (and still is in some circles) short for cryptography, the study of making communications between two parties absolutely secure (there’s usually a lot of math involved). But these days, crypto is almost always about cryptocurrency.
  • Cryptocurrency, as defined by Investopedia (great resource if you’re not already familiar with it), is “a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.”
  • Digital Currency, coming back again to Investopedia, is “a form of currency that is available only in digital or electronic form. It is also called digital money, electronic money, electronic currency, or cybercash.” Some organizations in this space insist that there is a difference between digital currency and cryptocurrency, saying the former has national backing in the same way that governments back the euro, the dollar, the peso, and so on. They see the latter as outside any government backing, so you’re on your own if you invest in the cryptocurrency space.
  • Bitcoin is one expression of cryptocurrency, and is currently the one with the biggest market share in the crypto space. 
  • Ethereum is another big name you might hear, and it is a cryptocurrency like Bitcoin, holding quite a bit of the market share itself.
  • Blockchain is not a cryptocurrency. It is a technology like a database is a technology, though in this case it is a technology that cryptocurrencies use to support their claim of being uber-secure and highly resistant to fraud.

So now you have some basic terms, and for the sake of this article, I’m going to hold that  “cryptocurrency” includes digital currency backed by governments and cryptocurrency backed by anyone else.

Cryptocurrency is definitely a concept that’s making waves in the world, and more than with just the geeky crowd. There are entire countries getting involved in this space and making it a financial reality to be reckoned with. n an individual level, popular financial management companies like Betterment and Personal Capital are offering cryptocurrency options as part of their investment portfolios. Crypto is _everywhere_.  

OK, fine, but is it really REAL? I mean, how real can it be if it isn’t a physical asset, and it isn’t backed by gold, silver, or a government’s promise? Well, let me ask you a different question: Why do you believe the piece of paper in your (physical) wallet has value? Probably because when enough people believe in the value of crypto, the perception becomes a reality. When people stop believing in it, you have something like a bank run, and if you get enough of those, you can entirely trash a nation’s (or even a world’s) economy (there’s some interesting research regarding bank runs and the Great Depression, if you’re interested in some ‘light’ reading on economic theory—ha!).

Ironically enough, cryptocurrency started to take off as a popular topic of discussion around 2017, as the first big ‘bubble’ formed and then burst. Bitcoin dropped 65% of its value in 2018 to about $3500 per bitcoin, and everyone was talking about it. Enough people talked about it that they (apparently) got very excited about buying these new, speculative thingies while they were on “sale” due to the crash. Now Bitcoin is back up to being worth about $44,340. It’s an amazing rollercoaster of speculation.

As with all market speculations, you’re going to find people who believe Very Strongly in the thing they are buying. You’re also going to find people who believe Equally Strongly that it’s a scam. And, you know what? They’re both going to be right. Cryptocurrency has value as long as people believe that it does. Enough people currently believe this is the future of the finance industry that they’ve convinced governments to ride the wave, providing further apparent legitimacy to the idea. And, like every market-driven enterprise, the value will go up and down in cycles—it is no more a “sure thing” for investment than gold. (Example: Do a search on “can never go wrong buying gold” and you’ll find as many articles suggesting “never do it” as you will articles about how great of an idea it is to buy gold.) If you’d really like to geek out on the technology behind cryptocurrency and how some people argue that it’s better than humans at determining monetary policy, this article in Wired might be for you. 

Finally, just a note, this article is to offer you a quick reference for the key terms you’ll see in articles about the crypto space. It is not financial advice; your acceptance of risk in your investments is all up to you. But as with everything covered by IFM, we hope you’ll find our information helpful in making informed decisions!

Photo by Jp Valery on Unsplash

Posted by heather in Web3, Line Dancing, 0 comments