The rest of this program touched on the phenomenon of cryptocurrencies, from technology and cryptography to economics and energy use. And now that we’ve gotten to the present day, we can begin to understand some of the crazy headlines in the crypto world: NFT and multi-million art sales, financial misconduct, Facebook money … and are we in a Bitcoin bubble? Economist and financial expert Frances Coppola has joined Phil Sansom and Eva Higginbotham …
Eva – So Frances, there was news from the digital artist known as Beeple who achieved something remarkable when he turned his work into what is called an NFT …
It is the first NFT ever to be auctioned and one of the 20 most expensive works of art to ever be auctioned. The online auction for the first 5,000 days of Beeple’s has just ended at Christie’s; final sale price: $ 69.3 million. That’s more than most Picassos, Monets or Warhol …
Eva – Frances, what is an NFT?
Frances – It means “non-fungible token”. And that just means it’s something unique; there is only one in the whole world. It is a digital token that cannot be copied or reproduced.
Phil – It’s something that usually works on a blockchain like Ethereum, right?
Françoise – Yeah.
Phil – Why the hell is this tied to a huge art sale?
Frances – What they do is they symbolize art. Beeple has therefore been producing digital art for about 13 years; he gathered all of his works into one digital work, created a token based on it, and sold the token. The token is a unique representation of this work of art that is cryptographically secure, which should give someone the right to… well, what? To this token. It doesn’t actually give them the right to the artwork. And that’s all that’s strange about it: that in a way the token becomes the work of art and what people bought is the token, not the art.
Phil – Is that why it’s worth so much money? Do people trade them and turn them into another speculative thing?
Françoise – Yes, absolutely. It’s another speculative bubble. We had some very strange things: someone made an NFT with a fart and sold it for $ 85.
Phil – How strange!
Frances – We also had the famous example of Jack Dorsey selling his very first tweet. The point is, he didn’t sell the tweet, he sold an NFT based on the tweet, but the tweet is still live! You can still watch it, you can still retweet it, you can still copy it. What you buy when you buy an NFT is not the art, it is the token. I mean, really, they’re not real. They are just weird.
Phil – During this time in this world, we have heard about a real full-scale legal action …
Crypto exchange Bitfinex and stablecoin issuer Tether have reached an $ 18.5 million settlement with the New York attorney general’s office. Bitfinex and Tether have not admitted any wrongdoing.
Phil – Bitfinex is a cryptocurrency exchange, and Tether, I think, is kind of a cryptocurrency. So what is going on here?
Frances – Around 2016, I think it was, Bitfinex got hacked and lost a lot of its customers’ money. So he borrowed money from Tether. Now the problem with that was that the money he borrowed from Tether was the money that was in Tether’s reserves. He was supposed to support the Tethers. So, for a while, Tether wasn’t fully backed by reservations, but he did state on his website that he was. So the New York attorney general objected to this. They got fined, and we’ll see what they come up with like “these are our reservations and this is the audit to prove it”.
Phil – So Tether, unlike Bitcoin – which is just kind of a digital thing – Tether is supposed to have dollars in his account somewhere that is equal to the amount of Tether coins he takes out?
Françoise – Absolutely. This is called a stablecoin. And rather than being a cryptocurrency like Bitcoin, which is a thing in itself, it’s a digital asset in its own right, Tether is meant to be: one Tether equals $ 1 at all times.
Eva – You can see why it’s called Tether now; it is linked to a specific currency. What good is it, if you could spend dollars or euros or whatever, why would anyone bother to buy Tethers, which seems potentially risky?
Frances – Well I think the reason is that it’s actually quite difficult to use fiat currencies on a lot of crypto exchanges. And some crypto exchanges don’t use fiat currency at all. Tether is therefore used by many offshore exchanges in the decentralized finance world, where it is really used as a proxy for the US dollar, as these exchanges simply have no way of obtaining fiat currencies.
Eva – It seems very meta and multifaceted going into the different levels! And now you can actually see why the New York attorney general got so bored.
Frances – He’s changed his terms and conditions somewhat since his initial claim that he had actual cash dollars for each of his Tethers, as we now know that wasn’t the case, and maybe not yet. He now says his reserves could include other things like third party loans and whatever else they decide to put their reserves in, which could include cryptocurrencies or just about anything really. They may have a whole bunch of cryptocurrencies, stocks, and other types of questionable investments. So you may think that you are holding US dollars, but you might never get US dollars.
Eva – We also heard from an earlier cryptocurrency reporter, David Gerard, and he wrote a book on a currency called Libra from everyone’s favorite social media company …
David – Facebook proposed to have some sort of Facebook based money used by maybe 2 billion people around the world. They said they were going to do it in 2020, then they said it would be in 2021 … unlike cryptocurrency, regulators have taken a very close look at it.
Eva – So Frances, do you think we’re going to have some Facebook money?
Frances – I’m sure Facebook, despite all its protests, would really like us to do that. To be fair, it’s not meant to be money on Facebook. They created this independent foundation which is located in Switzerland, which is supposed to issue the money and manage the reserve. It’s kind of like a stablecoin in that it’s supposed to be backed by currencies, fiat currencies. And the medium is meant to be one to one. So he’s going to have this gigantic fund. One thing that people haven’t talked about too much is that in order to use this thing, you need a wallet. And the main wallet is called Novi and it’s produced by guess who? Facebook.
Phil – Well, we better figure out what’s really going to happen with all of this. I was talking to economist Jon Danielsson to find out if we were somehow in a Bitcoin bubble or a cryptocurrency bubble that was going to burst – he said yes …
Jon – I think it’s a huge bubble. And someday – not today, not tomorrow, but someday in the future – the little boy will cry, “The Emperor has no clothes”, and the whole edifice will collapse and all the Bitcoins will go without. value.
Phil – But I also spoke to economist Thorsten Koeppl from Queen’s University, and he told me he thought the involvement of traditional investors might actually stabilize him.
Thorsten – Bitcoin can survive, but less as a payment instrument, more as a new asset class, a new investment.
Phil – Françoise, what do you think? What will the future look like for this thing?
Frances – It’s very early, isn’t it? And I mean, we’re in a digital transition in general, not just in money. So it makes sense that there is some sort of digital money and digital assets that underpin the digital market that we are heading towards. I’m not convinced that’s quite it; I think it’s just like a first step in evolution. I find it a bit disturbing that even now we have some Bitcoin maximalists trying to set it in stone and say, “That’s it and there can’t be anything else,” because it’s not. what technology looks like. Things get stale, we have ridiculous bubbles exploding and then everything just collapses, and what comes out of it is something different. This has happened several times in the history of Bitcoin. I think it’s probably going to happen again.