Crypto-news: NFTs, Tether, and a Bitcoin bubble
The rest of this programme discussed the phenomenon of cryptocurrencies, from the tech and the cryptography to the economics and the energy use. And now that we've reached the present day, we can start to understand some of the bonkers headlines headlines coming out of the crypto-world: NFTs and multi-million art sales, financial misconduct, Facebook money... and are we in a Bitcoin bubble? Economist and finance expert Frances Coppola joined Phil Sansom and Eva Higginbotham...
Eva - So Frances, there's been some news about the digital artist known as Beeple who achieved something remarkable when he turned his artwork into what's known as an NFT...
It's the first NFT ever sold at auction, and one of the 20 most expensive works of art period ever sold at auction. The online auction for Beeple's the first 5,000 days just wrapped up at Christie's; final sale price: $69.3 million. That's more than most Picassos, Monets, or Warhols...
Eva - Frances, what is an NFT?
Frances - It means 'non-fungible token'. And it simply means that this is something that is unique; there's only one of it in the whole world. It's a digital token that can't be copied or reproduced.
Phil - This is something that usually runs on a blockchain like Ethereum, right?
Frances - Yeah.
Phil - Why on earth is it related to a huge art sale?
Frances - What they're doing is they're tokenising art. So Beeple has been producing digital art for the last 13 years or so; he put all of his artworks together into one digital artwork, created a token based upon it, and sold the token. The token is a unique representation of that artwork which is cryptographically secured, which should give somebody the right to... well, what? To that token. It doesn't actually give them the right to the artwork. And that's the whole weird thing about this: that in a way, the token becomes the artwork and what people have bought is the token, not the art.
Phil - Is that why it's worth so much money? Are people trading these and turning them into another speculative thing?
Frances - Yes, absolutely. This is another speculative bubble. We've had some very weird things: somebody made an NFT out of a fart and sold it for $85.
Phil - How strange!
Frances - We also had the famous example of Jack Dorsey selling his first ever tweet. The thing is though that he hasn't sold the tweet, he sold an NFT based upon the tweet, but the tweet is still up! You can still look at it, you can still retweet it, you can still copy it. What you buy when you buy an NFT is not the art, it's the token. I mean, really, they're not real. They're just odd.
Phil - Meanwhile in this world, we've been hearing about some large scale actual legal action...
Crypto exchange Bitfinex and stablecoin issuer Tether have reached an 18 and a half million dollar settlement with the New York Attorney General's office. Bitfinex and Tether have admitted no wrongdoing.
Phil - Bitfinex, that's a cryptocurrency exchange, and Tether I think is a kind of cryptocurrency. So what's going on here?
Frances - Back in about 2016, I think it was, Bitfinex got hacked and lost rather a lot of its customers' money. So it borrowed some money from Tether. Now the problem with this was that the money it borrowed from Tether was the money sitting in Tether's reserves. It was meant to be backing the Tethers. So for a period of time, Tether was not fully backed by reserves, but it said on its website that it was. So the New York Attorney General took exception to this. They had a fine, and we shall see what they come up with by way of "these are our reserves and this is the audit to prove it."
Phil - So Tether, unlike Bitcoin - which is just sort of a digital thing - Tether's supposed to have dollars in its account somewhere that are equal to the amount of Tether coins that it's put out?
Frances - Absolutely. It's called a stablecoin. And rather than it being a cryptocurrency like Bitcoin, which is a thing in itself, it is a digital asset in its own right, Tether is supposed to be: one Tether equals $1 at all times.
Eva - You can see why it's called Tether now; it's tethered to a specific currency. What's the point though, if you could spend dollars or euros or whatever themselves, why would anyone bother going to buy some Tethers, which sounds potentially risky?
Frances - Well, I think the reason for that is that it's actually quite difficult to use fiat currencies on many crypto exchanges. And some crypto exchanges don't actually use fiat currencies at all. So Tether is used by a lot of offshore exchanges in the decentralised finance world, where it's really being used as a proxy for the US dollar because these exchanges just don't have any means of getting fiat currencies.
Eva - It sounds very meta and multifaceted getting into the different levels! And you can actually see now why then the New York Attorney General got so annoyed.
Frances - It's changed its terms and conditions somewhat since its original claim that it had actual cash dollars backing every one of its Tethers, because we now know that it didn't, and possibly still doesn't. It now says that its reserves could include other things like third party loans and whatever they decide to put their reserves into, which could include cryptocurrencies or almost anything really. It could be that what they've got is a whole load of cryptocurrencies and shares and other kinds of dodgy investments. So you may think you're holding US dollars, but you may never actually get US dollars.
Eva - We also heard from a cryptocurrency journalist earlier, David Gerard, and he's been writing a book about a currency that's called Libra from everybody's favourite social media company...
David - Facebook proposed to have a sort of Facebook-based money used by maybe 2 billion people in the world. They said they were going to do it in 2020, then they said it'd be 2021... unlike with cryptocurrency, regulators looked at it really closely.
Eva - So Frances, do you think we're going to get Facebook money?
Frances - I'm sure Facebook, despite all its protestations, would really quite like us to. To be fair, it's not meant to be Facebook money. They've set up this independent foundation that's located in Switzerland, which is meant to be issuing the money and running the reserve. It's a bit like a stablecoin in that it's meant to be backed by currencies, fiat currencies. And the backing is meant to be one for one. So it's going to have this mammoth fund. One thing that people haven't been talking 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 - Finally, we better figure out what's actually going to happen with all this stuff. I was speaking to economist Jon Danielsson about whether we're kind of in a Bitcoin bubble or a cryptocurrency bubble that's going to burst - he told me yes...
Jon - I think it's a huge bubble. And one day - not today, not tomorrow, but someday in the future - the little boy will yell, "the emperor has no clothes," and the whole edifice will come crashing down and all the Bitcoins will become worthless.
Phil - But I did also speak to economist Thorsten Koeppl from Queen's University, and he told me that he thought mainstream investors getting involved might actually make it stabilise.
Thorsten - Bitcoin may survive, but less as a payment instrument, more as a new asset class, a new investment.
Phil - Frances, what do you think? What's the future of this stuff going to look like?
Frances - It's very early days, isn't it? And I mean, we are in a digital transition generally, not just in money. So it kind of makes sense that there should be some kind of digital money and digital assets that kind of underpin the digital marketplace that we are moving to. I'm not convinced that this is quite it; I think this is just like an early stage of evolution. I find it a little bit disturbing that even now we've got Bitcoin maximalists attempting to set it in stone and saying, "this is this and there can be nothing else," because that's not what technology is like. Things become obsolete, we have ridiculous bubbles that blow up and then everything crashes, and what grows out of that is something different. That's happened a couple of times in the Bitcoin history already. I think it's probably going to happen again.