Will NFTs steal Bitcoin’s crown?

Bitcoin’s meteoric rise has helped bring cryptocurrencies into the mainstream. Photo: Pixabay.

The year is 2011, Bitcoin has just peaked at $A30 and Leo Treasure’s fascination with the idea of a stateless digital currency is just beginning. During the global financial crisis of 2008, Treasure had been reading about the practices of central banks and he’d learnt not to trust them.

Fast-forward ten years, Treasure is now the president of the Legalise Cannabis Western Australia Party, which won two seats in the WA parliament in the recent election, an accomplished electronic music composer known as ‘BitcoinDJ’ and a self-proclaimed ‘cryptocurrency advocate’. He certainly has a lot on his plate.

Leo Treasure. Photo: Coindesk.

As the price of a single Bitcoin rose to over $70,000 (it was $72,215 on April 21, 2021), so too has interest in crypto soared. According to ASIC, cryptocurrencies “are a form of electronic money, which do not physically exist as coins or notes. A crypto unit, such as a bitcoin, is a digital token. These digital tokens are created from code using an encrypted string of data blocks, known as a blockchain.” Bitcoin is not the only cryptocurrency. According to Investopedia, other important cryptocurrencies include: Ethereum, Litecoin, Cardano, and Polkadot.

Bitcoin, like other virtual currencies, seems to divide opinion, everyone has an opinion: love it or hate it. During a segment for ABC radio last month, Roger Montgomery, chief investment officer at Montgomery Investment Management, outlined his scepticism about Bitcoin.

Responding to a listener’s question, Montgomery said he sees investing in Bitcoin, and the like, as a form of hype and gambling, rather than an investment in something that will hopefully grow in real value. He said no one had yet been able to explain to him the “path that cryptocurrencies take to become a store of value and a stable means of exchange.”

Asked about Montgomery’s concerns, Treasure suggests the comparison between hype, gambling and Bitcoin could also be applied to the property market.

Not to miss a chance to push his advocacy for crypto, he says “Bitcoin has already proven itself to be a fantastic store of value.” Offering a warning for non-believers he adds, “people will either embrace it and enjoy the benefits or ignore it and have their [monetary] value eroded over time.”

Bitcoin has bounced back from a largely stagnant 2020 Photo: Coindesk.

ASIC’s Money Smart website is not so bullish and explains, there are numerous risks involved in investing in crypto. Treasure understands these risks, after having 750 Bitcoins stolen from him in 2014 while he was away on holiday in Bali. The Bitcoins were collectively worth around $280,000 at the time, today they would be worth an estimated $62 million.

ASIC warns your digital wallet and its contents are susceptible to computer hackers. This is due to the anonymity digital currency systems offer their users, combined with the fact there is no central data bank.

This means that if hackers do steal your currency, you have little hope of getting it back. While there is also no protection from unauthorised or incorrect debits from your digital wallet, as Treasure unfortunately experienced.

Another risk is the lack of safeguards when buying and selling crypto. As they are not regulated, if a platform fails or is hacked, then the buyer is not protected. Such cryptocurrency failures have occurred before, in February 2014 Tokyo exchange Mt.Gox – the leading cryptocurrency exchange in the world at the time – was hacked and about $A8.4 billion worth of bitcoin was stolen.

The fluctuating value of crypto also presents a risk, as investing in virtual currencies is highly speculative. Its value is dependent on several factors including its popularity at a given time, how easy it is to trade or use, its perceived value and the underlying blockchain technology that supports it.

Despite the numerous risks, investors have continued to put their money and faith into crypto, with Bitcoin being the main focus of attention.  In 2021, however, Non-Fungible Tokens are the newest craze taking the crypto-loving world by storm.

The hype NFTs are generating right now is on a level that has not been seen since Bitcoin’s initial boom years. Most NFTs are based on the world’s second-largest cryptocurrency, Ethereum, which is often seen as a rival to Bitcoin. One ‘Ether‘ will currently set you back $A2975.

As lead data scientist at the Curtin Institute for Computation, Daniel Marrable has worked with blockchain, the underlying technology behind cryptocurrencies.

Dr Daniel Marrable Photo: Curtin University.

However, it was his passion for music, not data science which prompted his interest in NFTs. In the way crypto is seen as an alternative to the traditional banking system, NFTs are challenging the status quo of the music and arts industry.

As a supporter of independent music, Marrable hopes NFTs can cut out the “rent-seeking middlemen” in the industry, who are hurting artists livelihoods and “get royalties directly into the pockets of content creators.”  

Highlighting the potential of the platform for artists, Canadian superstar The Weeknd recently dropped an unreleased song as an NFT which sold for $A635,000.

The majority of cryptocurrencies are fungible, meaning one unit, such as a Bitcoin or an Ether, is interchangeable with any other and they don’t have any unique properties. NFTs on the other hand are unique. Marrable likens them to a collector’s item, in the way that one renaissance painting is not necessarily interchangeable with another.

A common misconception of NFTs is how they deal with ownership and copyright in a digital age ripe with piracy. If anyone can have a digital copy of your NFT, where does the value come from? Marrable uses the analogy of the Louvre in Paris to explain, stating he could go “take a photo of any of the rare artwork. But that doesn’t mean that I own that artwork. It means I’ve just taken a copy of it.”

The value comes from the digital certificate of ownership and authenticity which NFTs provide. As with all-new technologies, there’s a level of speculation surrounding NFTs. Marrable says this “will no doubt lead to a lot of boom-and-bust cycles.” He believes people should be very careful before they jump in purely on speculation.

Despite the rise of NFTs, Bitcoin has gone from strength to strength in 2021 proving both can coexist in the crowded crypto space. As for Treasure, he says “people around the world have now woken up to the fact that Bitcoin is a sound asset to hold long term.” While it’s impossible to predict the actions of central banks and people’s attitudes towards crypto in the future. As more people begin to think about investing to protect their savings, Treasure believes “cryptocurrencies will have a bright future.”

An Infographic explaining Bitcoin
Infographic: Lachlan Allen

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