As cryptocurrencies continue to gyrate, the latest expert to outperform traditional stock market exchanges is a hamster named Mister Goxx.
“The live-streamed hamster...has been independently trading a portfolio of various cryptocurrencies since June 12,” reports Business Insider. The hamster controls a "Goxx Box": “a crypto-rigged office attached to its larger home that gives the hamster the ability to perform various exercises which then execute specific cryptocurrency trades.”
Said rodent operates as a random trade-generator, but the results outperform the S&P 500, thus the media attention. Fascination with crypto is assured as long as prices keep rising.
But this fascination obscures real-world uses for blockchain technology — the fundamental principle that underpins cryptocurrencies. While crypto continues to encroach on traditional currencies, blockchain technology is shaping new ways of handling data for back offices settlement systems, domain name allocation, and anti-counterfeiting measures — to name a few.
Cryptocurrencies like Bitcoin and Ethereum edge into the mainstream despite their volatility. Blockchain exists in the shadow of its headline-hogging shiny coin creations, but the underpinning technology holds more promise.
Twitter chief executive officer Jack Dorsey co-founded San Francisco-based financial services and digital payments company Square in 2009, and he's bullish on blockchain.
“In October 2020, Square put approximately 1% of their total assets (USD50M) in Bitcoin...citing 'potential to be a more ubiquitous currency in the future' as their main reasoning,” says Wikipedia. “The company purchased an additional USD170M worth of Bitcoin in February 2021, bringing Square's total holdings to almost USD500M in Bitcoin.”
And now Twitter allows users to post their Bitcoin wallet directly on its iconic short-messaging platform, as announced by Esther Crawford, Twitter's product lead for creator monetization, last week — with online tipping using the predominant cryptocurrency on iOS with Android to follow. “Besides Bitcoin, Twitter will let users connect nine traditional payment providers, including Venmo and Cash App (formerly Square Cash), to their profiles to accept tips,” said The Verge.
While Dorsey loads up on Bitcoin, he also plays the NFT field.
The fungibility of tokens
NFTs are non-fungible tokens, while cryptocurrencies are the fungible kind. “[NFTs] cannot be traded or exchanged at equivalency,” says Investopedia. “This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions.”
The NFT concept opens new avenues in the field of collectibles and the provenance thereof. “In March, Twitter founder Jack Dorsey sold his first-ever tweet for the equivalent of USD2.9m to a Malaysia-based businessman,” reports the BBC.
But not all is well in this exciting new world of cultural artifacts bought with crypto. “In August, a fan of British graffiti artist Banksy was tricked into buying a fake NFT by a hacker off the artist's website,” says the Beeb. “Luckily for him, the hacker returned most of what he paid — more than USD336,000.”
While all this sounds exciting, most consumers don't touch crypto. New currencies of whatever type are typically viewed with suspicion. When the Euro was introduced in 2002, Russian authorities refused to recognize the new currency, meaning that European diplomats had to receive cash euros in diplomatic pouches for a while. The U.S. Civil War of the 1860s saw a slew of currencies issued by various authorities: the notorious Continental Dollar lost almost all its value, creating the viral catchphrase “not worth a Continental.”
“In the mid-19th-century U.S., private banks and other institutions issued an estimated 8,000 competing private currencies,” wrote Harvard professor Jeffrey Frankel in The Guardian. “As U.S. Federal Reserve Governor Lael Brainard has noted, that period “is now notorious for inefficiency, fraud, and instability in the payments system. This is essentially why central banks were created.”
“The logic that works against a large number of currencies at the national level also applies internationally,” wrote Frankel. “This is one reason why the dollar remains by far the leading global currency. The world does not have room for 11 international currencies, let alone 11,000.”
“[Cryptocurrencies] aren’t well designed to fulfill any of the classic functions of money — a unit of account, store of value, or means of payment — because their prices are so extraordinarily volatile,” argues Frankel. “This volatility is not surprising because cryptocurrencies are backed neither by reserves nor by the reputation of a well-established institution, such as a government or even a private bank or other trusted corporation.”
Playing the crypto card
The professor has a point. Crypto adherents argue that blockchain-backing is bedrock-solid, but plotting any crypto against the USD, EUR, or JPY creates a rollercoaster curve.
Many investors are risk-averse, and a quick look at a new prepaid debit card aimed at the crypto crowd shows the problems of handling a volatile commodity in a rewards-oriented financial product. According to an article in Forbes magazine, the card runs on the Visa processing network and offers traditional perks like airport lounge access and free ATM withdrawals. However, the highest level offers a black metal card that requires a USD400,000 stake in crypto.
“To avoid market fluctuations, the chosen crypto coin…is converted to USD based on the real-time market value,” says the Forbes article. “It can then be used like any other form of payment card.” So, while the top-tier card screams “crypto baller,” payment is in a USD proxy.
Still, as long as Mister Goxx, the hamster, beats the S&P 500, crypto remains an avatar for the avaricious. Caveat emptor.
Stefan Hammond is a contributing editor to CDOTrends. Best practices, the IoT, payment gateways, robotics, and the ongoing battle against cyberpirates pique his interest. You can reach him at [email protected].
Image credit: iStockphoto/Bilanol