"Crypto, and NTF's, and DogeCoin, oh my!" Explaining the phenomenon of digital currency.
It is hard to follow along with all of the news that's going on in the world. From sports to pop culture, to business news, it's a whirlwind of information. Now, with the recent surge of retail investing and "get rich quick" methods, a wild concept to wrap your head around is digital marketplaces and cryptocurrency.
If you are deep in "FinTwit" or just casually scrolling on what's trending, you may notice all of the Bitcoin/Dogecoin/TopShot/NFT/Etc. buzz. Does any of it truly make sense? To be honest, not really, but in an attempt to try and summarize the concepts for the everyday person, hopefully, this blog can breakdown the phenomenon.
The Rise of Bitcoin and Cryptocurrency
If you hear the term cryptocurrency, it is all thanks to the boom from Bitcoin. Arguably the most well-known cryptocurrency, Bitcoin began back in 2008, in the middle of the financial crisis. it took a while to gain momentum until its first bump in 2017. In simple terms, a cryptocurrency is a new form of digital assets based on a network. They aren't controlled by the government and are derived from the encryption techniques which are used to secure a network. They are backed by Blockchains, which are the organizational method to ensure the "integrity" of the data and transactions. You can buy Crypto on a variety of different coin bases, and even on your traditional e-trading sites.
Crypto started off with a negative connotation prior to 2017, it was uncharted territory, and seemed that the majority of the concept was a scam. According to Bloomberg, all of the world’s cryptocurrencies now have a $1.47 trillion market cap now. High-profile entrepreneurs and socialites, such as Elon Musk, have given the spotlight to Crypto, which in return has shot up to its value and popularity.
Graph via CoinDesk
So that's the background, but you are still probably asking, "well why is it worth anything?" or "how is it valuable?" Let's stick with Bitcoin for this example. The price of Bitcoin can be defined by the last trade conducted on a specific exchange. The price goes up when buying pressure increases and the opposite when the selling pressure increases. Other factors that determine the price include media hype, pump-and-dump sales, and supply shortage.
Another thing that makes this a complicated facet is their value. Your typical fiat currencies (USD, Pounds, Euros, etc.) are centralized behind government systems. Crypto is a decentralized one and peer-peer system. There are no regulation rules, which causes extreme volatility. Like any currency, cryptocurrencies gain their value based on the scale of community involvement. What makes things more complex, is there is no singular price for Bitcoin and other Cryptos. Even though you can use Bitcoin as a form of purchasing payment, it is more comparable to a stock because of its fluctuating value.
Like mentioned, Cryptocurrencies are volatile, but still an opportunity for investment opportunity. While the dollar is inflationary, meaning it loses its value as time goes on because more are added to the circulation, Bitcoin has decreasing inflation. This is due to the supply shortage of the coin. As time goes on, this statement implies that bitcoin will be more valuable in the future, which could hurt economic growth, as a deflationary currency is it promotes saving instead of spending. Either way, Bitcoin and Cryptocurrency have erupted all over social media, causing high-profile individuals to shed light on the matter.
$DOGE to the Moon
So after explaining all about cryptocurrency above, and how it is seriously trying to become legitimate, we now turn to DogeCoin, which may be the complete opposite. This crypto coin is named after the famous Doge meme. Dogecoin has been around for a minute but after the Gamestop craze a few weeks back, enthusiasts are simply just pumping up the currency for the fun of it. It is currently worth just under 5 cents, but Redditors and retail traders are holding their positions until it is $1 per coin.
So back in 2013, software engineers Billy Markus and Jackson Palmer created Dogecoin as a payment system that is instant, fun, and free from fees. After years of building an online community, it now has a market capitalization of over $10 billion dollars. Surprisingly, you can buy stuff with Dogecoin, but this frenzy makes not a lot of sense.
The more Elon Musk tweets about DogeCoin, the more it raises its value. When Musk tweeted a picture of a Vogue magazine spoof called "Dogue", the price of the crypto surged over 800%.
NFT's, aka Non-Fungible Tokens
You finally understand crypto (well sorta), now there are these NFT's. They are another digital asset which represents a wide variety of tangible and intangible items. Recently, the most well-known NFT has been the NBA Top Shot Moments. In basic terms, these Non Fungible Tokens are digital goods, most commonly an image, video, or animation, in the form of a digital token living on a blockchain. Individuals can purchase the ownership of this "item" and have the rights to own and display it or turn around and trade/sell it.
Unlike the cryptocurrencies explained earlier, NFTs cannot be directly exchanged with one another. This is because no two NFTs are identical. In simple terms, this is the future of trading baseball or Pokemon cards. Each card has similarity, but are more valuable based on their serial card info, rarity, vintage, etc. NFT's have no specific value because they are based on the market's supply and demand. Due to the scarcity, collectors and investors are often prepared to pay a lot of money for them.
Claire Boucher, also known as Grimes, is a Canadian artist who capitalized on this opportunity. She auctioned off different variants of her work, in form of video content, and netted around $6 million for her digital artwork. Although you can physically hang these memorabilia on your wall, the digital trading items are creating a form of bragging rights, that consumers have something that you cant have unless you buy it from them. NFT's are great for content creators and artists because these items cannot be replicated. They have the ability to actually own the property rights of what they create and can turn around and profit from.
All in all, these fancy and innovative concepts seem like a foreign concept, but it looks like they are here to stay. None of it truly makes sense just yet, but it is inevitable that this is what the future looks like.