The Echo Chamber: Crypto and NFTs, what to know

A Cork-based expert explains cryptocurrency and how NFTs work in the latest Echo Chamber
The Echo Chamber: Crypto and NFTs, what to know

NFTs, non fungible tokens, can be anything like games, jpegs, digital art, video highlights, designs, music, collectibles and tweets. Picture: iStock

Mubashir Husain Rehmani is a lecturer in the Department of Computer Science at Munster Technological University (MTU). Husain Rehmani received a BEng degree in computer systems engineering from Mehran University of Engineering and Technology, Jamshoro, Pakistan, in 2004; a MSc degree from the University of Paris XI, Paris, France in 2008; and a PhD degree from the University Pierre and Marie Curie, Paris, in 2011.

Mubashir Husain Rehmani, who works on wireless networks, blockchain, cognitive radio networks, smart grid, and software defined networks, has written over 132 peer-reviewed articles of which 11 feature among highly cited articles by web analytics company Clarivate.
Mubashir Husain Rehmani, who works on wireless networks, blockchain, cognitive radio networks, smart grid, and software defined networks, has written over 132 peer-reviewed articles of which 11 feature among highly cited articles by web analytics company Clarivate.

He has published eight books, 104 peer-reviewed articles in transactions/journals/magazines, 14 conference papers, and 17 book chapters. He is the recipient of several best paper awards. He has been selected for inclusion on the annual Highly Cited Researchers™ 2020 and 2021 list from Clarivate, USA.

What is cryptocurrency?

Cryptocurrency is a computer-based currency, or digital currency, which is managed through a computer network (blockchain). This blockchain system helps to maintain the ledger of transactions to buy and sell the cryptocurrency. Due to the use of strong cryptographic algorithms, these digital currencies are known as cryptocurrencies.

Cryptocurrencies are different from paper-based money or coins as they are not controlled by a central authority (central bank and/or government). Thus, one can say that these cryptocurrencies are world-based currencies – unlike the euro which is EU-specific, and the USD which is US-specific. Due to this feature, cryptocurrencies can be used easily for cross-border transfers. Additionally, cryptocurrencies have the same value around the globe, thus, there is no exchange rates involved as required in the exchange of fiat currency.

BitCoin, Ether, and XRP are a few examples of cryptocurrencies. Cryptocurrencies can be purchased through cryptocurrency exchanges or earned through the “mining” process. The easiest way is to install a wallet and then you can use euro to buy cryptocurrencies.

What is an NFT?

Assets can be classified as fungible and non-fungible. Fungible assets are identical, and mutually interchangeable, ie, they can be exchanged for others of the same value and type. For example, minerals, metals (silver, gold), and currencies are example of fungible assets. Assets like real estate, and diamonds are non-fungible as each carry unique qualities and, thus, their value can be determined individually. Assets can also be digital (video, audio, jpeg image, documents, and cryptocurrencies) and, in this case, these digital assets will be non-tangible (ie, not physically present).

“NFT” stands for non-fungible token. In simple words, NFT shows the rightful ownership of the original digital media. NFT, stored on a public blockchain (Ethereum), represents a unique digital identifier, which is cryptographically secure, and shows the ownership of the non-fungible digital asset.

Though NFTs are similar to cryptocurrency in the sense that they both use blockchain as underlying technology, NFT is not cryptocurrency and each NFT is unique in the NFT marketplace. NFTs can be anything like games, jpegs, digital art, video highlights, designs, music, collectibles such as NBA Top Shot, and even tweets.

NFTs can be bought from NFT marketplaces. Some famous NFT marketplaces are OpenSea, Nifty Gateway, NBA Top Shot, Crypto Punks, and Rarible. In order to buy or sell NFTs, you need an NFT wallet such as Coinbase, Trust Wallet, and Metamask.

How do cryptocurrency and NFTs carry value in the real world?

The value of cryptocurrency comes from the trust of the blockchain network ie, the users of any specific cryptocurrency. The user of cryptocurrencies determines its value by the demand and supply of the cryptocurrency in the cryptocurrency market.

NFTs have their own value and do not depend on the value of other NFTs in the market. The value of an NFT depends on the value of the item (digital asset) in terms of scarcity and authenticity of the item.

How do you use cryptocurrency to buy things?

First, you need a cryptocurrency wallet so that you can store cryptocurrencies such as BTC, XRP, or ETH. You also require interacting with cryptocurrency exchange services to convert euro into cryptocurrency.

If “asset value” is mentioned in cryptocurrency, one can directly buy the asset using his/her own cryptocurrency wallet. However, if someone wants to buy asset in euro or in USD, then they need to use cryptocurrency exchanges (Coinbase, Binance, Bitfinex etc) to convert their cryptocurrency into the fiat currency and then proceed with buying things.

Why do people buy NFTs?

It depends. Some buy NFTs for investment purpose and others for using it. One of the most expensive NFTs is Everydays: the First 5000 Days, which is a digital work of art containing 5,000 images and was sold for US$69m. Looking at such expensive NFTs; investing in NFTs has gained momentum. You can also buy NFTs if you want to “use” NFTs as the digital media right owner of the asset.

What is the point of NFTs?

NFTs have the potential to redefine digital property rights. With NFTs, one can claim the digital media right owner of the asset (original work). This protects the true ownership and can bring new business models as compared to first-sale doctrine.

How to tell the differencebetween an NFT and a copy

Each NFT has a unique identifier, making it unique and different from other NFTs in the market, and represents the ownership of the digital asset. The traceability, provenance, and the current rightful ownership of the digital asset can also be maintained through NFT.

Why is the cryptocurrency market so unstable?

There are a few reasons as to why the cryptocurrency market is so unstable, or volatile. First, due to the supply-and-demand gap of cryptocurrencies. Second, these cryptocurrencies are not backed by the central bank or governments. Third, cryptocurrencies do not intrinsically contain any value itself ie, these cryptocurrencies are not backed by gold, silver etc (though gold-backed cryptocurrencies are now available in the market). Moreover, there are other factors as well which impact on the volatility of cryptocurrency, such as high energy consumption in the mining process. In simple words, cryptocurrencies are highly speculative.

Why is cryptocurrency notrecognised by traditional banks?

Cryptocurrencies are not recognised by traditional banks because cryptocurrencies operate in a different way than reserve currencies. First, cryptocurrencies are decentralised in nature (based on blockchain, plus the fact that users can be located geographically anywhere in the world). Second, cryptocurrencies do not have any legal status or regulated by the Central Bank of Ireland and other central banks in EU. Third, there is no government which backs the cryptocurrency. Fourth, cryptocurrencies do not have intrinsic value. Finally, there are issues related with Know Your Customer (KYC) and anti-money laundering and countering of financing of terrorism (AML/CFT) obligations. Therefore, cryptocurrencies are not recognised by traditional banks.

Why is investing in cryptocurrency ‘so hot right now’?

The cryptocurrency market is highly volatile, therefore, the return on investment (ROI) sometimes is also high (risky as well, in my opinion). In January 2021, one BitCoin (BTC) was worth more than €30,000. In October 2021, it was worth more than €53,000, and in April 2022 it was more than €37,000. The same trend can also be seen in Ether (ETH). Imagine, if someone invested with 1 BTC in January 2021, the profit it gets in October 2021 woud have been more than €23,000 in less than one year. This is a huge amount and that is the reason investors and people around the globe are attracted to investing in cryptocurrencies. There is another side of the coin. If someone invested with 1BTC in October 2021 and now wants to sell 1BTC, the loss will be more than €23,000 which is a huge loss. Another reason for investing in cryptocurrency is due to the momentum in NFT market. Since cryptocurrencies are required to buy NFTs, it therefore also has some effect on investment in cryptocurrencies. In summary, investment in cryptocurrency is “so hot right now” because of the profit it provides. Investment in cryptocurrency is some sort of gambling investment and it pays off extraordinary returns with high levels of risks.

Have you any tips or tricks for anyone interested ingetting involved incryptocurrency?

For anyone interested in getting involved in cryptocurrency and NFT market, my personal suggestion is to avoid investing in cryptocurrencies and NFTs until they are recognised by the central banks and/or governments.

Is there anything else you think is relevant in anexplainer about NFTs and cryptocurrency that you want to add?

Developing and programming your own NFT, you need some technical knowledge about Ethereum blockchain and smart contracts.

Thus, I recommend not to plunge into this business without acquiring some knowledge in both technical areas.

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