NFT scams, toxic ‘mines’ and lost life savings: the cryptocurrency dream is fading fast | David A Banks

CCryptocurrencies, according to their most ardent supporters, are supposed to supplant the nations’ existing currencies and end the control of central banks over the money supply. Instead, individuals will be able to trade with each other in a decentralized digital financial ecosystem. That’s good, they promise, because unlike states and their central banks, technology is incorruptible. Cryptoevangelists envision technology as a substitute for social and political institutions.

But technology never replaces social and political behavior; it simply alters the rules and regulations we follow. To see this in action, just look at the plummeting value of Terra Luna, a cryptocurrency token that fell by 98% in one day, causing some investors to lose their life savings; the declining value of Bitcoin and Ethereum; or the countless victims of scam whose non-fungible tokens (NFTs) have been stolen. NFTs use the same blockchain technology as cryptocurrencies, such as Bitcoin, to exchange algorithmically generated illustrations that relate to a topic. Bored Apes, Lazy Lions, and “CryptoDickButts” cartoons are featured. Although NFTs are aesthetically uninspiring, they can be sold as such how $ 91.8 million and as they grow in value, scams involving stolen NFTs have abounded. Just last month, the Bored Ape Yacht Club’s Instagram account was hacked and the perpetrators stole NFT for about $ 3 million by directing followers to a fraudulent site.

When a scammer steals a CryptoDickButt, everything is ecstatic manifestos disappear on the decentralized power of the blockchain, while the victims of scam implore a handful of crypto exchanges to block the sale of your stolen NFT. The underlying technology and its tokens may be decentralized (and even that claim is questionable, given that cryptocurrencies are highly concentrated in the hands of a few hundred people), but where you can buy, use, and sell these things is still limited to a few. services and exchanges. This forces fans of cryptography to recognize a harsh truth: Coins and contracts are only as valuable or enforceable as the people and institutions that recognize their legitimacy. Blockchain technology does not change this fact at all.

In turn, states and institutions have begun to treat cryptography as a potentially destabilizing geopolitical force, limiting and burdening the voracious amounts of energy consumed by cryptographic mines. The cryptographic mining industry already consumes 0.55% of world energy production about as much as a small country. Some have even put the kibosh on blockchain technology altogether. China effectively banned the mining and use of cryptocurrencies in late 2021; before that, the country was by far the largest bitcoin miner in volume, accounting for up to 75% of global volume in September 2019. Its reasons for banning cryptocurrencies are likely to be a combination of reducing the energy consumption of cryptocurrencies, protecting citizens from scams and controlling the flow of money both within the country and with China’s trading partners. To date, China is the only government that has made an aggressive move to get rid of this technology, but other nations face similar problems.

Russia has been learning this lesson in recent months, starting in January, when cryptographic miners set up shop in nearby Kazakhstan after being expelled from China. Its mining servers have severely affected the Central Asian nation’s power grid, using up to 8% of its total power generation capacity as it has quickly become the second largest cryptocurrency producer behind the United States. Despite efforts to control the industry through energy taxes, the citizens of Kazakhstan have mutinied high fuel prices and unreliable electricity. Russian and neighboring nations troops were called in to quell the violence in January, although most of their attention was focused on Ukraine.

The war in Ukraine is proving to be different but an equally decisive moment for the geopolitics of cryptography. Ukraine’s Deputy Prime Minister Mykhailo Fedorov announced on March 3 that his government would issue an NFT to raise money for the war effort. So far, the Ukrainian government has raised $ 50 million in cryptocurrencies since the war began, although there has been little report on exactly who is raising money for weapons in Ukraine in this way. Alex Bornyakov, Ukraine’s deputy digital transformation minister, said only that “most of the donations come from people,” while others come from companies.

Russia itself is a major player in crypto, providing 11% of the world’s Bitcoin mining capacity. The country’s oligarchs should be grateful, given that trade between the Russian ruble and cryptocurrencies has doubled since the assault on Ukraine began. Avoiding sanctions by converting the ruble into cryptocurrency assets seems to be working for the time being, but this may end soon. Just as victims of the scam are quick to demand that NFT trading sites blacklist a stolen Ape, cryptographic exchanges are under pressure to exclude Russians from their platforms. There has been a solid debate in the industry as to whether this is contrary to the whole idea of ​​technology, but the point is this: Cryptography has not caused a financial revolution, it has only given states and scammers a new piece to play with. large chessboard.

This is just the beginning. Producing inscrutable financial assets through coal-fired power grids is contributing to a rapid warming of the planet that is already experiencing the worst droughts in more than 1,000 years in California and overloaded monsoon stations in India. All the ethereal images associated with cryptography hide the fact that it is made up of millions of tons of coal, copper, rare earth metals, and plastic. Cryptocurrency servers exist on the planet in real countries with laws, wars, and resource scarcity, which are ruled by politicians who have real commitments and interests. With the Russian invasion of Ukraine, we are beginning to see an emerging geopolitics of cryptography that closely resembles the old world of banking and finance.

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