NFT scams, toxic mines and lost savings – Friday

Cryptocurrencies exist, according to their most ardent supporters, to displace existing national currencies and end central bank control over the money supply. Instead, individuals can trade with each other in a decentralized, digital financial ecosystem. That’s a good thing, promises supporters, because unlike states and their central banks, technology is incorruptible. Crypto-evangelists envision technology as a substitute for societal and political institutions.

But technology never replaces social and political behavior; it just changes the rules and norms we follow. To see this in action, one only needs to look at the declining value of Terra Luna, a crypto token that fell 98 percent in value in one day, costing some investors their lifetime savings; on the declining value of the cryptocurrencies Bitcoin and Ethereum; or the countless scam victims whose non-fungible tokens (NTFs) have been stolen.

NFTs use the same blockchain technology as cryptocurrencies to trade algorithmically generated illustrations that vary on a specific subject. On offer is the collection of cartoon cartoons such as “Bored Monkeys” (bored monkeys) and “Lazy Lions” (lazy lions) or “CryptoDickButts”. Though aesthetically uninspiring, such NFTs can trade for as much as $ 91.8 million. And as they have appreciated in value, stolen NFT scams are common. Just last month, the Bored Ape Yacht Club’s Instagram account was hacked. The perpetrators stole about $ 3 million in NFTs by directing followers to a fake website.

Cryptocurrencies have potentially destabilizing geopolitical power

When a scammer steals a CryptoDickButt, ecstatic manifestos of the decentralized power of the blockchain are no longer heard: scam victims appeal to the few crypto exchanges to block the sale of their stolen NFTs. The underlying technology and tokens may be decentralized (and even that claim is questionable as the crypto markets are heavily concentrated in the hands of a few hundred people). But where you can actually buy, use and sell these things is still down to a few services and trading venues limited. This forces crypto-fans to face a hard-hitting truth: Currencies and contracts are only as valuable and enforceable as the people and institutions that recognize their legitimacy. Blockchain technology does not change that a bit.

In response, states and institutions have begun to treat cryptocurrencies as a potentially destabilizing geopolitical force by limiting or taxing the voracious amounts of energy that cryptocurrencies consume. The cryptocurrency industry already uses 0.55 percent of global energy production – about the same as a small country. It can go as far as banning blockchain technology altogether. China effectively banned mining and exploitation of cryptocurrencies by the end of 2021; before it had landed by far the largest bitcoin mining site measured in volume; in September 2019, as much as 75 percent of the global amount was extracted there. China is believed to ban cryptocurrencies for a number of reasons: to limit the energy consumption of cryptocurrencies, to protect citizens from fraud and to control the flow of money in the country as well as with China’s trading partners. To date, China is the only country that has taken such a drastic step to get rid of the technology, but other countries are facing similar problems.

Russia learned that lesson in recent months after cryptocurrencies settled in nearby Kazakhstan in January after being flown out of China. Their mine servers took a heavy toll on the Central Asian country’s electricity grid. They quickly became the second largest crypto producer after the United States, consuming up to eight percent of Kazakhstan’s total energy production capacity. Despite efforts to control the industry through energy taxes, Kazakhstan has experienced civil unrest due to high fuel prices and unreliable electricity supplies. In January, Russian troops and those from neighboring countries were called in to quell the violence, even though their main focus was actually on Ukraine.

Trade between Russian rubles and cryptocurrencies has doubled since the beginning of the Ukraine war

The war in Ukraine has proved to be a different but equally crucial moment for geopolitics for cryptocurrency. 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. Since the start of the war, the Ukrainian government has raised $ 50 million in cryptocurrencies. There is little talk about exactly who in this way collects money for Ukraine’s weapons and military equipment. Ukraine’s Deputy Minister of Digital Transformation Alex Bornyakov said only that “most of the donations come from people”, another part from companies.

Russia itself is a major crypto player, supplying 11 percent of Bitcoin mining capacity. Oligarchs in the country will certainly be grateful as trade between the Russian ruble and cryptocurrencies has doubled since the attack on Ukraine began. At the moment, it still seems to be circumventing sanctions by exchanging rubles for cryptocurrencies, but that may soon be over. Just as scam victims are quick to demand that NFT trading sites blacklist a stolen monkey, the pressure is mounting on crypto exchanges to ban Russians from their platforms. There is a lot of debate in the industry about whether it goes against the spirit of technology. But the point is that cryptocurrencies did not start a financial revolution, they just gave states and scammers a new piece to play with on the big chessboard.

That’s just the beginning. The production of opaque financial assets through the use of coal-fired power grids is contributing to the planet’s rapid warming, which is already causing California to experience its worst drought in more than a thousand years, or for India to experience heavier and more erratic monsoon rains. All the ethereal images associated with cryptocurrencies obscure the fact that they are made of millions of tons of coal, copper, rare metals and plastics. The servers that extract crypto are on planet Earth in real countries, with laws, wars and scarcity of resources – controlled by politicians who have real commitments and interests. With the Russian invasion of Ukraine, we are beginning to see a burgeoning cryptocurrency geopolitics similar to the old world of banking and finance.

David A Banks is Director of Globalization Studies at the University of Albany, State University of New York (SUNY). His forthcoming book, The City Authentic: How the Attention Economy Builds Urban America.

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