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The chicken or the egg: Why NFTs could be fungible after all

Republished by Plato

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Among the many offshoots produced as a bi-product of the ongoing cryptocurrency experiment, nonfungible tokens have turned out to be one of the most explosive. In a few short months, over half a billion dollars worth of NFTs changed hands, as celebrities (from lists A to Z) clamored to profit from crypto’s latest craze.

But amid the rush to jump on the bandwagon, few have stopped to consider the veracity of the terminology applied to NFTs. After all, why would you stop to ponder semantics when there are millions of dollars to be made at the click of a button?

But in lieu of said millions, we decided to ask the question: Are nonfungible tokens actually a little bit fungible after all?

Fungibility

An asset or good is considered to be fungible if it can be interchanged with another of the same type of equal value. Hence the United State dollar is fungible because any one dollar can be exchanged for any other. The same applies to Bitcoin (BTC).

Fungibility makes up one of the four pillars of Aristotle’s concept of “good money” and is possibly the most important in creating a working currency. All cryptocurrencies are fungible by nature.

Nonfungible assets are those that can’t be trusted to have equal value due to unique variations in their make-up. For example, while diamonds could be useful in a bartering situation, their minute differences in cut, shape and quality exclude them from meeting Aristotle’s evaluation of good money.

NFTs

But when it comes to NFTs, currency characteristics are irrelevant. The whole point is that each unit of the asset can be varied, unique, exclusive and rare. This is precisely where much of the perceived value of the NFT comes from — its nonfungibility.

On the Ethereum blockchain, NFTs are mostly built upon a token standard known as ERC-1155. Tokens built using ERC-1155 ensure nonfungibility and, as such, would be useless in forming the backbone of a regular currency.

Regular Ethereum tokens are built on the ERC-20 standard, which enables the issuance of identical, fungible tokens for use as actual currency. For this very reason, an ERC-20 token’s utility in registering anything unique or rare is null and void.

But what if…?

But hypothetically, if one were to create 21 million ERC-1155 NFTs — all programmed to be identical to each other — and then distribute them in a free airdrop, would an actual currency not naturally begin to form?

What would stop the tokens from being traded on the open market, each holding the same identical value as the other? This concept is not an invention of Cointelegraph’s; “fractionalized NFTs” are a phenomenon that has already emerged and quickly drawn the ire of United States Securities and Exchange Commissioner Hester Peirce.

Peirce, also referred to as “Crypto Mom” for her lenient stance on cryptocurrency regulation, warned that the use of fractionalized NFTs skirts dangerously close to breaking SEC securities laws. The very reason NFTs don’t constitute securities is because they are unique and nonfungible, noted Peirce, who said people were “getting very creative in the types of NFTs they’re putting out there.”

A numbers game

Conversely, the ERC-20 standard Ethereum token that many people will have held in their wallets at some point is designed to be fungible — but is that always the case?

An Ethereum developer who helped create the ERC-1155 token standard, Philippe Castonguay, recently posed a question to his Twitter followers that probed this very issue. We’ve established that ERC-20 tokens are fungible, but could they be nonfungible?

Castonguay polled his followers, asking: “Is an ERC-20 token with a forever total supply of 1 an NFT?”

Some 46.8% of respondents answered yes, 36.4% answered no, and 16.7% declined to speculate.

Fine-tuning the definition further, Castonguay then asked if a non-divisible ERC-20 token with a capped supply of one was an NFT. After all, an ERC-20 token is divisible down to many (possibly infinite) decimal points, meaning its utility as an NFT would be gone.

“Is an ERC-20 token that is not divisible (0 decimals) with a forever maximum supply of 1 an NFT?” Castonguay asked. This time 72.1% said yes, 15.4% said no, and 12.5% declined to answer.

Cointelegraph asked Castonguay about the usage of the terms fungibility and nonfungibility as applied to cryptocurrency tokens. Is there really that much difference between the two? Are we just talking about two different ways of skinning a cat? He answered:

“Indeed, fungibility is a spectrum and the term NFT offers a quite binary view of the situation!”

One social media philosopher summed up the situation by referencing the age-old question that has plagued the world’s deepest thinkers for millennia. User Safex Vigilante proffered the analogy:

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cointelegraph.com/news/the-chicken-or-the-egg-why-nfts-could-be-fungible-after-all

Blockchain

$420M in leveraged long traders liquidated after XRP rallies to $1.96

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XRP holders couldn’t have asked for a better year as the cryptocurrency rallied almost 800% and flirted with a $2 level in the early hours of April 14. 

In addition to achieving its highest level since January 2018, this robust price increase signals that investors are not worried about the ongoing SEC “unregistered securities offering” dispute.

However, just 6 hours after rallying to $1.96, XRP price crashed by more than 20%. During an interview, DCG Group CEO Barry Silbert said it would be risky for exchanges and companies in the United States to relist XRP ahead of receiving the SEC’s blessing. These remarks may have contributed to the unprecedented $420 million long liquidations on derivatives exchanges today.

XRP price in USDT at Binance. Source: TradingView

Over the past couple of weeks, the primary catalysts for XRP’s rally have been victories in Ripple’s legal battles. Lawyers representing Ripple were granted access to internal SEC discussions regarding cryptocurrencies, and more recently, a court denied the disclosure of two Ripple executives’ financial records, including CEO Brad Garlinghouse.

Considering the recent rally, pinpointing a single reason for the price correction will likely be inaccurate. Nevertheless, the impressive $420 million long liquidations past 24-hours exceed those of Feb. 1 when XRP price crashed by 46% in two hours.

XRP futures aggregate liquidations. Source: Bybt

The only logical reason behind this staggering liquidation is excessive leverage used by buyers. To confirm such a thesis, one must analyze the perpetual contracts funding rate. To balance their risks, exchanges will charge either longs or shorts depending on how much leverage each side is demanding.

XRP perpetual futures 8-hour funding rate. Source: Bybt

The chart above shows that the 8-hour funding rate is surpassing 0.25%, which is equivalent to 5.4% per week. Although this is excessive, buyers will withstand these fees during strong price rallies. For example, the current upward price move lasted for almost three weeks, and prior to that another took place in early February.

Blaming the liquidations exclusively on leverage seems a bit extreme, although it certainly played its part in amplifying today’s correction.

Moreover, the record growth in XRP futures open interest was accompanied by a hike in the volume at spot exchanges. As a result, the eventual impact from more significant liquidations should have been absorbed by the increased liquidity.

Cascading liquidations will always take place in volatile markets. Thus investors should focus on how long it takes until the price recovers from it.

Fundamentally, a 10% or 20% intraday drop should not be interpreted differently. The correction depends on how many bids were previously stacked at exchange orderbooks and is not directly related to investors’ bullish or bearish sentiment.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cointelegraph.com/news/420m-in-leveraged-long-traders-liquidated-after-xrp-rallies-to-1-96

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Garry Tan’s 2013 investment of $300K in Coinbase is now worth $2.4B

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Garry Tan, a prominent angel investor and the founder of Initialized Capital, was one of the first investors to provide seed funding to Coinbase eight years ago. 

Less than a decade later, and after today’s highly anticipated Nasdaq listing for Coinbase’s COIN stock, Tan’s 2013 investment of $300,000 into Coinbase is now worth $2.4 billion.

Coinbase debuted on the Nasdaq on April 14 at $381 per share, making it one of the most hyped listings in the U.S. stock market of the year.

How did $300,000 become $2.4 billion?

In 2013, when Tan invested in Coinbase, it was unclear whether Bitcoin would be recognized as a global asset and an established store of value.

At the time, there were not many reputable exchanges, and the few that existed were often hacked. Tan’s investment took place before the monumental Mt. Gox hack that saw billions of dollars worth of BTC stolen.

Even after launch, Coinbase was not always in an uptrend. According to Coinbase co-founder Fred Ehrsam, from 2014 to 2017 the company faced numerous hardships. 

Ehrsam said:

“Over time, crypto grew, and so did the company. A simple #Bitcoin wallet evolved into individual and institutional products to support a blossoming cryptoeconomy. 2 nerds who met on the internet (yes, @brian_armstrong and I met on @reddit ) turned into a company of 1000+. There was serious hardship. In the 3 years between 2014 and 2017, the outside world thought crypto was dead. Over a third of employees left. Yet crypto kept building. @ethereum came on the scene and showed that crypto native applications were possible, opening up a whole new world of possibilities.”

Even if the listing fails to impress, Coinbase has alluring financials

Coinbase is the first publicly listed major cryptocurrency exchange in the U.S. stock market and its availability on Nasdaq now provides mainstream investors with exposure to the crypto sector. Even if the listing fails to impress on day one, the company still has strong financials and user metrics.

Coinbase made $1 billion in the last quarter and has more users than every financial institution in the U.S. apart from JPMorgan, making it a highly compelling trade for investors in the traditional financial market.

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Source: https://cointelegraph.com/news/garry-tan-s-2013-investment-of-300k-in-coinbase-is-now-worth-2-4b

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German software developer donated $1.2M in ‘undeserved’ Bitcoin to political party

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A German national who reportedly sees his Bitcoin profits as “undeserved wealth” has donated more than $1 million to the country’s green political party.

According to Hamburg-based news outlet Die Zeit, Moritz Schmidt, a software developer from the northeastern town of Greifswald, has sent one million euro — roughly $1.2 million — to Germany’s green party, known as The Greens or Alliance 90. A party spokesperson said Schmidt had made significant gains during the Bitcoin (BTC) bull run but wanted to contribute to causes related to environmental and climate protection rather than HODLing his crypto.

“The donor has made it clear to us that he sees these profits as undeserved wealth that he does not claim for himself, but wants to use socially, for something that corresponds to his convictions,” said the Greens spokesperson. “In the meantime he sees the Bitcoin system critically, among other things against the background that the necessary arithmetic operations consume huge amounts of electricity.”

Records for the Greens show that Schmidt’s donation is the biggest the party has received this year, with the next highest contribution at 500,000 euro, or roughly $600,000. The funds will reportedly be used for the party’s federal election campaign and the state election campaigns in 2021.

The software developer is not alone in seemingly hoping the crypto industry will become greener. Many have criticized Bitcoin mining for its impact on the environment, with some estimates indicating the network consumes more energy than the entire country of Argentina. However, Mike Colyer, CEO of crypto mining firm Foundry Digital, said this week that he believes mining Bitcoin could eventually help the transition to a “world where 100% of our energy is produced from renewables.”

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cointelegraph.com/news/german-software-developer-donated-1-2m-in-undeserved-bitcoin-to-political-party

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