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| What you need to know today in crypto and beyond August 23, 2021 Sponsored by Welcome to The Node.
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–Daniel Kuhn
Today's must-reads Top Shelf EXPANSION TO EUROPE: PayPal is extending its crypto service to the U.K., allowing customers to buy, sell and hold bitcoin, ether, litecoin and bitcoin cash. The rollout is the first expansion of the company’s crypto offering outside the U.S. The process will begin this week and will be available to all eligible customers within the next few weeks.
FULLY BACKED: The USDC stablecoin will be 100% backed by cash and short-term U.S. Treasurys by September, developer Circle announced. Circle revealed last month that only 61% of tokens were backed by “cash and cash equivalents,” referring to cash and money-market funds. The September attestation published by Circle will show that all USDC reserves are held in cash and short-term U.S. government Treasurys, the company announced Sunday.
VISA GOES NFTS: Visa has bought a female CryptoPunk, CryptoPunk 7610, for around $150,000, taking a step into the NFT market. With about 10,000 minted CryptoPunks in circulation, these are highly sought-after early NFTs. CryptoPunk 7610 is one of 3,840 "female" punks.
SURVEY: Three-quarters (76%) of executives globally think digital assets will be a “strong alternative to or replacement for” fiat in the next five to 10 years, Deloitte’s 2021 "Global Blockchain Survey" found. More than1,200 senior executives and practitioners responded to the survey, one-third of them based in the U.S.
–Helene Braun
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Overheard on CoinDesk TV Sound Bite “There is an opportunity to merge the two worlds where you can get all of the benefits of cryptocurrency within the trusted brands like Mastercard."
–Paxos Head Of Strategy Walter Hessert, on CoinDesk TV’s “First Mover.”
What others are writing... Off-Chain Signals Cryptocurrency’s surge leaves global watchdogs trying to catch up (Wall Street Journal) Silk Road leads Australian cops to $6 million bitcoin seizure, thanks to the FBI (Protos)–H.B.
A Message from BlockBank Looking for a crypto wallet with DeFi and CeFi coupled with banking and debit cards? Look no further, V2 of BlockBank’s super application launches this fall, offering access to: Custodial and non-custodial wallets Digital bank accounts Physical & Virtual Debit cards Robo Advisor Access to dApp BlockBank has already obtained licenses for Estonian virtual currency service provider, and Australian digital currency exchange and payment service provider.
Putting the news in perspective The Takeaway Why did Visa buy a $150k NFT? For that matter, why does anyone? If you’re anything like me, you’ve been wishing for a quiet week in crypto news for a while now. Wouldn’t it be nice to sleep? But no, Visa decided to announce this morning that it paid $150,000 for a CryptoPunk NFT, a kind of blockchain art token, to add to its “collection of historic commerce artifacts.” In an accompanying blog post, Visa declared that “NFTs mark a new chapter for digital commerce.”
There are certain events and inflection points that mark the transition from fringe to something approaching mainstream, and crypto and blockchain have already had at least two of those in recent months. First we had a nation-state getting serious about bitcoin, then the U.S. Senate fought over whether wallet programmers are brokers.
Visa’s purchase of a CryptoPunk, I think, serves as a similar marker for the inevitable mainstreaming of NFTs. They’ve already featured on "Saturday Night Live" and drawn in celebrities from Tom Brady to Jay-Z, but the apparent stamp of approval from a major financial institution takes things to another level. Cynically, $150,000 is probably a steal for Visa considering the PR it’ll get from the buy (including this article). But the announcement set off a $20 million frenzy of CryptoPunk trading, and that hype train isn’t coming back to the station.
Visa’s move, though, also returns us to an inescapable question: Why in the name of all that is holy would anyone pay $150,000 for a 25x25 pixel image stored on an extremely expensive and slow database?
It’s impossible to wrap your head around this, I think, if you’re looking for a truly rational explanation. But there are some very good reasons, it turns out, rooted in our deep, totally irrational animal brains – the same strange forces that lead us to make other major purchases that seem completely loony if you think about them too long.
“You have this rock stuck on your finger,” points out William Quigley, co-founder of the NFT-focused WAX blockchain. “It doesn’t look like it does anything. It’ll never do anything. And you paid $10,000 or $20,000 for that.”
The transition to more and more online living, Quigley thinks, means physical status symbols like jewelry have new competition from similarly exclusive digital objects. Both Jay-Z and NFL player Odell Beckham Jr. have recently bought CryptoPunks and made them their Twitter avatars – probably the biggest single use of NFTs right now. The uselessness, you might say, is the point.
To understand any of this, some basic knowledge about the technology is essential. NFT stands for “non-fungible token,” which basically means it’s unique. An NFT exists on a blockchain ledger just like a bitcoin or ETH token, but one bitcoin is basically the same as the other several million – they’re “fungible” (with an asterisk).
An NFT is just as immutable as a bitcoin, but there’s only one: There are 10,000 CryptoPunks, but each of them is unique, and that uniqueness creates a lot of variation in their value. Visa, for instance, bought one of about 3,800 female Punks. CryptoPunks are particularly attractive because they were issued in 2017, making them among the first NFTs ever created.
NFTs come in a lot of different forms – they can even be interactive objects programmed to change based on certain inputs – but the most common type right now are image NFTs. Many of these are still essentially links to JPEGs stored elsewhere, which is a genuine problem for trust in the assets. But just last week CryptoPunks announced it had moved all data onto the Ethereum blockchain itself. It seems likely that this move helped push Visa to finalize its decision because the move makes the assets more robust. Expect more NFTs, especially 8-bit series like the Punks, to transition to on-chain storage rapidly and, if you’re an investor, maybe look for that as a feature.
All this adds up to something deliriously simple: An NFT is a unique digital object. It is exclusive in a way that even bitcoin can’t claim. In fact, not even most real-world status symbols have the capacity to be as unique.
When someone buys an NFT avatar, “they’re saying, this is who I am,” says Henry Love, a managing partner at the NFT-focused investing fund Fundamental Labs. “So it’s more like a custom Rolex with your name on it. It’s one of one.”
Another crucial thing to know is that, despite Visa grabbing headlines and all the comparisons to Rolexes and diamond rings, the NFT craze seems to be truly broad and grassroots. Trading volumes on OpenSea, the dominant NFT trading platform, have exploded, recently hitting $1 billion in monthly trading volume for August. But even that’s just the 10,000-foot view: There’s a frenzy of collecting and creation going on across Twitter and Telegram. NFT drop schedules are being watched as closely as Yeezy or Supreme drops were a few years ago.
And while a lot of that is fueled by insider speculation, there’s also something that feels much more real and special about this than, say, debating whether you’re going to buy $100 worth of cardano or solana. Because they’re ultimately about identity and taste rather than just money, NFT shopping has a personal element that seems likely to draw a much broader user base.
However, there’s a major barrier, especially for Ethereum-based NFTs like CryptoPunks: Transaction fees on Ethereum make buying and selling less-expensive assets impractical. I was just about to buy a $60 avatar NFT (because I, too, am an ape afraid of being left behind by my tribe). But the transaction fee was $50, which is quite a psychological barrier.
That’s why low-fee standalone chains like WAX and Flow (which hosts NBA Top Shot), which are largely focused on less-pricey branded collectibles, are significant right now, and have a real opportunity to grow from a core value proposition. It also suggests the market for NFTs on Ethereum, which has a significant credibility premium, will get substantially more insane, particularly at the low end, when Ethereum completes its transition to a lower-fee proof-of-stake system.
–David Z. Morris
The CoinDesk DeFi Index (DFX), measuring the investable DeFi market, is now available for investors watching decentralized finance.
It is the latest index by CoinDesk Indexes, the market standard for crypto assets since 2014. The DFX provides a market-cap-weighted index for a representative basket of DeFi-sector cryptocurrencies that is designed to be investable and replicable for professional investors.
Find out more at coindesk.com/indexes/dfx, or email indexes@coindesk.com.
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