The rap on digital assets is that, many say, their entire value proposition is criminal. Their detractors say that the only use for this new class is to launder drug money, suborn illicit trade, fund terrorists or evade taxes.
We know perfectly well that cryptocurrencies are being used for precisely those purposes. I personally wouldn’t be surprised if those are the beginning and end of the use cases for monero, Zcash or a similar privacy-oriented coin.
But that’s not the only direction crypto is going. More and more, blockchain tokens are being used precisely because of the transparency inherent in the underlying technology. Such projects are bringing crypto to gaming, collectibles and even the national governments that press such charges.
Central bank digital currency — a contradiction in terms?
There’s an idea that’s been around for a while — or an aspiration, or a pipe dream or whatever — that national monetary policymakers will get with the crypto program and start issuing their own tokens. But how is this move from minting to mining progressing?
First of all, the whole concept of central bank digital currency is predicated on either doublethink or hypocrisy — I leave it to the reader to decide which and in what measure.
Central banks from London to Beijing have excoriated or outlawed cryptocurrencies but still have plans for CBDC. You see, they’re not really against crypto — they’re against losing control of the money supply. If anyone is going to disrupt the entire fractional reserve banking system, it’s going to be the government, not the governed.
Even the Bank for International Settlements — the Basel-based central bank of central banks — has an opinion about this subject, and it’s not positive as William Freedman reported last year.
“Dozens of countries as disparate as Russia and the Marshall Islands are talking — just talking — about CBDCs, and the BIS is hectoring them to stop,” Freedman writes, then quotes the BIS report on the subject. “Cryptocurrencies’ ‘volatile valuations, and inadequate investor and consumer protection, make them unsafe to rely on as a common means of payment, a stable store of value or a unit of account ... In periods of stress a flight towards the central bank may occur on a fast and large scale, challenging commercial banks and the central bank to manage such situations.’”
So with all this blowback, let’s take a look at where it stands right now.
In addition to the United Kingdom, Sweden has made some steps toward CBDC adoption, but it really hasn’t gotten too far at the moment.
There’s more action in South America than in Europe. Venezuela made a stab at it, but this country — with the inflation rate rapidly closing in on 10 million percent — isn’t known for its economic acumen. You can’t replace dogshit paper money with dogshit crypto. The Venezuelan petro is nominally pegged to the dollar-denominated value of its oil reserves, but that didn’t impress anybody. If people who were still buying ICOs through 2018 weren’t buying this, then nobody was.
Altogether, there are 19 countries kicking CBDC’s tires, according to the International Monetary Fund, and reporter Linda Willemse at Hacker Noon saved us some time and published the list.
First up, according to the IMF, is the Marshall Islands, but I’m going to push back a little on that. Yes, the Marshalls now issue a token called the sovereign and it has all the hallmarks of what a CBDC, but there’s a hitch: The legal tender there is the U. S. dollar. How can you have a central bank digital currency if you don’t have a central bank?
Others just a step or two behind, though, include such actual money-issuing nations as Singapore, Iran, Tunisia and Peru. Meantime, Saudi Arabia and the United Arab Emirates are jointly developing a CBDC.
I’ve lived much of my life in the southern United States, where there is a state of being called “fixin’ to get ready.” Countries inhabiting that state in relation to CBDC adoption include Canada, Israel, China, the Bahamas, Uruguay, the Netherlands, Norway and Russia. Further, according to the IMF, Germany, Switzerland, Hong Kong, South Korea and Japan have all suspended their CBDC efforts. So has the U. K., which is starting to develop a reputation for dithering.
Ecuador probably made the gamest effort, but the dinero electronico ultimately failed. It was a dollar-pegged stablecoin that had sovereign government blessing and a whitelist of accredited users. So what went wrong? The calendar. It was 2014. Ether hadn’t even been invented yet. Sometimes you can just be too far out in front.
None of this is to say that CBDC is a bad idea, just one that has all kinds of struggles with which to contend before someone gets it right and provides the example to follow. Among the benefits that would accrue to a monetary authority that figures it out include a government-sponsored system of payments that’s as secure as distributed ledger technology can make it. On top of that, if cash money should ever be phased out — and it sure is heading that way — there could still be central bank currency that would be trusted by people who’ll never trust bitcoin, ether or the rest of the lot. If India had a CBDC in 2016, it could’ve avoided the demonetization of its large bills — a macroeconomic shock that the world’s most populous democracy is still feeling the effects of. (And the Reserve Bank of India is another one of those monetary authorities that’s looking at any means to make sure it doesn’t happen again, as long as the solution doesn’t rhyme with “shmyptocurrency”.
One of the advantages that would accrue to central banks would be, in my opinion, a very bad idea. With CBDC, as I mentioned in passing at the start of this section, a nation’s monetary authority could disintermediate the entire commercial banking and savings-and-loan industries. You might ask, so what? Isn’t disintermediation the whole point? What’s wrong with getting your car loan from the government rather than a bank? To that I would respond: There’s more than one bank. You don’t like the terms, you can go elsewhere. National governments, not so much. A lot of us crypto enthusiasts are mobile-global and any flag we fly is a flag of convenience. But most people in this world take their national identity very seriously. Whether they would sheepishly go along with this scheme or respond with righteous indignation, it would be a choice between a bad outcome and a worse one.
Non-fungible tokens — the anti-monero
While some cryptocurrencies are doing everything they can to render the parties trading them totally anonymous, an entire branch of the blockchain ecosystem is devoted to make those parties as widely known and the terms of their transactions as transparent as possible. Welcome to the world of non-fungible tokens.
The killer app for NFTs was, embarrassingly enough, CryptoKitties. This was a silly little online game that allows people with way too much time on their hands to buy, collect and sell virtual cats. (Not me. I have a virtual allergy.) You can even breed them. You and I might think it’s a dumb idea, but Andreesen Horowitz and Union Square Ventures thought it was worth $12 million and Steph Curry is their official celebrity, so what do you and I know?
Respect must be paid. CryptoKitties date back to 2017, that is, the dawn of Ethereum. It was the impetus for ERC-721, the standard that governs smart contracts for all non-fungible tokens. It can be said, with only a little hyperbole, that CryptoKitties wasn’t just the killer app for NFTs, but for the Ethereum blockchain itself. (Vitalik Buterin is undoubtedly smarter than most of us, but maybe he’s even luckier.) Most NFTs are still on Ethereum, although the Ontology community also has the capability.
All this begs the question: What are the use cases for NFTs beyond digital cats? There actually are some, so I guess we have to put up with the virtual hairballs.
The whole point of NFTs are to create verifiable digital scarcity. Every CryptoKitty is an individual. This leads to an endless list of possible digital collectibles. Some of these can be just as whimsical, but they could also be one-of-a-kind or limited-edition game elements: characters, skins, weapons, whatever. NFTs can also be used for authentication of online art. While this sounds like a small and niche-y use case, it is a growing one.
And there is already one baked-in bit of demand for NFTs in a related field: literature. I’m a bookworm. In the old days, I would stand on line to have my favorite authors autograph the title page of their books which I had purchased. But along came Kindle and Audible, and I’d feel awkward asking these literary lions to sign my iPad — not to mention that the signature would be of only sentimental value. It wouldn’t authenticate that this was a signed first-edition that was individually autographed to me personally. NFTs could provide such an immutable witness.
Lastly, NFTs can be used as exchange mechanisms between in-game economies. It would allow someone who plays two different video games — and is better at one than the other — to buy swag in the one they’re not as gifted at. Someone who has more Overwatch credits than they can spend can translate them into riot points in League of Legends, at which they suck but you wouldn’t know it by looking at all the stuff they bought with converted Overwatch currency.
So what’s this got to do with dexes?
This really has nothing directly to do with decentralized exchanges, but that’s not to say anyone can afford to be ignorant of them — and the same goes for the sophisticated traders we seek to serve.
To start with, one of the sources of value we bring is that we are responsible stewards who are scrupulous about the coins we curate on our dex. I’m not saying that CBDCs and NFTs are off the table, but neither is in the path of our initial direction. We will begin by offering a medium in which to trade a broad array of cryptocurrencies, offering experienced investors the tools to hedge their positions as they execute their trades.
At some point, CBDCs will be available to trade, and we will take a long look at them before making any decisions about whether or not we list them. If we do go in that direction, we will be as careful selecting them as we are in selecting privately developed coins.
The time is probably a little more distant before we launch into NFT trading, if indeed that time ever comes. But it’s not a categorical “no”. It’s a conditional “not now”. When these tokens prove their worth beyond buying gamer skins you don’t deserve and electronic cats you don’t need, we will be in touch. The legitimate use cases are out there and, once the NFT market catches up with them, BQT will take a closer look.
Edward is an Ernst and Young Entrepreneur of the Year Finalist, Blockchain Enthusiast and visionary behind many successful organizations. An avid entrepreneur, Edward has a knack for designing distinctive business models complemented with superior technology to deliver unparalleled service and profitability. Edward also has been advising and consulting for various successful Blockchain technology and ICO projects and recently launched his own BQT.IO P2P exchange helping traders connect with each other to leverage their crypto assets.
BQT.IO has been in development since March 2017 and its ICO launched September 18. The information can be found online at BQT.IO, on Telegram @BQTCommunity and on Twitter as @bqt_ico.