Since the release of the first token, Bitcoin has become a popular investment after its rapid increases in value. In addition to Bitcoin, which is the largest crypto currency in terms of market capitalization, there are now over 10,000 different crypto currencies worldwide that represent a new asset class for investors.
With the growing importance of crypto assets, the regulatory framework conditions are also continuously being adapted. The introduction of the “Act to Implement the Amending Directive for the Fourth EU Money Laundering Directive” and the “MiCA” regulation represent a major step in the regulation of these new forms of investment, which are likely to have a strong impact on the financial world in Europe. Furthermore, the technology behind the cryptocurrencies, the blockchain, Non-Fungible Tokens ( NFT) is also having an increasing influence on regulatory events. Since the law on the introduction of electronic securities, it has been possible in future to process the paper-based document requirement in digital form, e.g. via a decentralized crypto securities register.
In response to the global financial crisis in 2008/2009, a computer scientist or group of computer scientists called Satoshi Nakamoto published a white paper on a digital currency called Bitcoin. It should allow people all over the world to exchange money without having to rely on banks, accounts or credit cards.
Before the rapid rise of bitcoin, the internet was mainly used for communication and as a source of information. It absorbed the previous information sources like radio, newspapers and television and bundled them into an Internet of Information. In this way, information could be exchanged and shared worldwide over the Internet in a matter of seconds. The Bitcoin builds on this principle, because unlike a transfer abroad, which takes several days and incurs high fees, the Bitcoin now also offers the possibility of exchanging values over the Internet almost instantly and at manageable costs thus heralded the development of an Internet of value.
Instead of relying on banks or other financial service providers as middlemen, Bitcoin uses a network of computers that are distributed all over the world to keep a common log, the so-called distributed ledger, of all past transactions. Due to the general accessibility of this ledger and the associated decentralization, the digital currency is completely independent of external third parties.
Blockchain technology using the example of the Bitcoin blockchain
The blockchain is a form of distributed ledger in which the respective transaction information, time stamp and a random number, “number only used once” (nonce), are stored in blocks. Each block also contains information from the previous block, the so-called hash. The chaining of these blocks represents the blockchain:
Although the changes in the input were only marginal, the results are completely different. As a result, even the smallest changes to past transactions would trigger a domino effect and therefore cannot be carried out unnoticed.
Confirmation by the network participants is required so that the transactions can actually be attached to the blockchain in a block. This confirmation takes place by generating the hash value of the new block, which has to be confirmed. However, the hash to be calculated must meet certain criteria specified in the blockchain protocol. Since the nonce is the only variable input, it must be selected in such a way that the new hash of the block to be confirmed meets these criteria.
In the digital world, sales of so-called non-fungible tokens (NFT) are booming. These are basically digital certificates of authenticity and ownership. For this purpose, a video clip or a digital work of art is registered on a blockchain and its owners, purchases and sales are entered in the process.
By registering, the NFT receives a unique digital signature which, due to the blockchain technology, cannot be changed in practice. Even if the underlying work can be reproduced millions of times, this process gives the registered object a uniqueness. It remains unique, whereby the unique position does not refer to the object itself, but to the certificate.
Some investors are betting that growing interest in the arts, sports and media worlds will keep prices for objects in this still quite new crypto asset class rising. In August, NFT sales jumped to $ 1.9 billion so far, announced the largest NFT trading platform OpenSea. This means that the volume has increased more than tenfold in the past five months. In January, the volume on the platform was just over eight million dollars.
The boom is apparently mainly due to increased trade in properties. In the past few weeks, some collections have been offered that were very successful and sold out when they were launched, says Ian Kane from the analysis company DappRadar, which is tracking the market. This activity then spilled over to OpenSea.
An NFT with a picture of a monkey cartoon was sold on OpenSea for 39 Ethereum last week. This was equivalent to $ 124,205 at the time of purchase. Two weeks earlier, the monkey NFT had been bought for 22.5 Ethereum, or $ 61,329. An NFT of an abstract digital work of art started the week trading for 1000 Ethereum ($ 3.3 million) after it sold for 0.58 Ethereum ($ 1366) in June. The NFT market data vary depending on the provider. DappRadar had 32 known NFT sales valued at over $ 1 million in the past 30 days alone.
“Bubble stupidity”
MichaelK, a 30-year-old NFT buyer who doesn’t want to give his clear name, said he has spent about $ 250,000 on NFTs since September. He now holds 90 percent of his assets in cryptocurrencies and NFTs. At the beginning of the month, according to the Etherscan website, he bought an NFT of a penguin cartoon for Ethereum for about $ 139 and resold it four days later for about $ 3956.
MichaelK believes that the coronavirus pandemic, which is forcing people to spend more time at home and online, has given NFTs a breakthrough. Rising cryptocurrency prices could also have played a role. NFTs are often rated in Ethereum. The price of the second most important cyber currency after Bitcoin rose by around 23 percent in August. “I don’t want to think of it as a bubble. I want to see it as something new that will be a big wave, “said MichaelK.
Not everyone on the market is equally euphoric. Michael Every, Rabobank’s Asia Pacific expert, said he was “stunned” by the “bubble stupidity” of the NFT market. An NFT is more like buying a lottery ticket. In view of the potential for returns, young people in particular who have difficulties building wealth are drawn in. However, Every was convinced that NFTs are a bubble that will “surely” burst.
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