Talking about cryptographic technology in art it may seem surreal, a world that is not so easy to understand, between the esoteric and the imaginary, probably to be observed through a futuristic concept. So when a digital file powered by blockchain technology is auctioned off for $69,3 million in cryptocurrency, it becomes clear we are a little baffled.
That's what happened with Everydays: The First 5000 Days, by digital artist Beeple. The work is a collection of pixels, made unique, and therefore precious, by a "non-fungible token" (NFT). This new artistic frontier is all built on blockchain, a sort of intersection between art and "a lot" of the economy.
We have to go back to the 80s to find the term blockchain. It was a chain of records that was supposed to serve as a tamper-proof record of timestamped information, all through a decentralized database.
But the blockchain enters people's lexicon only thanks to Bitcoin, a "denationalized" currency officially launched in 2009.
At this point let's get to the heart of the matter and ask ourselves how any image in digital format (such as a reworked JPG) can take on real value as a work of art. The question can be traced back to the Monegraph company, founded in 2014 by artist Kevin McCoy and technologist Anil Dash. It was the first platform that allowed artists to “register” or “mint” their artwork on the Blockchain.
This is where NFTs come into play. NFTs (non-fungible token) are built on a blockchain and are not fungible, unlike bitcoins which are fungible. That is, the latter work like cash and any two tokens are interchangeable in the same way as two banknotes. NFTs, on the other hand, were designed to be absolutely one of a kind, making them the perfect way to trade and acquire digital artAnd. In summary it is about creating a "limited edition" of a file that could otherwise be easily reproduced. But cryptography and the blockchain introduce questions about intrinsic values in the arts. The aforementioned Beeple's Everydays it was the first NFT-encoded artwork to be auctioned by a major auction house.
Since then we are increasingly witnessing a growth not only of Crypto Art enthusiasts but also the presence of these works on online platforms of international but also national auction houses, where the esteem is given by the interest in a realm where the novelty, rarity and uniqueness underlie the perceived value of creation and destruction.
Cryptoart therefore seems to go hand in hand with an increasingly technological world and therefore also the creation of works that we should soon place them in the artistic meaning beyond the fruition or meaning that today we struggle to understand. Will there be a future? Certainly yes, and it will concern a completely new sector, independent and benefiting from instruments and an alternative economic system, given that just last week Sotheby's awarded not an NFT but a real Diamond paid in cryptocurrency.
We ask Stefano Di Tommaso to introduce us to this world unknown to many but not to all, given that it seems that a significant number of realities and operators already operate there.
Starting from 2008, with the diffusion of the internet among individuals, "digital" currencies (called "cryptocurrencies" because their decentralized online management allows them to remain absolutely confidential) were born, the most widespread of which, Bitcoin, uses a which excludes the need for central banks nor does it provide for controls by monetary authorities. Their diffusion - initially used to pay for online games and their prizes - has provoked sharp reactions from the monetary authorities, which in many cases have intervened to counter the phenomenon, both because of the impossibility of controlling their circulation, and because of the secrecy of the actual owners. It goes without saying that the events have taken different turns in different parts of the world: in some countries (the least democratic ones) cryptocurrencies have even been banned, in other countries they have actually been legalized!
BLOCK CHAIN
The "minting" of cryptocurrencies is carried out collectively by the network: it does not require any central authority because the blockchain (the technology for keeping its digital registers, which allows the validity of transactions to be certified) was disseminated on the network in 2008 by Satoshi Nakamoto ( a mysterious character whose actual existence is doubted) in "open-source" mode, that is to say that the intellectual property of its design has been renounced by its author. Consequently, no one owns it and no one can influence the course of Bitcoin except by buying or selling it.
Each node of the network participates through its own transactions in the minting of new money and therefore in the creation of the monetary base which takes place according to automated mathematical rules that cannot be modified by anyone. The traceability of transactions refers to a digital identity that can remain completely secret and above all there is no need - nor is it compatible with the mechanism - the existence of a monetary authority.
The need to find a regulation of this phenomenon arose later, with the expansion of its diffusion. Someone claims that it is the most important revolution in the history of money. But it is precisely this success that pushes some Central Banks to limit their circulation, or even to create their own digital currency alternatives, as happened in China for example, in the hope of riding the wave without being displaced. However, it is rather unlikely that central banks will actually succeed, since it is precisely because of them that today there is no longer a need for an "issue bank".
BRETTON WOODS AND FLEXIBLE EXCHANGE
The Bretton Woods conference, which was held from 1 to 22 July 1944 in the town of the same name in New Hampshire to establish international commercial and financial relations between the main industrialized countries of the western world, generated a system of rules and procedures aimed at controlling international monetary policy, which overturned the previous system, called the "Gold Standard". With the Bretton Woods agreements it was decided to move from the printing of money linked to the quantity of gold reserves of each nation, to a new monetary order, more flexible and agreed between individual nations and the United States of America, as global custodians of these reserves, the only ones to continue to maintain the convertibility of the Dollar into gold.
The monetary system thus became a "Gold Exchange Standard", i.e. based on the definition of the exchange ratios between currencies and the Dollar on the basis of the gold reserves of each currency issuing country. The system guaranteed the convertibility of the dollar only with gold but prevented other nations from controlling the quantity of dollars printed. In the 60s the world experienced an unprecedented economic boom and, with the Vietnam War and the welfare program called the Great Corporation, the USA greatly increased public spending, financing it with the printing of new Dollars.
Fears of growing US debt increased calls for the conversion of dollars into gold held by the Federal Reserve Bank of America. This prompted US President Richard Nixon, on August 15, 1971, to announce the suspension of the convertibility of the dollar into gold at Camp David. US reserves were running dangerously thin: the US Treasury had already disbursed over 12.000 tons of gold.
Special Drawing Rights with a purely conventional value of one dollar were already operational at the International Monetary Fund. In December 1971, the Group of Ten signed the Smithsonian Agreement, which put an end to the Bretton Woods agreements, initiating free floating exchange rates. In February 1973 - due to galloping inflation - every link between gold and the dollar and between the latter and the other national currencies was definitively severed, so that the Gold Exchange Standards was abandoned and replaced by the current system of flexible exchange rates and by the disappearance of the reference of the currency issued by each nation to a tangible value, such as gold held by the central bank.
THE END OF THE HEGEMONY OF CENTRAL BANKS
So historically the function of minting money has always been the privilege of Sovereign States first, and then of Central Banks. Over time, the latter have also withdrawn from the control of their respective states in the name of the need for rigorous autonomy, attributing to themselves functions that are even partially different from each other and over time becoming a system of power partially detached from the others.
For example, the European Central Bank, due to the particular circumstance that in front of a single currency there is no underlying government and single economic system, has reduced its tasks to the exclusive one of monetary stability, unlike other main central banks, which their primary function is to monitor and support the country's economy and even unemployment in the USA.
Whatever their raison d'être, the determinations of the central banks have clearly been guided by a precise hegemonic will. Until recently they were the only ones to spread money by law and the only ones to have international recognition for doing so. Then came cryptocurrencies, destined to become an ordinary payment instrument over time and - consequently - a store of value, free from central powers.
DIFFICULT TO PREVENT THE SPREAD
In the light of this "injury" it is possible to understand why the phenomenon of Cryptocurrencies has given rise to the prohibitions and suspicions that have held back - but not prevented - its development up to now. And it is not difficult to imagine that, in the future, they could even become the true measure of the debt of sovereign states.
On the other hand, the launch of digital currencies by some countries, i.e. electronic currencies to complement traditional currency (such as the Digital Yuan), also involves the use of the blockchain and as a result it is impossible to print money at go-go to finance the public debt.
Then, trying to eliminate some unwelcome aspects of Bitcoin, other cryptocurrencies were also born other than Bitcoin, still the most widespread today. At the moment the best known is Ethereum, which was created to allow the traceability of transactions. Today more and more people have started to use cryptocurrencies as payment instruments such as dollars, euros, pounds or yen, but it is clear that central banks have become only one of the potential suppliers of money.
THE REACTIONS OF THE MONETARY AUTHORITIES
Today more and more economic subjects are gearing up to accept cryptocurrencies as payment, but it is not yet clear what will happen with the nations that issue cryptocurrencies themselves. Economic doctrine is in turmoil and certain certainties are collapsing: it is no coincidence that Nobel Prize winner Joseph Stiglitz, on the occasion of the World Economic Forum in Davos in 2018, called for cryptocurrencies to be outlawed. In fact, from January 30, 2019 new regulations have entered into force in South Korea which oblige local banks to prohibit operations from anonymous accounts for trading in cryptocurrencies, with the aim of being able to make transactions traceable and transparent and put a curbing money laundering and criminal activities, as well as speculation and tax evasion.
Beijing, on the other hand, has decided to ban websites that allow trading and raising funds using cryptocurrencies, inaugurating the Yuancoin or digital Yuan. Specifically banning the registration and trading of cryptocurrencies and accepting or using them in payments, and blocking about 90% of the cryptocurrency “mining” capacity in the country, such as reported from the newspaper of the Communist party, the Global Times, China not only carried out one of the most violent "financial crackdowns" in history, but also developed its own digital currency exchange services. Thanks to the fact that it has already been tested in large-scale pilot projects, China is now clearly ahead of the euro and the digital dollar.
The opposite happened with Japan and Korea. Japan in 2018 was the third largest economy in the world for the use of Bitcoins. This means that often when a Bitcoin is traded, the Japanese Yen is also used. 11% of global BTC trading volume is in yen. This is followed very closely by the South Korean won. While global trading is dominated by the US dollar. Taking into account Japan's size and population (1,8% of the world's population), 11% of global trading volume is a huge achievement. Furthermore, 56,2% of Bitcoin is concentrated in Japan according to the Forex Brokers List website. However, after the recent coronavirus pandemic, something seems to have changed for Japanese investors.
AFTER THE PANDEMIC
A recent report, which has been updated by the Japanese self-regulatory body Japan Virtual Currency Exchange Association, or JVCEA, is showing that the total number of active traders in the country has decreased significantly.
This event occurred before an effective state of emergency was declared in the country. The policy was implemented to stop the spread of the coronavirus as much as possible. As a result, many crypto exchanges have seen much less user activity than normal. This is usually caused by the spike in deposits of fiat currency (that issued by the central bank).
Since cryptocurrencies are not guaranteed by any governmental organization or financial institution, the volatility, as well as the liquidity of the assets, is always quite high. This means that many people have become wary of cryptocurrencies in the face of market instability. Fears of a drop in the price of cryptocurrencies have prompted people to invest in fiat currencies which have some type of government backing and therefore are able to be traded by major banks even if the market price falls.
Therefore, with the exclusion of Japan and South Korea (which have recognized Bitcoin as a payment instrument but whose central banks have also officially begun to experiment with the feasibility of issuing their own digital cryptocurrency), many other Asian states - including the 'India- have banned Bitcoin and all other cryptocurrencies, effectively imposing a real limitation of currency freedom! It is therefore possible today to measure monetary repression in the various nation-states as an inversely proportional function to the diffusion of democracy within them.
WALL STREET AND SOME EMERGING RIDE THE TIGER
Meanwhile, however, on Wall Street the Security and Exchange Commission has long ago authorized the listing of the first Exchange Traded Fund (an investment fund listed on the stock exchange) that invests in Bitcoin. America has effectively legalized the investment in Bitcoin (by implicitly accepting the existence of cryptocurrencies). And the portfolios of many large corporations listed on the stock exchange have begun to denominate part of their assets in cryptocurrencies (the case of Tesla is known). Although it is not yet clear whether their revaluation against the national currency is considered taxable, which limits their use in current payments.
What is certain is that their price has grown in parallel with the large quantities of new money introduced on the financial markets, also generating a surge in volatility.
It is then news from last month that El Salvador became the first country in the world to formally adopt a cryptocurrency as its national currency. Congress has passed legislation making Bitcoin legal tender, the president announced Nayib Bukele. An initiative to increase foreign investment, improve financial inclusion and generate jobs. Like other small emerging economies, El Salvador has used the US dollar as its official currency since 2001. To this will be added (not replacing) the bitcoin.
It is a milestone in monetary history and could be a turning point for the whole world as it accelerates the popular spread of the use of Bitcoin and the Central American state becomes its hub. Support for a nation state could also help dispel widespread skepticism about bitcoin's long-term utility and acceptance, although fears about its volatility will remain. It is not known whether El Salvador's plans could interfere with ambitions to obtain a $1 billion investment support program from the International Monetary Fund.
In the future, could other countries and banks start adopting bitcoin or other payment tokens? There is only to understand better and wait. For now it is known that a number of Latin American countries, such as Brazil and Panama, have expressed interest in following in El Salvador's footsteps.
For now, art is a "nice" way to get people to not think it's just something extremely sterile.
Authors: Marika Lion e Stephen of Thomas
