ourEconomy: Analysis

Instead of solving cost of living crisis, Sunak is backing dodgy NFTs

As millions are financially struggling, Sunak has shown where his priorities lie by instructing the Royal Mint to issue NFTs

Simon Youel
7 April 2022, 2.42pm
Governments getting behind NFTs should worry us all | mundissima / Alamy Stock Photo

While millions are choosing between eating or heating as the cost of living scandal bites, Rishi Sunak is instructing the Royal Mint to issue an official non-fungible token (NFT), as “an emblem of the forward looking approach” the UK government is taking on cryptocurrency.

NFTs are marketed as a means of using blockchain technology – a sort of public ledger – to enforce property rights over “one-of-a-kind” digital “assets”, such as cartoon ape avatars. The government has released few details of its own planned NFT, but in principle we can expect it to mean the Royal Mint selling ownership of a digital file such as an image, in a similar manner to which it sells other collectables such as coins. We don’t know if the Royal Mint will produce more than one, or how much they will sell for. But those details are less important than what the gesture represents.

Over the past year, speculative mania has emerged around NFT art after someone paid $69m for a digital collage. The whole affair exhibited the telltale signs of market manipulation.

NFTs can seem harmless and it can be fun to laugh at nerds losing their minds over cartoon apes. But governments getting behind them should worry us.

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This is not because NFTs themselves pose a threat – they will probably end up in the dustbin of history alongside all the other fads devised by big tech and financial scammers. Rather, the government buying into the NFT hype should raise red flags because it tells us they have drunk the crypto bro kool-aid being pushed by Silicon Valley billionaires.

Gimmicky digital tokens aren’t going to help people heat their homes or put food on the table. The government of course knows this. The Treasury may or may not believe that crypto is actually the ‘future’ – the story so far suggests it’s not. But like grifters the world over, they see it as an opportunity to make money.

The NFT news was part of a wider government announcement to make the UK a “global cryptoasset technology hub” – hoping that the City will skim profits off of cryptobubbles. Unsurprisingly, the government’s plan includes “enhancing the competitiveness of the UK tax system to encourage further development of the cryptoasset market”. Tax breaks, in other words.

This latest announcement should be viewed in the context of the government’s deregulatory agenda for financial services. With Brexit threatening the City of London’s role as a global hub for finance, the government is keen to turn Britain leaving the single market into an opportunity to cut back financial regulation and compete with other jurisdictions for business.

The government’s Future Regulatory Framework for financial services plans to give regulators new statutory objectives to increase the ‘competitiveness’ of the industry. Rolling out the red carpet for extremely questionable speculative assets like crypto is what this ‘competitiveness’ looks like in practice.

So far, regulators have been rightly worried about crypto. On the same day the government announced plans to make the UK a cryptoasset hub, the governor of the Bank of England warned that the industry is the “new frontline” for scams. The government’s new approach to regulation may force regulators to change their tune and cut protections against crypto scams, regardless of the consequences for ordinary people.

Cryptobubbles will make a few people in the City lots of money, but they’re bad news for the rest of us. The vast majority of cryptoassets provide little to no value, and their inflated valuations have all the markings of a speculative bubble, which will leave ordinary people bearing the costs when it bursts.

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The most famous cryptoasset, Bitcoin, has been around for over 13 years and has shown no signs of providing traditional functions of the ‘money’ it is supposed to be. It is extremely volatile, which makes it a poor store of value. Money is also a ‘unit of account’ – in other words, the thing we measure economic value in, such as with prices. But there is very little we measure in Bitcoin, other than perhaps drugs and other contraband. And Bitcoin is an extremely inefficient means of exchange, with high transaction costs and an unforgivable carbon footprint.

Even the government’s own press release fails to make a convincing case for the utility of cryptoassets. The best they could muster is the argument that so-called stablecoins (like Facebook’s stalled Libra/Diem project or the infamous Tether) “could provide a more efficient means of payment and widen consumer choice”.

There are indeed issues with our current digital payments system, which is based on antiquated technology in need of systemic reform. But central banks, including the Bank of England, are already working on a better solution called central bank digital currencies (CBDCs), which will allow the public to transact in public digital money through their own accounts at the central bank – thus eliminating unnecessary middlemen.

Many people are also understandably worried about what these new forms of digital money mean for privacy. All popular payment methods need to be designed with strong privacy protections that minimise the collection and exploitation of personal data, whether by banks, tech companies, or governments.

Some falsely claim that private digital currencies offer more privacy than public ones. Cryptoassets based on blockchain like Bitcoin or Ethereum entail ledgers which provide a public record of all transactions for anyone to see. Though there is some degree of privacy (cryptowallets are not directly associated with personal details), once wallets are linked to specific individuals, as law enforcement agencies have been able to do, all privacy goes out of the window. In addition, non-blockchain private digital currencies like stablecoins provide further opportunities for tech companies to increase their stranglehold over our personal data, and make us even more dependent on using their platforms.

We need to preserve the role of cash – which is the main privacy-protecting payment technology – not just in physical notes and coins, but in digital form as well. New “ECASH” (Electronic Currency and Secure Hardware) legislation introduced in the US Congress aims to replicate the features of cash, as a publicly issued token with unparalleled privacy protections. This is what the UK government should have announced this week, rather than support for crypto gimmicks and ponzi schemes.

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