Digital Money: Risk or Reward

 Digital money whether that is a cryptocurrency, bitcoin, or NFT which stands for non-fungible tokens is the next big craze in society. The problem with that is that there is nothing to gain from it. Everything in the world has a risk and a reward or multiple rewards. Digital money is tricky because you put time and money into it but get nothing back. Investing in digital currency is a zero-sum game, but only in futures where one side wins and the other side loses. Zero-sum games are situations where one person loses for another's benefit. A solid example of this is the game of poker. Poker requires someone to lose for someone else to win. The reason why crypto and stock trading do not fall under that umbrella is that we, spectators, can hold our stocks or crypto and not experience a total loss. What is tricky about that however is that if you look at crypto itself, you would realize that the point I just made about crypto trading not being a zero-sum game is entirely false. Let's look at the numbers. Say you have a token or NFT that sells for $100 and the next day the price rises to $120. This means that over that 1 day, you lost $20 whereas the buyer made off with that $20. In simpler terms, if you take the buyer's gain of +$20 and add it to the seller's loss of -$20, you get zero.

What that means is that crypto trading is a zero-sum game. Someone wins when someone loses, and the amount the winner returns home with is total to the amount the loser could have had. To better understand this, let's first understand cryptocurrency and whether it is more risky or rewarding. Cryptocurrency is defined as "a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers." Crypto has rewards, however. Crypto provides the opportunity for cheaper and faster money transfers and decentralized systems that do not collapse at a single point of failure. The antithesis of that is the fact that crypto makes it easier to take part in criminal activities financially. However, there is also a chance of high consumption of energy for data mining activities. That is big because cybercrime nowadays is at an all-time high, and crypto makes it a lot easier for criminals to get a hold of users' information. 

Another big part of cryptocurrency is NFTs. What are NFTs and like crypto, what are the risks and rewards? As previously stated, NFTs are non-fungible tokens, the opposite of cryptocurrency. Let's look at it from a commerce perspective. Fungibility by its definition is "the property of an asset such that individual units are interchangeable and indistinguishable from one another". You can look at a bar of gold or even a single dollar through that lens. This is because we go to the bank and for every dollar we trade, we trade for a dollar or dollars that look the same. Real estate is not fungible because every house you try to sell will not be like the other houses on the market. Things like cars, paintings, and even comic books exist on a spectrum of fungibility. This is where you trade one for one that is similar but not an exact copy. At its core, what makes NFTs so valuable?

The NFT market value comes down to what someone is willing to pay. For reference, in 2020, the art market was valued at $50 billion. In that same year, video game revenue was more than double that, with a value of $179 billion. Compare that to the music industry's worldwide revenue in 2021, which was $61.82 billion, and what do you see? Revenue goes up when consumers pay more for the product. NFTs are making it easier for consumers to sell, buy and trade. This is all thanks to this newfound empowerment they have over self-care. NFTs are used for many things from video games to online social networks and profile pictures are used on those networks. It is up to us the consumers how we use them.

Only experts understand the overall risks of NFTs and cryptocurrency. I talked about them here but I am not an expert. From a money standpoint but also a human behavior standpoint, the risks that come with digital money only matter when you do not do your due diligence. By that, I mean that you should not spend your time and money on digital items that either hold no current value or will not hold any linear amount of value over time. Spending too much time on the internet, especially when it comes to stock or crypto trading is risky regardless. There is a time when it shifts from being merely a hobby to an addiction. That is when the risks add up. To wrap things up, crypto is like everything else money touches. You have to understand the risks before you know the rewards. Money is a privilege and just because we like something does not mean we need it. Crypto and NFTs may not last forever. If we go in blind, we risk ruining our lives and careers for some cheap trick. It is better to listen to the experts before investing.