Whoo boy, letâs dive into this oneâŚ
Short answer: because it was designed that way. On purpose.
Long answer: for a currency to have any useful value, the amount and production has to be limited somehow.
(Which makes sense, right? If we tried to pay people in leaves, nobody would go to work for 15 leaves an hour, not when they could go for a hike and pick 15 leaves off the trees in 15 seconds.)
Precious metals â gold, silver, copper â have been popular for all of recorded history, because the limiting factor is âthis material is physically difficult to dig out of the ground.â
With US dollars, the limit is part âbills are printed with complicated techniques that you need special equipment to pull offâ and part âitâs illegal to for anyone except the government to print new dollars, and we will take you to jail if we catch you at it.â
With cryptocurrency, itâs all digital, so thereâs no naturally-rare mineral involved. And itâs decentralized, so nobody has the authority to claim âwe are the Bitcoin Police and we can take you to jail if you do this wrong.â
If you want it to work, you have to come up with some artificial limit, and then build that directly into the base code.
Iâm not any kind of expert in the technical details here, so please nobody get too picky about itâŚbut the general idea is, the blockchain will only spit out a new coin in response to a computer running calculations.
And for every new coin, it demands more calculations than the last one.
If you could still get a new Bitcoin by, say, ânot using the internet for a day, have your computer use that power for mining instead,â then nobody would spend thousands of dollars to exchange for one Bitcoin, right? Anybody who wanted one would just take a day off Tumblr to mine it themselves.
Basically, thereâs no reason to buy a Bitcoin for a dramatically higher price than it would cost you to mine a Bitcoin.
And the mining process keeps requiring more power, so:
First you canât do it with just spare processing power from your main device, you need to buy a new one thatâs fully dedicated to mining if you want to keep up
The extra power usage is enough to put a notable spike in your electric bill
One computer wonât do it anymore, you need two
You have a warehouse full of computers
You have the electric bill that it takes to power a warehouse full of computers
Plus the storage rental costs of the warehouse space
The internet bill to keep all your computers in touch with the blockchain
The air-conditioning bill that it takes to keep the warehouse from just flat-out melting
Ongoing maintenance costs
Not just any parts, you are buying up high-quality graphics cards and computer chips that can do the fastest processing
So much that itâs contributing to a global computer-chip shortage (this is not an exaggeration; Wall Street Journal source, Tech Republic source)
And the power demands are so high that defunct power plants are being re-activated to fill them (also not an exaggeration; Ars Technica source)
And the processing requirements just keep going up and up and upâŚ.
When the exchange rate for Bitcoin is at $10,000, that implies âthe cost of the equipment, maintenance, and power bills to mint 1 Bitcoin is now so high that people would rather pay $10,000 cash than deal with it.â
âŚokay, this is a little oversimplified â thereâs also gambling and speculating involved. Say, you think oil prices are about to go up, maybe you pay a little more than the current rate, figuring the power costs of mining are about to get more expensive and youâll come out ahead. Or say Elon Musk said something mean about a coin you have, maybe you sell all your tokens for a lower price, figuring itâs better to get out now than wait for it to crash even farther.
But you can see how theyâre generally connected. Nobody would pay around $10,000 if the production cost was around $10.
One more link (which explains some of the same things in different words, in case mine arenât working for everyone):
Here Is The Article You Can Send To People When They Say âBut The Environmental Issues With Cryptoart Will Be Solved Soon, Right?â
And, finally, letâs tie this back to NFTs:
Another thing you need for your currency to work: it has to be useful for something other than âgambling on the price.â
It canât just be something you endlessly swap for other currencies and hope the exchange rate works in your favor! There have to be places that say âwe will take this in exchange for Tangible Goods And Services.â
Bitcoin has this, at least a little bit. Most places arenât lining up to accept it, but itâs been around long enough to build up some credibility, so there are a few.
If I started a new cryptocurrency tomorrow where the cost of mining the first token was $10K, nobody would bother. Because it has no credibility, no staying power, no way to ever convert that currency into actual stuff.
To be clear, people are launching new cryptocurrencies all the time.
Most of them arenât even trying to be useful, theyâre just pump-and-dump schemes. Meaning the founders pump up peopleâs interest with âScamToken will be the next Bitcoin, donât miss this amazing opportunity, convert your $$$ into ScamToken now while itâs cheap!â Then they dump all their tokens, selling them to all the people theyâve convinced to buy. It isnât long before the hype fades, the cold reality of âwe canât do anything with thisâ sets in, and the buyers are left with wallets full of tokens nobody new will buy, while the founders walk away with the $$$.
But some people are playing a longer game. They donât want their currency to get âan afternoonâs worth of excitement from hyped-up crypto speculatorsâ and then immediately flop. They want it to be useful for actually buying something, so it has a legitimate basis for getting some actual, stable value in the long run.
Or, failing thatâŚthey want it to appear to be useful for buying something. So it looks more credible. So the excitement lasts longer. So you reach outside the circle of âpeople who follow crypto for its own sakeâ and get the attention of âpeople who donât care about crypto at all, but who do care about whatever Something youâve convinced them your token will buy.â
So, hey: how big, do you think, is the market of people who care about digital art?
Now start paying attention to how many press releases for âan amazing opportunity to buy some cool new Non-Fungible Tokensâ include âby the way, the specific Tokens weâre selling are from a cryptocurrency youâve never heard of, let alone bought.â
