tag:theconversation.com,2011:/au/topics/speculation-6922/articlesSpeculation – The Conversation2023-11-05T13:01:53Ztag:theconversation.com,2011:article/2164742023-11-05T13:01:53Z2023-11-05T13:01:53ZGrain as a weapon: Russia-Ukraine war reveals how capitalism fuels global hunger<iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/grain-as-a-weapon-russia-ukraine-war-reveals-how-capitalism-fuels-global-hunger" width="100%" height="400"></iframe>
<p>International fears about the <a href="https://www.consilium.europa.eu/en/infographics/how-the-russian-invasion-of-ukraine-has-further-aggravated-the-global-food-crisis/">impact of the Russia-Ukraine war on an existing global food crisis</a> appear to have faded in the seven months since <a href="https://apnews.com/article/russia-ukraine-war-grain-food-security-ba7f9146b745337a1948a964cb30331c">Russia pulled out of a deal that allowed Ukraine to export grain to world markets.</a></p>
<p>Such complacency is misplaced and dangerous. The risk of worsening food insecurity through the weaponization of grain continues. It’s troubling that such a risk exists at all, given how blocking access to a basic food staple can devastate innocent people and those with no connection to the conflict.</p>
<p>The idea that access to food and other basic commodities can be cut off to serve the strategic aims of a country at war is among the most concerning contradictions of modern capitalist political economy. Yet it’s barely even questioned in most policy discussions.</p>
<p>Precarity in food supplies has not dissipated despite the relative stabilization of grain exports and prices. As respected Black Sea agriculture expert Andrey Sizov argues: <a href="https://carnegieendowment.org/politika/90566">“The calm on the grain exports market is deceptive</a>.” The risk is emanating from many sources. </p>
<h2>Targeting food vessels</h2>
<p>For one, <a href="https://www.reuters.com/world/europe/russia-hits-ukraines-grain-fourth-day-practises-seizing-ships-black-sea-2023-07-21/">Russia has placed food vessels to and from Ukraine on its list of potential targets</a>, and <a href="https://www.bnnbloomberg.ca/ukraine-warns-ships-heading-to-russia-ports-risk-attack-1.1948329">Ukraine has retaliated by warning about similarly attacking the Crimea bridge</a> connecting Russian shipping straits to key ports. </p>
<p>There is also the continuing risk of Russia deliberately slowing inspections or restricting exports. </p>
<p>Lastly, <a href="https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=107264">global grain prices have decreased in recent months</a>, due in no small part to speculation and hedging in financial markets. </p>
<p>The short selling of grain <a href="https://www.euractiv.com/section/politics/news/albanian-wheat-farmers-struggle-with-selling-price-bad-weather/">hurts farmers in Albania</a>, <a href="https://www.washingtonpost.com/world/2023/09/25/ukraine-grain-poland-election/">Poland</a>, <a href="https://www.nytimes.com/2023/04/25/world/europe/ukraine-grain-deal-romania.html">Romania, Bulgaria, Hungary and Slovakia</a>, in addition to contributing to price fluctuations that affect countries already struggling with food insecurity.</p>
<p>This illuminates a wider fundamental problem with commodified food systems and with neoliberal capitalism’s logic of financialization more broadly.</p>
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Read more:
<a href="https://theconversation.com/what-is-neoliberalism-a-political-scientist-explains-the-use-and-evolution-of-the-term-184711">What is neoliberalism? A political scientist explains the use and evolution of the term</a>
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<p>Most commentators on food security have called for an end to threats of grain disruption, for the revival of the grain deal or for commitments to new agreements. </p>
<p>Others have pushed for a more controlled <a href="https://doi.org/10.1016/j.gfs.2022.100662">approach of judiciously managing wheat stocks</a>. Along similar lines, a team of food systems and security researchers has collaborated on establishing <a href="https://doi.org/10.1016/j.oneear.2022.06.008">recommended research priorities for tackling food security during extreme events</a>.</p>
<p>These suggestions, however, are governance approaches that remain embedded in existing systems of political economy.</p>
<h2>Flawed logic</h2>
<p>More durable solutions may lie in addressing what gave rise to our shaky and unjust commodity systems in the first place.</p>
<p>At a basic level, the promise of our supply-and-demand capitalism is that those who want a good or service are willing to pay more for it. But that’s illogical, because those who want or need goods the most may not be able to pay top dollar for them.</p>
<p>The result of this flawed logic has been that even the threat of disruptions to grain supply have driven prices high and placed populations in countries across Africa, the Middle East and Asia at risk of hunger. </p>
<p>The <a href="https://doi.org/10.2753/IJP0891-1916420401">financialization</a> of everything, including basic needs, is just one mechanism of neoliberal capitalism, and it reveals the dangers of turning basic needs into commodities.</p>
<p>Since the war in Ukraine, <a href="https://www.ifpri.org/blog/assessing-tight-global-wheat-stocks-and-their-role-price-volatility">implied price volatility for wheat has peaked</a> beyond what we saw during the <a href="https://www.oaklandinstitute.org/high-food-price-crisis">2008 global food price crisis</a>.</p>
<p>Financialization leads to speculation and hedging that triggers price volatility in international grain markets. </p>
<p>Speculation multiplies the risk to food accessibility because the mere perception of risk in financial hubs like New York and London can cascade into very real food shortages for millions. That, in turn, can spawn other crises, from violent social conflict to mass displacement.</p>
<p>Throughout the Russia-Ukraine war, <a href="https://dx.doi.org/10.2139/ssrn.4518088">wheat has provided hedging benefits</a> to investors. The <a href="https://unctad.org/podcast/prices-and-profits-commodity-speculation-making-global-food-crisis-worse">United Nations Conference on Trade and Development (UNCTAD) has recognized</a> that this has exacerbated the current global food crisis.</p>
<h2>Speculation underpins food insecurity</h2>
<p>Hopeful discussions and <a href="https://digitallibrary.un.org/record/666714">research by the G24 group of nations</a> occurred during the 2008 crisis and focused on the role of financial market speculation in creating food insecurity. </p>
<p>These conversations are urgently needed again to further examine the underlying influences of capitalism on food insecurity. </p>
<p>The newly released <a href="https://unctad.org/publication/trade-and-development-report-2023">UNCTAD Trade and Development Report 2023</a> has again raised concerns over financial speculation and hedging. The report directly links food insecurity to corporate profiteering made possible by financial speculation in commodity markets.</p>
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<p>But it failed to call into question the underlying political-economic organization of neoliberal capitalism, which has encouraged the use of critical and <a href="https://foreignpolicy.com/2022/09/14/oil-food-crisis-price-spike-global-russia-putin-ukraine-war/">life-sustaining commodities as geopolitical pawns</a>. </p>
<p>A more forward-looking and sustainable solution would be to decommodify basic needs altogether.</p>
<p>Decommodification is an attainable aim, but to achieve it requires a critical examination of the wider political economy. <a href="https://doi.org/10.1038/s41893-022-00933-5">Research is demonstrating</a> how basic needs, like food, can have both stable and sustainable supply. These discussions on alternatives to neoliberal capitalism are beginning to happen in <a href="https://www.europarl.europa.eu/thinktank/en/document/EPRS_STU(2023)747108">prominent policy arenas</a>.</p>
<p>The war in Ukraine’s impact on food insecurity is critical, of course, but there is more to the picture. The main problem is that capitalism allows food and other basic needs to become precarious commodities.</p>
<p>The current <a href="https://www.wfp.org/publications/war-ukraine-drives-global-food-crisis">global food crisis may be triggered by war</a>, but neoliberal capitalism is the fuel.</p><img src="https://counter.theconversation.com/content/216474/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alicja Paulina Krubnik receives funding from the Social Sciences and Humanities Research Council of Canada.</span></em></p>The Ukraine war’s impact on food insecurity is critical, but there is more to the picture. The main problem is that capitalism allows food and other basic needs to become precarious commodities.Alicja Paulina Krubnik, PhD Candidate, Political Science, McMaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1977772023-01-17T20:16:09Z2023-01-17T20:16:09ZCryptocurrencies are in crisis, but they are not going to disappear<figure><img src="https://images.theconversation.com/files/504333/original/file-20230112-22-3byu1u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A worker from Hope House, an organization that sponsors the use of cryptocurrencies on El Zonte beach, makes a purchase at a small shop that accepts bitcoins, in Tamanique, El Salvador, June 9, 2021.</span> <span class="attribution"><span class="source">(AP Photo/Salvador Melendez)</span></span></figcaption></figure><p>Cryptocurrencies are experiencing their worst crisis <a href="https://www.investopedia.com/terms/c/cryptocurrency.asp">since the arrival of the first crypto assets and virtual currencies</a> in the 1990s and their democratization in the 2010s. </p>
<p>Bitcoin had an unprecedented tumble in late 2020 and has yet to recover. In addition to this sharp decline, there is much discussion about the worrisome collapse of some so-called <a href="https://www.investopedia.com/terms/s/stablecoin.asp">stablecoins</a>, which are supposed to be less volatile. </p>
<p>This is compounded by the fall of cryptocurrency giants, particularly due to <a href="https://www.investopedia.com/what-went-wrong-with-ftx-6828447">allegations of fraud in cases like the FTX scandal</a>. At its peak, FTX had one million users and was the third-largest cryptocurrency exchange in terms of volume.</p>
<p>Experts agree that the aftershocks of its collapse have hit investors hard and will likely slow the pace of crypto asset adoption <a href="https://www.cnbc.com/2022/12/19/three-ways-the-ftx-disaster-will-reshape-crypto.html">for the next few years</a>. </p>
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À lire aussi :
<a href="https://theconversation.com/investir-dans-les-cryptoactifs-voici-comment-limiter-le-risque-detre-expose-a-une-fraude-182835">Investir dans les cryptoactifs : voici comment limiter le risque d’être exposé à une fraude</a>
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<p>As an expert in the field of cryptocurrencies, I will try to answer the following question: are cryptocurrencies really here to stay, or are they just a fad?</p>
<h2>Speculation and extreme volatility</h2>
<p>Cryptoassets include tokens that can be used for digital currency purposes (i.e. cryptocurrencies such as Bitcoin and Ethereum). They are also used for investment in an entity (a <a href="https://www.bitpanda.com/academy/en/lessons/what-is-the-difference-between-utility-tokens-and-security-tokens">“security token,”</a> which entitles the holder to ownership of a portion of an entity), or for products or services (a <a href="https://www.bitpanda.com/academy/en/lessons/what-is-the-difference-between-utility-tokens-and-security-tokens">“utility token,”</a> which entitles the holder to a product once it has been produced, for example).</p>
<p><a href="https://blog.bitpanda.com/en/what-are-stablecoins">Stablecoins</a>, which are supposed to be associated with lower volatility, are unique in that they are backed by a currency (e.g. the U.S. dollar), a commodity (e.g. gold) or a financial instrument (e.g. a stock or a bond). This is to keep the value of the digital currency stable.</p>
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<a href="https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="man shows the screen of his phone on which his cryptocurrency balance can be seen" src="https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Erich García, a 33 year-old programmer and YouTuber, poses with his bitcoin wallet, at his home in Havana, Cuba, in March 2021.</span>
<span class="attribution"><span class="source">(AP Photo/Ramon Espinosa)</span></span>
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<p>Bitcoin’s plunge is followed in the <a href="https://www.nbcnews.com/tech/crypto/bitcoin-plunge-breaks-24000-200-billion-wipe-crypto-market-weekend-rcna33234">headlines</a> on a daily basis. While this is not the first time it has fallen, it is particularly noteworthy as it is the biggest drop in value <a href="https://www.cnbc.com/2022/05/12/bitcoin-btc-price-falls-below-27000-as-crypto-sell-off-intensifies.html">since late 2020</a>. The collapse is partly due to rising interest rates and the flight of investors from these risky investments. Although it is recovering, Bitcoin is still a long way from the heights it once reached.</p>
<p>This media coverage raises many questions about the sustainability of these cryptoassets. Indeed, the latter are marked by extreme volatility in their <a href="https://news.harvard.edu/gazette/story/2021/09/regulating-the-unregulated-cryptocurrency-market/">unregulated markets</a> in addition to being associated with <a href="https://medium.com/wolverineblockchain/the-surprising-similarities-between-cryptocurrencies-tulips-4c4ab5a1bea1">speculation by many players in the financial world</a>.</p>
<p>Indeed, the BBC recently reported that cryptocurrency laundering <a href="https://www.bbc.com/news/technology-60072195">rose 30 per cent in 2021</a>. The <a href="https://www.ftc.gov">U.S. Federal Trade Commission</a>, which aims to protect U.S. consumers, reported that in 2021, fraud schemes cost investors <a href="https://www.ftc.gov/business-guidance/blog/2022/06/reported-crypto-scam-losses-2021-top-1-billion-says-ftc-data-spotlight">more than $1 billion in cryptocurrencies</a>. Needless to say, very few of the defrauded investors have recovered their money.</p>
<h2>One billion users by 2022</h2>
<p>Yet we are seeing a slow but sure increase in the adoption of cryptocurrencies by companies. In an ongoing study of the impact of cryptocurrency adoption by public companies on their social responsibility, I noted that many of them, such as Starbucks and McDonald’s, have started to accept Bitcoin as a form of payment. This is particularly the case in their branches in El Salvador, following that country’s adoption of <a href="https://globalnews.ca/news/8171521/el-salvador-adopts-bitcoin-legal-tender/">Bitcoin as legal tender</a>.</p>
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<p>Others, such as Japanese online retail giant <a href="https://www.rakuten.ca/">Rakuten</a>, have chosen to accept cryptocurrencies even if their country is not pushing to adopt Bitcoin as a currency. They say they are driven by a desire to offer more payment options to their customers.</p>
<p>The user base for cryptocurrencies is growing year on year. For example, Crypto.com, an exchange platform, estimated that about 295 million people had entered the cryptocurrency market as of <a href="https://assets.ctfassets.net/hfgyig42jimx/5i8TeN1QYJDjn82pSuZB5S/85c7c9393f3ee67e456ec780f9bf11e3/Cryptodotcom_Crypto_Market_Sizing_Jan2022.pdf">December 2021</a>. The platform expected the number of users to cross the one billion mark by December 2022.</p>
<p>Cryptocurrencies also allow people with unreliable or insecure banking systems to access a parallel banking system that is independent of the traditional banking system. Offering a less affluent part of the population access to a different form of banking system is one of the reasons the President of El Salvador gave <a href="https://www.nytimes.com/2022/07/05/world/americas/el-salvador-bitcoin-national-currency.html">for making Bitcoin legal tender in the country</a>.</p>
<h2>A healthy fluctuation</h2>
<p>The growing interest in <a href="https://www.cnbc.com/2021/06/18/whats-defi-crypto-based-decentralized-finance-explained.html">decentralized finance (DeFi)</a>, as well as the development of the metaverse, are also factors that influence the sustainability of cryptocurrencies. Decentralized finance often relies on stablecoins for its operation. Meanwhile, the metaverse, a <a href="https://theconversation.com/what-is-the-metaverse-and-what-can-we-do-there-179200">universe of 3D virtual worlds</a>, also allows the use of cryptocurrencies to purchase goods or services, creating an immersive world.</p>
<p>Experts in the sector believe that, despite the debacle that the cryptoasset market has experienced recently, decentralized finance — particularly via products backed by cryptoassets — <a href="https://www.cnbc.com/2022/06/03/crypto-firms-say-thousands-of-digital-currencies-will-collapse.html">is here to stay</a>. This is because there is a market and players willing to participate.</p>
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<a href="https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="person holds a Bitcoin coin in front of a screen" src="https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=476&fit=crop&dpr=1 754w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=476&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=476&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Cryptocurrencies can be used for transactional purposes in the metaverse.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>Moreover, they argue that while this sharp decline in cryptocurrency-related markets does remove some players, this is a welcome change. By the admission of <a href="https://www.youtube.com/watch?v=H1FYJlaxlOg">Raoul Ullens</a>, co-founder of <a href="https://blockchainweek.be/">Brussels Blockchain Week</a> (an annual conference devoted to blockchain and cryptocurrencies):</p>
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<p>it is healthy, for the adoption, the maturation of these Web3 technologies, to skim, to rebalance the sector. […] An unhealthy ecosystem will not attract the masses.</p>
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<p>According to these players, such a drop in the cryptoasset markets is not only necessary, but also healthy, contributing as it does to rebalancing the valuation of cryptocurrencies.</p>
<h2>Cryptocurrencies are here to stay</h2>
<p>The launch of cryptocurrencies by central banks, via central bank digital currencies (CBDCs), also lends weight to the argument that cryptoassets are here to stay. Indeed, the Bank of Canada is currently working on the <a href="https://www.bankofcanada.ca/research/digital-currencies-and-fintech/projects/central-bank-digital-currency/">creation of a CBDC</a>. According to the institution, a CBDC issued by the Bank of Canada would be an “official digital currency (that) would retain its face value in Canadian dollars because it is issued by the <a href="https://www.bankofcanada.ca/research/digital-currencies-and-fintech/projects/central-bank-digital-currency/?_gl=1*11n5guo*_ga*NTA4MDM3MDQwLjE2NzM1NTYyOTg.*_ga_D0WRRH3RZH*MTY3MzU1NjI5Ny4xLjAuMTY3MzU1NjI5Ny4wLjAuMA..&_ga=2.93130141.106029617.1673556298-508037040.1673556298">Bank of Canada</a>, just like bank notes.”</p>
<p>Other nations in the world have already issued such a currency, including the <a href="https://www.ndtv.com/business/here-are-the-timelines-and-status-of-central-bank-digital-currencies-in-some-countries-2820164">Bahamas (Sand Dollar) and Nigeria (eNaira)</a>. One reason CBDCs are different from privately issued digital currencies (such as Bitcoin or Ethereum) is that their intended use is for transaction purposes only, not for investment or speculation. They offer the same possibilities of use as cash. </p>
<p>CBDCs also aim to promote the financial inclusion of a part of the population that has little or no access to the traditional banking system, and to simplify the implementation of monetary and fiscal policy in the issuing countries.</p>
<p>Developments in the world of digital currencies, whether in the metaverse or with the arrival of the CBDC, and the craze that they continue to generate, mean cryptocurrency is here to stay.</p>
<p>This durability means the form of cryptoassets take will continue to evolve and transform with the technologies that support them (notably, blockchains) and the variation in demand from users and/or investors.</p><img src="https://counter.theconversation.com/content/197777/count.gif" alt="La Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Annie Lecompte has received funding from the Fondation des CPA du Québec.</span></em></p>An expert in the field of cryptocurrencies answers the question: Is crypto really here to stay or is it just a fad?Annie Lecompte, Assistant prof - Audit, Université du Québec à Montréal (UQAM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1943172022-12-04T12:36:38Z2022-12-04T12:36:38ZThe metaverse offers challenges and possibilities for the future of the retail industry<figure><img src="https://images.theconversation.com/files/497760/original/file-20221128-20372-wpv8jq.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7951%2C4999&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As technology improves, the potential for retailers to make use of the metaverse will grow.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>In 1968, American computer scientist Ivan Sutherland predicted the future of augmented and virtual reality with his concept of the “<a href="https://doi.org/10.1145/1476589.1476686">Ultimate Display</a>. The Ultimate Display relied on <a href="https://www.oxfordreference.com/view/10.1093/oi/authority.20110810105219843">the kinetic depth effect</a> to create two dimensional images that moved with its users, giving the illusion of a three-dimensional display. </p>
<p>While the concept of <a href="https://doi.org/10.1016/j.jbusres.2019.04.023">virtual reality</a> only focuses on the creation of three-dimensional environments, the <a href="https://doi.org/10.3390/encyclopedia2010031">metaverse</a> — a term <a href="https://www.wired.com/story/plaintext-neal-stephenson-named-the-metaverse-now-hes-building-it/">coined by Neal Stephenson in his 1992 book <em>Snow Crash</em></a> — is a much broader concept that surpasses this. </p>
<p>While no official definition of the metaverse truly exists, science and technology reporter <a href="https://www.newscientist.com/article/2286778-what-is-a-metaverse-and-why-is-everyone-talking-about-it/">Matthew Sparkes provides a decent one</a>. He defines the metaverse as "a shared online space that incorporates 3D graphics, either on a screen or in virtual reality.”</p>
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<a href="https://theconversation.com/what-is-the-metaverse-and-what-can-we-do-there-179200">What is the metaverse, and what can we do there?</a>
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<p>Since the term was coined, the idea of the metaverse has remained more of a fictional concept than a scientific one. However, with technological advancements in recent years, the metaverse has become more tangible. Much of the recent hype happened after Mark Zuckerberg made the <a href="https://theconversation.com/facebook-relaunches-itself-as-meta-in-a-clear-bid-to-dominate-the-metaverse-170543">announcement to rename the Facebook brand to Meta</a>. Many retailers have since jumped aboard the metaverse train. </p>
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<img alt="A white man in a black long-sleeved shirt gestures while speaking" src="https://images.theconversation.com/files/497765/original/file-20221128-20372-r5t3i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/497765/original/file-20221128-20372-r5t3i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/497765/original/file-20221128-20372-r5t3i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/497765/original/file-20221128-20372-r5t3i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/497765/original/file-20221128-20372-r5t3i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/497765/original/file-20221128-20372-r5t3i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/497765/original/file-20221128-20372-r5t3i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Meta chief executive Mark Zuckerberg announced Facebook’s name change to Meta in 2021. He said the move reflected the company’s interest in broader technological ideas, like the metaverse.</span>
<span class="attribution"><span class="source">(AP Photo/Nick Wass)</span></span>
</figcaption>
</figure>
<p>Nike <a href="https://www.cnbc.com/2021/11/02/nike-is-quietly-preparing-for-the-metaverse-.html">recently filed multiple trademarks</a> allowing them to create and sell Nike shoes and apparel virtually. <a href="https://www.forbes.com/sites/ronshevlin/2022/02/16/jpmorgan-opens-a-bank-branch-in-the-metaverse-but-its-not-for-what-you-think-its-for/?sh=672a911a158d">JP Morgan opened their first virtual bank branch</a>. <a href="https://www.psfk.com/2022/02/samsung-galaxy-debuts-new-products-in-the-metaverse.html">Samsung recreated their New York City flagship store</a> in the virtual browser-based platform <a href="https://decentraland.org/">Decentraland</a>, where they are launching new products and creating events.</p>
<p>While many retailers are capitalizing on the metaverse early, there is still uncertainty about whether the metaverse really is the future of retailing or whether it will be a short-lived fad.</p>
<h2>Dispelling metaverse myths</h2>
<p>Much of that uncertainty around the metaverse stems from confusion about the technology. While examining the top keyword associations related to the metaverse on Google Trends, I found “what is metaverse” and “metaverse meaning” to be the top phrases customers searched for. To alleviate some of this confusion, it’s important to dispel commonly held myths about the metaverse.</p>
<p><strong>Myth 1: You need a VR headset to access the metaverse</strong></p>
<p>While an optimal experience in the metaverse can be achieved through VR headsets, anyone can access the metaverse through their personal computers. For instance, customers can create their avatars and access the metaverse in Decentraland on screen without a VR headset.</p>
<figure class="align-center ">
<img alt="A virtual avatar in a green shirt, black pants, and sneakers standing in a virtual world" src="https://images.theconversation.com/files/496248/original/file-20221119-14-i80nmz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/496248/original/file-20221119-14-i80nmz.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=417&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496248/original/file-20221119-14-i80nmz.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=417&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496248/original/file-20221119-14-i80nmz.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=417&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496248/original/file-20221119-14-i80nmz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=524&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496248/original/file-20221119-14-i80nmz.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=524&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496248/original/file-20221119-14-i80nmz.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=524&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">My virtual avatar in Decentraland.</span>
<span class="attribution"><span class="source">(Decentraland Foundation)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p><strong>Myth 2: The metaverse will replace real-life interactions</strong></p>
<p>Rather than replacing existing modes of communication, the Metaverse provides a more interactive mode of communication. New technologies <a href="https://hbr.org/2022/08/the-metaverse-will-enhance-not-replace-companies-physical-locations">always bring about predictions of the end of physical interactions</a>. It’s helpful to compare the metaverse with the rise of smartphones. Smartphones enhance communication by allowing people to interact with their social networks, but have not entirely replaced face-to-face interactions. The metaverse will be the same.</p>
<p><strong>Myth 3: The metaverse is just for gaming</strong></p>
<p>While gaming remains the dominant driver of user involvement with the metaverse (<a href="https://www.ey.com/en_us/tmt/what-s-possible-for-the-gaming-industry-in-the-next-dimension/chapter-3-insights-on-the-metaverse-and-the-future-of-gaming">97 per cent of gaming executives</a> believe that gaming is the centre of the metaverse today), it’s not the only activity people can take part in. </p>
<p>In a recent survey, McKinsey & Company <a href="https://www.mckinsey.com/industries/retail/our-insights/probing-reality-and-myth-in-the-metaverse">asked customers what their preferred activity on the metaverse would be</a> in the next five years. Shopping virtually ranked the highest, followed by attending <a href="https://www.cbc.ca/news/canada/hamilton/telehealth-khalid-1.5636540">telehealth appointments</a> and virtual synchronous courses.</p>
<h2>Keeping expectations realistic</h2>
<p>In its current form, the <a href="https://doi.org/10.1016/j.ijinfomgt.2022.102542">metaverse lacks the technological infrastructure</a> to deliver on market expectations. It may be appropriate to compare the metaverse with the <a href="https://finbold.com/guide/dot-com-bubble/">dot-com bubble between 1995 and 2000</a> that was caused by speculation in internet-based businesses.</p>
<p>Similarly, there appears to be tremendous hype and expectations around what the technology can deliver in its current form. <a href="https://www.talkdesk.com/resources/reports/connecting-in-the-metaverse/">A recent survey of 1,500 consumers</a> found that 51 per cent of people expect customer service to be better in the metaverse, 32 per cent expect less frustration and anxiety while dealing with customer service agents in the metaverse compared to phone interactions, and 27 per cent expect interactions with metaverse virtual avatar assistants to be more effective than online chat-bots.</p>
<p>While such expectations can appear reasonable, metaverse technology is still in its infancy stage, where the focus remains on developing infrastructure and processes for the future. The unrealistic expectations may potentially lead to a metaverse bubble as reality struggles to meet expectations.</p>
<h2>Challenges for retailers</h2>
<p>As with any emerging technology, retailers need to be prepared for challenges posed by the metaverse. Some of these challenges include the following:</p>
<ul>
<li><p><strong>Data security and privacy:</strong> With the novelty of metaverse technology and the wealth of personal data collected, the metaverse will be <a href="https://theconversation.com/we-need-to-anticipate-and-address-potential-fraud-in-the-metaverse-186188">an attractive target for cyber-hackers</a>. New approaches and methods need to be considered for a safe metaverse that customers can trust. </p></li>
<li><p><strong>Experienced talent:</strong> Having the right talent that can create, manage and support experiences in the metaverse needs to be at the forefront of engaging with the technology. However, due to the novelty of the technology, finding such talent will be a challenge.</p></li>
<li><p><strong>Regulations:</strong> <a href="https://doi.org/10.1145/3546607.3546611">With no clear jurisdictions and regulations in place</a>, the safety of virtual spaces in the metaverse may be compromised and end up pushing customers away. Retailers need to ensure these spaces are safe and protected.</p></li>
<li><p><strong>Managing customers’ expectations:</strong> Retailers need to educate their customers about what can currently be done in the metaverse, and what customers should expect from businesses in the metaverse.</p></li>
</ul>
<p>Despite these challenges, retailers will still be able to craft novel shopping experiences in the metaverse — it will just require appropriately skilled and qualified people to make it happen. With appropriate planning and preparation, retailers will be able to meet these challenges head-on.</p>
<figure class="align-center ">
<img alt="A woman wearing a VR headset standing in a shopping mall" src="https://images.theconversation.com/files/497772/original/file-20221128-20-v4ei81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/497772/original/file-20221128-20-v4ei81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/497772/original/file-20221128-20-v4ei81.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/497772/original/file-20221128-20-v4ei81.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/497772/original/file-20221128-20-v4ei81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/497772/original/file-20221128-20-v4ei81.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/497772/original/file-20221128-20-v4ei81.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The metaverse will have the potential to revolutionize the retail industry once the technology is advanced enough.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<h2>Opportunities for retailers</h2>
<p>As technology improves, the potential uses of the metaverse for retailers will grow. At the moment, the metaverse offers retailers three key opportunities for improving the online shopping experience. </p>
<p>The first is brand exposure. Retailers can expand their presence through virtual billboards and interactive advertisements with less noise, compared to existing online and mobile channels. Cloud Nine, an IT services company, <a href="https://www.globenewswire.com/news-release/2022/03/01/2394387/0/en/Cloud-Nine-Publishes-Metaverse-Advertising-Billboards-for-Its-Limitless-VPN-Metaverse-Focused-VPN-Service.html">is one of the earliest companies to advertise their services on virtual billboards in Decentraland</a>. Virtual billboard advertising is something marketers should keep in mind.</p>
<p>Secondly, the metaverse offers unique experiences for customers to engage with brands through events, contests, and game-like features. Such experiences could increase loyalty and brand engagement. <a href="https://www.vogue.com/article/metaverse-fashion-week-decentraland">The Metaverse Fashion Week</a> is an example of how retailers can create unique brand engagement opportunities. Retailers including Tommy Hilfiger, Perry Ellis and Dolce & Gabbana all participated in the pilot experience, leading the wave for immersive and unique customer-brand interactions.</p>
<p>Lastly, the metaverse provides retailers the chance to personalize customer experiences. Similar to how retailers can <a href="https://hbr.org/2015/05/customer-data-designing-for-transparency-and-trust">customize customers’ online experiences through data collection</a>, retailers can tailor customer experiences in the virtual environment. In <a href="https://www.oculus.com/horizon-worlds/learn/?utm_source=gg&utm_medium=ps&utm_campaign=18478966989&utm_term=horizon%20world&utm_content=">Meta’s Horizon Worlds</a>, for example, users can create their own virtual worlds, invite friends and customize their own experiences.</p><img src="https://counter.theconversation.com/content/194317/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Omar H. Fares does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The metaverse offers novel opportunities for retailers and their customers, but retailers need to be adequately prepared to overcome the challenges of new technology.Omar H. Fares, Lecturer in the Ted Rogers School of Retail Management, Toronto Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1910562022-11-29T12:28:38Z2022-11-29T12:28:38ZInflation: how financial speculation is making the global food price crisis worse<figure><img src="https://images.theconversation.com/files/495672/original/file-20221116-26-mgxq8n.jpg?ixlib=rb-1.1.0&rect=50%2C0%2C5615%2C3715&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Checking food prices.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-woman-shopping-supermarket-133259828">06photo / Shutterstock</a></span></figcaption></figure><p>UK households, like those in many other countries, are struggling to make ends meet. More than half of households have only <a href="https://corporate.asda.com/media-library/document/asda-income-tracker-october-2022/_proxyDocument?id=00000184-1329-d1d8-a394-93ed86c40000">£2.66 per week</a> left after paying for bills and essentials, according to figures from the supermarket chain Asda.</p>
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<p>The extreme spikes in the cost of energy and food that we have seen this year are mostly to blame for this shift. Basic grocery prices have increased by <a href="https://news.sky.com/story/lowest-cost-groceries-have-become-17-more-expensive-in-the-past-year-ons-data-finds-12729639">17%</a> on average from last year, according to the Office for National Statistics, while some products such as pasta have increased by as much as 60%. This is because the cost of staple food crops, such as wheat, have increased by more than 30% since the <a href="https://www.worldbank.org/en/research/commodity-markets">beginning of 2021</a>.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1584790083462258688"}"></div></p>
<p>The drivers of these soaring prices are multiple: Russia’s war on Ukraine (a major wheat exporter), the effect of extreme weather on harvests, and pandemic-era supply chain bottlenecks that are still being felt due to ongoing lockdowns, labour shortages and loss of capacity by producers.</p>
<p>But these supply factors do not entirely explain recent price movements. Bumper grain harvests have been reported by China in 2021 and the US in 2022, and the UN’s Food and Agriculture Organization (FAO) predicts a “<a href="https://www.fao.org/worldfoodsituation/csdb/en/#:%7E:text=Based%20on%20the%20latest%20stock,situation%20from%20a%20historical%20perspective.">comfortable supply situation</a>” for grain in 2022-23. This calls into question whether soaring food prices can be attributed solely to supply shortages. </p>
<p>When the world last experienced a major food crisis in 2008, financial speculation with food-based derivatives was seen as a contributing factor. Indeed, <a href="https://doi.org/10.1111/agec.12406">my research on that food crisis</a> suggests the world is once again likely to be experiencing a food price crisis rather than a food supply crisis.</p>
<h2>The role of traders</h2>
<p>While soaring food prices threaten food security globally, <a href="https://www.theguardian.com/environment/2022/aug/23/record-profits-grain-firms-food-crisis-calls-windfall-tax">large food trading firms are profiting</a>. These companies bet on the direction of food prices by storing or trading substantial amounts of goods – <a href="https://investors.bunge.com/investors/financial-information/annual-reports">making</a> big <a href="https://www.ldc.com/annual-report-2021/">financial gains</a> as a result.</p>
<p>But it’s not just physical goods that are traded. Financial markets also see producers and consumers, alongside banks, brokers and investors, trading in commodities such as food. Sometimes called paper trading because it involves the use of “futures contracts” rather than actual crops, this activity happens on commodity exchanges around the world. </p>
<p>Traders can buy (called “being long”) or sell (“short”) on these exchanges, and most contracts end before the delivery date so a trader doesn’t have to own or receive the goods to benefit – or not – from price changes. Similarly, traders only have to place a deposit with an exchange, from which gains and losses are added or taken. They do not have to put down the full value of the crop they are buying or selling via the commodity exchange unless they take delivery of the physical item at the end of the contract.</p>
<h2>The role of speculators</h2>
<p>While this can of course promote speculation, commodity exchanges also help producers, consumers and traders in physical food commodities to manage their risk. For instance, a farmer might take a short position (essentially betting that prices will fall) on the price of wheat via a contract that ends (or matures) close to the time of harvest. If prices fall while the crop grows, the contract gains in value and makes up for the farmer’s losses if the actual crops are worth less. It’s like an insurance policy that enables the farmer to plan ahead at the time of planting the crop.</p>
<p>For risk management to work, however, the physical price of the commodity must track the futures price. To guarantee this close relationship, the price of a physical contract is based on the price of a specific futures contract. For example, the <a href="https://www.cnbc.com/quotes/@LCO.1">Brent Crude futures contract</a> traded on the Intercontinental Exchange is a globally accepted benchmark for a certain type of oil. Global food prices are similarly determined on financial futures markets. </p>
<p>The use of benchmarks is often justified by the claim that financial markets are good at “price discovery” – determining the current value of a product. The “<a href="https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp">efficient market paradigm</a>” states that all information about market fundamentals – that is, physical demand and supply conditions – is reflected in the futures price. </p>
<h2>Ignoring the fundamentals</h2>
<p>For this to hold, trading activity must be based on this fundamental information alone. However, <a href="https://doi.org/10.1016/j.jimonfin.2019.03.003">my research</a> shows that financial traders use a variety of trading strategies that are not based on reading market fundamentals. This has important implications for food prices.</p>
<p>Take “index traders”, for example. These are typically large investors such as pension or insurance funds that <a href="https://www.spglobal.com/spdji/en/research-insights/index-literacy/what-is-an-index/">invest in indices</a> that track certain types of assets. They use commodity derivatives for diversification, to balance out the effects of inflation on other parts of their investment portfolios. They are also known as “noise traders” because their trading decisions support price increases that are completely unrelated to actual demand and supply.</p>
<p>On the other hand, hedge funds and investment banks tend to make trading decisions based on a mix of both market fundamentals and <a href="https://www.investopedia.com/terms/c/chartist.asp">statistical charts or graphs</a> showing historical price trends. This is known as “positive feedback trading” because it replicates and amplifies real price trends.</p>
<p>Research I conducted in 2020 shows that positive feedback and noise traders can have a substantial and prolonged impact on <a href="https://doi.org/10.1016/j.finmar.2018.12.001">commodity futures prices</a>. This means high food prices do not always signal a food shortage. An increase in speculative activity on food commodity markets since 2020 suggests that financial speculation could well have contributed to <a href="https://www.zef.de/publications/zef-publications/policy-briefs.html">recent price highs</a>.</p>
<p>This indicates that the current food crisis is a price crisis, rather than a supply crisis. But this does not mean that there are no food shortages.</p>
<p>High prices have severe consequences for food import-dependent countries that don’t have the facilities or money to secure supplies for their own people. Stockpiling by larger countries in anticipation of rising food prices, with the intent of securing access to food for their own citizens, further squeezes the physical supply of food. This is how a food price crisis can quickly turn into a food supply crisis. </p>
<p>And as the world saw <a href="https://reliefweb.int/report/world/food-prices-crisis-2007-2008-lessons-learned">when prices spiked in 2007-2008</a>, when speculation creates a disconnect between real food supply and demand conditions, it can have devastating consequences for food security globally.</p><img src="https://counter.theconversation.com/content/191056/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sophie van Huellen does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What’s really causing food prices to rise?Sophie van Huellen, Lecturer in Development Economics, University of ManchesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1670922021-10-06T11:02:03Z2021-10-06T11:02:03ZClimate crisis: how science fiction’s hopes and fears can inspire humanity’s response<figure><img src="https://images.theconversation.com/files/422608/original/file-20210922-22-1chs8lr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/zpUsOQzByFg">David Menidrey/Unsplash</a>, <a class="license" href="http://artlibre.org/licence/lal/en">FAL</a></span></figcaption></figure><p>You see the forest of cranes before you reach the coast. In the heat’s haze, machinery resounds in the middle distance, shifting and tamping dirt with earth-shattering force. Beyond the construction site, the sea sparkles under the Sun, traversed by ships old and new. It seems the whole city takes its cue from the coast – there is always so much being built, demolished and rebuilt. </p>
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<p>Those in power push ahead with their enduring programme to reshape the world by building new land. This is a society that is being transformed for a particular vision of the future: to build new worlds able to meet the challenges of a soaring population, more space and new modes of living. But what kind of future is being built, and at what cost?</p>
<p>This isn’t science fiction. This is the real story of <a href="https://earth.org/land-reclamation-hong-kong/">land reclamation</a> in 1980s-90s Hong Kong, where I grew up. Land reclamation involves the filling of water bodies with soil to extend land or create artificial islands. Housing and infrastructure on the scale seen in Hong Kong is only possible because of how much land – over <a href="https://www.landsd.gov.hk/en/resources/mapping-information/hk-geographic-data.html">70km²</a> of it – was reclaimed. But this has come at a cost to people, biodiversity and the integrity of wildlife habitats alike.</p>
<p>It was during my childhood in this city, part of which was so recently submerged beneath the ocean, that I first began to speculate about the drastic ways we transform space – and the unforeseen impacts this has.</p>
<p>As a child immersed in science fiction classics such as Frank Herbert’s Dune, I quickly realised that fiction can help us consider, imagine, and work through these unforeseen impacts. And so it is no surprise that climate fiction – or “<a href="https://www.theguardian.com/books/2021/jun/26/stories-to-save-the-world-the-new-wave-of-climate-fiction">cli-fi</a>” – has quickly become a recognised genre in recent years. From Barbara Kingsolver’s <a href="https://www.theguardian.com/books/2012/nov/11/flight-behaviour-barbara-kingsolver-review">Flight Behaviour</a> to Omar El Akkad’s <a href="https://www.theguardian.com/books/2017/oct/04/american-war-omar-el-akkad-review">American War</a>, people are clearly interested in imagining possible futures as a way of considering how we are going to get ourselves out of this mess.</p>
<p>If there is something that we can be fairly sure of, it is that the future will be radically different to what we had imagined, and that it will demand adjustment. This is why authors of science fiction are <a href="https://slate.com/technology/2011/01/science-fiction-teaches-governments-and-citizens-how-to-understand-the-future-of-technology.html">consulted by organisations and governments</a>: to help us think about the risks and challenges of the future in ways inaccessible to other disciplines. As COP26, the delayed 2020 UN climate change conference in Glasgow, approaches we urgently need more of this imaginative impulse.</p>
<p>Science fiction has certainly already played a part in this narrative. Harnessing the Sun’s energy has a long history in science fiction, and Arthur C. Clarke is often credited with coming up with the idea of the <a href="https://www.deepspace.ucsb.edu/outreach/the-space-race/the-story-of-vanguard">solar cell-powered geostationary communications satellite</a>. <a href="https://climate.nasa.gov/">NASA’s satellite system</a>, meanwhile, is crucial for monitoring climate change and can plausibly be traced back, in part, to science fiction’s capacity for thinking about worlds and systems. And of course, spaceships and space stations – indeed, our expansion into space – is an invention of science fiction.</p>
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<img alt="COP26: the world's biggest climate talks" src="https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><strong>This story is part of The Conversation’s coverage on COP26, the Glasgow climate conference, by experts from around the world.</strong>
<br><em>Amid a rising tide of climate news and stories, The Conversation is here to clear the air and make sure you get information you can trust. This story was commissioned by The Conversation’s <a href="https://theconversation.com/uk/topics/insights-series-71218">Insights</a> team. <a href="https://page.theconversation.com/cop26-glasgow-2021-climate-change-summit/"><strong>More.</strong></a></em></p>
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<p>Inspired by my early days in Hong Kong, I went on to shape a career researching science fiction with a focus on technical systems that transform the planet we live on: the idea of terraforming and geoengineering. If terraforming is the modification of other planets to enable habitation by life on Earth, <a href="https://www.technologyreview.com/2019/08/09/615/what-is-geoengineering-and-why-should-you-care-climate-change-harvard/">geoengineering</a> can be defined as the planetary modification of the Earth – such as the deliberate intervention in the climate system.</p>
<p>As the <a href="https://www.theguardian.com/environment/2021/mar/25/top-us-scientists-back-100m-geoengineering-research-proposal">controversial debate</a> about geoengineering becomes increasingly urgent given <a href="https://www.npr.org/2021/08/09/1025898341/major-report-warns-climate-change-is-accelerating-and-humans-must-cut-emissions-?t=1630510734735">the catastrophic failure</a> to curb emissions, science fiction about terraforming and geoengineering can help us imagine possible configurations of solutions to the climate crisis and their implications. A closer look at this particular example will also show why embracing this form of thinking is so crucial for the climate crisis more generally too.</p>
<h2>The power of storytelling</h2>
<p>Proposals for geoengineering and terraforming are informed both by history and by the stories we tell one another. What science fiction can do is imagine and think through the political, as well as the scientific, implications of the technological choices we make. Science fiction stories speculate on, diagnose and illustrate the experiences and the problems wrapped up in global debates about mitigation and adaptation.</p>
<p>The aim of science fiction is not to solve society’s problems (though specific works of science fiction do offer solutions that we as readers are invited to critique, revise, advocate for, and even adopt); nor is science fiction about prediction. We therefore shouldn’t evaluate science fiction according to its success or failure in this regard. Rather, the role of science fiction is to <a href="https://www.peterlang.com/view/9781788740746/xhtml/chapter13.xhtml">speculate on possibilities</a>.</p>
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<img alt="Giant Earth globe hangs in modern building." src="https://images.theconversation.com/files/422888/original/file-20210923-22-1qy61xb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/422888/original/file-20210923-22-1qy61xb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/422888/original/file-20210923-22-1qy61xb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/422888/original/file-20210923-22-1qy61xb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/422888/original/file-20210923-22-1qy61xb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/422888/original/file-20210923-22-1qy61xb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/422888/original/file-20210923-22-1qy61xb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">We need to imagine the future before we can get there.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/oWKN3h9CnPs">Romain Tordo/Unsplash</a>, <a class="license" href="http://artlibre.org/licence/lal/en">FAL</a></span>
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<p>Science fiction, then, shouldn’t be read in isolation. The fictional space is an imaginative realm for testing ideas and values, and for attempting to imagine futures that could inform our societies now. The genre seeks to push beyond the assumptions of a singular time and place by providing a range of alternative ways of conceiving ideas, contexts and relationships. Science fiction asks to be challenged; it asks for us to hold one story up against another, to consider and interrogate the worlds portrayed and what they might tell us about our stances on crucial contemporary issues.</p>
<p>Reading such fiction can help us to think speculatively beyond the technical aspects of adaptation, mitigation and, indeed, intervention, and to understand the stances that we as people and as societies take toward these concerns.</p>
<p>This is the idea behind <a href="https://library.oapen.org/handle/20.500.12657/30066">my book</a>, in which I survey the history of stories about terraforming, geoengineering, space and climate change. What science fiction teaches us is that technologies are not simply technical systems. Science is not simply a theoretical and technical endeavour. Rather, the practice of science and the development of technologies are also fundamentally social and cultural. This is why many researchers use the word “sociotechnical” to describe technological systems.</p>
<h2>A geoengineered planet</h2>
<p>In the real – policy – world, fictions inform the imagination. Some imagine a future world <a href="https://www.axios.com/co2-sequestration-iceland-climeworks-carbfix-74ac0180-e668-4848-939a-0e55a6b70686.html">covered by machines</a> sucking CO₂ out of the air and pumping it into the porous rock below. Others imagine one powered by a portfolio of vast wind and solar farms, hydroelectric and geothermal plants. Some imagine business largely continuing as usual, with only moderate changes in how we produce and use energy, and little to no change to how we organise our economies and our lives.</p>
<p>And some suggest we send planes into the stratosphere, pumping out particulates that will reflect sunlight back into space and turn the sky white.</p>
<p>It is this last vision, <a href="https://www.carbonbrief.org/explainer-six-ideas-to-limit-global-warming-with-solar-geoengineering">solar radiation management</a> (SRM), that has been the subject of particularly intense debate. SRM involves controlling the amount of sunlight trapped in Earth’s atmosphere. A number of scientists, including <a href="https://keith.seas.harvard.edu/FICER">Ken Caldeira and David Keith</a> (sometimes referred to as the “<a href="https://www.theguardian.com/environment/2011/dec/05/clique-geoengineering-debate">geoclique</a>”) advocate for further research into SRM, but they are strongly opposed by various <a href="https://www.sgr.org.uk/resources/climate-change-introduction-sgr-s-work">pressure</a> <a href="https://www.etcgroup.org/issues/climate-geoengineering">groups</a>.</p>
<p>Bill McGuire, a patron of Scientists for Global Responsibility and Emeritus Professor of Earth Sciences at UCL, recently wrote a science fiction novel, <a href="https://medium.com/predict/sky-seed-a-chilling-story-29068e1821fd">Skyseed</a> (2020), which imagines the terrifying failure of a nanotech-based approach to solar radiation management. This novel describes the impossibility – given our current state of knowledge – of foreseeing the consequences of this speculative technology.</p>
<p>Proposals for solar radiation management vary enormously, but the most common forms involve brightening marine clouds or injecting particles into the stratosphere to reflect sunlight away from the Earth. Doing so, <a href="https://royalsocietypublishing.org/doi/10.1098/rspa.2019.0255">it is proposed</a>, would help to cool the Earth, though it would do nothing to remove carbon and other carbon equivalent gases from the atmosphere, nor would it address ocean acidification.</p>
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<strong>
Read more:
<a href="https://theconversation.com/climate-repair-three-things-we-must-do-now-to-stabilise-the-planet-163990">Climate repair: three things we must do now to stabilise the planet</a>
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<p>More extravagant ideas include building <a href="https://www.forbes.com/sites/startswithabang/2020/01/04/ask-ethan-could-we-just-build-a-space-shade-to-counteract-global-warming/?sh=4a8fca7a43bc">sunshades</a> in space and placing them in various orbital configurations. If this idea sounds like it comes straight out of a science fiction novel, that’s because it does: such orbital mirrors feature in James Oberg’s 1981 work <a href="http://www.jamesoberg.com/earth.html">New Earths</a> and Lois McMaster Bujold’s 1998 novel <a href="http://www.baen.com/chapters/komarr_1.htm">Komarr</a>.</p>
<h2>Transforming planets</h2>
<p>But what can terraforming tell us about geoengineering and Earth? The idea of transforming places beyond Earth – planets or other spatial bodies – to make them more amenable to human life has been a mainstay of science fiction for decades. The necessity of maintaining life support systems in space habitats and spaceships draws on the same science that underpins technologies for addressing climate change. Such stories pose many pertinent questions that we should heed as we consider next steps on Earth – or beyond it.</p>
<p>In its broadest sense, terraforming refers to transforming other planets or cosmic bodies so that life from Earth can live there. Entrepreneurs such as Elon Musk, CEO of SpaceX, have brought terraforming and the colonisation of Mars to our imagination through an ambitious project to put people on the planet <a href="https://edition.cnn.com/2021/04/27/tech/elon-musk-spacex-mars-danger-scn/index.html">within the decade</a>. Musk is not alone: other entrepreneurs such as Richard Branson (Virgin Galactic) and Jeff Bezos (Blue Origins) are also competing to <a href="https://www.scmp.com/magazines/style/luxury/article/3141232/jeff-bezos-elon-musk-and-richard-branson-space-luxurys-new">exploit space</a> and get humankind out there.</p>
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<strong>
Read more:
<a href="https://theconversation.com/billionaire-space-race-the-ultimate-symbol-of-capitalisms-flawed-obsession-with-growth-164511">Billionaire space race: the ultimate symbol of capitalism’s flawed obsession with growth</a>
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<p>Contemporary visions of terraforming Mars must contend with recent assessments that show it is <a href="https://www.nasa.gov/press-release/goddard/2018/mars-terraforming">not possible</a> to terraform the planet with present day technology, given the lack of carbon dioxide and other greenhouse gases that would enable an atmosphere to be created on Mars. But <a href="https://www.sciencedirect.com/science/article/abs/pii/S2214552419301415?via%3Dihub">scientific</a> <a href="https://nerc.ukri.org/planetearth/stories/459/">research</a> into terraforming continues to carve out a space for its future possibility.</p>
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<img alt="A man in a spacesuit walks across a Martian landscape." src="https://images.theconversation.com/files/422889/original/file-20210923-20-1ec0ewd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/422889/original/file-20210923-20-1ec0ewd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/422889/original/file-20210923-20-1ec0ewd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/422889/original/file-20210923-20-1ec0ewd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/422889/original/file-20210923-20-1ec0ewd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=492&fit=crop&dpr=1 754w, https://images.theconversation.com/files/422889/original/file-20210923-20-1ec0ewd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=492&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/422889/original/file-20210923-20-1ec0ewd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=492&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Will humanity ever terraform Mars?</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/kGtFjYdm7DI">Nicolas Lobos/Unsplash</a>, <a class="license" href="http://artlibre.org/licence/lal/en">FAL</a></span>
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<p>Although it is the subject of current scientific research, the word “terraforming” was in fact coined by science fiction writer Jack Williamson (writing as Will Stewart) in the 1942 short story, <a href="https://archive.org/details/Astounding_v29n05_1942-07_dtsg0318/page/n79/mode/2up">Collision Orbit</a>, set on a terraformed asteroid. The story describes terraforming technologies that include a “paragravity installation” sunk into the heart of the asteroid, which provides some gravity. Oxygen and water, meanwhile, are generated from mineral oxides, a process that releases “absorptive gases to trap the feeble heat of the far-off Sun”.</p>
<p>In the story, the greenhouse effect is harnessed to make other cosmic bodies habitable. What makes terraforming possible here are new ways of manipulating atomic matter. But Williamson is also concerned with the unintended consequences of new inventions and new ways of generating energy. New energy systems make terraforming feasible for small groups and large institutions alike, promising a re-configuration of power throughout the solar system by the story’s end.</p>
<h2>Lessons from fiction for the future</h2>
<p>I’ve focused here on the ideas of geoengineering and terraforming because they represent the most outlandish theories or proposals when it comes to potential “solutions” to the climate crisis. But of course, everything I’ve written applies just as much to thinking about less grandiose proposals.</p>
<p>The questions and speculations offered by science fiction are endless, and it would be a fool’s errand to attempt to outline those that are the most pertinent, or important, or relevant to COP26. So instead I’d like highlighting those books that have stayed with me the most in my time working in this area, and explain why I think they might prove fruitful food for thought for anyone attending, debating, or simply following COP26.</p>
<p><strong>1. Ursula K. Le Guin’s <a href="https://www.ursulakleguin.com/the-word-for-world-is-forest">The Word for World is Forest</a> (1972).</strong></p>
<p>This short novel by science fiction heavyweight Ursula K. Le Guin describes a forest world, populated by an indigenous society, that early on in the novel is occupied and aggressively deforested to provide Earth with wood. This is not simply a technical project. It is also social because it involves the complete transformation of the indigenous society, who are violently gang-pressed to provide a freely exploitable labour force. It is also social insofar as this supply chain is oriented to the demands and desires of those on Earth.</p>
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<p>We might see echoes of this story in James Cameron’s film <a href="https://www.avatar.com/movies/avatar/">Avatar</a> (2009); only, in Avatar the target for extraction is “unobtainium”. In Herbert’s iconic novel Dune, it’s a substance called “geriatric spice mélange”. It’s not important what these resources are, but that they are scarce and valuable in the stories’ worlds.</p>
<p>Portrayals of extensive afforestation and deforestation are a form of terraforming or geoengineering because they transform the planet’s ability to regulate its climate. This isn’t addressed directly in Le Guin’s novel; but Le Guin does explore the issue of terraforming in her 1974 novel <a href="https://www.ursulakleguin.com/dispossessed">The Dispossessed</a>, which focuses on the political and economic relationship between an anarchist state on a moon called Anarres and its historical home planet, Urras. This novel explores what life might look like on a Moon that has long been undergoing terraformation.</p>
<p>What these examples tell us is that, <a href="https://www.versobooks.com/books/3091-after-geoengineering">in some contexts</a>, afforestation or deforestation that transforms societies and their environments function as a form of terraforming or geoengineering. We must recognise prior claims to the land and work with communities to develop an ethics of care for these environments that resist aggressive exploitation. </p>
<p><strong>2. Kim Stanley Robinson’s <a href="https://www.kimstanleyrobinson.info/content/mars-trilogy">Mars Trilogy</a> (1992-1996)</strong></p>
<p>Perhaps the author who has most consistently explored contemporary debates about climate change is Kim Stanley Robinson. </p>
<p>Named the 2008 TIME “<a href="http://content.time.com/time/specials/packages/article/0,28804,1841778_1841779_1841803,00.html">Hero of the Environment</a>”, Robinson addresses climate change politics in works set on Earth and the solar system. I’ve written <a href="https://www.cambridge.org/core/books/climate-and-literature/planetary-climates-terraforming-in-science-fiction/C04496E7FFD5E68A377CA02C3DEC9BFF">extensively</a> about Robinson’s work, which speculates on a portfolio of sciences and technologies to supplement the creation of new ways of living centred on social and ecological justice. Most importantly, Robinson ties these technologies to the communities being portrayed, and traces the struggles and injustices that such developments risk.</p>
<p>Robinson imagines the terraformation of Mars in his trilogy Red Mars (1992), Green Mars (1993) and Blue Mars (1996). A host of technologies appear, including orbital mirrors, referred to as <a href="https://www.kimstanleyrobinson.info/content/soletta">solettas</a>, technologies for engineering soil and biologically engineered lichens to transform the atmosphere, among many others. </p>
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<img alt="" src="https://images.theconversation.com/files/422891/original/file-20210923-21-38tj7l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/422891/original/file-20210923-21-38tj7l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=302&fit=crop&dpr=1 600w, https://images.theconversation.com/files/422891/original/file-20210923-21-38tj7l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=302&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/422891/original/file-20210923-21-38tj7l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=302&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/422891/original/file-20210923-21-38tj7l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=379&fit=crop&dpr=1 754w, https://images.theconversation.com/files/422891/original/file-20210923-21-38tj7l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=379&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/422891/original/file-20210923-21-38tj7l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=379&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>Perhaps the most impressive aspect of the Mars trilogy is the consistent reflection on the vision for transformation: for whom is the planet being transformed? Corporate interests on Earth, or the entirety of the Martian population? And what relationship does the transformation of Mars bear for the peoples on Earth? </p>
<p>As one of the key members of the terraforming project on Mars, the scientist Sax Russell’s technocratic, top-down approach to the terraformation of Mars undergoes a sea change after a traumatic brain injury during a Martian revolution. This injury prompts him to reflect on language and communication and leads him to understand that the technical approach that he had thus far adopted — an approach that erases the perspectives and experiences of his fellow Martians — is insufficient for building a truly open society. In his own imperfect way, he begins to move toward an understanding of science as a firmly sociotechnical system, and to realise that the human element cannot be ignored.</p>
<p>The fictional adventures of Russell might as well inform our own response to climate change. By hearing only the voices of specialists and politicians, other avenues for addressing climate change might be overlooked. Worse, we may inadvertently lock ourselves into a technological system that cannot hope to address the effects of climate change, or which may exacerbate the precariousness of many peoples across the globe. </p>
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<p>Science fiction offers ways to discuss speculative technologies without presenting them as ready made technological fixes, enabling wider public deliberation about our approach to climate change. Fiction asks crucial questions, revises and reconsiders aspects of science and society in relation to their contemporary moment. But it also transmits a way of thinking – it identifies our assumptions about the worlds we want to live in and challenges dominant narratives about climate change. Most importantly, it offers a range of possible technological solutions, which could and should inform our response to the climate crisis. </p>
<p><strong>3. Ian McDonald’s Luna Trilogy (2015-2019)</strong></p>
<p>McDonald considers the exploitation of resources and people, along with the extension of financial speculation to all aspects of life on the colonised Moon in his trilogy <a href="https://lareviewofbooks.org/article/moon-even-harsher-ceo/">Luna: New Moon</a> (2015), <a href="https://lareviewofbooks.org/article/the-earth-strikes-back-post-thatcherite-neoliberalism-in-ian-mcdonalds-luna-wolf-moon/">Luna: Wolf Moon</a> (2017) and <a href="https://lareviewofbooks.org/article/banking-on-the-future-ian-mcdonalds-luna-moon-rising/">Luna: Moon Rising</a> (2019).</p>
<p>In this story of power and the exploitation of the Moon’s resources, families who control key industries on the Moon struggle for dominance against the backdrop of an Earth that is adapting to climate change. The trilogy imagines and interrogates the extension of the logic of development outward to the solar system and encourages readers to think about the inevitable economic and political clashes this will bring.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/422937/original/file-20210923-27-14x3e90.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/422937/original/file-20210923-27-14x3e90.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=305&fit=crop&dpr=1 600w, https://images.theconversation.com/files/422937/original/file-20210923-27-14x3e90.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=305&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/422937/original/file-20210923-27-14x3e90.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=305&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/422937/original/file-20210923-27-14x3e90.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=384&fit=crop&dpr=1 754w, https://images.theconversation.com/files/422937/original/file-20210923-27-14x3e90.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=384&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/422937/original/file-20210923-27-14x3e90.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=384&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>Science fiction can help us think about our own stories of climate mitigation and adaptation. Such stories are experiments in envisioning future possibilities and creating solutions to future problems. Central to many of these visions is an emphasis on social and ecological justice, and an awareness of the dangers of erasing populations from the story.</p>
<p>It is true that attempts to imagine the future are the product of utopian thinking – but don’t imagine for a moment that utopian in this sense equates to a naive idealism. Rather, utopian thinking is a commitment to working through the difficulties and impasses of our contemporary moment without losing sight of the possible futures that we imagine and would like to create.</p>
<p>What makes science fiction valuable in our efforts against climate change is that it does not offer us a final word, but rather invites an open ended exploration and experimentation with stories and ideas. Science fiction encourages us to build worlds and to question the worlds that we are building. It asks us to choose a future from a range of possibilities and to put in the work to create it. Science fiction was crucial in helping me make sense of the radical transformations of 20th century Hong Kong and the UK, and it led to my engagement with the politics of climate change. This is precisely the work of public deliberation and engagement that is crucial as we move toward and beyond COP26.</p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=112&fit=crop&dpr=1 600w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=112&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=112&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=140&fit=crop&dpr=1 754w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=140&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=140&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em>For you: more from our <a href="https://theconversation.com/uk/topics/insights-series-71218?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKengagement&utm_content=InsightsUK">Insights series</a>:</em></p>
<ul>
<li><p><em><a href="https://theconversation.com/there-arent-enough-trees-in-the-world-to-offset-societys-carbon-emissions-and-there-never-will-be-158181?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKengagement&utm_content=InsightsUK">There aren’t enough trees in the world to offset society’s carbon emissions – and there never will be</a></em></p></li>
<li><p><em><a href="https://theconversation.com/drugs-robots-and-the-pursuit-of-pleasure-why-experts-are-worried-about-ais-becoming-addicts-163376?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKengagement&utm_content=InsightsUK">Drugs, robots and the pursuit of pleasure – why experts are worried about AIs becoming addicts</a></em></p></li>
<li><p><em><a href="https://theconversation.com/billionaire-space-race-the-ultimate-symbol-of-capitalisms-flawed-obsession-with-growth-164511?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKengagement&utm_content=InsightsUK">Billionaire space race: the ultimate symbol of capitalism’s flawed obsession with growth</a></em></p></li>
</ul>
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<p class="fine-print"><em><span>Chris Pak does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Attending, debating or simply following COP26? Here’s why you should be reading science fiction.Chris Pak, Lecturer in English Literature, Swansea UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1584062021-04-30T12:15:56Z2021-04-30T12:15:56ZFrom tulips and scrips to bitcoin and meme stocks – how the act of speculating became a financial mania<figure><img src="https://images.theconversation.com/files/397946/original/file-20210429-18-16ru4p9.jpg?ixlib=rb-1.1.0&rect=76%2C30%2C5016%2C3145&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Financial bubbles are frequently depicted as manias. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/wall-street-bubbles-always-the-same-j-pierpont-morgan-news-photo/646470006">Photo12/Universal Images Group via Getty Images</a></span></figcaption></figure><p>In the late 1990s, America experienced a <a href="http://pages.stern.nyu.edu/%7Eeofek/DotComMania_JF_Final.pdf">dot-com mania</a>. In the 2000s, the <a href="https://www.federalreservehistory.org/essays/subprime-mortgage-crisis">housing</a> market went wild. </p>
<p>Today, there are manias in everything from <a href="https://www.cnbc.com/2021/03/24/blockchain-com-rides-bitcoin-mania-to-a-5-2-billion-valuation.html">bitcoin</a> and <a href="https://www.nytimes.com/2021/03/11/arts/design/nft-auction-christies-beeple.html">nonfungible tokens</a> to <a href="https://seekingalpha.com/article/4418535-reits-jump-into-spac-mania">SPACs</a> and <a href="https://www.bloomberg.com/news/articles/2021-04-03/as-meme-stock-mania-fizzles-wall-street-sees-big-reckoning">meme stocks</a> – obscure corners of the market that are getting increased attention. Whether these are the next bubbles to burst remains to be seen. </p>
<p>The sudden rise of all these relatively new <a href="https://www.investopedia.com/terms/a/assetclasses.asp">asset classes</a> – or the <a href="https://www.nytimes.com/2021/03/13/technology/crypto-art-NFTs-trading-cards-investment-manias.html">astronomical heights they’ve reached</a> – may seem irrational or even enchanted. Describing them as speculative manias implies that individuals are lost in forces beyond their control and needn’t take responsibility for the actions of the crowd. </p>
<p>But, as I learned while researching my book “<a href="http://cup.columbia.edu/book/speculation/9780231200219">Speculation: A Cultural History from Aristotle to AI</a>,” which will be published in June 2021, financial speculation hasn’t always been understood as a widespread craze – or even outside of individual choice. </p>
<h2>Adam Smith and the rise of financial speculation</h2>
<p>From ancient times until the late 1700s, the term “speculation” was used mainly by philosophers, scientists and authors to describe conjectures about the future. When speaking of traders who manipulated the prices of an asset to make an outsize profit, <a href="https://fee.org/articles/speculators-adam-smith-revisited/">financial writers</a> instead used terms like “engrossing” or “cornering” the market. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/397876/original/file-20210429-21-8os759.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="An illustration of Gen. George Washington on a horse holding his hat as he leads his men in a battle in 1777" src="https://images.theconversation.com/files/397876/original/file-20210429-21-8os759.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/397876/original/file-20210429-21-8os759.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=726&fit=crop&dpr=1 600w, https://images.theconversation.com/files/397876/original/file-20210429-21-8os759.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=726&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/397876/original/file-20210429-21-8os759.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=726&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/397876/original/file-20210429-21-8os759.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=913&fit=crop&dpr=1 754w, https://images.theconversation.com/files/397876/original/file-20210429-21-8os759.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=913&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/397876/original/file-20210429-21-8os759.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=913&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">George Washington thought financial speculators would ruin the country.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/WashingtonBattleOfPrinceton1777/f5c9512737be4401b4d57eec415bd9af/photo?Query=George%20AND%20washington&mediaType=photo&sortBy=arrivaldatetime:asc&dateRange=Anytime&totalCount=20709&currentItemNo=2">AP Photo</a></span>
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<p>After a <a href="https://www.jstor.org/stable/2598492?seq=1">series of international credit scandals</a> in the 1770s, though, “speculation” became the favored descriptor for high-risk financial gambling. Political economist Adam Smith used the term extensively in “<a href="https://archive.org/details/in.ernet.dli.2015.207956">Wealth of Nations</a>,” published in 1776, after seeing it used to describe lotteries and smuggling. He saw in it a perfect term for how traders were trying to capitalize exponentially on the inherent risks and unknowns of the future. </p>
<p><a href="https://founders.archives.gov/documents/Washington/03-20-02-0631">George Washington even warned in 1779 that speculators</a> “are putting the rights & liberties of this Country into the most eminent danger.” </p>
<p>Yet Smith, Washington and others still saw speculators of all types as individuals making calculated decisions, not as part of some maniacal collective or epidemic contagion. </p>
<h2>Alexander Hamilton’s ‘scripomania’ takes hold</h2>
<p>That began to change thanks largely to the early American physician and thinker Benjamin Rush. </p>
<p>As surgeon general of the Continental Army and a prolific publisher of studies of mental illness, Rush <a href="https://books.google.com/books?id=KQf4CAAAQBAJ&newbks=1&newbks_redir=0&printsec=frontcover#v=onepage&q&f=false">penned a widely circulated article</a> in 1787, “On the Different Species of Mania.” In it, he characterized speculative gambling alongside 25 other types of “manias” that he wrote had become pronounced in American life, including “land mania,” “horse mania,” “machine mania” and “monarchical mania.” </p>
<p>For Rush, speculation was a disease of the mind that spread from one to many and threatened the health of a young democracy that relied on rational decision-making by voters and politicians. The “spirit of speculation,” he foresaw, was not a good-hearted “spirit” of nation building, but rather could “destroy patriotism and friendship in many people.” </p>
<p>Rush’s terminology and his way of thinking caught on quickly. In the summer of 1791, <a href="https://globalfinancialdata.com/the-panic-of-1792">“Scripomania” took hold</a> as Alexander Hamilton sold the rights to buy shares – known as scrips for “subscriptions” – in the newfound Bank of the United States to shore up the nation’s finances following the Revolutionary War. Demand for the scrips soared; the <a href="https://www.loc.gov/item/sn83025889">Philadelphia General Advertiser declared</a> that “an inveterate madness for speculation seems to possess this country!”</p>
<figure class="align-center ">
<img alt="In an illustration, cats are representing humans and buying tulips on display" src="https://images.theconversation.com/files/397879/original/file-20210429-22-19tt2zz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/397879/original/file-20210429-22-19tt2zz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=491&fit=crop&dpr=1 600w, https://images.theconversation.com/files/397879/original/file-20210429-22-19tt2zz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=491&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/397879/original/file-20210429-22-19tt2zz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=491&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/397879/original/file-20210429-22-19tt2zz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=617&fit=crop&dpr=1 754w, https://images.theconversation.com/files/397879/original/file-20210429-22-19tt2zz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=617&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/397879/original/file-20210429-22-19tt2zz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=617&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A satire of the Dutch tulip ‘mania,’ which didn’t get that label until many years later.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/satire-of-the-folly-of-the-tulip-mania-news-photo/157370637">Art Images/Hulton Fine Art Collection via Getty Images</a></span>
</figcaption>
</figure>
<h2>Calculated risk – minus the calculation</h2>
<p>After that, the tie between “speculation” and “mania” spread and became inextricable – and it hasn’t been severed since. The Scottish journalist <a href="https://archive.org/details/memoirsofextraor01mack">Charles Mackay sealed this connection</a> in 1841 with his influential “Extraordinary Popular Delusions and the Madness of Crowds.” Since then, virtually every bubble, every rush in commodities and every market panic that has ensued has been called a “mania.” </p>
<p>The term has even been used retrospectively to refer to the behaviors that led to speculative bubbles in the distant past. The famous <a href="https://theconversation.com/tulip-mania-the-classic-story-of-a-dutch-financial-bubble-is-mostly-wrong-91413">Dutch tulip bubble</a> of 1637, for instance, was seen in its day as foolish and dangerous, but only after Mackay’s book was it labeled a “mania.”</p>
<p>The trouble with talking about wild financial events in this way is that society begins to confuse and distort the responsibility and nature of bubbles that inevitably crash, leaving ruin in their wake. </p>
<p>To speculate, at its core, is to make a bet about the future based on individual calculations of the risks of tomorrow. There’s nothing inherently contagious or mad about it. In fact, computers <a href="https://mitsloan.mit.edu/ideas-made-to-matter/does-statistical-trading-make-markets-less-or-more-efficient">are often speculating</a> now in place of human minds.</p>
<p>What we call a “mania” is just shorthand for saying that a lot of people – and machines – made the same bet, as happened in January when <a href="https://theconversation.com/robinhood-app-makes-wall-street-feel-like-a-game-to-win-instead-of-a-place-where-you-can-lose-your-life-savings-in-a-new-york-minute-156013">day traders</a> – many of them inexperienced – drove up the price of GameStop. Maybe they were all acting rationally and in concert. Maybe they were duped by insiders or weren’t fully calculating those risks.</p>
<p>Whatever the explanation, using the term “mania” tells us only a small and potentially misleading part of the story. </p>
<p>[<em>Over 104,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p><img src="https://counter.theconversation.com/content/158406/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gayle Rogers does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Until the late 1800s, moments of widespread high-risk financial gambling weren’t considered manias but the results of individual actors, who bore responsibility for the disastrous results.Gayle Rogers, Professor and chair of English, University of PittsburghLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1574892021-03-31T12:16:47Z2021-03-31T12:16:47ZHow nonfungible tokens work and where they get their value – a cryptocurrency expert explains NFTs<figure><img src="https://images.theconversation.com/files/392667/original/file-20210330-23-1h9ipin.jpg?ixlib=rb-1.1.0&rect=0%2C14%2C4978%2C3293&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">NFTs can be used to prove who created and who owns digital items like these images by the artist Beeple shown at an exhibition in Beijing.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/man-looks-at-digital-paintings-by-us-artist-beeple-at-a-news-photo/1231940889?adppopup=true">Nicolas Asfouri/AFP via Getty Images</a></span></figcaption></figure><p><strong>Takeaways</strong></p>
<p>· <strong>Nonfungible tokens prove ownership of a digital item – image, sound file or text – in the same way that people own crypto coins.</strong></p>
<p>· <strong>Unlike crypto coins, which are identical and worth the same, NFTs are unique.</strong></p>
<p>· <strong>An NFT is worth what someone is willing to pay for it, which can be a lot if the NFT is made by a famous artist and the buyer is a wealthy collector.</strong></p>
<p></p><hr><p></p>
<p>An attorney friend recently asked me out of the blue about nonfungible tokens, or NFTs. What prompted his interest was the sale of a collage composed of 5,000 digital pieces, auctioned by Christie’s on March 11, 2021, for a <a href="https://www.cnn.com/style/article/beeple-first-nft-artwork-at-auction-sale-result/index.html">remarkable US$69 million</a>. Mike Winkelmann, an artist known as <a href="https://www.beeple-crap.com/">Beeple</a>, created this piece of digital art, made an NFT of it and offered it for sale. The bidding started at $100, and the rest of the auctioning process transformed it into a historical event.</p>
<p>Similarly, it was hard to miss the news about the iconic GIF <a href="https://www.theverge.com/2021/2/18/22287956/nyan-cat-crypto-art-foundation-nft-sale-chris-torres">Nyan Cat</a> being sold as a piece of art, Twitter’s founder transforming the <a href="http://heverge.com/2021/3/5/22316320/jack-dorsey-original-tweet-nft-cent-valuables">first tweet into an NFT</a> and putting it up for sale, or an NFT of a New York Times column <a href="https://www.nytimes.com/2021/03/26/technology/nft-sale.html">earning half a million dollars</a> for charity. </p>
<p>My friend’s questions were an attempt to understand where the underlying value of an NFT comes from. The issue is that perceptions of what the buyer is paying for are not easily framed in legal terms. NFT marketplaces do not always accurately describe the value proposition of the goods they are selling. The truth is that the value of any NFT is speculative. Its value is determined by what someone else is willing to pay for it and nothing else. </p>
<p>Turning something as ephemeral as a tweet into an item that can be sold requires two things: making it unique and proving ownership. The process is the same for cryptocurrencies, which turn strings of bits into virtual coins that have real-world value. It boils down to cryptography.</p>
<h2>Keys and blocks</h2>
<p>Cryptography is the technique used to protect privacy of a message by transforming it into a form that can be understood only by the intended recipients. Everyone else will see it as only an unintelligible sequence of random characters. This message manipulation is enabled by a pair of keys, public and private keys: You share your public key with your friend, who uses it to transform his message to you into an unintelligible sequence of random characters. You then use your private key to put it back into its original form. </p>
<p>The special mathematical properties of these two crypto keys are widely used to provide secrecy and integrity. <a href="https://arstechnica.com/information-technology/2013/10/a-relatively-easy-to-understand-primer-on-elliptic-curve-cryptography/">Two crypto keys</a> play the role of digital signatures and are commonly used in blockchain to enable both authentication and anonymity for transactions.</p>
<p>Blockchain is a crucial technology for creating NFTs. It uses cryptography to chain blocks into a growing list of records. Each block is locked by a cryptographic hash, or string of characters that uniquely identifies a set of data, to the previous block. The transaction records of a chain of blocks are stored in a data structure called a <a href="https://blockonomi.com/merkle-tree/">Merkle tree</a>. This allows for fast retrieval of past records. To be a party in blockchain-based transactions, each user needs to create a pair of keys: a public key and a private key. This design makes it very difficult to alter transaction data stored in blockchain. </p>
<p>Although blockchain was initially devised to support fungible assets like Bitcoin and other cryptocurrencies, it has evolved to enable users to create a special kind of crypto asset, one that is <a href="https://decrypt.co/resources/non-fungible-tokens-nfts-explained-guide-learn-blockchain">nonfungible</a>, meaning provably unique. Ethereum blockchain is the basis for most of the currently offered NFTs because it supports the <a href="https://ethereum.org/en/developers/docs/standards/tokens/erc-721/">ERC-721 token standard</a>, enabling NFT creators to capture information of relevance to their digital artifacts and store it as tokens on the blockchain. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/392668/original/file-20210330-17-1dcqawy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A commemorative coin bearing a double-pyramid logo lies in an open leather wallet containing euro coins" src="https://images.theconversation.com/files/392668/original/file-20210330-17-1dcqawy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/392668/original/file-20210330-17-1dcqawy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/392668/original/file-20210330-17-1dcqawy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/392668/original/file-20210330-17-1dcqawy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/392668/original/file-20210330-17-1dcqawy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/392668/original/file-20210330-17-1dcqawy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/392668/original/file-20210330-17-1dcqawy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The first NFTs were made using the cryptographic technology underlying the Ethereum cryptocurrency.</span>
<span class="attribution"><a class="source" href="https://flickr.com/photos/26344495@N05/51014896758/">Ivan Radic/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>When you pay for an NFT, what you get is the right to transfer the token to your digital wallet. The token proves that your copy of a digital file is the original, like owning an original painting. And just as masterpiece paintings can be copied and distributed as inexpensive posters, anyone can have a digital copy of your NFT.</p>
<p>Your private crypto key is proof of ownership of the original. The content creator’s public crypto key serves as a certificate of authenticity for that particular digital artifact. This pair of the creator’s public key and the owner’s private key is primarily what determines the value of any NFT token. </p>
<h2>The very short history of NFTs</h2>
<p>NFTs came to prominence in 2017 with a game called <a href="https://www.cryptokitties.co/">CryptoKitties</a>, which enables players to buy and “breed” limited-edition virtual cats. From there, game developers adopted NFTs in a big way to allow gamers to win in-game items such as digital shields, swords or similar prizes, and other game collectibles. Tokenization of game assets is a real game-changer, since it enables transferring tokens between different games or to another player via NFT specialized blockchain marketplaces. </p>
<p>Besides gaming, NFTs are frequently used to sell a wide range of virtual collectibles, including NBA virtual trading cards, music, digital images, video clips and even virtual real estate in <a href="https://decentraland.org/">Decentraland</a>, a virtual world.</p>
<p><a href="https://nonfungible.com/">NonFungible.com</a>, a website that tracks NFT projects and marketplaces, puts the value of the total NFT market at $250 million, a negligible fraction of the total crypto coin market but still highly attractive to content creators. The contract behind the token, based on the <a href="http://erc721.org/">ERC-721</a> standard for creating NFTs, can be set to let content creators continue to earn a percentage from all subsequent sales. </p>
<p>The NFT market is likely to grow further because any piece of digital information can easily be “minted” into an NFT, a highly efficient way of managing and securing digital assets.</p>
<h2>Blockchain’s carbon footprint</h2>
<p>For all the excitement, there are also concerns that NFTs are <a href="https://qz.com/1987590/the-carbon-footprint-of-creating-and-selling-an-nft-artwork/">not eco-friendly</a> because they are built on the same blockchain technology used by some energy-hungry cryptocurrencies. For example, each NFT transaction on the Ethereum network consumes the equivalent of <a href="https://digiconomist.net/ethereum-energy-consumption">daily energy used by two American households</a>. </p>
<p>Security for most of today’s blockchain networks is based on special computers called “miners” competing to solve complex math puzzles. This is the <a href="https://cointelegraph.com/explained/proof-of-work-explained">proof-of-work</a> principle, which keeps people from gaming the system and provides the incentive for building and maintaining it. The miner who solves the math problem first gets awarded with a prize paid in virtual coins. The mining requires a lot of computational power, which drives electricity consumption.</p>
<p>Ethereum blockchain technology is evolving and moving toward <a href="https://spectrum.ieee.org/computing/networks/ethereum-plans-to-cut-its-absurd-energy-consumption-by-99-percent">a less computationally intensive design</a>. There are also emerging blockchain technologies like <a href="https://cardano.org/">Cardano</a>, which was designed from the outset to have a small carbon footprint and has recently launched its own fast-growing NFT platform called <a href="https://coinpedia.org/non-fungible-token-nft/cardano-towards-new-highs-with-cardanokidz-nft/">Cardano Kidz</a>. </p>
<p>The speed of transformation of blockchain technology into a newer, more eco-friendly variant might well decide the future of the NFT market in the short term. Some artists who feel strongly about global warming trends are opposed to NFTs because of perceived <a href="https://www.wired.com/story/nfts-hot-effect-earth-climate/">ecological impact</a>.</p>
<h2>The coming crypto-economy</h2>
<p>Whether or not the current NFT craze can keep its momentum going, NFTs have already accelerated a larger trend of digital economic innovation. NFTs have confirmed that the public is feeling increasingly favorable toward a crypto-economy and is <a href="https://wirexapp.com/blog/post/2021-the-year-of-crypto-0250">embracing short-term risks</a> in return for creating new business possibilities.</p>
<p>[<em>Over 100,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p>
<p>NFTs have already made significant inroads into the luxury and gaming industries, and have plenty of room to grow beyond these initial applications. The art sector will continue to be an important segment of the overall NFT market and is likely to gradually reach maturity over the next couple of years, although it is likely to be surpassed by other digital certificate applications like trademarks and patents, training and <a href="https://www.forbes.com/sites/markcohen1/2019/09/03/upskilling-why-it-might-be-the-most-important-word-in-the-legal-lexicon/?sh=1cc1bdfc36a9">upskilling</a> certificates.</p><img src="https://counter.theconversation.com/content/157489/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dragan Boscovic receives funding from NSF, Federal and State Government Agencies, industrial corporations. He is affiliated with VizLore LLC, which provides the blockchain as a platform service to other blockchain application developers.</span></em></p>NFTs are made the same way as crypto coins, but where every crypto coin is like every other, each NFT is a unique digital item – from images to sound files to text.Dragan Boscovic, Research Professor of Computing, Informatics and Decision Systems Engineering, Arizona State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1544482021-02-05T13:07:10Z2021-02-05T13:07:10ZThe First Amendment will likely protect the anonymity of Redditors who discussed GameStop stock<figure><img src="https://images.theconversation.com/files/382558/original/file-20210204-18-3nijkm.jpg?ixlib=rb-1.1.0&rect=142%2C37%2C4730%2C3091&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">GameStop logo is seen at one of their stores in Athens, Ohio.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/gamestop-logo-is-seen-at-one-of-their-stores-in-athens-news-photo/1230960351?adppopup=true">Stephen Zenner/SOPA Images/LightRocket via Getty Images</a></span></figcaption></figure><p>GameStop, the video game retail chain, saw its <a href="https://www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html">stock rise as much as 1,800%</a> in January 2021 after fans, who believe the stock was unfairly devalued by large investors, <a href="https://www.washingtonpost.com/business/2021/01/28/gamestop-stocks-reddit/">championed the stock’s purchase</a>.</p>
<p>Because <a href="https://www.reddit.com/r/wallstreetbets/">WallStreetBets</a>, an online group on the social news platform Reddit, <a href="https://theconversation.com/gamestop-im-one-of-the-wallstreetbets-degenerates-heres-why-retail-trading-craze-is-just-getting-started-154584">generated intense interest in the stock</a>, some financial experts have <a href="https://qz.com/1965494/are-wallstreetbets-reddit-traders-manipulating-gamestop-shares/">speculated as to whether the group engaged in market manipulation</a> – that is, engaging in deceptive speech or stock purchasing tactics to artificially inflate the price of a stock.</p>
<p>Experts also wonder whether <a href="https://www.cnbc.com/2021/02/02/robinhood-raises-trading-limits-on-restricted-stocks-customers-can-buy-100-gamestop-shares-now.html">the commission-free investment app Robinhood</a> engaged in improper behavior when it restricted buyers’ ability to purchase GameStop shares, resulting in <a href="https://apnews.com/article/gamestop-reddit-stock-shares-update-38ca4dc3f3010c1253039445110e5a7a">their subsequent decline</a>.</p>
<p>As <a href="https://udayton.edu/directory/law/goldberg_erica.php">a law professor</a> who teaches classes on the <a href="https://www.law.cornell.edu/constitution/first_amendment">First Amendment</a>, I find the law’s lack of clarity on this issue fascinating.</p>
<p>Free speech protections offered by the First Amendment will likely protect many, if not all, of the anonymous posters on WallStreetBets from claims of market manipulation. </p>
<h2>Claims of market manipulation</h2>
<p>GameStop’s stock price skyrocketed in mid-January after members of WallStreetBets discovered that <a href="https://www.cnbc.com/2021/01/29/gamestop-short-sellers-are-still-not-surrendering-despite-nearly-20-billion-in-losses-this-year.html">hedge funds were short-selling the stock</a>, or betting that it would make them money when its share price declined. </p>
<p>Anonymous members of WallStreetBets then encouraged investors to purchase the GameStop stock, claiming it would go “<a href="https://www.vox.com/the-goods/22264303/wallstreetbets-reddit-gamestop-stocks-language-community">to the moon</a>” and severely harm Wall Street. By some estimates, <a href="https://www.vox.com/recode/2021/2/2/22261097/gamestop-wallstreetbets-short-seller-hedge-funds-losses-robinhood">short sellers have lost US$13 billion</a> so far this year.</p>
<p>The influx of new investors into a struggling company likely created a stock bubble that would eventually burst, <a href="https://www.cbsnews.com/news/gamestop-stock-down-gme-reddit-2021-02-04/">costing the investors</a> who purchased GameStop stock right before its decline. </p>
<p>Whether WallStreetBets members can be held responsible for market manipulation depends on whether the First Amendment protects their right to anonymous speech.</p>
<p>Market manipulation involves <a href="https://www.investor.gov/introduction-investing/investing-basics/glossary/market-manipulation">deceptive behavior that artificially changes the price</a> of a stock beyond its real value, so free speech is generally not a viable defense against these securities laws. Deceiving consumers to artificially inflate the price of a stock – often called a “<a href="https://www.cnbc.com/2021/01/28/gamestop-now-called-a-pump-and-dump-scheme-what-you-need-to-know.html">pump and dump</a>” scheme – is therefore not protected by the First Amendment. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/382660/original/file-20210205-24-k52o3c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The bull of Wall Street." src="https://images.theconversation.com/files/382660/original/file-20210205-24-k52o3c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382660/original/file-20210205-24-k52o3c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382660/original/file-20210205-24-k52o3c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382660/original/file-20210205-24-k52o3c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382660/original/file-20210205-24-k52o3c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382660/original/file-20210205-24-k52o3c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382660/original/file-20210205-24-k52o3c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">By some estimates, Wall Street short sellers have lost $13 billion on GameStop so far this year.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/the-bull-of-wall-street-is-seen-during-the-pass-of-the-news-photo/1299704269?adppopup=true">Eduardo MunozAlvarez/VIEWpress</a></span>
</figcaption>
</figure>
<p>However, I’m confident that speech that is intended to express one’s true opinions about a stock – or the benefits of holding Wall Street <a href="https://www.washingtonpost.com/business/2021/01/30/financial-regulations-wall-street-sec-gamestop/">hedge funds accountable for their behavior</a> – is fully protected speech. </p>
<p>In many WallStreetBets postings, it’s difficult to tell whether an anonymous poster intended to deceive investors. The poster might have been sharing investing advice, commiserating with others or simply being silly and inflammatory. All of these examples are protected speech. </p>
<p>One Redditor claimed these investors were going to be part of “<a href="https://amp.reddit.com/r/wallstreetbets/comments/l8tj9q/i_love_seeing_the_way_that_some_of_you_retards/">deep f—ing history</a>,” which is a claim about forming part of a social movement.</p>
<p>Another said, “<a href="https://twitter.com/banks/status/1354783413782241280">Take the cash you can afford to lose and buy, buy, buy</a>.” This statement doesn’t indicate an optimistic view of how the stock will fare. Therefore, it likely does not amount to market manipulation and is protected speech.</p>
<p>In these two cases, a court is unlikely to unmask the Reddit posters and investigate whether they intended to deceive investors.</p>
<h2>Court precedent</h2>
<p>One thing that makes this case so interesting is that the Supreme Court has not addressed these points directly.</p>
<p>Without Supreme Court guidance, <a href="https://www.courtlistener.com/opinion/182446/in-re-anonymous-online-speakers/">courts of appeals</a> and trial courts have divided on standards for determining when a website can be compelled to release the identity of a poster after its users have allegedly engaged in unlawful activity.</p>
<p>This means that jurisdictions may differ on when Reddit can be forced to disclose the identity of an anonymous poster, if any lawsuits are brought against the Redditors.</p>
<p>If so, the threshold question will be whether the speech at issue is considered commercial speech. <a href="https://www.mtsu.edu/first-amendment/article/900/commercial-speech">Commercial speech</a>, which proposes or advertises an economic transaction, is afforded less First Amendment protection than other forms of advocacy. </p>
<p>Many WallStreetBets posts about GameStop do not propose a commercial transaction. </p>
<p>The posts involve <a href="https://www.cnbc.com/2021/01/29/gamestop-traders-could-force-hedge-funds-to-change-investing-tactics.html">discussions about Wall Street accountability</a> and how GameStop stock will do. These posts will likely merit a higher level of First Amendment protection and, thus, keep posters’ anonymity intact.</p>
<p>Whether the <a href="https://www.theverge.com/2021/2/3/22264960/sec-gamestop-amc-probe-fraudulent-social-media-posts">U.S. Securities and Exchange Commission</a> or a private individual is seeking an anonymous poster’s identity may determine the level of First Amendment protection given to the anonymous speaker.</p>
<p>In some federal and state jurisdictions, if a government agency is seeking release of the identity, it will have to show a compelling reason. Without unmasking a person’s identity, it would be difficult to prove market manipulation in this specific case, given the nature of the Reddit posts. </p>
<p>In others, a government agency like the SEC may simply have to show a good faith need for the information, which would likely include evidence of market manipulation. </p>
<p>In many jurisdictions, courts determining whether to force Reddit to reveal the identity of a poster will balance the First Amendment interest in anonymous speech against the validity of the claim of market manipulation. </p>
<p>In the GameStop case, many of the Redditors engaged in core, protected speech on a matter of public interest, so the First Amendment interest will be strong. </p>
<p>If a court decides to investigate a WallStreetBets post, it will want to see facts indicating that the post was deceptive and that the poster was intending to share materially false information. </p>
<p>Because a lot of what was posted was either bravado, sincere messages of solidarity or hope about the stock’s value, the First Amendment interests are likely to outweigh the need to identify the anonymous posters. </p>
<p>Perhaps for a select few, a court might find that there is sufficient evidence of market manipulation to force Reddit to expose the identity of the poster. This scenario would require evidence that the poster was being deceptive, which may be difficult to acquire given the nature of the Reddit posts. </p>
<p>The line between free speech and illegal market manipulation – and a determination of when blogs must unmask anonymous posters who may or may not be involved in market manipulation – will have to be drawn by the courts and ultimately resolved by the Supreme Court.</p>
<p>[<em>You’re smart and curious about the world. So are The Conversation’s authors and editors.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=youresmart">You can read us daily by subscribing to our newsletter</a>.]</p><img src="https://counter.theconversation.com/content/154448/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erica Goldberg does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s up to the courts to draw a line between free speech and illegal market manipulation. And the Supreme Court has never ruled on this specific question.Erica Goldberg, Associate Professor of Law, University of DaytonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1248692020-01-13T13:55:38Z2020-01-13T13:55:38ZRestricting trade in endangered species can backfire, triggering market booms<figure><img src="https://images.theconversation.com/files/308132/original/file-20191220-11919-12j417i.jpg?ixlib=rb-1.1.0&rect=34%2C34%2C3777%2C2363&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Rosewood, the name for several endangered tree species that make beautiful furniture, being loaded in Madagascar. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/toamasina-madagascar-april-12-2014-loading-733827985">Pierre-Yves Babelon/Shutterstock</a></span></figcaption></figure><p>Every year humans buy and sell hundreds of millions of wild animals and plants around the world. Much of this commerce is legal, but <a href="https://theconversation.com/where-is-all-the-ivory-from-using-forensic-science-and-elephant-dna-to-stop-poachers-43443">illegal trade and over-harvesting</a> have driven many species toward extinction.</p>
<p>One common response is to adopt <a href="https://theconversation.com/explainer-what-is-cites-and-why-should-we-care-65510">bans on trading</a> in threatened or endangered species. But research shows that this approach can <a href="http://dx.doi.org/10.1038/447529a">backfire</a>. Restricting high-value species can actually <a href="https://doi.org/10.1177/194008291200500302">trigger market booms</a>.</p>
<p>I study <a href="https://scholar.google.com/citations?user=P-E002UAAAAJ&hl=en&oi=ao">environmental globalization</a> and have spent nearly 10 years analyzing trade between Madagascar and China in rosewood, or hong mu in Mandarin. Chinese people use this term to describe <a href="http://www.chinatimber.org/news/64202.html">29 species</a> of very expensive hardwoods, <a href="https://theconversation.com/global-timber-trafficking-harms-forests-and-costs-billions-of-dollars-heres-how-to-curb-it-93115">many of which are endangered</a>. </p>
<p>In my research, I’ve seen the complexities of endangered species protection. On both the supply and demand sides, restricting international trade in high-value endangered species like rosewood can sometimes cause more harm than good. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/308734/original/file-20200107-123389-19d3f0p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/308734/original/file-20200107-123389-19d3f0p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/308734/original/file-20200107-123389-19d3f0p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/308734/original/file-20200107-123389-19d3f0p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/308734/original/file-20200107-123389-19d3f0p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/308734/original/file-20200107-123389-19d3f0p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/308734/original/file-20200107-123389-19d3f0p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/308734/original/file-20200107-123389-19d3f0p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Rosewood furniture and boards fill a southern China warehouse.</span>
<span class="attribution"><span class="source">George Zhu</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<h2>Treaties trigger speculation</h2>
<p>The main global treaty governing wildlife trade is the <a href="https://www.cites.org/">Convention on International Trade in Endangered Species of Wild Fauna and Flora</a>, or CITES. CITES members meet every two to three years to adjust trade restrictions on target species. In today’s speculative markets, CITES rulings can set off damaging market dynamics. </p>
<p>Since the early 2000s, markets for certain high-value endangered species – <a href="https://doi.org/10.1016/j.biocon.2014.09.020">elephants</a>, <a href="https://doi.org/10.1016/j.biocon.2016.08.001">rhinoceros</a>, <a href="https://www.environment.gov.za/sites/default/files/docs/publications/bankingextinction_endangeredspecices_speculation.pdf">tigers</a> and <a href="https://doi.org/10.1080/24694452.2019.1613955">rosewood</a> – have fundamentally transformed. Consumer purchases no longer trigger market booms. Speculative investments do. </p>
<p>Investors are buying endangered species not to use and own, but in anticipation that their prices will rise. This shift explains why international trade restrictions often do not protect endangered species.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/308387/original/file-20200102-11929-zwutec.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/308387/original/file-20200102-11929-zwutec.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/308387/original/file-20200102-11929-zwutec.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=373&fit=crop&dpr=1 600w, https://images.theconversation.com/files/308387/original/file-20200102-11929-zwutec.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=373&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/308387/original/file-20200102-11929-zwutec.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=373&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/308387/original/file-20200102-11929-zwutec.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=469&fit=crop&dpr=1 754w, https://images.theconversation.com/files/308387/original/file-20200102-11929-zwutec.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=469&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/308387/original/file-20200102-11929-zwutec.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=469&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Rosewood has become the most trafficked group of endangered species in the world, according to data covering 2005-2014.</span>
<span class="attribution"><span class="source">Annah Zhu, data from UN Office on Drugs and Crime</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Rosewood speculation has surpassed big animals</h2>
<p>China is a <a href="https://www.nytimes.com/2018/11/19/science/wildlife-trafficking-china.html">big player</a> in the illegal wildlife trade and the primary destination for many trafficked species. The Chinese economy is also subject to rampant speculation that manifests in erratic housing and stock market prices. Rosewood and many other endangered species, it turns out, are subject to these speculative dynamics as well.</p>
<p>Rosewood has been used for centuries to make traditional Chinese furniture that dates back to the Ming and Qing dynasties. Now, due to a revitalization of this style, the wood has become the world’s <a href="https://www.unodc.org/documents/data-and-analysis/wildlife/World_Wildlife_Crime_Report_2016_final.pdf">most trafficked group of wildlife</a>, surpassing ivory, rhino horn and big cats combined. Some species of rosewood are valued at <a href="http://finance.sina.com.cn/money/collection/jjmq/20101102/14208886674.shtml">nearly their weight in gold</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/308391/original/file-20200102-11904-1wxtf17.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/308391/original/file-20200102-11904-1wxtf17.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/308391/original/file-20200102-11904-1wxtf17.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=395&fit=crop&dpr=1 600w, https://images.theconversation.com/files/308391/original/file-20200102-11904-1wxtf17.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=395&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/308391/original/file-20200102-11904-1wxtf17.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=395&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/308391/original/file-20200102-11904-1wxtf17.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=496&fit=crop&dpr=1 754w, https://images.theconversation.com/files/308391/original/file-20200102-11904-1wxtf17.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=496&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/308391/original/file-20200102-11904-1wxtf17.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=496&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Unfinished rosewood chests in a furniture manufacturing facility in Zhongshan, China.</span>
<span class="attribution"><span class="source">George Zhu</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Over the past decade, rosewood has become a type of stock exchange – “<a href="http://www.china.org.cn/business/2011-01/17/content_21756641.htm">a playground for investors</a>,” as one account described it. China Central Television has condemned rosewood market speculation as “<a href="https://wechat.kanfb.com/bussiness/3399">more ferocious than real estate</a>.” </p>
<p>Similar dynamics have been documented for ivory and rhino horn. As with rosewood, the speculative value of these resources comes more from their rarity than their cultural appeal.</p>
<h2>The ‘Madagascar phenomenon’</h2>
<p>In this speculative climate, international trade restrictions under CITES heighten demand, as I learned while interviewing timber importers in Shanghai in 2014, 2015 and 2017.</p>
<p>The CITES meeting in 2013, which imposed new restrictions on rosewood trade, provoked “<a href="http://collection.sina.com.cn/jjhm/2016-10-11/doc-ifxwrhpm2900127.shtml">strong earthquakes</a>” in the rosewood market. As soon as news of the regulations reached Chinese timber markets, prices of the targeted species climbed to record highs. The same thing happened after CITES meetings in <a href="http://blog.sina.com.cn/s/blog_ae5e121c0102wsmm.html">2016</a> and <a href="http://www.guwan.com/hangqing/100034811.html">2019</a>, where trade in additional timber species were restricted. </p>
<p>Indeed, CITES is considered a “<a href="http://collection.sina.com.cn/jjhm/hmsc/2016-12-29/doc-ifxzczfc6563439.shtml">fuse</a>” that ignites new rounds of market speculation. The effect has been so pronounced for rosewood from Madagascar that Chinese timber importers call it “<a href="http://collection.sina.com.cn/jjhm/2016-10-11/doc-ifxwrhpm2900127.shtml">the Madagascar phenomenon</a>.” </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"687678268829515776"}"></div></p>
<h2>President Xi Jinping’s fight</h2>
<p>After taking office in 2013, President Xi Jinping embarked on a massive <a href="https://www.scmp.com/topics/xi-jinpings-anti-corruption-campaign">anti-corruption campaign</a> that hit many Chinese luxury markets hard. New laws unrelated to the environment have done more to reduce traffic in rosewood and other valuable endangered species than most international trade restrictions. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/308136/original/file-20191220-11951-6vg7cx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/308136/original/file-20191220-11951-6vg7cx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/308136/original/file-20191220-11951-6vg7cx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/308136/original/file-20191220-11951-6vg7cx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/308136/original/file-20191220-11951-6vg7cx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/308136/original/file-20191220-11951-6vg7cx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/308136/original/file-20191220-11951-6vg7cx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Chinese President Xi Jinping initiated an anti-corruption campaign that has unexpectedly reduced demand for certain endangered species such as rosewood.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/China-Macao/12a9125d7bc54bb89a117ef631b5d463/5/0">AP</a></span>
</figcaption>
</figure>
<p>The Chinese timber importers I interviewed estimated that Xi’s anti-corruption campaign had reduced rosewood sales by 30%-50%. Businesses stopped courting politicians with luxury rosewood furnishings. Sales of <a href="http://english.sina.com/p/2013/0901/624432.html">shark fin soup </a> and other delicacies derived from threatened species also sharply declined.</p>
<p>This effect was largely accidental. Endangered species just happen to be a primary tool for bribing politicians in China. </p>
<p>China has also pursued more direct measures, such as a successful <a href="https://www.washingtonpost.com/news/worldviews/wp/2015/12/08/lifeline-for-elephants-ivory-price-halves-in-china-after-xi-pledges-ban/">domestic ban on ivory trade</a> adopted in 2017. Unlike international trade bans, which the Chinese are less likely to follow at home, domestic bans send signals to investors that prices will drop in the future. </p>
<p>Such domestic bans have weakened the speculative potential of ivory, rhino horn and tiger parts. Investors offload stocks in anticipation of the prohibitions, potentially leading to “<a href="https://doi.org/10.1016/j.ecolecon.2017.05.017">fire sales</a>.” Prices then plummet, and investors don’t want to speculate. </p>
<h2>Rosewood plantations</h2>
<p>In response to exorbitant rosewood prices and dwindling supplies, the Chinese government and private investors are pursuing another strategy: establishing rosewood plantations across southern China. </p>
<p>I visited three of these plantations in Guangdong Province in 2018, including a 2,000 hectare government-run <a href="https://baike.baidu.com/item/%E8%82%87%E5%BA%86%E5%8C%97%E5%B2%AD%E5%B1%B1%E6%A3%AE%E6%9E%97%E5%85%AC%E5%9B%AD">demonstration plantation</a>. They were replete with endangered hardwoods from across Asia, as well as “understory economies” of goods raised below the trees, such as premium teas, herbs for Chinese medicine and free-range chickens, which provide financial support for growing the trees. These plantations are being promoted as an ecological and economical way to sustain the species. </p>
<p>Reporters in China assert that the country is “<a href="http://finance.sina.com/bg/investment/sinacn/20120924/2048602308.html">at the forefront of the world</a>” in establishing endangered hardwood plantations. Few other countries promote this type of forestry on a comparable scale. International conservation organizations typically focus instead on restricting logging and trade.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/308394/original/file-20200102-11924-4ub28b.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/308394/original/file-20200102-11924-4ub28b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/308394/original/file-20200102-11924-4ub28b.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=451&fit=crop&dpr=1 600w, https://images.theconversation.com/files/308394/original/file-20200102-11924-4ub28b.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=451&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/308394/original/file-20200102-11924-4ub28b.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=451&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/308394/original/file-20200102-11924-4ub28b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=567&fit=crop&dpr=1 754w, https://images.theconversation.com/files/308394/original/file-20200102-11924-4ub28b.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=567&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/308394/original/file-20200102-11924-4ub28b.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=567&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A government-run demonstration plantation nurtures some of the trees collectively known as rosewood.</span>
<span class="attribution"><span class="source">Annah Zhu</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>However, I believe that people living in places where rosewood still grows are <a href="https://doi.org/10.1016/j.geoforum.2017.08.010">more likely to be receptive</a> to investments in sustainable forestry than to trade restrictions and funding for <a href="https://time.com/4288287/china-thailand-rosewood-environment-logging/">anti-logging conservation militias</a>. Focusing only on restricting the logging and trade of rosewood often <a href="https://doi.org/10.1016/j.polgeo.2017.06.014">empowers a small group of elite exporters</a> who have illicit access to overseas demand, without benefiting the wider community. The <a href="https://doi.org/10.1016/j.biocon.2019.01.013">same dynamic</a> plays out in the economies of other endangered resources, including ivory, rhino horn and tiger parts. </p>
<p>Efforts to reduce the trade in endangered species will be more effective if they come from within China, rather than being internationally imposed. For rosewood in particular, I see creative policies that encourage reforestation and sustainable forestry as a more promising path forward than international trade restrictions backed by militarized conservation campaigns. </p>
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<p class="fine-print"><em><span>Annah Lake Zhu does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For decades nations have worked to curb international sales of endangered plants and animals. But in countries like China, with high demand and speculative investors, that strategy fuels bidding wars.Annah Lake Zhu, Postdoctoral Researcher, University of California, BerkeleyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/694922016-12-01T18:50:49Z2016-12-01T18:50:49ZInvestors and speculators aren’t disrupting the water markets<figure><img src="https://images.theconversation.com/files/148063/original/image-20161130-17047-c8hl7w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Water markets are essential for many farmers to keep their crops alive.</span> <span class="attribution"><span class="source">Shutterstock.com</span></span></figcaption></figure><p>For over a <a href="http://webarchive.nla.gov.au/gov/20160615061050/http:/www.nwc.gov.au/nwi">decade</a>, Australian state and federal governments have used water markets to manage water resources. Although there remains room for improvement in terms of <a href="http://sites.thomsonreuters.com.au/journals/2016/07/29/environmental-and-planning-law-journal-update-july-2016-special-issue-water-law/">environmental outcomes, water accounting accuracy, and managing social impacts</a>, these markets are <a href="http://webarchive.nla.gov.au/gov/20160615064023/http:/www.nwc.gov.au/publications/topic/water-industry/australian-water-markets-report-2012-13">very successful</a> at achieving efficient, flexible water transfers between users. </p>
<p>These markets are also huge – the estimated total value of water entitlements in the Murray-Darling Basin (MDB) was over <a href="http://www.aither.com.au/wp-content/uploads/2016/08/Aither_WaterMarketsReport2015-FINAL-25Aug2016.pdf">$A11.5 billion</a> in 2015-16. The sheer size of the markets has led investors to join the fray. </p>
<p>But there is now <a href="http://www.theland.com.au/story/4319685/how-funds-are-making-the-most-of-water-market-chaos/">rising concern</a> about investors in water markets. Will speculation drive up water prices, pricing out farmers? Do investment firms take water away from irrigators, or the environment? Is speculation impacting water resource management in the MDB?</p>
<p>The data shows these fears to be overblown. Investors make up only a tiny proportion of the water market and there are far greater concerns for those reliant on it – the climate, efficiency drives and political uncertainty among them. In fact, speculators may even be beneficial as they add flexibility to the market. </p>
<h2>How water is traded in Australia</h2>
<p>Water markets offer farmers the flexibility to manage risk by transferring water to its highest value or most profitable use. They also allow water to move to other socially-valued uses such as environmental watering. This is best exemplified during a drought, when farmers with perennial crops (e.g. trees or vines) can buy water rights from farmers with annual crops (e.g. cotton or rice), who decide not to produce. Water markets have <a href="http://webarchive.nla.gov.au/gov/20160615082640/http:/archive.nwc.gov.au/library/topic/rural/impacts-of-trade-2012">saved many farmers and their crops</a> during previous droughts.</p>
<p>Water resource management in the MDB is an example of the “cap and trade” system. The <a href="http://www.mdba.gov.au/basin-plan-roll-out/sustainable-diversion-limits/cap-register-2012-13-2013-14-water-years">cap</a> is a limit on how much water can be allocated for consumption. Under this system, water is “owned” either as shares or entitlements (a permanent right to receive ongoing water allocations). Available water is allocated against those shares/entitlements each year (e.g. during a drought farmers may receive 40% of their entitlement). </p>
<p>Both shares and entitlements can be owned by, or transferred to, other water users. This includes investors and “the environment”, under the guise of an organisation like the <a href="https://www.environment.gov.au/water/cewo">Commonwealth Environmental Water Holder</a>. The decision by any owner to use or trade water will depend on the price of water, which <a href="http://www.aither.com.au/wp-content/uploads/2016/08/Aither_WaterMarketsReport2015-FINAL-25Aug2016.pdf">varies</a> among different parts of the catchment, and across years.</p>
<p>Functional water markets depend on <a href="http://www.elgaronline.com/view/9781845424008.00013.xml">four fundamentals</a> – well-defined water rights, many buyers and sellers, easy transfer between different users/uses and locations, and reliable and adequate information. All four are present to varying degrees in the southern-connected MDB water markets as a result of a combination of historical factors and ongoing government investment.</p>
<h2>What water speculation ‘looks like’</h2>
<p>Speculation in any market takes two main forms – short-term arbitrage (simultaneous buying and selling where there is a price difference between different markets or exchanges) or long-term investing in water entitlements and then selling or leasing annual water allocations to users. Therefore, speculation, especially the long-term kind, can lead to “hoarding” of water by non-users (those without farm land), which could distort supply for farmers and increase prices.</p>
<p>But if we look at the changes to available water over the last decade there is little evidence that speculation is impacting the water market. The vast majority of water rights are still held by farmers. At most, Victorian estimates put speculation activity at around <a href="http://waterregister.vic.gov.au/water-trading/trade-reports">5% of water market activity</a>, which is not a significant proportion and unlikely to distort trade. Speculators also remain a <a href="http://waterregister.vic.gov.au/water-trading/trade-reports">very small proportion</a> of total water holdings without land. Most water rights not attached to land are still owned by farmers.</p>
<p>In fact, water entitlement prices are mainly driven by periods of low/high supply climate events, as shown in the chart below. The millenium drought saw prices rise dramatically from 2006/07 until 2009/10 when the drought broke. Increases from 2013/14 correspond again to low supply, which in recent months has been reversed.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/148026/original/image-20161130-17047-1tcz1u9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/148026/original/image-20161130-17047-1tcz1u9.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=370&fit=crop&dpr=1 600w, https://images.theconversation.com/files/148026/original/image-20161130-17047-1tcz1u9.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=370&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/148026/original/image-20161130-17047-1tcz1u9.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=370&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/148026/original/image-20161130-17047-1tcz1u9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=465&fit=crop&dpr=1 754w, https://images.theconversation.com/files/148026/original/image-20161130-17047-1tcz1u9.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=465&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/148026/original/image-20161130-17047-1tcz1u9.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=465&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Goulburn Murray Irrigation District trade prices 1993-2016 (source: author provided).</span>
</figcaption>
</figure>
<p>Some may <a href="http://www.abc.net.au/news/2016-04-05/buybacks-dry-conditions-and-water-prices/7301072">argue</a> that water purchased from willing sellers through buybacks for environmental use has increased prices, but again this is unlikely. This argument is based on the idea that reallocating water to the environment has removed huge volumes from trade. But it ignores the fact that Commonwealth purchased entitlements are only around <a href="http://www.aither.com.au/wp-content/uploads/2016/08/Aither_WaterMarketsReport2015-FINAL-25Aug2016.pdf">13% of the total entitlement volume in the southern connected MDB</a> and far, far less in the northern part of the Basin. </p>
<h2>The concerns are unwarranted</h2>
<p>According to the data, speculation is neither affecting water prices, nor driving significant changes in the way water is used. In fact, given the broader trends of water use in the MDB towards high value, perennial crops, as well as <a href="http://www.agriculture.gov.au/water/mdb/programmes">government incentives</a> encouraging farmers to transform toward such systems, increasing the volume of water held by speculators could be beneficial. </p>
<p>By definition, speculators aren’t making use of their water entitlements. This water is effectively “uncommitted” to existing crops, which means during a drought the allocations can be sold to perennial farmers, enabling them to keep their crops alive. </p>
<p>All water users have a vested interest in maintaining the functionality of Australia’s water markets. But fear of water speculators is a red herring, and any negative impacts of speculators on the water markets are likely to be dwarfed by that of government <a href="http://www.bendigoweekly.com.au/news/victorian-government-suspends-water-trading?A=WebApp&CCID=6661&Page=299&Items=6">intervention</a>, <a href="http://www.agriculture.gov.au/water/mdb/programmes">efficiency incentives</a> and <a href="http://www.abc.net.au/news/2016-11-21/what-is-the-murray-darling-basin-plan/8043180">ongoing</a> <a href="http://www.smh.com.au/environment/barnaby-joyce-sending-murray-river-to-certain-slow-death-says-south-australia-20161118-gssci4.html">political</a> <a href="https://www.theguardian.com/australia-news/2016/nov/18/sack-barnaby-joyce-for-ditching-plan-to-return-water-to-murray-river-says-sa-minister">uncertainty</a>.</p><img src="https://counter.theconversation.com/content/69492/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erin O'Donnell is currently completing her PhD and receives funding in the form of an Australian Postgraduate Award. </span></em></p><p class="fine-print"><em><span>Adam James Loch receives funding from the Australian Research Council under a Discovery project (DP140103946) and a DECRA Fellowship (DE150100328). He is also currently funded by UNESCO to examine the usefulness of water markets in various global contexts. Adam is affiliated with the Australian Agricultural and Resource Economics Society as the President of the South Australian branch. </span></em></p>The market for water entitlements is worth tens of billions, encouraging investors to raise funds and get involved. But the data shows they aren’t having a big impact on prices.Erin O'Donnell, Senior Fellow, Centre for Resources, Energy and Environment Law, The University of MelbourneAdam James Loch, Senior Lecturer / DECRA Fellow, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/336132014-11-11T10:37:51Z2014-11-11T10:37:51ZFinancial speculation: the good, the bad and the parasitic<figure><img src="https://images.theconversation.com/files/63494/original/wnbmpgg8-1414977257.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Trading floors like this one -- at the old American Stock Exchange in the 1980s -- are at the heart of capitalism and financial speculation. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/21734563@N04/3036628966">David Foster/Flickr via CC BY-ND</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>The word “speculation” carries a connotation of negativity. And it’s probably fair to say that pretty much every financial crisis since the tulip mania of the 1630s can be <a href="http://www.amazon.com/Manias-Panics-Crashes-Financial-Investment/dp/0471467146">attributed</a> to some sort of mass speculation. There is no question that speculation caused the financial crisis of 2008, first in housing, and then in <a href="http://www.e-elgar.co.uk/bookentry_main.lasso?id=14015">derivative securities</a>. Recent reports on the multiple advantages enjoyed by high-speed traders again brings speculation to the fore and, with it, the <a href="http://online.wsj.com/articles/fast-traders-are-getting-data-from-sec-seconds-early-1414539997?KEYWORDS=high+speed+trading+and+SEC">question</a> of whether it is good, bad or indifferent for the economy. </p>
<p>But first, what does “speculation” really mean? As frequently as it’s used, the term is equally misunderstood. We don’t really define it. Rather, it is one of those things that we know when we see. In order to evaluate speculation, we must first understand what we mean by it.</p>
<p>The definition of speculation has shifted over time, at least with respect to financial markets. At the end of the 19th century, speculation generally meant investing in companies for which you had little or no information. Within a decade, the more common usage was investing in securities where dividends were uncertain. This meant common and, to some extent, preferred stock. Since all dividends are discretionary, all forms of stock were considered speculative. And dividends were <a href="http://online.wsj.com/articles/fast-traders-are-getting-data-from-sec-seconds-early-1414539997?KEYWORDS=high+speed+trading+and+SEC">important</a> because it was to get those – not capital gains – that people bought stock.</p>
<h2>Speculation’s existential crisis</h2>
<p>Matters changed starting in the 1960s. The move from dividends to capital gains had begun in earnest. Speculation now meant investing in the hope of capital appreciation – that is, selling to somebody for a higher price than you paid. Economists writing in the new field of finance claimed that speculation didn’t really exist because markets efficiently priced securities at their anticipated earnings discounted to their present value. This meant that a share of stock was worth what you paid for it. That was investing, not speculating. Cold hard realities have <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1655739">brought this belief</a> into serious question. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/63560/original/hpx7yzk7-1415032260.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/63560/original/hpx7yzk7-1415032260.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/63560/original/hpx7yzk7-1415032260.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/63560/original/hpx7yzk7-1415032260.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/63560/original/hpx7yzk7-1415032260.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/63560/original/hpx7yzk7-1415032260.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/63560/original/hpx7yzk7-1415032260.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/63560/original/hpx7yzk7-1415032260.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The tulip mania in the Netherlands in the 1600s is often considered this first recorded speculative bubble. The price of tulip bulbs surged in value then suddenly collapsed.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/veridiano3/13566892413/in/photolist-mERSsa-7D49v3-mERLUg-dZiAtQ-dZcTxk-dZcUK6-dZiB5U-dZiAy9-dZiBBN-dZcT1i-dZcTYi-dZiACY-dZcSSt-dZizUU-dZiAMU-dZcUat-dZcTV6-dZcSVD-dZcT6K-dZizZm-6iXYMA-857Mqk-4HXG55-GVuQb-F7WDV-mERHdZ-HiNRD-mERcvH-7GQhAX-7GUecA-7GUcgU-2sunmR-7GQhcv-7GQi4B-nJvuNC-FbtEe-mESJYG-HiNRr-7vjLb3-egQP1z-ec7yDM-huDz49-9DfZ2m-9N1sKR-ctzfCJ-9yASWX-gmKTRz-gmMFuK-ePyTra-a9L5">Riccardo Palazzani/Flickr via CC BY-NC-SA</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>There is less doubt about the speculative nature of derivative securities that began to develop in the 1990s and exploded at the turn of the 21st century. Those “claims on claims” (or, in Warren Buffett’s felicitous phrase, “financial weapons of mass destruction”) split up the <a href="http://krugman.blogs.nytimes.com/2010/04/18/six-doctrines-in-search-of-a-policy-regime/">underlying financial assets</a> into ever smaller pieces. </p>
<p>Think of the shape of a tornado. The productive asset – the asset that generated the revenue to pay the claims – was a point at the bottom. As claims proliferated from that point up, they expanded higher and higher, wider and wider, far beyond the capacity of the energy at the bottom – the earnings – to sustain it. When investors at the top woke up and realized this, they started massive selloffs – and the whole structure came crashing down. Another way of looking at this is as a Ponzi scheme. It carries the patina of investment legitimacy because, unlike a classic Ponzi scheme, there is <em>some</em> source of earnings. But those earnings are so inadequate to support the securities superstructure that a Ponzi scheme is an appropriate metaphor.</p>
<p>Based on history and contemporary usage, I would define as “speculative” assets that have little or no identifiable financial substance, the returns from which are expected to come from its sale at a higher price to somebody else. The logical conclusion based on this definition is that speculation is never good, at least in the sense that it never contributes to the productive economy. The principle negative economic effect of speculation is to divert resources away from production and into the speculative casino. As long as it’s not excessive, it isn’t all that bad. After all, we allow gambling. Where it becomes bad is when it causes damage to the rest of the economy. And that occurs when speculation becomes parasitic on the productive economy.</p>
<h2>An economic parasite</h2>
<p>Here are a few examples of that happening. Stock bubbles are speculative. It is unlikely the underlying corporations could earn anywhere near enough money to justify prices in any reasonable time frame. That makes them speculative. Stockholders, however, expect management to sustain or increase prices. This <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1557730">puts pressure</a> on managers to manage for the short-term, damaging the long-term prospects of the productive asset – the underlying corporation.</p>
<p>Mortgage-backed securities provide another example. The concept behind them is legitimate. Commercial banks are limited in the amounts they can lend based upon their capital reserves and the risk of the loans they already have made. When banks sell off some of their risk – as they do in the case of mortgage-backed securities – the amounts of money they are able to lend increases. So it is with other asset-backed instruments – car loans, consumer loans and the like. These assets, when kept within reason, are not speculative, because their return depends upon earnings from the underlying asset. And this behavior is good for the economy because it allows banks to lend more money in the productive economy.</p>
<p>When it becomes bad – when it becomes speculation – is when ever-increasing sums of money are invested in derivative products promising substantial returns that are not supported by the actual underlying earnings. At this point, money that could be invested in the productive economy is diverted to the purely derivative economy – the speculation economy – where it continues to recirculate until the inevitable crash.</p>
<p><a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1129340">Speculation</a> has been, and always will be, with us, whether in financial markets or otherwise, the Dodd-Frank Act notwithstanding. So we would do well to impose some restraints. </p>
<p>There are a number of ways we can control speculation, or at least keep it within bounds that might diminish its harm. Perhaps first among these is tax reform, as I’ve outlined in my previous <a href="http://www.amazon.com/gp/product/B0014TQJ7E?btkr=1">research</a> on the topic. Establishing a punitive capital gains tax regime for flipping an asset too quickly and something approaching tax relief for longer-term holdings, ideally on a sliding scale, would go a long way toward eliminating non-economic “investments.” </p>
<p>Changing accounting rules so that cash flow becomes more important than earnings per share is another strategy that would significantly reduce the opportunities for creative bookkeeping. It would also help to ensure that the underlying value of the asset can support the returns of the investment securities based on it. There are many more ways to help prevent good speculation from becoming parasitic, but these suggestions are, I hope, a good start.</p><img src="https://counter.theconversation.com/content/33613/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lawrence Mitchell has previously received funding from the Alfred P. Sloan Foundation and Ford Foundation to present conferences and other academic events.</span></em></p>The word “speculation” carries a connotation of negativity. And it’s probably fair to say that pretty much every financial crisis since the tulip mania of the 1630s can be attributed to some sort of mass…Lawrence Mitchell, Professor of Law, Case Western Reserve UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/223672014-01-27T06:21:15Z2014-01-27T06:21:15ZTraders can no longer corner corn, but don’t expect stable prices<figure><img src="https://images.theconversation.com/files/39777/original/qcbsy6sh-1390494780.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">How much for the whole field?</span> <span class="attribution"><span class="source">jimmedia</span></span></figcaption></figure><p>“Mister Thorn once cornered corn and that ain’t hay” sang Ella Fitzgerald, in the year that two speculators cornered the market for onions in Chicago. It was 1956, and Sam Siegel, a Chicago trader, and Vincent Kosuga, a New York grower, had managed to buy up most of the onions in the city using futures contracts.</p>
<p>In a variant of the scam played by Eddie Murphy and Dan Aykroyd in the film “Trading Places”, Siegel and Kosuga first drove the price up by keeping their onions off the market. They induced a group of onion farmers to buy a large part of their inventory at a high price in a scheme to continue propping up the market value. </p>
<p>Siegel and Kosuga then reneged, taking advantage of the increased supplies of onions flowing to Chicago from the rest of the US, attracted by the high price. They used their physical inventory to “short” the market, driving the price down. </p>
<p>Contracting to deliver onions in March at US$1.02 which in the end could be bought for 10 cents – less than the cost of the bag they came in – they reaped a profit of 92 cents a bag. The speculators made a fortune and many onion farmers went bankrupt. </p>
<p>In response to the subsequent outcry, partly from the double-crossed accomplices, congressman and future president Gerald Ford promoted the Onion Futures Act, which means that onions are the only commodity in which futures trading is banned by law in the United States.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/8Gc4gdZh7CE?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Ella Fitzgerald knew an unfair futures market when she saw one.</span></figcaption>
</figure>
<p>The European Union has now taken steps to prevent any future Mr Thorn cornering corn. <a href="http://www.ft.com/cms/s/0/e8ea5246-7cf5-11e3-a579-00144feabdc0.html">MIFID2</a> (the revised Markets in Financial Instruments Directive) provides for regulators to impose limits on the size of the bets commodity futures dealers can place. </p>
<p>Speculators make money in two ways. If they hold a “long” position, having agreed to buy more than they have sold, then a price increase is good news. Now, they can sell the commodity for which they have agreed a fixed price at a profit. </p>
<p>They can also make money if prices fall when they hold a “short” position, having agreed to sell (at a future date) more commodity than they have bought. They can then buy the extra commodity they must deliver for less than the fixed sale price, and the difference is profit.</p>
<p>Whether long or short, the larger the position, the larger the profit (or loss, if the price goes the wrong way). Since market prices respond to buy and sell orders, large deals can drive the price in the speculator’s favour and deliver an easy kill, as in the onions case.</p>
<p>The EU’s action is a response to the 2008 crisis and the preceding commodity boom. According to the EU’s internal markets commissioner the aim is “to improve the way capital markets function to the benefit of the real economy”. Yet does the real economy need commodity speculators at all?</p>
<p>The irony is that the early futures exchanges were established to offset the effects of speculation in spot markets (the markets for immediate delivery, “on the spot”). Both growers and processors of commodities want to fix the prices they receive or pay at harvest and not be at the mercy of the market on the day. Thus futures contracts can provide a valuable hedge against price fluctuations. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/39775/original/wxfxpvjb-1390494435.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/39775/original/wxfxpvjb-1390494435.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=910&fit=crop&dpr=1 600w, https://images.theconversation.com/files/39775/original/wxfxpvjb-1390494435.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=910&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/39775/original/wxfxpvjb-1390494435.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=910&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/39775/original/wxfxpvjb-1390494435.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1143&fit=crop&dpr=1 754w, https://images.theconversation.com/files/39775/original/wxfxpvjb-1390494435.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1143&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/39775/original/wxfxpvjb-1390494435.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1143&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Don’t try this scam at home.</span>
<span class="attribution"><span class="source">theleetgeeks</span></span>
</figcaption>
</figure>
<p>Speculators, it is argued, provide a useful service by studying the “fundamentals” and smoothing the balance between supply and demand over time. <a href="http://www.sciencedirect.com/science/article/pii/S0014498306000155">Some academics</a> argue that the historical evidence indicates that the banning of futures, like the Onion Futures Act, actually increases price instability.</p>
<p>Nevertheless the high cost of carrying physical stock and the limited availability of finance constrains the ability of a private speculator to take more than a very short-term position. Thus destabilising activity may be the only profitable option. </p>
<p>This process is nothing new. Back in the 1930s <a href="http://people.ds.cam.ac.uk/mgh37/Specpreprint.pdf">John Maynard Keynes wrote</a>:</p>
<blockquote>
<p>Experience teaches those who are able and willing to run the speculative risk that when the market starts to move downwards it is safer and more profitable to await a further decline … Even if it would pay to buy at the existing price on longer-period considerations, it will often pay better to wait for a still lower price.</p>
</blockquote>
<p>This EU initiative will not prevent speculative pressure if the sentiment takes hold in the market that the price is moving one way. The fall of sterling in 1992 was caused not solely by the speculative position taken by George Soros’ hedge fund, but by the signal this sent to the market as a whole. </p>
<p>The real problem is the (literally bankrupt) doctrine of financial liberalisation which allows footloose capital to move from market to market, testing for weaknesses like a burglar checking windows. A better sequel to MIFID1 would be its repeal.</p><img src="https://counter.theconversation.com/content/22367/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Hayes has received research funding from Co-operatives UK. He is affiliated with Shared Interest, the co-operative lending society that finances Fair Trade.</span></em></p>“Mister Thorn once cornered corn and that ain’t hay” sang Ella Fitzgerald, in the year that two speculators cornered the market for onions in Chicago. It was 1956, and Sam Siegel, a Chicago trader, and…Mark Hayes, College Lecturer in Economics, University of CambridgeLicensed as Creative Commons – attribution, no derivatives.