The Econmist - USA (2021-10-30)

82 Finance&economics TheEconomistOctober30th 2021

nfts haveotherpotentiallyusefulfea­

tures.Becausetheyliveonanopenblock­

chainsystem,thehistoryoftransactions

involving them can be viewedpublicly.

Thatmakesit possibletocodefeaturesinto

thecontracts that govern how they are

boughtandsold.Digitalartistscanretaina

stakeintheir work,entitling themto a

shareoftheproceedsifthedigitaloriginal

goesontobesold.Thisissomethingthat

small artists might struggle to enforce

throughconventionalmeans.

Intheory,annftcouldlinktotextin­

cludinga legalcontractthatconfersa spe­

cifictypeofpropertyrightorownership.In

practice, however, nothing is included.

Thepropertyrightsforartnfts areinstead

typicallysetoutbythespecificplatform

usedtoissuethem.Somemakeclearthat

theissuerofannftmusthavecopyright

overtheworktheyareminting.Theterms

ofFoundation,theplatformthatTheEcon-

omistused,spelloutthatthebuyerofan

nfthasrightsthatresemblea licenceto

useanimageinlimitedways: theycan

publiclydisplayandcopythenftforper­

sonaluse,forinstance,butcannotuseit

forcommercialpurposes.

If I hada worldofmyown

Monthly nft-trading volumes ondesig­

natedartplatforms,includingNiftyGate­

wayandFoundation, reached$205m in

Marchthisyear,withthesaleofBeeple’s

opusmarkingtheheightofthefrenzy.The

ardourforart hascooled since.Butthe

widermarketfornfts isevolving.Theidea

ofissuinga uniquetokenthatcontainsin­

formation,provesownershipandincludes

someownershiprightshastakenholdfor

otheruses.SecondarytradingonOpenSea

andRarible,platformsthatofferallsortsof

nfts,hasbeenstable(seechart).

Manyventurecapitalistsanddevelop­

ersareattemptingtobuilda newkindof

digitaleconomy,inwhicheverythingyou

doonlinewillberunthrough“decentral­

ised”applicationsthatcanbeownedand

operatedbytheirusers.Thedistributionof

allkindsofdigitalcontent,likepictures,

videosandevenarticles,couldeventually

starttotakeplacethroughsomethinglike

today’snfts.

Somethingsimilarisalreadyhappen­

ingingaming.Amongthemostvaluable

categoriesoftokensarethoseusedin“Axie

Infinity”,a gamewith250,000dailyactive

users. Players collect, breed, battle and

tradelittlecreatures,whicharedigitisedas

nfts, and earn other tokens, some of

whichgivethema stakeinhowthegameis

developed. Dom Hofmann, a creator of

Vine,avideo­sharingappthathassince

shutdown,islaunchingSupdrive,a video­

gameplatforminwhichthegamesthem­

selvesaresoldasnfts.Andsomeofthe

biggest typesofnfts arethose usedto

tradevirtualplotsoflandinimmersiveon­

lineworldsknownas“metaverses”.

Butthetokenscouldalsobeusefulfor

activities conducted in the real world.

Someuniversitiesareexperimentingwith

usingthemtofundresearch.TheUniversi­

tyofCaliforniaatBerkeleyraised$50,000

bysellingannftbasedondocumentsre­

latingtoNobel­prizewinningresearchon

cancer immunotherapy as a collectable

item.Itisplanninganother,similarauc­

tion.ThecountryofSanMarinohasap­

provedtheuseoftokensasdigitalcovid­

vaccinepassports.

Thefactthattheysignalproofofowner­

shipcouldmakenfts usefulforfinancial

activities.Muchastheymakevirtual­land

transfers possible, theycould become a

waytoexchangereal­lifepropertydeeds,

orothersortsofcontracts.InJuneMichael

Arrington,thefounderofTechCrunch,a

mediacompany,solda flatinKyivinthis

way(theplatformlistingthepropertygot

agreement from Ukraine’s government

thatthesaleofthenftwouldberegistered

as a transfer of a propertydeed). nfts

wouldalsoallowbuyersandsellerstotap

intoa growingnumberofdecentralised­fi­

nancial applications that are based on

blockchainsandcanmakeloanswithout

theneedfortrustedintermediaries.

Likeany new technology, nfts have

flaws. Technical limits when they were

firstcreatedmeanthattheycontaina link

totheimage,ratherthantheimageitself.

Thatcanbea weakness:unscrupuloussell­

ershavebrokenorchangedlinksaftera

transaction.Blockchaintechnologiescon­

sume electricity wantonly; we estimate

that our experiment created emissions

similar to having aseat onalong­haul

flight.And theidentityofabuyerofan

nft, andtheprovenanceoftheirfunds,

cannotalwaysbeknown.Somesolutions

areintheworks:adecentralisedstorage

system,forinstance,triestofixthepro­

blemofbrokenlinks;someapplications

trytotouchtheblockchainaslittleaspos­

sible,generatingfeweremissions.Ifthe

promiseofthetechnologyistoberealised

fully,moreinnovationwillbeneeded.

Time willtell, then,whether crypto­

kittieswillprovetohavebeenthestartofa

revolutioninhowpeoplelivetheirlives

online.Butourexperimentsuggeststhat

thepotentialfora newkindofdigitalecon­

omyseemsgreatenough,atleast,towar­

rantcloserexamination. n

Whatisitbuta dream?

NFTmarketplaces,tradingvolumes,$m

Source:CoinGecko

*Tradedonsevenartplatforms

†TradedonOpenSeaandRarible

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Art* General†

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http://www.economist.com /moneytalks

“D

owntherabbithole”,werethe

wordsonourcoverondecentral­

isedfinanceinSeptember.Toillustrate

it JustinMetz,a visualartist,lookedto

thefirsteditionof“AliceinWonder­

land”forinspiration.On25thOctober

weputa non­fungibletoken(nft) of

thatcoverupforsale.A littleovera day

later,aftera lateflurryofbids,it soldfor

99.9ether(around$420,000).

With“Downtherabbithole”we

soughttoconveythedizzyingsenseof

adventureandweirdnessassociated

withtheworldofnfts andblock­

chains.Thewinningbidder,whogoes

bythealias@9x9x9andspendsmany

hoursa daytradingnfts,toldusthat

thedescriptionwasbang­on.

Theproceedsofthesale,lessfees,

transactioncostsandpotentialtax

liabilities,willbedonatedtoTheEcon­

omistEducationalFoundation,an

independentcharitythatteachesyoung

peopletoanalysecurrentaffairs.The

Economistwillretaina royaltystakeof

10%ofallfutureresalesofthenft,

whichwillalsobedonatedtotheedu­

cationalfoundation.

Ourauction

The NFT party

Howthesaleofourcoverwent

A token of appreciation

NFT* of “Down the rabbit hole” cover of

The Economist, bid price, 2021, $’000†

*Non-fungible token †Conversion from

Source:Foundation etherinto dollars as of auction close

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