JURNALISM IS ON telling a story rather than living it. Yet sometimes these two realities collide. When a new technology shows promise, trying it out can help tell the story. In September, we wrote that non-fungible tokens (TVNs) and the crypto infrastructure on which they are based could ultimately transform finance and the digital economy. Our cover image that accompanied the article, inspired by “Alice in Wonderland”, shows Alice tentatively peering over the edge of the rabbit hole in this strange new world.
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Now she is one of them. October 25 The Economist auctioned a TVN of this cover image, raising 99.9 ethers (approx. $ 420,000) for charity. In addition to raising funds for a good cause, the sale allowed us to better grasp the potential of the technology.
a TVN is a record, usually on the Ethereum blockchain, that represents digital media: an image, for example, or text, or a video. Invented in 2014, TVNs experienced a mini-boom in 2017 as “cryptokitties,” collectible digital cat images, began selling for thousands of dollars. But tokens made headlines in March this year when Christie’s, an auction house, sold a TVN a work by Beeple, a digital artist, for $ 69.3 million.
Today, the total value of TVNEmissions issued on the Ethereum blockchain are worth $ 14.3 billion, according to DappRadar, a research firm, up from around $ 340 million last year. According to a March poll by Harris, a market research company, 11% of American adults say they bought a TVN (only a percentage point less than those who invest in commodities). Analysts at Jefferies, an investment bank, expect the value of TVNs to double next year and approach $ 80 billion by 2025. Plus, the use of tokens extends beyond cats and collectibles. Over time, they could prove useful for all kinds of activities in the digital world as well as in the real world.
TVNs are crypto-tokens, like bitcoin or other cryptocurrencies. Bitcoin, however, is fungible: one unit is worth the same as another, much like a dollar bill or a printed copy of the last issue of The Economist. TVNs, like airline tickets and baseball cards, are not. Tokens store certain data, often including the name of the TVN and a link to a digital image. Each token is unique and can only be kept in one online wallet. The image, however, can be viewed, copied or downloaded by anyone.
More curious and more curious
Why would such a montage exist? TVNs were invented by Anil Dash, an entrepreneur, and Kevin McCoy, an artist, to help convey that an item was a digital original. They offer proof that the holder owns that specific token, even if that does not give them the copyright or exclusive use of that work. Even Mr. Dash seems a little stunned by their popularity. “If you liked a work of art, would you pay more for it just because someone put their name in a spreadsheet?” I probably wouldn’t, ”he wrote in April. But, he added, “Putting works of art on the blockchain is like listing them in an auction catalog. This adds some certainty to the work envisioned. There is some value in being able to separate the artist’s original creation from simple copies.
TVNs have other potentially useful features. Because they live on an open blockchain system, the history of transactions involving them can be viewed publicly. This allows functionality to be coded into the contracts that govern their buying and selling. Digital artists can keep an interest in their work, entitling them to a share of the proceeds if the digital original is sold. This is something that small artists might find it difficult to enforce through conventional means.
In theory, a TVN could refer to a text comprising a legal contract which confers a specific type of property right or ownership. In practice, however, nothing is included. Art property rights TVNRather, s are generally defined by the specific platform used to issue them. Some specify that the issuer of a TVN must have the copyright in the work they hit. The terms of the Foundation, the platform that The Economist used, specify that the buyer of a TVN has rights that resemble a license to use an image in a limited way: they can view and copy publicly TVN for personal use, for example, but cannot use it for commercial purposes.
If I had a world of my own
Monthly NFT-Trading volumes on designated art platforms, including Nifty Gateway and Foundation, hit $ 205 million in March this year, with the sale of Beeple’s opus marking the peak of the frenzy. The ardor for art has since cooled. But the wider market of TVNs evolves. The idea of issuing a unique token that contains information, proves ownership, and includes certain proprietary rights has emerged for other uses. Secondary trading on OpenSea and Rarible, platforms that offer all kinds of TVNs, has been stable (see graph).
Many venture capitalists and developers are trying to create a new kind of digital economy, in which everything you do online will be executed through “decentralized” applications that can be owned and operated by their users. The distribution of all kinds of digital content, like images, videos, and even articles, could eventually start to happen through something like this today. TVNs.
Something similar is already happening in games. Among the most valuable categories of tokens are those used in “Axie Infinity”, a game with 250,000 daily active users. Players collect, breed, fight and trade small creatures, which are scanned as TVNs, and earn other tokens, some of which give them an interest in the development of the game. Dom Hofmann, a creator of Vine, a video-sharing app that has since been shut down, launches Supdrive, a gaming platform video in which the games themselves are sold as TVNs. And some of the larger types of TVNs are the ones used to swap virtual plots of land in immersive online worlds called “metavers”.
But tokens could also be useful for real-world activities. Some universities are experimenting with their use to fund research. The University of California at Berkeley raised $ 50,000 by selling a TVN based on documents relating to the Nobel Prize-winning research on cancer immunotherapy as a collector’s item. He is planning another similar auction. The country of San Marino has approved the use of tokens as digital passports for the covid vaccine.
The fact that they report proof of ownership could TVNs useful for financial activities. Just as they make virtual land transfers possible, they could become a means of exchanging actual property deeds or other types of contracts. In June, Michael Arrington, the founder of TechCrunch, a media company, sold an apartment in Kiev (the platform listing the property obtained the agreement of the Ukrainian government that the sale of the TVN would be recorded as a transfer of a deed of ownership). TVNIt would also allow buyers and sellers to operate a growing number of decentralized blockchain-based financial applications that can make loans without the need for trusted intermediaries.
Like any new technology, TVNs have flaws. Technical limitations when creating them mean they contain a link to the image, rather than the image itself. This can be a weakness: Unscrupulous sellers have broken or changed links after a transaction. Blockchain technologies consume electricity for no reason; we believe our experience has created emissions similar to a seat on a long-haul flight. And the identity of a buyer of a TVN, and the source of their funds, cannot always be known. Some solutions are under study: a decentralized storage system, for example, tries to solve the problem of broken links; some applications try to touch the blockchain as little as possible, generating fewer emissions. If the promise of technology is to be fully realized, more innovation will be needed.
Time will tell then if cryptokitties turn out to have been the start of a revolution in the way people live their lives online. But our experience suggests that the potential for a new kind of digital economy seems great enough, at least, to warrant further examination. ■
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This article appeared in the Finance & Economics section of the print edition under the title “Through the Looking Glass”