IF NOTHING ELSE, our auction of a TVN was entertaining and lucrative. From Monday, October 25 The Economist tender for a non-fungible token of an image from our recent decentralized finance coverage. TVNs are a digital deed of ownership that lives on a blockchain and can be purchased on financial platforms using digital currencies. At one point, a club of potential bidders formed a decentralized autonomous organization, called “RabbitHoleDAO “, to try to generate enough funds to buy our token. A scramble for bids forced the winner, who was called @ 9x9x9, to bid for 99.9 ethers, or roughly $ 420,000. The proceeds, net of fees, taxes and transaction fees, will be donated to The Economist Educational Foundation, an independent charity that we support.
Many others are having fun too. Like Pokémon TVNs are raised by a quarter of a million users of Axie Infinity, a video game. Armies of art lovers swap digital collectibles. TVNCoins on the Ethereum blockchain are now worth $ 14 billion, up from $ 340 million in 2020. Jefferies, an investment bank, believes the total will reach $ 80 billion by 2025.
At this point, you may well have a lingering doubt: what exactly are the owners of TVNs get? The best way to think about this is that TVNs are a way of unbundling property rights. Having legal title to a conventional asset usually confers a standard set of benefits. With a house, car, or company stock, your title provides proof of ownership, the right of exclusive use, the ability to charge for its use by others, and the right to receive the proceeds of a sale.
In high finance, it is common, with the help of expensive lawyers, to slice and dice elements of these rights, as in the case of a derivative contract. But this kind of flexibility is not affordable to consumers and small businesses. TVNs have the potential to change that. In our auction, we have defined the property rights using the default conditions on the platform. So the new owner of our TVN has license-like rights: they can display the image in certain ways, but cannot market it (by selling, for example, T-shirts with the image on them). On behalf of the charity that we support, we also have the opportunity to reduce any future sale of the token by 10%. In theory a TVN the sale can embody any combination of property rights conceived by the seller. There are other advantages. A public and irrevocable record of the transaction exists on a blockchain and works with other digital applications.
Yet despite all their conceptual promise, TVNs have three big practical flaws, as our experience has shown. Despite the elegant interface of TVN platforms, the process is a nightmare. This includes setting up a digital wallet, funding it to pay the fees associated with creating a TVN, creating the token and finding a way to convert the proceeds into conventional money in a bank account. For most legal and tax advisers, this is all virgin territory. The process is expensive: we paid for “gasoline,” a fancy word for fees and other charges. To become mainstream, decentralized finance applications will need to be as easy to use as an iPhone and less expensive than dealing with conventional financial intermediaries.
The second problem is energy. Our modest experience generated as many emissions as a seat on a long-haul flight. Most platforms are exploring how to reduce their energy consumption. Yes TVNs must be the Next Big Thing, they must innovate towards a neutral carbon footprint.
A third concern is the execution of contracts. We hope this won’t be a problem for our token, as the asset – a unique digital representation of an already widely disseminated cover image – will be used as part of decentralized finance, and there is no incentive. obvious to misuse it. But for TVNs which refer to goods outside this autonomous world, such as a patent or a building, the property rights conferred by the TVN may conflict with other contracts, and courts may not recognize the digital agreement.
This is starting to change. An apartment in Kiev changed hands this year, when a TVN the representative was sold under an agreement recognized by the Ukrainian authorities. But decentralized finance still has a long way to go before it is integrated into the legal system. The to-do list is daunting, but if these issues are resolved, TVNs could still become more than a symbolic gesture. ■
This article appeared in the Leaders section of the print edition under the title “Pleasure in the non-fungible”