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An NFT owner has no copyright or legal rights to the part if there is no contract. Digital artwork lives on the Internet where anyone can still “watch, listen or copy” without paying. When purchasing a TVN, the actual item is not purchased. See more stories on the Insider business page.
Non-fungible tokens have taken the world by storm, becoming the hottest thing in the cryptocurrency market in just a few months. They are touted as a way to revolutionize the way digital art is bought and sold. But a closer look reveals that NFTs are nothing more than a pump and dump system designed to enrich a few crypto insiders.
NFTs are unique tokens that live on a blockchain. While fungible tokens, like bitcoin, can be traded one-for-one, NFTs are unique and can be used to reference images, sound clips, videos, etc.
Speculative madness for NFTs peaked in March when Christie’s sold an NFT related to “Everydays: The first 5000 days”, a digital collage by Mike Winkelmann (more commonly known as “Beeple”). The token claiming to represent the massive JPEG sold for $ 69.3 million with fees, paid for in Ether, the native cryptocurrency of the Ethereum blockchain.
But the craze didn’t start there. Beeple NFTs were pumped out of crypto bros months before, culminating in a big sale that drew a media storm on NFTs and the world’s attention on a graphic designer few people had ever heard of before.
The true value of TVN
The intrinsic value of a TVN is zero. When you buy an NFT, you are not buying the underlying object. You buy an entry in a distributed database, which allows you to pass that entry to someone else. There’s also a bit of code in there that points to the digital object somewhere on the internet, but that’s basically it.
An NFT does not convey any copyright or legal rights unless a specific contractual agreement so stipulates. The digital artwork itself continues to live on the Internet, available for anyone to admire, view, listen to or copy, without paying the owner of the NFT a dime.
Jorge Stolfi, professor of computer science at the University of Campinas in Brazil, says the very idea of a digital collectible makes no sense.
“A purely digital artifact, a bit pattern, such as a JPEG image or an MP3 song file cannot be a collector’s item because it can be duplicated billions of times, and each copy is exactly the same as the original. Not just similar or even identical, but the same, “he said.
He compares NFTs to the International Star Registry. In 1979, Ivor Downie, a Canadian, had the idea of selling the stars in the sky. You gave him a few dollars, and he would pick an unnamed star from an astronomical photo, and enter his contact details and information into his company ledger, making you the “owner” of that star.
“Everyone (well, almost everyone) understood that the registry only provided purported ownership, no legal right to possession of the star,” Stolfi said.
Here’s the difference as the price of stars on the registry never exceeded $ 100, NFT prices have skyrocketed, so what determines their value?
Bidding wars
A quick glance at NFTs being sold for the biggest sums reveals that prices are usually the result of bidding wars between two crypto insiders or a crypto insider and an anonymous agent, whom no one is able to identify. .
Beeple’s “Everydays” NFT price skyrocketed because the buyer who only went through “Metakovan” at the time, but turned out to be crypto entrepreneur Vignesh Sundaresan was locked in a war auction with Justin Sun, CEO of Tron’s blockchain.
Metakovan placed the winning bid in the final moments of the auction, making him an instant celebrity and drawing a lot of attention to another project he had pitched his B20 token on, a way to split up a previous round of Beeple. NFT which he had acquired, in a strategic plan to triple or quadruple his investment.
Turns out it wasn’t Metakovan’s first NFT rodeo. The Singapore native had anonymously increased the price of Beeple NFTs from October. That’s when Beeple, which previously sold its parts for as little as $ 100 and only recently learned that NFTs were the thing, launched its first drop on Nifty Gateways, a specialty online marketplace.
The drop consisted of three pieces: “Politics is Bullshit”, a limited edition of 100 copies, and two singles: “Crypto is Bullshit”, an obese President Trump wearing a Guy Fawkes mask and giving the bird while riding a bull ; and “Crossroads”, a 10-second clip of the 2020 election.
The NFTs for “Politics is Bullshit,” a defecating bull with an American flag painted on its side, initially sold for $ 1 each, but since April they have sold for up to $ 600,000. (Many of these online marketplaces allow the artist to get a share of future sales. In this case, Beeple gets 10%.)
Both individual editions were bought by Pablo Rodriguez-Fraile, a longtime NFT collector, but the price was increased by Metakovan who was bidding against him to drive up the price of Crossroads. While someone known only as “Ozark” raised the price of “Politics is Bullshit”.
Rodriguez-Fraile ended up paying the exact same $ 66,666.60 for each of the items. (A mathematician who loves patterns and numbers, Rodriguez-Fraile claims to have started unconventional auction numbers.)
Four months later, Rodriguez-Fraile made $ 6 million when he returned “Crossroads”, for $ 6.6 million, by selling it to an anonymous buyer, under a deal brokered by the service. purchase of art from Nifty Gateway. (He didn’t want to name the buyer, but told me he was “very well known and respectable”.)
Anonymous buyers, friends, aliases
Washing trading when assets are bought and sold by the same people to drive up the price is a notorious issue in cryptocurrency trading. As a result, the asset becomes attractive to naïve investors, who believe the price will continue to rise, or that they have just landed a fantastic deal.
Here is an example of how it might work. I hit an NFT and buy it for myself for $ 1 million, which makes this NFT worth $ 1 million based on its price history. I then sell this NFT at “half price” at a clearance sale to someone who doesn’t know better. I just won $ 500,000.
Will Cong, professor at Cornell University who wrote an article on crypto-wash trading, says the incentives to participate in wash trading in NFT markets and regular cryptocurrency markets are the same, but identify fraud is even more difficult.
“Even in traditional auction houses, buyers and sellers can ask to be anonymous,” he told me. “It’s just that the detective work here is even more difficult.”
And here is the problem. Because NFTs are often offered by anonymous buyers, it is difficult to assess exactly what the relationship is between artists, sellers, and buyers if some of them are even the same people, or if they have a pre-existing trade agreement.
When Metakovan, for example, bought the 20 Unique Editions of Beeple’s 2020 Collection on Nifty Gateways in December for $ 2.2 million, he used aliases. And he donated 2% of the supply of B20 tokens to an index fund representing the value of those NFTs to Beeple.
Even though the initial NFT sales appear to be gangbusters, how will value hold up when people go and sell their NFTs in secondary markets? This is the real test of whether primary sales are real or just a bunch of crypto whales getting to know each other by throwing money back and forth.
It’s hard to assess, however. The non-fungible market is very illiquid. In liquid markets, like bitcoin, where there are a lot of buyers available, you know where you stand. Whereas if you are selling your wares in an NFT market, it may take weeks to realize that you have been snooked.
The CryptoKitties ‘CryptoKitties’ collectible ‘repeatable’ cats on the Ethereum blockchain were one of the first use cases for NFTs. They were a huge hit after their launch in late 2017, with one of the most expensive cats selling for $ 155,000 in ether. Six months later, prices were down 95%.
Likewise, NFT buyers will end up with the bag, when people realize that what people believed to be collectibles is better to be disposable.
Learn More: How to buy Bitcoin
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