WHAT’S THE STORY?
Memes and Avatars: What’s the tea on NFT’s?
- The original image of the “Side-eying Chloe” meme was sold at auction as a “non-fungible token” (NFT) for £54,000. Bids kicked off at 5 Ether, the equivalent of £11,000 and it was bought by 3F Music.
- While a fungible item can be swapped with another similar item for the same value, NFTs are non-interchangeable and are a form of digital ownership verified on a digital ledger known as the blockchain.
- The increase of NFTs’ popularity alongside its inflated value may eventually attract regulatory crackdowns.
WHY IS IT INTERESTING?
The sale of Chloe Clem’s iconic meme as an NFT is part of a growing movement that allows artists to take back control over their work. NFTs can include smart contracts that give the original creator a percentage of future sales of the NFT, allowing creators to earn royalties as the NFT is sold on a secondary market. The NFTs’ popularity could be seen as the new Gold Rush with sales volumes hitting $1.9bn in August on OpenSea, the largest NFT trading platform.
The sporting industry is now profiting from NFTs with the NBA’s NFT of a 12-second clip of LeBron James dunking
being resold for more than $200,000. SoftBank have also announced a $680m investment into French start-up Sorare, an online gaming company that allows fans to buy and trade NFT football cards.
Many have been confused as to why one would purchase something that others can view for free – you can view that special LeBron dunk on YouTube, for instance! NFTs can be seen as a continuation of in-game purchases and the gamification of life into metaverses. Dolce & Gabbana recently unveiled a digital collection of dresses and tiaras in September that would be worn by one’s digital avatars and sold as NFTs!
While NFTs have become the hot new thing, the legal treatment of NFTs remains a developing area. While the UK and EU recognises resale rights of creative works, the United States does not recognise them and therefore there would be no recourse for unpaid resale royalties for US-based entities. It must also be noted that buying an NFT would not necessarily grant the new owner the actual copyright of the underlying work unless that forms part of the contract.
The process of “minting” or verifying an NFT is an energy-intensive process akin to Bitcoin mining, with an average transaction on Ethereum sufficient to power a refrigerator for a month.
Some marketplaces have come forth with alternatives such as gasless minting. While Ethereum wants to replace minting with a “staking” process that would reduce Ethereum’s carbon footprint by 99.98%, this practice is still in its early stages of testing. Perhaps Ethereum could consider some manure-powered minting in the meantime?
There have also been accusations that some groups are targeting retail investors by focusing on the potential for
profits via NFT sales speculation. NFT trading has also shown signs of volatility with the average daily sale of an NFT falling by 70% from mid-February to April 2021. Many have also called into question the inflated valuations of NFTs including digital artist Mike Winkelmann who sold a crypto art piece for almost $70m. Inflated valuations of NFTs may be a cause for concern for authorities as marketplaces such as ETNA Network have announced their plans to accept NFTs as collateral to access liquidity.
While NFTs are currently in their golden era, its fast growth may lead to regulatory crackdown. Recently, OpenSea launched an internal investigation after admitting that one of its top executives had been involved in insider trading. The potential bubble that NFTs are in may eventually lead the SEC to come knocking on their door just like they did with Coinbase. That led to Coinbase abandoning its digital asset lending product Lend after warnings from the SEC. We will just have to watch this space for now.
Written by Haamsaaveni Kumar, currently an LLM student at LSE and I truly believe that pineapple belongs on pizza (PW says “Your article was going so so well right up until the bit where you talked about the pineapple. What’s going on there? 😱)