Maybe young people really want to buy a piece of government-backed digital merchandise to add to their Minecraft and Fortnite skins, or virtual Nike sneakers and Gucci bags to flaunt in the Metaverse. It all sounds pretty silly to me, but then what do I know?
The idea of NFTs is to use blockchain cryptographic technology, the tools behind Bitcoin, to create unique tradable claims on a digital thing – an image, a “first edition” piece of music, membership in the Bored Ape Yacht Club.
These have evolved greatly in recent years as people have been spending a lot of time at home, online and with money burning a hole in their pockets. Digital art has boomed: More than $18 billion was spent on nearly 17 million paintings and other collectibles between April 2021 and March 2022, according to a report by Citigroup analysts last week on Money in the Metaverse. It all came after the OMG moment when a Beeple piece sold for $69 million at Christie’s auction house.
But art is only half of it: NFTs could be used to confer property rights throughout the metaverse, whatever that becomes. Predictions about the potential value of digital content are purely conjectural. What is real is the amount that is already being spent and invested. Last year, venture capital funding for NFT startups grew to $4.8 billion from nearly zero a year earlier, according to Citigroup.
So what would a Royal Mint NFT commemorate? Royal events are popular with the old folks, but it’s probably not a topic that the target market would be keen on. The theme could be anything: the mint produces thousands of coins (made from real material) for collectors interested in dinosaurs, Stephen Hawking, Wallace & Gromit or Brexit among an enigmatically large selection.
But why is Sunak even doing this? He saw a vision of flickering tax revenues in the future. He wants to “make the UK a global hub for crypto-asset technology.”
Britain has a habit of jumping on financial train wagons. George Osborne, Treasury Secretary from 2010 to 2016, made a big fuss about making London the global center for offshore renminbi borrowing outside of China. In 2016, London welcomed the first Chinese renminbi government bond to be sold offshore. Since then, well…. The London Stock Exchange Group says 18 issuers have listed more than 100 bonds worth 32 billion renminbi, about $5 billion, which is not much.
There is a lot of hype surrounding crypto and without a doubt, Bitcoin and its rivals are still highly volatile, speculative playthings. But large institutions are researching and experimenting with all aspects of this technology. Often it’s for boring things like payment processing: JPMorgan Chase & Co., for example, has JPM Coin, which aims to make cross-border payments faster and cheaper.
Banks are gearing up for the day when they can use blockchain technology to “tokenize” all types of financial assets and make them more easily tradable. All you need is regulators to set some reliable ground rules.
Gary Gensler, chairman of the Securities and Exchange Commission, is rallying support and urging working with the Commodity Futures Trading Commission to do just that — figure out how market makers, custodians and other participants should define their roles and separate them where appropriate.
There are still big questions to be answered. With NFTs, the collector who buys it doesn’t necessarily own what they paid for. Typically they have a record with a web address where they can view the metadata that says they own something. Perhaps the creator retains the original ownership rights – although the same could be said of a first edition of Harry Potter or Oliver Twist. Maybe smart people can fake versions of an NFT they think they own.
Perhaps the computing power required to mine anything crypto-related is simply too power-intensive to be viable for regular use. But to be clear, big banks and investors are preparing to exploit it in any way that looks profitable. It could be nothing, or it could be the stepping stone to the financialization of anything and everything.
A Royal Mint NFT is a dumb piece of political marketing. But it’s important for governments and regulators to do everything they can to fully understand this technology and prepare for all the ways it might be used in the decades to come.
More from the Bloomberg Opinion:
• Russia’s foray into crypto is a major step backwards: Izabella Kaminska
• Expensive crypto hacks become part of Web3 life: Parmy Olson
• Fintech is everywhere in India. Banks need a counterattack: Andy Mukherjee
This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. He previously worked for the Wall Street Journal and the Financial Times.
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