Tokenised is your weekly read to navigate and mine the rich vein of crypto developments that flow through India and SouthEast Asia
Good Afternoon Dear Reader,
Welcome to this week’s edition of Tokenised, your weekly read mining the rich vein of crypto developments flowing through India and SouthEast Asia.
In case you saw the front-page ads in Indian newspapers for short-video app Chingari’s crypto adventure and were wondering what it's all about, check out last week’s edition. We unpacked how the company is trying to build a crypto token of its own, and why it wants to do so.
This week, we turn our attention to non-fungible tokens (NFT) and a question that has always bugged me about this newfangled form of digital asset: where do they actually live? We also look at how China’s restrictions on crypto mining have driven miners into countries like Kazakhstan and the United States and, for the uninitiated, a brief look into what crypto mining is.
Let’s jump right in.
Where do the NFTs live?
What do the British Museum, Paris Hilton, Wong Kar-wai, and Salman Khan have in common?
All of them have been hawking non-fungible tokens (NFT) in recent times. And given how well it’s been going, their tribe might just keep growing. While Wong sold unseen clips from his iconic film In the Mood for Love for US$550,000 at a Sotheby’s auction, Salman Khan has announced plans to auction still images of himself as part of his dip into the NFT pond.
But let’s back up a little and look at what NFTs are first. As their name suggests, they are non-fungible—unique—unlike fungible crypto tokens such as bitcoin. This makes NFTs a great way to monetise digital items because, as unique tokens, they can be used to represent ownership of a digital asset. And this ownership can then be traded by simply buying or selling the NFT.
Though celebrities, museums, sports stars, and digital artists have all jumped onto this bandwagon of digital collectibles, few buyers understand that an NFT and the thing it represents aren’t the same. And that there are limitations on custodial rights that come with such a token.
It’s important to understand that a video clip from In the Mood for Love, or Paris Hilton’s doodle of her cat, doesn’t actually ‘live’ on a blockchain (token). Instead the file is stored at a traditional web address which is likely to be controlled by the artist or company issuing the token. This essentially makes NFTs a deed of sale for the asset that the buyer purchases when they buy a token.
Therefore, while the token itself is a somewhat-resilient record of ownership given that it's registered on a blockchain, the underlying asset—which confers the real value—might just disappear one day if the issuing authority withdraws it or shuts shop.
Major marketplaces for NFTs, such as OpenSea, also acknowledge these caveats. As observed by Juliet Moringiello and Christopher Odinet, law professors at Widener University and the University of Iowa respectively, in a forthcoming paper for the Florida Law Review:
OpenSea Blog contains a long post called The Non-Fungible Token Bible: Everything you need to know about NFTs. In it, the author also debunks an important and widely-held belief about NFTs—that NFTs are permanent because they are attached to smart contracts. They are not. Individuals must use web or mobile app portals to access their NFTs. If those sites or apps disappear, so does much of the NFT’s value.
Put simply, the existence of an NFT doesn’t exactly guarantee that the asset you own will exist in perpetuity. It’s more of a signboard that indicates where that asset currently resides and can be used to call it up as needed, much like a URL does for a website.
“I use the analogy of OpenSea and similar platforms acting like windows into a gallery where your NFT is hanging,” Ed Clements, a community manager for OpenSea, told Vice’s Motherboard in March. He added that “the platform can close the window whenever they want, but the NFT still exists and it is up to each platform to decide whether or not they want to close their window.”
For people looking to dive into the world of buying and selling NFTs, a good starting point might be to just vet the galleries hosting the underlying art. For example, a well-funded firm like Dapper Labs (which has licensing deals with sports leagues like the NBA) might be a more reliable seller than an anonymous artist on the internet.
Given the nascent nature of the technology, there are also few legal protections that exist around them. “Apart from having solid proof that you paid for something, you own little else. NFTs, in their current form, are glorified bragging rights,” noted Pramod Emjay, a fintech consultant, in a blog post for law firm Ikigai Law.
While solutions like a large scale peer-to-peer file distribution system, such as the InterPlanetary File System (IPFS) built by Protocol Labs, promise to solve some of these permanence issues, it’s still early days yet.
Guaranteeing that an NFT will be around even if the platform behind it fails is, therefore, still an evolving pursuit. And to be fully honest, probably not one that consumers especially care about right now. Ownership bragging rights for a video clip of a flying cat with a rainbow trail are certainly more attractive than figuring out which obscure server-gallery it hangs in.
But at the same time, it’s a question that NFT makers and sellers need to grapple with, because customers will (eventually) demand assurances that the meme they shelled out serious money for won’t disappear overnight. For now, it would be a good start to remember that a transaction being recorded on a blockchain grants immutability to the transaction, but it doesn’t guarantee a perpetual existence for whatever asset was exchanged through it.
As noted by Moringiello and Odinet:
A blockchain, like a recording system, provides a record of ownership, but in the case of NFTs, all it provides is a record of who owns the NFT, not of who owns any reference asset.
With that, let’s turn to some other things that happened in crypto over the past few days:
Crispy Bytes
Payments behemoth Stripe has announced plans to build a crypto team. The payment processing software provider is reentering crypto after halting support for bitcoin payments back in 2018. [TechCrunch]
Tether, the largest stablecoin provider, has agreed to pay US$41 million to settle charges that it misrepresented the US dollar reserves backing its stablecoin. “To date, respondents have not completed an audit of the Tether Reserves,” the US regulator said in a statement announcing the settlement. [The Wall Street Journal]
Indian crypto exchanges are hoping that with a little help from Bollywood, bitcoin can take on gold during the Diwali shopping season in India. [Bloomberg]
Crypto exchange Binance has paused Yuan trading amid the intense, ongoing crackdown on crypto in China. [Nikkei Asia]
A bitcoin futures ETF went live on the US bourses this Tuesday. The ProShares Bitcoin Strategy ETF offers exposure to bitcoin futures contracts but not the spot market. It trades under the ticker BITO. [Bloomberg]
Back of the envelope
Crypto mining: Mining is the process by which transactions are validated on a crypto-asset network. In exchange for processing transactions, participants (called miners) are rewarded with transaction fees and freshly minted tokens as a reward.
Method: Put simply, miners use application-specific computer equipment to guess a 64 character-long code called the ‘hash’. This allows them to unlock a fresh block on the blockchain ledger and fill it with details of transactions.
Notable companies: Riot Blockchain, Marathon Digital Holdings, Hut 8 Mining, Bitmain.
Environmental concerns: Crypto mining tends to be pretty energy intensive and, given that a good chunk of this energy comes from burning fossil fuels, mining can have substantial negative impacts on the environment. Not only does mining crypto assets like bitcoin increase emissions, it can also lead to increased e-waste in the form of computer chips.
[Additional reading: If you’re curious about the environmental impact of Bitcoin, I recommend you read this great primer from The New York Times.]
What caught my eye this week
The United States is now the world’s leading hub for mining bitcoin.
About two months after China started cracking down on crypto mining operations, the country’s share of the hashrate—processing power used to mine bitcoin—has dropped from 75.5% in September 2019 to zero. Crypto mining restrictions unveiled by China have also sparked an exodus of mining companies to friendlier neighborhoods like the United States and the central Asian nation of Kazakhstan.
The US’ share of the mining pie has more than doubled from 17% in April 2021 to 35% in August, while Kazakhstan’s rose from 12.9% to 18% in the same period. Though crypto mining firms have enjoyed a warm welcome in the US, Kazakh authorities have blamed the ‘exiled’ miners for recent energy shortages. Kazakhstan has also passed a cryptocurrency mining tax that is supposed to come into effect in 2022.
Share this edition
That's all for this week's edition. I'll see you again next week. If you liked this issue of Tokenised, please do share this link. Or you can use the easy share buttons below.
Enter the email address that you’d like us to send this payment link to. This could be your HR, finance representative, or anyone from your organization. A copy of this email will be sent to the team’s admin as well.
Email Sent Successfully
Corporate pricing applies to teams of 5 or more members only.
Thank you. We have received your request to post comments. You’ll hear from us soon.
Are you sure? Your subscription will expire at the end of your current subscription period.
The Ken has added you as a partner. Read The Ken as a couple. Sign in to get started.
T
The Ken has added you as a partner. Read The Ken as a couple. Sign up to get started.
Having your name allows us to address you personally in emails and on our website. That’s all, nothing else.
T
The Ken has added you as a partner. Read The Ken as a couple.
The Ken’s stories are available only for paid subscribers. As a partner, you can now access The Ken subscription. For free. Just activate your account to get started.
T
The Ken has added you as a partner. Read The Ken as a couple.
The Ken’s stories are available only for paid subscribers. As a partner, you can now access The Ken subscription. For free. Just activate your account to get started.
By registering, you will be signed-up for a free account with The Ken
Sharp, original, insightful, analytical
Alert
Our anti-piracy system has flagged your account for suspicious activity and has temporarily paused your account. This may happen due to a number of reasons.
If you think that this was done in error, please get in touch with us at [email protected].
Are you sure?
You will be changing your registered email address to access your account. All email newsletters will be delivered to the new email ID.
As a part of the Learning and Development program at Myntra-Jabong, you have complete access to 300+ original daily stories over the next year, 500+ previously published stories and our comment sections. Also, do keep an eye out for our exclusive subscriber-only iOS and Android apps which will be rolled out for you shortly.
Happy Reading!
By continuing to browse our site you agree to our use of cookies to improve our performance and enhance your user experience.