Maybe youngsters really want to buy a state-backed digital product to add to their Minecraft and Fortnite skins, or virtual Nike sneakers and Gucci bags to display in the metaverse. This all seems pretty silly to me, but then what do I know?
The idea of NFTs is to use cryptographic blockchain technology, the tools behind Bitcoin, to create unique tradable claims to a digital thing – an image, a “first edition” of a piece of music, membership at the Bored Ape Yacht Club.
These have really taken off in the past couple of years when people have been spending a lot of time at home, online, and with money burning a hole in their pockets. Digital art has exploded: More than $18 billion was spent on nearly 17 million images and other collectibles between April 2021 and March 2022, according to a report on money in the metaverse last week. Citigroup analysts. This all came after the OMG moment when a Beeple piece sold for $69 million at Christie’s auction house.
But the art is barely half that: NFTs could be used to confer property rights across the entire metaverse no matter what. Projections about the potential value of digital items are all improvised guesses. What is real is the amount already spent and invested. Last year, venture capital funding for NFT startups jumped to $4.8 billion, up from almost nothing the previous year, according to Citigroup.
So what would a Royal Mint NFT commemorate? Royal events are popular among older people, but it’s probably not a theme that would appeal to the target market. The subject can be anything: the Mint produces thousands of coins (made of real material) for collectors interested in dinosaurs, Stephen Hawking, Wallace & Gromit or Brexit among a mystifying selection.
But why is Sunak even doing this? He saw a vision of tax revenue wavering in the future. He wants to “make the UK a global hub for crypto-asset technology”.
Britain has a habit of jumping on the financial trains. George Osborne, finance minister from 2010 to 2016, made a big splash to make London the global hub for offshore renminbi bonds out of China. In 2016, London hosted China’s first renminbi sovereign bond sold overseas. Since then, well… The London Stock Exchange Group says 18 issuers have listed more than 100 bonds worth 32 billion renminbi, or about $5 billion, which isn’t a lot.
There is a lot of hype surrounding crypto and there is no doubt that Bitcoin and its rivals are still extremely volatile speculative playthings. But large institutions are researching and experimenting with all aspects of this technology. It’s often for boring things like payment processing: JPMorgan Chase & Co., for example, has JPM Coin, which is intended to make cross-border payments faster and cheaper.
Banks are preparing for the day when they can use blockchain technology to “tokenize” all kinds of financial assets and make them more easily tradable. They just need regulators to establish reliable ground rules.
Securities and Exchange Commission Chairman Gary Gensler is mobilizing support and pushing to work with the Commodity Futures Trading Commission to do just that – determining how market makers, custodians and other participants should have their roles defined and separated if necessary.
Huge unanswered questions remain. With NFTs, the collector who buys it doesn’t necessarily own the thing they paid for. Typically, they own a record of a web address where they can view metadata indicating that they own something. Perhaps the creator retains the original ownership rights – although you could say the same for a first edition of Harry Potter or Oliver Twist. Maybe smart people can forge versions of an NFT that you think you have.
Perhaps the computing power needed to mine anything crypto-related is just too power-intensive to be viable for regular use. But to be clear, the big banks and investors are gearing up to exploit it in any way that seems 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 stupid bit of political marketing. But governments and regulators absolutely must do all they can to thoroughly understand this technology and prepare for all the ways it could be used in the decades to come.
More from Bloomberg Opinion:
• Russia’s push into crypto is a big step backwards: Izabella Kaminska
• Expensive crypto hacks are now a part of Web3 life: Parmy Olson
• Fintech all over India. Banks need a counterattack: Andy Mukherjee
This column does not necessarily reflect the opinion of the Editorial Board 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.
More stories like this are available at bloomberg.com/opinion