You have probably heard of Bored Ape Yacht Club, a collection of non-fungible tokens (NFTs) created by Yuga Labs. These NFTs are owned by A-list celebrities and exploded in popularity in 2021. Currently, Bored Ape Yacht Club NFTs can sell for millions of dollars and are arguably one of the most popular and successful NFT collections in existence. As of January 4, 2022, it is estimated that sales of BAYC NFTs have surpassed one billion dollars. Ryder Ripps, a self-proclaimed “conceptual artist,” created his own NFT collection called the Ryder Ripps Bored Ape Yacht Club (RR/BAYC) in May 2022 using the same online digital images as the BAYC NFT collection, by generating new NFTs using the URLs embedded in the Bored Ape Yacht Club smart contracts. In July 2022, Yuga Labs, Inc. filed a lawsuit in California claiming Ryder Ripps et al. has misused trademarks owned and used by Yuga Labs since April 2021 (the BAYC Marks).
Ethereum, the second largest blockchain-based platform by market cap, is tentatively scheduled to convert its consensus mechanism from proof-of-work (PoW), which incentivizes miners to solve mathematical puzzles to update the blockchain, to proof-of-stake (PoS), which makes decisions about updates through a vote among holders that have “staked” cryptocurrency that is “at risk” due to bad behavior, on September 15. This software update (the “Merge”) will be a complete overhaul of the system that has been running for the past seven years. For nearly two years, a separate PoS blockchain, called the Beacon chain, has been operating parallel to the original Ethereum blockchain to allow software developers to test and enhance it. The Merge will join both together. PoS will require 99.9% less energy to maintain than PoW and, if successful, the Merge will permit more significant improvements to Ethereum in the future. This would be welcome news for the crypto industry, which has had a very difficult year so far.
Earlier this year, Ethereum co-founder Vitalik Buterin, in cooperation with economist Glen Meyl and researcher Puja Ohlhaver, published a research paper on soulbound tokens (SBTs). SBTs are publicly visible, non-transferrable (but possibly revocable by the issuer) digital assets representing “commitments, credentials, and affiliations.” Buterin et al. have said that such tokens would be like an “extended résumé” while others have said SBTs will enable protocols such as Ethereum to “encode social relationships of trust.” The ultimate use of SBTs would be to allow Ethereum to create a Decentralized Society (DeSoc), a concept that the authors define in their paper through the exploration of use cases and how those would enable a digital social ecosystem. At highest level, the DeSoc described in this paper is a bottom-up coordination between participants to build, participate and govern plural network goods. (An example of a plural network good is access to property that would otherwise be private.)
The non-fungible token (NFT) market has grown dramatically over the past 24 months. NFTs first garnered widespread attention when the artist Beeple sold digital artwork at Christie’s in March 2021 for $69 million. According to the DappRadar Industry Report, spending on NFTs exceeded $25 billion in 2021, but the market has been significantly lower this year and according to the The Wall Street Journal, “flatlined” last month.
On June 2, 2022, the New York Legislature passed a bill, S6486D, that would place a two-year moratorium on certain new cryptocurrency mining operations at fossil fuel energy plants in New York. The bill would also limit circumstances in which mining operations currently operating at plants in New York would be able to renew the permits or registrations that allow them to operate. However, the bill would not immediately require existing mining operations to cease, and the bill will not become effective unless it is signed by New York Governor Kathy Hochul.
On May 4, 2022, California Governor Gavin Newsom signed Executive Order N-9-22 to create a coordinated state regulatory approach for cryptocurrency and blockchain, with the further aim of harmonizing the state’s laws with those (potentially) enacted at a federal level. Another goal of the Order is to determine the usage of blockchain technology for state and public institutions. Through the Order, California is aiming to continue its innovation leadership by developing new and clear rules in support of the further development of emerging cryptocurrency and related blockchain technologies.
We’ve written extensively on the still somewhat recent arrival of non-fungible tokens (NFTs) as both a potential revenue stream, caveat-filled investment destination and pop culture marker of the moment. Back in 2018, we wrote about the Los Angeles Dodgers giving away digital bobbleheads to fans, who could redeem a private hidden key to send the bobblehead to a personal cryptocurrency wallet or sell the unique serialized bobblehead to another fan. Later, we wrote about NFTs in the art world, from a burned Banksy to the record-setting sale of Beeple’s Everydays – The First 5000 Days, which sold for $69.3 million (including fees). Increasingly, the practical uses of NFTs are being examined in places beyond entertainment and IP portfolios, including the real estate market. Recently, Spanish airline Air Europa even sold the first NFT plane ticket, called a “NFTicket,” for just over $1 million.
Non-Fungible Tokens (NFTs) are changing how we think about asset ownership in the real world and in the digital world. NFTs—unique digital tokens stored on a blockchain ledger that represent ownership of an asset, either real or virtual—have gained significant popularity in realms such as art, gaming and entertainment, as a means to establish authenticity and transfer various rights. As a result, entrepreneurs are searching for new industries to disrupt utilizing the advantages offered by NFTs and blockchain more generally. The traditional real estate industry, together with virtual land in the evolving Metaverse, has been on the radar of many.
Joel Simon: Our discussion today is part of a series on non-fungible tokens, known as NFTs. We will take a look at some specific issues that are somewhat unique to NFTs, and try to give you, our listeners, some interesting things to watch out for as you wade into this relatively new space. Carolyn, with the large sums of money involved in many NFT transactions, due diligence and proper transaction execution must be critical factors, yet I’ve heard about buyers getting tripped up on things that, once you hear about them, seem obvious. Can you shed some light on this for us?