Thanks to its ability to help track and verify the provenance of things sold or traded among multiple buyers, blockchain technology is seeing real-world tests for a wide range of valuables and collectibles. It’s been used successfully in an auction of individual owner shares in a single painting. It’s helped trace every step in the supply chain for diamonds. And it’s enabling the creation of entirely new types of must-have virtual items for collectors.
“The use of an underlying database to track and certify the transactions related to physical and digital objects evidently has implications for managing the rights and ownership of all kinds of property,” a team of researchers from Northumbria University, Lancaster University and the University of Edinburgh write in a 2018 paper. “Especially where ownership is complex (e.g. media rights); retaining value is related to provenance and uniqueness (e.g. art); where re-use is difficult to detect (e.g. piracy), or where existing licensing and regulatory bodies are weak, fragmented or mistrusted.”
Blockchain not only opens up all kinds of new opportunities for the creative economy, but promises new levels of control for owners of digital items.
Consider the world of gaming, where players often invest considerable time and money to collect valuable – although virtual – items.
“Today’s games are complex and elaborate worlds containing a multitude of virtual items, some of which are rare and collectible,” the e-sport monetisation startup Hyperloot says in a recent press announcement. “Gamers invest lots of money to buy these items. However, they hold no real tangible rights to these items – all property rights remain with the publishers. In our terms, these are fake rights. Gamers cannot transfer these assets, sell or exchange them. If a game project closes down, gamers lose both these hard-earned assets and the money they spent to acquire them. Look no further than Ghost Recon Phantoms – after the project was closed, users were offered no refunds for virtual currency with no way to convert it.”
One way in which people can keep control of virtual collectibles is through the use of something called non-fungible tokens (NFTs). These are blockchain-based tokens that use an Ethereum protocol that’s different from the ERC-20 protocol used for cryptocurrencies. The ERC-721 protocol enables the creation of one-of-a-kind, rather than fungible (i.e., interchangeable) assets like dollar bills or Bitcoins. With fungible assets like dollar bills, it doesn’t matter if you get the exact same dollar back when you loan one to a friend. Non-fungible tokens, on the other hand, are unique. And unlike fungible digital assets like Bitcoins, they can’t be divided up into smaller denominations – ownership is an all-or-nothing proposition.
“All too often, we hear the phrase ‘NFTs allow users to truly own their digital items’,” the virtual reality platform Decentraland notes in a blog post. “This is true, but it falls short. While NFTs do allow us to really own digital goods, they ultimately give artists more control over their creations, companies less control over their users, and users more control over their identity. These are far-reaching impacts that extend beyond simple ownership.”
Examples of NFTs include CryptoKitties, CryptoPunks and many more available through marketplaces like Rare Bits and OpenSea.
Other blockchain applications are being used to validate and secure collectibles and valuables in the real world. Last year, for example, Maecenas – a blockchain platform that “democratises access to fine art” – auctioned off tokens for shares in a 1980 Andy Warhol painting called “14 Small Electric Chairs”. And a startup called The Art Token is offering crypto tokens (TATs) that are backed by the value of selected works of art.
“TAT is a revolutionary approach to bring art as a stable, successful and secure alternative asset class on the blockchain,” The Art Token strategy advisor Oliver T Roehl said recently in an interview with Securities.io. “TAT secures digital currencies through analogue tangible assets.”
Diamonds are another tangible asset that has become a testing ground for distributed ledger technology. In May 2018, the De Beers Group announced it had “successfully tracked 100 high-value diamonds along the value chain” during its test of a pilot blockchain platform, called Tracr, for the diamond industry.
“Traceability is the key to further development of our market,” Sergey Ivanov, CEO of the Russian diamond group Alrosa, said in an October 2018 press release announcing Alrosa had joined the Tracr pilot. “It helps to ensure consumer confidence and fill information gaps, enabling people to enjoy the product without any doubts about ethical issues or undisclosed synthetics.”