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ABSTRACT
The principal research question addressed by this paper is about how and why blockchain based digital technologies and the metaverse ought to be viewed as inclusive innovations. It is stated that Non-Fungible Tokens (NFTs) crafted from Ethereum blockchains enable upcoming and established artists to prove their credentials and ownership over their works and reach their products to a wider community of buyers both in the real world as well as in the Metaverse. All the same, NFT auction platforms by innovatively fractionating digital versions of artwork and auctioning the fractions to a large community of small buyers, ensure that marginalized sections of buyers of arts works get ownership over quality art works. Given the nascent nature of the innovation, the paper adopts a conceptual approach to understand the implications of NFTs and metaverse in democratizing art institutions through the mechanism of distributed economic systems which are inclusive, authentic and empowering.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 https://www.americansforthearts.org/by-program/reports-and-data/legislation-policy/naappd/arts-and-cultural-production-percentage-of-gdp accessed on 25th Jan 2022.
2 See Guingane (Citation2010).
3 See Andres Solemano (Citation2019) ‘Inequality and the Art Market’, June, European Investment Bank-Institute, https://institute.eib.org/2019/06/inequality-and-the-art-market/ visited on 7th August 2023 wherein he mentions how super star artists clock astronomically high in sales value in mega art auctions as compared to small artists who, despite earning less, account for bulk of sales in these auctions.
4 According to the UNESCO (Citation2022), 10 million jobs were lost across the world in the arts and creative sectors during the COVID 19 pandemic. See ‘UNESCO launches a Report on the impacts suffered by the creative industry during the pandemic’, February 10, https://en.unesco.org/news/unesco-launches-report-impacts-suffered-creative-industry-during-pandemic, viewed on 7th August 2022.
5 For an account of the transformative effects of blockchains based ‘sarafu’ coins in rural Kenya see Elmendorp (Citation2021) ‘Cryptocurrency Booming amongst Kenyan Farmers’, VOA News, https://www.voanews.com/a/africa_cryptocurrency-booming-among-kenyan-farmers/6208732.html, visited on Aug 7, 2022.
6 Damodaran (Citation2019).
7 See Nakamoto, Satoshi, Bitcoin: A Peer-to-Peer Electronic Cash System https://bitcoin.org/bitcoin.pdf accessed on 24 Jan 2022a.
8 Reiff and Rasure (Citation2021). As the authors point out, the difficulty of double spending is that it ‘creates a disparity between the spending record and the amount of that cryptocurrency available as well as the way that it is distributed.’
9 For a detailed discussion on the role of collectibles in human societies and on the ‘good money’ virtues of cryptomoney, see Kicks (Citation2021).
10 Peyrott (Citation2017).
11 The recent, foiled effort on the part of Florian Picasso, the great grandson of the celebrated painter to sell of a few of Picasso’s artworks on the NFT mode is an interesting case in point of how NFTs need to be minted with care. In the wake of objections to Florian Picasso’s plan by other heirs of Picasso’s works, Jean-Jacques Neuer, the lawyer representing the Picasso Administration warned the proponents of the Picasso NFT venture that any NFT linked to such Picasso’s artworks would be treated as a ‘counterfeit.’
12 See ‘Staking and Inflation FAQs,’ https://solana.com/staking accessed on January 31, 2022.
13 Kovasevic (Citationn.d.).
14 Dylan-Ennis (Citation2021).
15 Criddle (Citation2021).
16 Damodaran (Citation2022).
17 See Beeple (b. Citation1981) (WWW Document) (https://onlineonly.christies.com/s/first-open-beeple/beeple-b-1981-1/112924) (accessed 3.25.21) and Kastrenakes (Citation2021).
18 Based on https://101blockchains.com/nft-minting/ and https://ethereum.org/en/developers/tutorials/how-to-write-and-deploy-an-nft/with modifications, accessed on 14 December 2021.
19 ERC-721 or Ethereum Request for Comments – 721 is a standard that implements an API for tokens within smart contracts and highlights the unique nature of the token as compared with other tokens.
20 In a common value auction, although the actual value of the auctioned item is the same for everyone, bidders differ in terms of the private information they have regarding the auctioned item.
21 In private value ascending auctions, the dominant strategy is to stay in the bidding till the price is equal to the reservation price or till you are indifferent between winning and non-winning (Milgrom Citation2004).
22 Nadini et al. (Citation2021). For a discussion on large trading buoyancy associated with popular NFTs, such as cryptokitties and cryptopunks, see Matney (Citation2021).
23 Loot boxes are treasure boxes that contain NFTs, which can be staked by investors to earn coins. A loot box is similar to a lottery that enables an investor who has lost out on the main item to get a consolation prize. For a case in point from India, see https://www.beyondlife.club/ accessed on Dec 4, 2021.
24 See https://opensea.io/bundles/dodgers-blue-jays-twins-complete-9-man-mlb-crypto accessed on Feb 4, 2022, for a case in point of mixed bundling involving a large bundled collection of 3 digital baseball teams, which includes the avatars of famous baseball players like Lourdes Gurriel Jr.
25 The platform gives the seller an option to lower his desired price provided the latter is willing to pay for the gas fees. See https://support.opensea.io/hc/en-us/sections/1500000493722-Selling, accessed on Feb 4, 2022.
26 The phenomenon of bundling succeeds where the seller’s reservation prices for different items in the bundle are less than the price of the bundle and where the reservation prices of each item is negatively co-related to the other. However, the process of creating a digitized crypto creature being the same, it is natural for the artist to treat each work to be more or less the same, despite bidders perceiving them to be different. Under such circumstances, it is likely that the sellers will attempt to fix the price of the bundle equal to his reservation price for each of the items in the bundle. The bidder, however, will seek to buy the bundle at the lowest price, which is only marginally higher than the costs of creation and minting the NFT. Thus, assuming an ascending auction format, where RP is reserve price of seller, Ccm is the cost of creation of the digital crypto creature and the cost of its minting into NFTs, Pr is the realized price in auctions, and N the number of items in the bundle such that:
27 Khezr and Mohan (Citation2021).
28 As Bulow and Kemplerer (Citation1996) state where bidders are symmetrical in their bidding power, adding an extra bidder is better for seller in an ascending auction.
29 Damien Hirst’s ‘Currency’ was ab initio fractionated. The work involved 10,000 unique spot paintings, each signed and numbered with watermark and hologram to lend a personal touch with each piece corresponding to an NFT priced at a ‘modest’ price of $2,000. See Rakewell (Citation2021).
30 A major assumption is that the auction protocol does not permit jump bidding that may drive small bidders out. See Gilbert and Kemplerer (Citation2000) on the adverse impact of jump bidding on small bidders.
31 A recent case in point is the abortive attempt to buy the physical copy of US Constitution held in a private collection by an organization of crypto community named Constitution DAO. The idea was for the group to own the collectible in the event of being successful in their bids. See Broom (Citation2021).
32 The formula for layering or stacking of numbers into visually pleasing figures is MdFRn = R, where R is the addition of all the natural numbers in the series; Md indicates the range of dimensions connected to FR (or a given Figurate) and ‘n’ is the number in the sequence. A figurate can be 3D products resembling a prism (Tetrahedra) or 2D hexagons/pentagons. The base unit of the former is a mini prism comprising of four elements, whereas in the case of the latter, it is a triangle comprising three elements. See Hogben (Citation1950).
33 In , assuming the Triangular Figurate to be aFx = T and the Tetrahedral Figurate to be aFy = V, it follows that x<y and T<Y. In terms of auctions of fractionated items, the Triangular Figurate in refers to a situation where a specific fractionated item goes through fewer iterative bids before the hammer, as compared to a tetrahedral figurate where the number of iterative bids is significantly more before hammer. In case the number of iterative bids is even greater than, say V (as with the Tetrahedral), then more will be the number of points in the series. This will lead to newer forms of Figurates that are pentagonal or are 6 face Pyramids. The more extended the iterative process, the greater will be involvement of small bidders in the auctions dealing with fractionated art works, resulting in substantially improved economic benefits for the artist.
34 A DAO can obviate agency problems associated with centralized corporate entities besides preventing ‘value destroying’ corporate actions in equity issuance (See He, Jain and Sunder Citation2020; Chen, Ke, and Yang Citation2013). DAOs also avoid transaction costs associated with mergers and acquisitions (Becht, Polo, and Rossi Citation2016) besides avoiding frequent shareholder voting (Iliev et al. Citation2015).
35 https://onlineonly.christies.com/s/beeple-first-5000-days/lots/2020 (accessed on Jan 4, 2022).
36 Forte (Citation2021).
37 See Manoylov (Citation2021).
38 NFT 101: Collecting guide to ‘non-fungible tokens’, NFT Background and Basics, https://www.christies.com/features/nft-101-collection-guide-to-nft-11654-7.aspx (accessed on Dec 4, 2021).
39 As Yang et al. (Citation2022) state, ‘Metaverse seamlessly integrates the real world with the virtual world and allows avatars to carry out rich activities including creation, display, entertainment, social networking, and trading.’ Also see López-Díez (Citation2021).
40 As Dionisio, Burns, and Gilbert (Citation2013) state, ‘The metaverse is founded on strides made in the realms of immersive realism, ubiquity of access and identity, interoperability, and scalability.’
41 See Damodaran (Citation2019) for a discussion on how distributed systems are different from decentralized systems.
42 See Gray (Citation2021).
43 Thus, metaverse enables the design and editing of computer-aided design models and also enables manufacturers to flawlessly transplant these virtual products to the real world with the aid of 3D printing. See Atwell (Citation2017).
44 Ball (Citation2020).
45 There are already a variety of metaverse cryptotokens issued by metaverse enterprises, which are already in active use. These include Decenterland’s MANA, Sandbox’s SAND, and Axie Infinity’s AXS.
46 Ratan and Meshi (Citation2022).
47 For a discussion on the phenomena of separability and non-separability of consumption preferences, see Jappelli and Pistaferri (Citation2017). In many ways, the metaverse monetary system and its tenuous link to the cryptocurrencies of the real world will lead to rapid growth of digital or digitally inspired innovations in the real world.
48 As Peyrott (Citation2017) states, ‘Economic activity in the metaverse manifests as farming, battling, breeding, developing virtual real estate, and trading the rarest virtual goods.’ The broader vision is to create the largest virtual world economy to date by being a dominant force in multiple worlds.
49 Allodial title is related to the concept of land held ‘in allodium,’ or land ownership by occupancy and defense of the land.
50 However, as Ball (Citation2020) says, ‘The quest for inter-operability leads metaverse to the worlds of standards and protocols on communications, social interaction, data management, and security.’
51 See Hellman and Alper (Citation2006).
52 See Piers Kicks (Citation2021) for a persuasive account on the trends of the game’s economy driving the metaverse and the role of cryptocurrencies in driving them.
53 Joan Robinson (Citation1965, 57–59) discusses how an egalitarian, primitive freeholder ‘real’ world economy changes to a non-egalitarian one as land becomes scarcer. However, as population increased, technological innovation became imminent to shore up the marginal productivity of labour. This called for investment in technologies necessitating savings and borrowings. Analogously in the simple metaverse economy, an over-developed infrastructure in the initial phase leads to lower output of creative products. As more and more artists enter the metaverse, the flow of creative output will accelerate aided by improvements in creative tools, which may upset the idyllic and distributed nature of the metaverse.