Laura Breckon | Cyber & Technology Fellow
Time Magazine is auctioning three digital renditions of one of its most iconic cover formats – for the sweet price of nearly USD$18,000. The trifecta is comprised of its 8th of April 1966 ‘Is God Dead?’ design, along with its April 3, 2017, re-imagining titled ‘Is Truth Dead?’, and its most recent: ‘Is Fiat Dead?’. ‘Is Fiat Dead?’ is a pertinent question, and the very medium by which it is being sold as a digital asset is an example of one of the many new challenges to typical government backed currency growing increasingly mainstream today; they are NFTs–non-fungible tokens.
So, what are NFTs? Non-fungible tokens are digital ‘items’ that can change ownership and value via exchanges on the blockchain. Visualised in more familiar terms, it is a form of online art dealing, or a collector’s economy. The format has exploded over the recent month, with corporations and organisations alike swooping in to get a slice of this rapidly valuing content. A Toronto-based artist has just recently sold their 3D digital rendering of a ‘Mars House’ for USD$500,000.00. This March, Pringles created a digital rendering of golden Pringle’s tin–50 of them–which are selling for approximately USD$150 each–a markedly successful venture into the inedible chip market.
The draw of owning an NFT is puzzling. Digital art is not a new concept, nor does acquiring NFT necessarily transfer the owner ownership rights to the content or mean they own the sole copy of the NFT. Yet the attraction holds strong with crypto enthusiasts who have embraced the unusual ways by which people relate to and value digital content. The blockchain’s end-to-end encryption further supports this, enabling faster and more reliable information transfers. Asset purchases across this system are therefore not only immediate, but also accurate and protected. These guarantees are attractive to buyers seeking assurance that their token is unique and un-interchangeable–a guarantee of digital art’s provenance.
Hinging on digital ledger technology’s reliance on smart contracting presents both an opportunity and a challenge. NFTs are encoded by smart contracts, which in turn are secure from alteration and bear unique identifiers, designed to guarantee individuality to consumers. Although these are permitted under the Electronic Transactions Act 1999 (Cth) in Australia, and under corresponding state and territory legislation, what exact rights are issued by ‘owning’ the token upon the execution of the contract remain unclear. Furthermore, much remains unresolved in domestic and international liability frameworks are behind with regards to negligent disruption of a decentralised digital ledger system. For instance, should the ‘oracle’ informing tokenised contracts falter and misinform the system, causing the improper execution of contracts, widespread system disharmony and disruption may occur. Should this occur on a larger scale blockchain network, involving complex transaction exchanges, such as minting securities, such an eventuation is of marked concern.
Such technologies may even underpin entire currency systems. In China, the CCP is working towards establishing a digital currency regime using blockchain, smart contracting and asymmetric cryptography technology–infrastructure within which its entire financial system will operate. This would constitute the world’s largest repository of digital currency and it is speculated that it would require foreign investors in the Chinese economy to engage with it in order to transact with China with far reaching privacy, surveillance, and cybersecurity implications.
There is also China’s blockchain-based services network (or BSN), a product of China’s state-owned telecoms giant Chinamobile, which has recently partnered with Casper Network with a view to being adopted internationally. In a kind of blockchain space-race, BSN represents a major development towards outpacing the United States for global blockchain and digital currency dominance. This technology constitutes a decentralised network upon which blockchain technologies, such as those mentioned above, can be developed, and which is solely Chinese controlled.
Globally, digital assets remain far from a mainstream investment, though banks and private equity firms have been keeping an attentive eye on the area for years. There is some consensus though-90% of the European Payments Council agree that blockchain technology will cause a significant upheaval of global financial services industries by 2025. Inasmuch, the race to purchase NFTs presents regulatory challenges with respect to defining precise asset acquisition and the acceleration of smart contract engagement. Yet, more broadly this trend also represents the growing attraction to blockchain use in financial services and transactions.
There is a growing need for a more defined and deliberate conversation about the particularities of its digital infrastructure, security, and regulation. There have been calls for a more uniform regulatory framework, one that is compliant with existing security frameworks such as the European GDPR and international anti-money laundering laws. One thing is sure: while states remain ambivalent, there is the risk that consumer engagement will grow too widespread to be reeled in, and any unaddressed faults in the system may snowball into significant disruption.
Laura Breckon is the Cyber & Technology Fellow for Young Australians in International Affairs