Lifecycle of a digital asset: Where is the value in all this?
In this final part of our series looking at the lifecycle of a digital asset, Alexander Martinelli and Hugo Brown reflect where the real value lies in the Blockchain and 'crypto'.
Many of the ideas we have detailed across this series of insights are not new.
Dividing ownership of assets is not new. Buying things online or in games is not new. The interesting element here is the idea that everything sits on the Blockchain. That is to say, it sits independently of any one organisation.
When you buy a painting at an auction house, you are, to an extent, submitting your trust to the auction house. They are an intermediary in the sale. The novel element here is that Blockchain technology enables you to submit your trust in “the system”. Very simply, “the system” relies on the overall wisdom of the crowd to verify the truth around what journey a particular digital asset has taken. In theory, it does away with the need for a trusted intermediary to check this. However, it is not a silver bullet for never needing to use advisers again. It is possible to purchase a “forged” NFT issued by someone completely unrelated to its creator or owner; you must still check its provenance. Of course, many do not do so and there is a certain irony in placing your trust in the “Blockchain”, a technology which few people truly understand.
Nor does it do away with all legal questions. For example, we still have to consider the nature of the jurisdiction and governing law relating to an underlying transaction. In the absence of some kind of constitution (perhaps akin to a company’s articles of association) it is difficult to contractually submit to one, and given identifying the location of an NFT is nigh on impossible, even the basic question of the application of which law applies is unclear. The current approach, at least for taxation purposes, has been to look through the location of a crypto asset if there is an underlying asset to which it relates. If there is no such asset, HMRC have simply taken a blanket approach “such that the location of the cryptoasset will be determined by the residency of the beneficial owner”.
Granted, the prospect of the easy fractional ownership of property and funds is exciting. However, the Blockchain does not solve the real issue here – the need for a liquid market in the ‘shares’ of the underlying asset. Nor, to be fair, does it promise to. However, it is easy to be swept up by the glamour and the hype around “the Blockchain” and fall into the trap of believing it does. Accordingly, it is important to remember that all we are really talking about is a decentralised ledger, a method for recording transactions. It is a tool, not the final product.
Missed part one and two? Find them here: