There is a new trend in the world of finance: after crypto tokens, non-fungible tokens (NFTs) appeared in the cluster of digital assets spurred in recent years. These tokens are effectively certificates of authenticity– non-fungible- for a digital asset. The digital asset could be a photo, video or even a tweet and the token verifies its ownership on the online distributed ledger of blockchain. Everyone can see who owns the relevant digital asset in a new form of proof of title. But what is the use case of NFTs? No one knows yet as, until now, they have been catching the world’s attention for the mouth-watering prices they have garnered despite being seemingly of no value, rather for their utilitarian position in the spectrum of financial instruments.
NFTs, however, have been the perfect segue for an innovation that could change how society views equity and investment in human capital. By digitizing an un-digitizable asset in a decentralized way, NFTs seemed to open the eyes for the digitization of something unthinkable: human potential. Yes, that’s right. But before we go into that, I have to share a short story. Around four months ago, I approached a talented software engineer of a Fortune 500 company in order to create something together that would “revolutionize crowdfunding.” A way for individuals to capitalize on their potential and on their marketing prowess to raise capital for whatever they promised to do or provide value with. A real world monetizable “like” button if you will. However, his response made me re-think. He asked me, “which side of history do you want to be?” Well, back then, NFTs were not the new craze that would create a fertile ground for the monetization of human potential and social status. Now, however, others rushed in to fill the market gap that seemed rather apparent.
Enter Bitclout. This new concept was formally coined a couple of weeks ago creating a storm of reactions and has rapidly amassed $160M in market capitalization with rumors suggesting famous VC personality Chamath Palihapitiya backing the project. Bitclout aims to commoditize people by offering coins as a form of stock. Simply put, it is a new form of speculative trading of a new asset named “creator coins.” The value of the coins will fluctuate depending on the demand, as supply is regulated automatically to effectively remove it from the equation. The value of the coin will increase the more people buy it and will be reduced the more people sell it in a linear manner. Every personality that is buzzing on the news will see their price rise (Elon Musk’s coin will always seem a good “investment”).
The most important aspect of this new asset class is that it operates on a distributed ledger on a custom blockchain with its code being open-source. This means that it is fully decentralized with no management or company behind it. While this characteristic excites the imagination of retail investors who are promised a decentralized financial system where they can finally monetize themselves, it also opens Pandora’s box. The creators of Bitclout created coins for the 15,000 biggest Twitter accounts in order to kickstart the “asset catalogue” and capitalize on their brand names to advertise the concept. However, people were quick to notice that this is a lawsuit waiting to happen, as not one of these Twitter personas agreed to be made into a coin yet. The problem is, who is the defendant in this lawsuit? Who is going to be liable for damages on individuals’ misappropriation of name or likeness claims? How will an individual be removed off of the “stock market of people” if they do not wish to be commoditized? What about market manipulation (pump and dumps) and the protective role that the SEC performs in its regulatory capacity for the stock market?
Apart from the legal implications and the market risk that this new vast asset class creates, one must also consider its ethical implications. If we thought social media changed our society, the way we communicate and interact, then the monetization of people will amplify that effect by the hundreds. The difference is that unlike social media, which can be regulated and controlled, this Pandora’s box is already open and would be impossible to close. The future is exciting and lawyers and bankers alike are probably in for a wild ride but one thing that is for sure is that there are no “sides of history” when there is no defendant…