Should we barter NFTs?

I had the chance to discuss NFT bartering regularly these last couple weeks with cryptocurrency experts, start-ups, curious, passionate…

Zoup2018-10-10

I had the chance to discuss NFT bartering regularly these last couple weeks with cryptocurrency experts, start-ups, curious, passionate and NFT token holders, through Meetups in France or more recently, at the Delta Summit in Malta .

It was extremely motivating and exciting to see the positivity around these new digital assets, to discuss the possibilities, and to measure the almost infinite potential they offer.

Moreover, it was extremely pleasant to feel the support of all these people for the NonFungible.com project!

During these various discussions, a rather recurring question popped up, and I think it deserves to be addressed in depth:

“Will it be possible to exchange a NFT for another NFT without going through cryptocurrencies?”

Why this question?

First of all, we have to look at the foundation of this question. NFTs are still very young assets, which is why their use, their pitfalls, and opportunities are still, not yet completely obvious.

NFTs inherit many properties and ideas that are associated with their older brothers, cryptocurrencies. The issue we are discussing today is a shining example. In the cryptosphere , the exchanges play a key role that promotes token circulation. It is therefore quite predictable that some users implicitly expect comparable tools for these new digital assets.

Seen from afar, NFTs are nothing more than new tokens on the blockchain, so why not trade them like any other token?

Why is it more complicated than it seems?

Simply because non-fungible tokens are not like the other tokens:

  • They are not cryptocurrencies
  • By design, they do not have the same liquidity
  • The use-cases are not comparable

Thus, NFTs can be more easily compared to objects of everyday life (a house, a cat, a Pokemon card, …) than a currency.

Setting up a non-fungible token exchange system without going through a (crypto) currency would be nothing less than barter.

Is it technically possible to do it?

Yes. Technically, mathematically and functionally speaking it is obviously possible to set up a system to exchange two CryptoKitties against a LAND , or an Ember Sword asset against an Axie Infinity creature, depending on the value of the asset.

From a purely financial point of view, we are able to define the value of each asset according to its value system, for example, it’s native cryptocurrency (knowing that not all NFTs are based on the same cryptocurrency).

Let’s imagine that a CryptoKitties player is tired of the game and decides to start a business in Decentraland. He knows that his Kitties have value and wants to get rid of them to purchase a parcel of LAND in Decentraland.

Firstly, Cryptokitties are traded and valued based on Ethereum, whereas LAND is traded using MANA. This does not make conversion impossible but simply requires an extra step. The transaction today would look like this.

  • CryptoKitties > Ethereum > MANA > LAND

So, if a system allows one day to convert directly

  • CryptoKitties > LAND

This will simply mean that the two intermediate steps have been automatically handled by the system without any possible check by the buyer or seller upon those conversions.

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Should we do it?

THIS is the real core question. Being able to do it doesn’t necessarily imply that we should do it, or that it makes sense to do it.

To get back to our earlier example, a CryptoKitties player wishing to exchange his collection for a LAND without going through any (crypto)currency. I’m not convinced personally that it is a real use case for several reasons.

1) Bartering is no longer practiced today for good reasons. You do not buy an apartment for a piece of art, and you do not go to the supermarket with your own tomatoes to exchange for peppers. The monetary system, in spite of all its flaws, makes it possible to structure a coherent and global value system. This refers to two of the 3 roles of currency in our civilization:

“Unit of account — Currency makes it possible to be aware of the relative value of goods, and to make choices accordingly. It thus makes possible the economic calculation, that is to say the allocation of resources where they are most useful, their optimal use. It thus avoids shortages, and, more generally, makes a prosperous society possible by allowing the decisions of millions of individuals to be coordinated on the market. Without currency as a unit of account, no mechanism of prices, no economic calculation, no prosperity, no civilization.

Intermediate exchange — The currency makes possible exchanges that would be much too complex, and therefore impossible, with the simple barter. It makes possible any division of labor beyond the level of mere survival, so civilization.”

Translated from: http://laissez-faire.ch/fr/articles/les-trois-fonctions-de-la-monnaie-et-leur-sabotage/

2) The question of the monetary role of the asset also arises. CryptoKitties, just like LAND are not (and have not been designed to be) reference units of value.

3) For myself, the non-divisibility of the NFT represents the last reason why NFT barter is not a use that will become dominant in the ecosystem. 1 € = 0.66 CAD. Ok. Now imagine that a LAND = 10.762 Cryptokitties. What do we do with the remaining 0.762 Kitties? Should we have partial ownership of this Kitty? Should we consider selling only the body and not the head of the Kitty? These assets cannot be deconstructed and sold for pieces, which makes the valuation and exchange of NFTs for other NFTs without an intermediate value system too complicated.

In conclusion…

As you cannot imagine valuing a Lamborghini in yogurts, I do not think it makes sense to value/trade an NFT for another NFT.

Finally, we must acknowledge that barter has always existed in the digital universe as well as in the real world and that it will obviously not disappear. But it is and will remain unconventional.

We are very interested to discuss this subject with you. Do you think the NFT exchange is a real use case? Is it required? Will it be popular?

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