  Exploring the transformation of value in the digital age By Michael J. Casey, Chief Content Officer Oct. 15, 2021 If you were forwarded this newsletter and would like to receive it, sign up here. Sponsored by 
NFTs are officially the biggest crypto phenomenon of the year. Citbank writing about how public companies such as Disney and Robinhood are poised to benefit from them. NFT fundraising is going through the roof. And Coinbase has announced a staggering 1.35 million-person waiting list for its new NFT trading product. Yet, the public is still confused about why non-fungible tokens have any value at all. Today's column argues that in focusing on the art we are missing the profound shift that NFTs offer, which is the ability to redefine property rights on the internet.
In our podcast episode, Sheila Warren and I talk to Justin Podhola, the CEO of Elite Mining, and CoinDesk's George Kaloudis, who leads our Bitcoin-focused research, about the stunning shift in the global balance of bitcoin mining power that has seen the U.S. rocket to domination since China's crackdown against the sector.
Have a listen after reading the newsletter. 
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It's the (Digital) Economy, Stupid  Rachel Sun/CoinDesk When they look at non-fungible tokens, non-crypto "normies" tend to focus on the mindblowing prices that have been paid for digital art and the fanaticism around avatar communities, such as the $542 million in sales of Bored Ape Yacht Club NFTs. They wonder what all the fuss is about.
If they were to pick up on the many other applications that are now being explored – from renting out your digital gaming assets to selling your DNA – they might recognize that something more profound is afoot. Even though, for now, speculation appears to be the biggest use case for NFTs, they offer something far bigger: the foundation for a new digital economy.
To dig into why, it's worth looking at why people misunderstand the appeal of NFTs, which I think stems from an insufficient understanding of how the digital economy works and doesn't work. Rights
Consider a common dismissive response to the NFT buying frenzy. People ask, "Why on Earth would someone pay millions of dollars for a JPEG that I can simply 'right-click/save' to my hard drive?"
The problem with that statement is it confuses possession of a digital file with rights to the artwork or information contained within it. It's the latter that NFTs offer, creating provably scarce digital markers of value and providing a vital building block for a better system of rights enforcement.
This is a big prospect, because in the pre-Bitcoin internet creators largely forfeited their capacity to directly assign rights to their work to customers who paid for it. That stems largely from legal determinations around copyright that were made in the early days of internet commerce. At that time, there were no decentralized systems for tracking transactions and preventing double-counting. The century-old first sale doctrine, which laid down the rights of both creators and consumers of copyrighted content, did not apply to digital media because the content could be easily replicated in an internet environment.
In the physical realm, that doctrine held that while a person couldn't, say, replicate a copyrighted text and publish new copies of it without copyright owners granting them a license to do so, they could resell a book in which that text appears, transferring total control and ownership to a new owner. Thus, the doctrine distinguishes between the copyright attached to a digital work and the vessel, such as book or record, in which works drawn from that copyright reside.
On the internet, anonymity, coupled with the low cost of digital replication, meant it was trivial to copy a work and easy to avoid enforcement. As such, early digital media came to be controlled through licenses. You never actually owned an MP3 or a Kindle book, you were simply given perpetual rights to single, non-commercial use. For the longest time, you couldn't transfer those rights to anyone else.
Then, as social media took off, as everyone became a creator of "user-generated content," Facebook, Twitter and other platforms used that principle to their advantage. Their terms and service essentially required users to sign away their copyright, allowing their content to be shared, retweeted and repurposed within the platform without restriction.
This generated a massive network effect for the most successful platforms because they became the primary source of information for the general public. In turn, it meant that commercial creators, including everyone from large news organizations to professional photographers and artists, felt compelled to publish their content on the platforms under the same open-sharing terms.
In doing so, they lost a direct relationship with their audience. Control over market data for creative content was now in the hands of Facebook, Google, Twitter and Amazon, not the creators. With that data as a carrot, the platforms drew advertisers away from the publishers. It's a key reason why so many newspapers and other legacy publications died. |
–Michael J. Casey
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Off the Charts
Awash in COVID Debt
In releasing its semiannual "World Economic Report" this week, the International Monetary Fund downgraded its growth forecast for the global economy. A key reason for that can be found in a separate IMF report release this week: the October "Fiscal Monitor." That factor is a massive pile of government debt, which the IMF notes has skyrocketed due to an economic slowdown and COVID-19.
I lifted a chart from the Fiscal Monitor that shows the challenge over the next fears in advanced, emerging-market and low-income countries as they seek to balance taxation and spending and get back on track. It displays the deviation from pre-COVID forecasts for expenditure, revenue and GDP growth.
What's striking is the huge drag that debt and sluggish growth are likely to pose on middle- and low-income countries. In the latter case, the IMF projects that over the next three years government revenue are going to get even further away from the pre-COVID state.
What does this mean for crypto? It means that national currencies will be under enormous pressure as governments, unable to pay debts, are tempted to resort to money printing. It points to the risk of debasement, which may in turn boost demand for bitcoin.
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The Conversation
The U.S. as Bitcoin superpower
Illustration: Rachel Sun/CoinDesk
The Cambridge Center for Alternative Finance dropped some bombshell research during the week. Following the abrupt regulator-driven exit of Chinese companies from the industry in June, the U.S. surged to the top of the list of bitcoin mining locations in the world as of August while China dropped to virtually zero capacity. The Financial Times had a nice interactive graphic showing how quickly this shift occurred and the countries, in addition to the U.S., that rose to prominence as China's status waned.
For many, this has been a positive development. Regardless of where the mining has moved, the relatively more widely spread distribution of mining activity outside of its prior concentration in China is a blow in favor of crypto's decentralization principles. Is the relative rise of Russia and Kazakhstan on the list good for crypto? The philosophy here would say it doesn't matter where, it's the distribution that matters.
Some believe China shot itself in the foot. Why distance the country from this dynamic, cutting-edge industry at this key moment? Does the answer lie more in its thoughts about energy policy? Preston Byrne asks the question.
Others picked up on some of the quirkier developments within the CCAF's ranking. Why Ireland, asks Ciaran Murray?
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Relevant Reads
Regulation Rumors
Many in crypto are expecting 2022 to be a year of greater regulatory scrutiny. The U.S. Securities and Exchange Commission (SEC) is signaling tougher action on multiple fronts, from stablecoins to decentralized finance. The White House is getting more involved. And this week both the IMF and a senior Bank of England official warned of crypto's threat to financial stability.
- Per a Bloomberg report, the White House is circulating a draft executive order that would encourage federal agencies to propose rules for the crypto industry. CoinDesk's Nik De noted the order would cover a broad range of issues, from ransomware to bank charters. This isn't necessarily "bad for crypto." "That so much of the federal government is looking to better understand crypto and hasn't immediately announced any intention to ban seems like a tacit endorsement of the idea that this industry will have a lasting impact," he told readers of his State of Crypto newsletter.
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As NFTs expand in importance and become enmeshed with the wider internet-financial system, they're bound to face more oversight. One small example: The successful soccer NFT platform Sorare is being investigated by the U.K. gambling regulator (Eli Tan has the report). Meanwhile, our media reporter, Will Gottsegen, described how a NFT-based "fantasy investment platform" found itself in hot water recently.
- With so much at stake, powerhouse firms like Andreessen Horowitz are gearing up for the battle ahead in D.C. (report by Jamie Crawley).
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