Written by Dion Seymour, Crypto & Digital Assets Technical Director at Andersen LLP
Early in 2022, following the boom year of 2021 for non-fungible tokens (NFTs), the UK Government was keen to show its crypto credentials.
To this end, in April 2022, several proposals were announced to make the UK a global cryptoasset hub. One of the eye-catching announcements was for the release of an NFT by the Royal Mint. This was particularly intriguing as it followed 2021, when ‘NFTs’ became word of the year. And, in all fairness, it did gain substantial interest in the media at the time1.
However, as 2022 drew to a close many of the measures seemed to have stalled and no NFT was launched. This was perhaps due to the difficult conditions for the crypto sector with a number of high-profile failures and a fall in the value of Bitcoin. These events appear to have made the HM Treasury cautious regarding how, and if, to proceed with some of the announcements.
The Royal Mint NFT has been shelved, with this change of plan not formally being announced, and the NFT information page still, at the time of writing, on the Royal Mint website. The change of heart only came to light in response to a question in Parliament with the statement that “[I]n consultation with HM Treasury, the Royal Mint is not proceeding with the launch of a non-fungible token at this time but will keep this proposal under review.”2 It is unclear how much time and effort was expended by the Royal Mint, however, as some commentators have called this a vanity project for Rishi Sunak, any revival may politically be difficult.
At the time of the announcement, and throughout 2022, there was little information about the NFT project, with the only information being on the Royal Mint website accompanied by a singular image. This was, perhaps, the first indication where the project scoping was failing.
Influenced by popular NFTs such as Bored Ape Yacht Club, many may think of an NFT only as an image. However, the reality is that the term ‘NFT’ is an umbrella term. NFTs can cover a range of things and the Intellectual Property Office (IPO) recently published a report that sets out some of the differing use cases3. Suffice to say that NFTs can have a wide variety of uses and are worthy of an article in their own right.
The next indication that the scoping of the project may not have been fully considered is the statement which, again at the time of writing, was still on the Royal Mint’s NFT page website that they “are delighted to once again lead the way for UK currency.”
Therefore, whether the NFT is to be “collected” or used as “currency”, whilst these uses are not mutually exclusive, understanding the objective of the NFT project is key to success.
With little information, we must make some assumptions. Was the objective for the NFT to be used as a currency or as a collectible? Or something else entirely?
If the NFT was to act as a currency, this would be at odds with the Bank of England’s Central Bank Digital Currency (CBDC) and, from a practical perspective, NFTs would be difficult to accept as a means of payment, as they are not divisible. The use of NFTs as a currency would have also required significant infrastructure to support their use in this manner as a means of exchange.
As a collectible, ideally, there would need to be a number of different tokens available to collect to garner interest for investors. Many celebrities and companies, such as Porsche, have found releasing an NFT is not guaranteed to succeed. There would have been a risk that, if following the launch of an NFT, they subsequently fell in value. In the world of NFTs, values are determined by open market demand which drives the speculative nature of NFTs (and cryptoassets). The media impact from losses could have been difficult to manage and been problematic for the success of the project.
There is an argument that an objective of the NFT may have been to increase adoption/exposure of cryptoassets in the UK4. It is possible that an NFT could have increased acceptance of cryptoassets. Conversely, it could have an opposite effect if the values of the NFT had fallen. This is supported by the chair of the Treasury Select Committee, Harriet Baldwin, who commented on the NFT that, “We have not yet seen a lot of evidence that our constituents should be putting their money in these speculative tokens unless they are prepared to lose all their money.”5
The Government could have counted this risk in the same way that they do with gilts; the value of the NFT could have a set denomination and a coupon provided until an expiration date. This would have provided security for investors and could have increased interest in investment from a new, hard to reach, audience making investment “interesting” with different NFT images.
In a similar theme, the Government also could have taken a similar approach to that taken by the Banque de France working with a banking consortium led by Euroclear6. A project experimented with settlement of a CBDC in a series of bond transactions using blockchain technology between the banks7. The 10-month trial explored how CBDCs could exchange and settle when the debt had been turned into tokens. The pilot demonstrated that there was an opportunity for the market to reduce trade cycles and provided meaningful insight in wider application of blockchain technology. This then, in turn, lends towards applications that are more beneficial.
Back in the UK, without a clear objective, it is unsurprising that the proposal for a Royal Mint NFT was shelved. The approach the Government should have taken was to follow the French example and create an objective that provided further understanding as to the
opportunities that the blockchain can provide. This would have provided the certainty that a Government-backed product would provide whilst also meeting the aim to increase international standing as a crypto hub.
We welcome the Government’s goal of becoming a global crypto hub, however, it should not try to jump on bandwagons. The UK crypto industry remains willing, and able, to engage with the Government to discuss plans to create more successful outcomes.