Property rights in the Crypto age: NFTs and the auctioning of limited edition artwork

Abstract

Non-fungible tokens (NFTs) on blockchains have recently emerged as a means of certifying the originality of digital properties, such as artwork. In this paper, we examine limited-edition auctions for the sale of digital artwork using NFTs. We study two types of limited-edition auctions that have been used in practice: the `silent' and `ranked' auctions. We argue that the silent limited-edition auction as currently used in NFT markets is a variant of the well-known discriminatory price auction. We derive the Bayesian Nash equilibrium of this auction, and show that it is revenue equivalent to a VCG auction. Our analysis suggests that bidding behavior in a silent limited-edition auction is more aggressive than a standard discriminatory price auction without editioning; consequently, equilibrium bids are higher in the former. We also study the generalized English auction as an outcome equivalent auction to the ranked limited-edition auction, and show that this does not have a truthful equilibrium. Finally, we examine the uniform-price auction as a potential alternative mechanism for conducting an auction with editioning, and establish the absence of a truthful equilibrium in this instance as well. Our paper represents one of the first attempts to formally model the allocation of property rights using auctions in the digital environment, which is at the forefront of current innovation.