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 present a new auction model for selling multiple units of homogeneous goods that are ranked through editioning. We argue that the limited-edition auction as currently used is a type of the well-known discriminatory 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 limited-edition auction is more aggressive than a standard discriminatory auction without editioning; consequently, equilibrium bids are higher in the former. We also study the uniform-price auction as an alternative mechanism for conducting an auction with editioning, and establish that such an auction would have no truthful equilibrium. Our paper represents one of the first attempts to formally model the allocation of property rights in the digital environment which is at the forefront of current innovation.