The Economist explains

Why we are selling our cover as an NFT

How we set it up—and decided it was worth doing

WHEN JUSTIN METZ, a visual artist based in Britain, and Graeme James, our designer, created the cover of The Economist for September 18th, they looked back in time. They took inspiration from Sir John Tenniel’s whimsical illustrations for “Alice’s Adventures in Wonderland”, published in 1865. The cover accompanied our leader and a briefing on decentralised finance, which examined the efforts of various organisations to create a digital economy that runs on blockchains. Understanding that world required immersing oneself in it. We illustrated this by sending Alice down the rabbit hole. Now The Economist is going in.

We are selling that cover as a “non-fungible token” (NFT), a record on the Ethereum blockchain that represents a piece of digital media. The online auction will run on Foundation, a platform for digital artwork, from 5pm BST on Monday October 25th until 5pm BST on Tuesday October 26th. Anyone can bid.

Why are we doing this? First, to raise money for a good cause. Proceeds from the sale, less auction fees, transaction costs and net of any tax liabilities*, will go to The Economist Educational Foundation (TEEF), an independent charity that works with schools and teachers to empower young people to have high-quality discussions about current affairs. NFTs enable issuers to collect royalties on future sales, retaining a stake in the value of the artwork. The Economist will retain a 10% royalty stake, and will direct all future proceeds to TEEF. Second, it is an experiment. We have always written about the potential of technology to change the world, be it self-driving cars or gene therapies. NFTs, and the crypto infrastructure they sit on, could transform finance. By minting and selling our own NFT, we are experiencing this first-hand.

Would-be bidders will need to dive into the world of cryptocurrencies and blockchains, too. As the auction will be denominated in ether (the cryptocurrency associated with the Ethereum blockchain), to bid you will need a wallet containing such tokens. The Economist Group used MetaMask. It comes with a browser extension that makes it easily accessible when using other applications on the Ethereum blockchain.

Creating a wallet is like setting up a profile on a website. Funding it requires changing conventional money into ether. The Economist converted funds using Wyre, which is embedded in the MetaMask browser extension, and conducts “know your customer” ID checks. This conversion is a transaction that will be verified by the Ethereum blockchain. That comes with a fee, called “gas”, which is paid to the network of computers that maintain the blockchain. This fee is volatile. It was as low as $5-10 and as high as $70 per transaction while The Economist was testing out the process.

Once the wallet is set up and the browser extension installed, a bidder can visit the auction page to place their bid, which should prompt a request to “sign” the transaction via the wallet.

Creating an NFT requires numerous steps. Many platforms exist. Some, like OpenSea, are open to all; creating an NFT on them is free. Others are more exclusive—they require invitations or access codes—and publishing NFTs on them is typically more expensive. This distinction partly comes down to the precise token that the platform helps creators to issue. OpenSea helps people to create so-called ERC1155 tokens. These are cheaper to create (one gas fee is shared across many tokens), but pinning down their provenance is harder. Foundation, the platform The Economist is using, issues ERC721 tokens. These are considered the “gold standard” for collectible NFTs: each one is created in a single transaction, verified by the Ethereum blockchain. This comes at a price, though: Foundation will take 15% of the proceeds of the initial sale. It will also retain a 5% royalty stake in any future sale. (Our correspondent experimented with creating tokens on various sites.)**

With an invitation in hand and a wallet set up, The Economist created a profile on Foundation. The actual minting was as simple as hitting the “create” button, uploading a high-resolution image of the cover, adding descriptive text, and paying a gas fee of $98. To set up the auction we will conduct another transaction, and pay another fee.

Once our NFT is sold and the tokens land in The Economist’s wallet the net proceeds will be transferred to the education foundation. Our plan is to convert our ether into conventional money as quickly as possible, to avoid any slippage in the value of the cryptocurrency, using a broker, like Coinbase or Gemini.

We took other steps, too. Legal and tax concerns were hashed out with our commercial arm (more on that below). The buyer will not purchase the copyright for the cover image from us. An NFT is more akin to a licence to use an image in certain limited ways. There is little tax guidance published by governments regarding NFTs, making it necessary for us to assume we might be liable for potential sales, value-added or corporation taxes. The meatiest of these concerns the risk of the unknown: we are not guaranteed to know the identity of the buyer and the provenance of their funds. Others raised the moral quandary concerning carbon emissions: should this newspaper, which trumpets the need for action to curb carbon emissions, employ a technology that so wantonly consumes electricity?

Ultimately we decided that experimenting with the technology would be a useful pedagogical tool. And the goal—to raise money for a good cause—was sufficiently worthwhile. Happy bidding.

*The auction platform, Foundation, will keep 15% (including value-added taxes) of the total winning bid as a fee for providing the auction service. There is uncertainty concerning the indirect-tax liability on sales of NFTs. The Economist will withhold 16.67% funds from the winning bid in the event that the firm has to settle such liabilities. The result is that we expect 68.33% of the funds to be available to donate to TEEF. However, The Economist reserves the right to withhold additional funds from the proceeds in order to meet its indirect tax liabilities in respect of the sale of the NFT, if it is required to pay such taxes by law in any country. The Economist also reserves the right to deduct any transaction costs associated with issuing the NFT from the ultimate funds donated to TEEF.

**To test the process on Foundation she auctioned a personal NFT of an image in the public domain, of the first page of The Economist ever published. This sold for around $3,800. She will donate the proceeds to charity as well.

The Terms of Service and Privacy Policy that apply to the Foundation platform are incorporated by reference into the sale process for the NFT. By participating in the auction, you agree to, and acknowledge, these terms.

The buyer of the NFT will have the right to use, publicly display and copy the NFT for personal, non-commercial use and the right to re-sell the NFT. The buyer of the NFT will have no right to license, commercially exploit or prepare derivative works of the NFT or the artwork therein (the exact scope the buyer’s rights are set out in the Terms of Service). All copyright and other artistic rights in the NFT and the artwork therein are otherwise reserved by The Economist.

By purchasing the NFT, your capital is at risk. NFTs are volatile and can lose some or all of their value. NFT trading is complex. This NFT is not supervised by any regulator.

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