The Mining Industry, NFTs and the FutureBy Ruben Cano | Wed, 09/14/2022 - 09:00
In October 2021 at the Mining Convention in Acapulco, during her presentation called “Resilient & Thriving, Emerging from COVID and a Look to the Future,” Jody Kuzenko, the president and CEO of Torex Gold, mentioned as a joke in her opening remarks that her adolescent daughter told her that she would rather have bitcoin over gold or shares in a mining company because it was easier. That led me to reflect on the impact that blockchain, NFTs and some cryptocurrencies are having and will have in our society and in some industries, including, of course, the mining industry itself. In this article, I will give my opinion on how the mining industry can take advantage of these new tools and assets to become a more open, modern and accessible industry for everyone.
On March 11, 2021, artist Mike Winkelmann, also known as "Beeple," sold a piece of digital art contained in an NFT for more than US$69 million at the prestigious auction house Christie's. It was not only the most expensive digital work auctioned in history but the third-most expensive work of art auctioned through that institution by a living artist. The irony is that the work cannot be touched, it is not tangible and many would say that it does not exist in the real world.
NFTs (non-fungible tokens) are unique items verified and secured by a blockchain, which is the same technology used for cryptocurrencies. An NFT provides authenticity of origin, ownership, uniqueness (scarcity), and permanence for any particular item. (Fortnow, 2022)
The blockchain of a cryptocurrency is a list of all the transactions (one by one) of a coin or token from the beginning of the existence of that cryptocurrency. We should know that when talking about cryptocurrencies, people often use the terms “coin” and “token” interchangeably, but there is a distinction. Cryptocurrencies that are “coins,” such as bitcoin and ethereum, have their own blockchains, while cryptocurrencies that are “tokens” do not have their own blockchains and use another coin's blockchain. Currently, most NFTs are created and live on the ethereum currency blockchain, co-founded by Vitalik Buterin.
What makes an NFT unique? Aren’t we talking about digital files like photographs, drawings, videos or 3D images? Can't any of us almost instantly download, screenshot, copy and share images from the internet? Who can't download a Google photo or Instagram screenshot? Contrary to a screenshot or digital file that may exist on your computer as a .jpg, .png, .pdf or any other similar file, the secret with NFTs is that we "mint" them, as we physically mint coins, but when we electronically “mint” an NFT, we create a smart contract and that NFT from that moment exists in a chain of blocks, which is the big difference (Fortnow, 2022).
Some of the real advantages of NFTs are that they solve the main problems facing traditional art and collectibles, which is authenticity and provenance verification, as well as providing other advantages. As we discussed before, an NFT is a smart contract that has its own address (addresses) that originated with the NFT. It does not need an "expert" to verify who created it. On the contrary, the trading history can be verified from the moment it was created, which means there is a chain of title from the creator to the current owner. Today, in fact, the chain of title is the basis of blockchain verification, which applies to all cryptocurrencies.
In the digital art market, one of the most revolutionary advantages of NFTs for artists is that NFTs allow creating and setting ongoing royalties for creators, so artists and other creators can also share in future sales of their art because the royalty is automatically sent to the cryptocurrency wallet of the creating artist or the one who established the royalty.
Let's suppose that I am a painter and I sell one of my paintings for US$3,000 physically to an aunt who loves her nephew very much. However, if I turn that same painting into a NFT and I sell it for 2.2 ETH (ethereums), which as of the date I am writing this article is more or less equivalent to US$3,000, as the creator of the work I can decide to put a royalty of 10 percent or 20 percent on that NFT and every time it is sold, the percentage will be automatically deposited into my cryptocurrency portfolio.
But how can the mining industry take advantage of all these amazing trends, innovations and opportunities provided by blockchain and NFTs? Here are some ideas where I believe blockchain and NFTs could have a big impact in our industry and, more importantly, on the stakeholders in our industry.
1) I believe that in the future, mining concessions (currently issued by the Ministry of Economy according to the Mining Law) could be certified and minted as NFTs. This would allow the original tenant of the mining concession to have its existence supported by blockchain, to secure the chain of title and to set a royalty for the transference of the title. I am aware that, at least in Mexico, legislative changes to various laws and codes would be required for this to be possible; however, at a global level, the first precedents of using NFTs as ownership titles are already beginning to appear. On June 21, 2021, the first property in Kyiv, Ukraine, was sold through an NFT for 36 ETH through the Propy platform.
2) Mining exploration can be funded through the usage of NFTs. We are all aware that some jurisdictions represent a challenge for investments because of the limits on the amounts that can be deducted for exploration expenses against profits and, we all know about the challenges faced by micro, small and medium-sized miners in exploring new deposits. However, through the use of NFTs, it could be possible to fund some projects with the participation of many people against the payment of a royalty if the project is successful.
3) The use of NFTs can be useful in creating a sense of community between the stakeholders of the mining industry and the mining companies. Let’s say that a mining company in Mexico mints 200 NFTs and gives them for free to the members of the host community and then, every year distributes some benefits among the holders of these NFTs; or the same mining company mints some NFTs and distributes them among its employees and then provides some benefits when the employees reach 1 million hours without accidents. I do believe that we are not that far from the day in which community relations departments at every mine in the country will use NFTs to get closer to the community in which the mine operates and to create a sense of belonging.
In conclusion, I do believe NFTs are here to stay and their future is being written as you read this article, second by second. It is a gigantic and surely virtuous opportunity, where all of us are invited to participate. The mining industry will not escape this future that seems to be already here.
Fortnow, Matt. (2022). The NFT Handbook. First edition. United States of America. Wiley Publisher.