What I learned by (unsuccessfully) bidding $440,000 USD for the Economist’s NFT
One of the reasons I don’t go for high-valued NFTs is the uncertainty of whom I would be bidding against. It could be the seller himself. So, when the Economist newspaper offered their first NFT to the public, I decided to give it a try. I reasoned that their reputational damage would far exceed their profits, if it was discovered that their intention was not genuine.
I reserved 150 Ether — roughly USD$630,000.00 at the time of writing — for this experiment. I didn’t think the final price for the Economist’s NFT would be higher than USD$500,000.00, and a bit more than that amount would be necessary for a ‘just in case’ safety margin. As will become apparent later in this article, the precautions I took may have been for nothing.
I was careful to transfer the money to the Ethereum address used for bidding on the Economist’s NFT right before placing each bids. This way, a bystander wouldn’t be able to leverage their knowledge of how much money I prepared in advance.
As the title of this article alludes to, I wasn’t successful in my bidding. However, it turned out I was willing to bid more than any bid that was placed.
Here are the important lessons I learned, so you don’t have to expend time and resources learning them.
Bidding is tedious for some, but thrilling for others
The auction was supposed to last a single day, according to the Economist. I assumed I only needed to turn up for the last hour of the auction, so I marked that hour on my calendar. What wound up happening is that every time someone placed a bid, the auction’s duration extended for about 15 minutes. This meant that the bidding dragged on for hours after the initial end time.
There are two considerations in designing a bidding contract that may have caused this. First, if you fix a deadline, all transactions will compete for the limited block size within the last minute, thereby creating a traffic jam and grieving the other users on the Ethereum blockchain. Since auction time is usually aligned with an hourly boundary, designing a fixed deadline causes the traffic to concentrate on the last minutes of each hour. Therefore, contract designers should strive to either make their deadlines flexible or spread out the deadlines. But the issue with this approach is that it makes the process of bidding tedious. If you are bidding to win, I’d recommend watching a movie while you wait. Though the movie will likely finish before the auction.
Second, the otherwise time-saving sealed bidding is hard to achieve with smart contracts. At the outset, the amount of Ether which goes into a smart contract is public knowledge. For sealed bidding to happen, the bidders must over-commit to hide their bid in a cryptographic envelop, then deliver it. This envelop will require a second transaction to open, after which the over-committed amount would be refunded to the bidder. This creates a contraption that is hard to explain to the end users.
Technical reasons aside, the choice to extend the bidding for every new bid may be designed for the thrill of the game. That’s why slot machines are designed the way they are; note that you aren’t told the result as soon as you push the button or pull the lever. I’m sure many bidders enjoyed the rush of seeing the price of the Economist’s NFT increase in real time.
As a bidder with a real prospect of success, I didn’t want to encourage a fast-paced bidding war. Every time is the auction’s duration was extended for 15 minutes, I waited for the last minute of the extension to place a bid. It seemed other bidders had the same idea, which made the game drag on for even longer than predicted!
To avoid endless bidding wars, the website foundation.app smartly created an incremental rule, which, by the look of it, requires a 10% incremental for every bid. However, this rule was never explained on the website’s user interface.
If you’re not a professional, you will likely fail for technical reasons
For example, when I placed a bid for 90 Ether, I saw a display on the bidding website which indicated that the auction had ended, together with the message, “You have won the bid.” I know that websites tend to unreliably display blockchain data, so I decided to wait for a while, instead of getting up to go order a gin (I’m staying at a hotel in London).
Unsurprisingly, after waiting for a while, the website showed that bidding was, in fact, still underway. Even worse, the message stating that I won the auction remained for 15 minutes, even after the final winner was announced. It eventually disappeared.
The second failure point, which is fatal, is that transactions are not always actually submitted. When the website invited the next bid to be at 110 Ether, I pushed the bid button (at the titular $440,000 USD) and waited a few minutes before clicking to confirm the transaction. This happened at the last minute of a 15-minute extension.
Bearing in mind the aforesaid unreliability of user interfaces of websites displaying blockchain data, after confirming the transaction, I researched pending transactions. There were none. I submitted another bid for 110 Ether. This bid correctly showed as a pending transaction… but it was too late. The winning bid was for 99.9 Ether.
As someone who works with Ethereum professionally, my failure reflects how hazardous today’s Ethereum systems still are. How do you expect a normal user to quickly check whether their transactions were sent correctly by looking up websites with fast access to the mempool? A normal user in my situation would probably be left wondering why they failed. And how do you expect someone who was congratulated for placing the winning bid by the website they were bidding to know that they may not, in fact, have actually won?
This brings me to my third point:
The participants in games like this are often professional blockchain users
The other day, my friend Daniel (who runs a crypto fund from BVI) drove me to his farm. As we drove through the vast emptiness which exists between Australian cities, he commented, behind the wheel, that today’s blockchain user may resemble the early days of car drivers, in that both are professionals.
Mastering the use of blockchain involves traversing a steep learning curve, and the rewards for doing so are impressive; therefore, using blockchain is, without a reasonable doubt, a profession. If one wants to access blockchain assets, it make sense to hire a ‘blockchain user’, just like you would have hired a driver in the early years of automobile.
With this lesson in mind, I was keen to discover whether the auction’s participants and eventual winner were actually professionals themselves. The winner turned out to have an ENS name, and an avatar associated with a cryptopunk. They placed multiple bids in succession, used sushiswap, opensea and AAVE, and conducted 1,728 transactions within a year, based on my observations of the Ethereum address they used for bidding. In contrast, the Ethereum account I used for buying assets only had 80 transactions over 3 years. I may be a professional blockchain builder, but the winner was demonstrably a superior professional blockchain user.
The winner borrowed 100 Ether from AAVE during the prolonged auction and had 53 Ether remaining after. This means they could have bid up to 153 Ether, assuming they didn’t accrue more debt from AAVE. This amount is similar to the 150 Ether I prepared. Had I successfully bid 110 Ether, and they in response went all in, according to the auction incremental formula, after another 2 rounds, their last bid would have been about 146 Ether. This in turn would have pushed the next minimum bid to 161 Ether, which, in any event, would have priced me out of my reserve. This is not a mere speculation; they one-upped everyone predictably in the 2 hours running up to the auction’s final moments. Of course, it all depends on how the bidders perceived the real value of the Economist’s first NFT.
Sometimes, playing with users who use blockchain as a profession is a good learning experience. Their method of valuing a blockchain asset may reveal what their experience has taught them. But if you are not the kind of person devoted to a path of learning, especially in today’s fast-paced blockchain world, NFT bidding may not be for you after all. You could read a newspaper article which tells a story of some person making millions in a blockchain transaction; if you do, they may use blockchain professionally.
