Bloomberg: Can We Achieve Identity Equality in the Metaverse?

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The complexity of the real world is beginning to seep into the Metaverse, where identity serves as both a reflection of social capital and a determinant of social capital.

Original Article Title: "Even in the Metaverse, Not All Identities Are Created Equal"

Original Article Authors: Misyrlena Egkolfopoulou & Akayla Gardner, Bloomberg

The complexity of the real world is beginning to seep into the Metaverse, where identity serves both as a reflection of social capital and a determinant of social capital.

Price discrepancies for digital avatars based on race, gender, and skin color are being highlighted in the popular NFT collection known as CryptoPunks, contradicting the utopian and egalitarian ideals embraced by the world closely associated with crypto, DeFi, blockchain, and non-fungible tokens.

According to participants and observers in the space, part of the reason for these price differences is the lack of diversity among investors who favor these status assets. The demographic skews toward males and white individuals. Female Punks and those with darker skin tones often sell for less than those with male features or lighter skin.

CryptoPunk investors argue that this price difference is not due to individual bias or racism, but rather the fact that those currently willing and able to pay the highest prices for digital goods are not bidding on avatars that do not resemble them.

"If you observe the blockchain space, (then you'll see) it is basically skewed towards white individuals and males," said Tony Herrera, a California immigrant activist who owns 60 CryptoPunks. "If one punk is darker and another is lighter, the lighter one will be more popular."

Tony Herrera

To understand the role identity plays in the virtual world, one can look at the case of Richerd Chan. This engineer and entrepreneur from Vancouver, Canada, sought to solidify his reputation as a cryptocurrency trailblazer by purchasing a digital avatar.

Reportedly, the JPEG file below cost over $80,000, equivalent to 45 ETH at the time, making it the largest single expenditure ever made by Richerd Chan. Chan spent two weeks searching for the perfect online persona that represented him. On March 31, he clicked the purchase button for this pixelated image—a medium-toned male avatar wearing 3D glasses and smoking.

37-year-old Chan said, "This is a very natural form of self-expression. The 3D glasses make it stand out, and although I don't smoke in real life, it makes it avant-garde." As an Asian person, Chan said he appreciates a deeper skin tone in the image. "I identify with it."

(Mind you,) Chan is not joking. In October, he turned down another online enthusiast's $9.5 million offer for this avatar. Chan said it was a strange proposal, but his digital identity is not for sale.

Reportedly, just this year, Chan has spent 143 ETH (now worth over $600,000) to purchase four pixelated avatars. These avatars all come from CryptoPunks. For him, owning a CryptoPunk represents the "OG" title in the crypto space, or indicates that you have the ability to pay a high price to join an increasingly exclusive club.

In this digital world, the value of your pixel-encoded social capital is a different kind of attribute function. In the highest echelon of expensive NFT avatars, prices vary based on elements such as accessories, hairstyle, clothing, and even skin tone. In other words, not all punks are equal.

Investors say uniqueness and scarcity are key driving factors of prices in the digital commodity free market for CryptoPunks and similar NFTs. For example, among the existing 10,000 CryptoPunks, there are only 9 "Alien" characters. Recently, an Alien was sold at a Sotheby's auction for nearly $12 million. Additionally, the prices of the collection's 24 Apes and 88 Zombies are higher than more typical punks because of their relative rarity.

Regarding gender, there are 6,039 male Punks and 3,840 female Punks, with fewer female Punks in circulation. According to DeGenData, since August, 2,124 male CryptoPunks have been sold, with a median floor price of 99 ETH. In the same period, 1,165 female CryptoPunks have been sold, with a median floor price of 95 ETH.

Furthermore, data shows that since the explosive mainstream entry of NFTs in August, the average weekly lowest sales prices of medium and dark-skinned CryptoPunks have consistently been lower than light-skinned Punks. This trend also applies to female Punks compared to male Punks.

Male Punks Price Stats

Since August, the weekly average lowest sales price of darker-skinned male CryptoPunks has consistently lagged behind their lighter-skinned counterparts.

Source: DeGenData; data is based on the lowest price and is not adjusted for any features that may drive additional value

The pricing of Meebits has followed a similar trend (Meebits are similar avatar NFTs, akin to 3D Lego figures). According to Meebits listings, most of the lower-priced characters being sold on the digital asset marketplace OpenSea are designed to look like Black individuals. In May of this year, Herrera expressed dissatisfaction on Twitter with the lowest-priced Meebits being Black. He urged his followers to collectively buy more Black NFTs to drive up the prices. Herrera stated that he no longer believes there is any racial bias in price changes and that the trend is merely skewed towards their purchase count.

“You can buy anything you want as long as you have a budget for it,” Herrera said. “People of color will become limited edition.”

Reportedly, Herrera once owned over 100 CryptoPunks. He began buying them when these NFTs were worth less than $10. In 2017, when CryptoPunks were first created, savvy crypto fans could obtain them for free. By January of this year, some Punks were being purchased for what are now considered reasonable prices, ranging in the thousands of dollars.

Now, entering this corner of the cryptocurrency world requires thousands of dollars, and in some cases, even millions. Amid a wave of interest from companies including Visa and Sotheby’s, CryptoPunks prices have soared. As of December 1st, CryptoPunks owners have listed NFTs for sale at prices ranging from nearly $400,000 to $24 billion. The highest recorded sale value is above $7 million.

John Watkinson, co-founder of Larva Labs, the company behind CryptoPunks, said he wanted to create a diverse set of characters to attract a broad range of collectors. "We were frustrated by the racial and gender pricing disparities in CryptoPunks," Watkinson said. "Unfortunately, as the market is purely decentralized, we have no leverage to directly influence it."

Natalia Karayaneva, founder of real estate firm Propy Inc., purchased a female CryptoPunk with an Afro in March on the recommendation of her fiancé.

Karayaneva recently sold this punk for approximately $150,000, three times her purchase price.

Karayaneva said, "There aren't many high-ranking women in the cryptocurrency community who can afford (these high-priced Crytopunks)," noting that transactions for female CryptoPunks often fall below those for male CryptoPunks.

Gender Dynamics

In recent months, female CryptoPunks have been priced at a discount compared to male CryptoPunks.

Aside from rarity, there are certain attributes that propel punks to the top of the price charts. Hoodies, 3D glasses, VR headsets, headbands, top hats, and beanies are attributes that investors are willing to pay a premium for. Generally, most punks have two to three attributes, and typically, the more attributes a character has, the higher the price. Out of the fixed collection of 10,000, only one CryptoPunk possesses seven attributes, including a cigarette, an earring, a mole, buck teeth, classic shades, a top hat, and a big beard. It is widely considered the most valuable CryptoPunk.

A plethora of available attributes means investors can creatively use their Metaverse avatar, adopting characteristics vastly different from their "real" identity.

According to NFT investor Nick Kneuper, the high price tag of each CryptoPunk means that most buyers have to make a choice and tend to pick one they feel best represents their avatar, with Kneuper himself regretting selling his three CryptoPunks in August. Importantly, Kneuper says that even those capable of owning multiple punks may be unwilling to choose an avatar that differs in race from themselves.

“Some may worry that if they’re white but use a Black punk as their avatar, they’ll be accused of digital blackface,” Kneuper says.

Female Punks Price Stats

Since August, the weekly average floor price of darker-skinned female CryptoPunks has consistently lagged behind their lighter-skinned counterparts.

Crypto bull market long-term enthusiast and billionaire Mike Novogratz tweeted that he is “troubled” by real-world racial biases seeping into the metaverse, leading him to wade into this particular controversy. On November 9, Novogratz's tweet sparked a series of responses about what is allowed and not allowed in the metaverse.

Reportedly, the tweet came days after Novogratz's cryptocurrency firm, Galaxy Digital Holdings Ltd., bought Punk 8466, a black-skinned male punk wearing an eye patch, headband, and beard. According to Larva Labs data, this punk was sold on October 30 for 98.50 ETH ($421,543). A spokesperson for Galaxy Digital declined to comment on the company's decision to purchase the black-skinned punk.

Black NFT investors are engaging in the conversation through their purchases. Web Smith, founder of media company 2PM Inc., said, “With more Black investors coming into the space, I think this is happening, and those dynamics will shift. You’re going to see many high-net-worth individuals representing greater diversity in America enter the market, and six months from now, we won’t be having this conversation.”

Ameer Suhayb Carter

One of these individuals is Ameer Suhayb Carter, a user experience designer who founded a Black-majority group called Crypto Cookout. This 450-member club collectively purchased two CryptoPunks through a partial ownership buying model, with each Crypto Cookout member being a fractional owner of these two Punks.

"We didn't really set out to create this kind of imbalanced market," Carter said. "It's just because we've already seen that Black or Black-affiliated things might be cool, might not be cool, (we need to act) until it is cool."