How to Buy a 100,000 ETH CryptoPunk for Only 10 ETH: An Expensive Smart Contract Mistake

Buying a high-value NFT like a CryptoPunk for a fraction of its worth sounds like an impossible dream, but it actually happened recently. In this case, one buyer, 0x282, managed to snag a rare Ape CryptoPunk worth 600 ETH (about $1 million) for just 10 ETH. Here’s how it unfolded and what you can learn from this incredible story.

What Are Fractionalized NFTs?

Before diving into how someone secured this unbelievable deal, it’s important to understand the concept of fractionalized NFTs. Fractionalization allows valuable NFTs to be divided into smaller ownership pieces, making it possible for multiple people to buy and hold shares of a single high-value asset. This democratizes NFT ownership by allowing smaller investors to own pieces of expensive NFTs like CryptoPunks without needing millions of dollars upfront.

In September 2020, CryptoPunk #2386 – a highly rare and sought-after Ape Punk was fractionalized on a platform called Niftex. The ownership of the Punk was divided into 10,000 ERC-20 tokens, which were distributed among 257 different holders. Each holder owned a portion of the NFT, with the ability to trade their shares or participate in buyout offers.

Even though Niftex was later decommissioned, the smart contract behind CryptoPunk #2386 remained active on the Ethereum blockchain, setting the stage for the unbelievable deal that followed.

The Role of Smart Contracts in Fractionalized Ownership

A key part of this story involves the use of smart contracts, which are self-executing programs built on blockchain networks like Ethereum. Smart contracts automatically enforce the terms and conditions written into them, without the need for intermediaries. In this case, the smart contract governing the fractional ownership of CryptoPunk #2386 had a rule allowing for a shotgun buyout.

A shotgun buyout works as follows: Any shareholder, regardless of how many shares they hold, can propose to buy out all other shareholders at a specified price per share. If no one counters the proposal within 14 days, the original proposer can buy the entire NFT at the offered price.

This mechanism ensures that ownership disputes or buyout offers are handled fairly. However, as we’ll see, even the smallest mistakes can lead to huge consequences.

0x282’s Strategic Move: A Low Buyout Proposal

On August 28, 2023, a fractional owner of CryptoPunk #2386—saw an opportunity and made a bold move. They initiated a shotgun buyout, offering to buy all shares of the Punk for 0.001 ETH per share, which added up to a total of 10 ETH for the entire Punk. Given the high value of Ape CryptoPunks, this was a lowball offer, but the rules of the smart contract allowed it.

Under the rules, other shareholders had 14 days to submit a counter-offer—offering to buy the shares at a slightly higher price—to block 0x282’s buyout attempt.

The Cryptopunk Mistake

Two shareholders noticed 0x282’s buyout proposal, but only one took action: Gmoney, a well-known NFT collector. Gmoney attempted to block 0x282’s buyout by submitting a counter-proposal. However, Gmoney made a critical mistake that would ultimately cost them the entire NFT.

To block the buyout, Gmoney needed to offer a price slightly higher than 0x282’s original offer of 0.001 ETH per share. The correct counter-offer should have been 0.0010000001 ETH per share—a tiny fraction more. Instead, Gmoney accidentally submitted a counter-offer of 0.000001 ETH per share, which was far too low.

The difference? 10,000 wei—an almost microscopic amount of ETH, worth less than two ten trillionths of a cent. But in the world of blockchain and smart contracts, precision is everything. Because Gmoney’s offer didn’t meet the minimum requirement, the smart contract rejected the counter-bid as invalid.

Missed Opportunity: How a Tiny Error Let 0x282 Win

Once Gmoney’s bid was deemed invalid, there was still a chance for someone else to step in. If any other shareholder had noticed Gmoney’s mistake and contributed the missing 10,000 wei (a fraction of a cent), they could have blocked 0x282’s proposal. But no one else took action, and the 14-day window closed.

As a result, 0x282’s buyout offer went unchallenged, allowing them to purchase all 10,000 shares of CryptoPunk #2386 for just 10 ETH—an incredible bargain, considering the NFT was previously valued at 600 ETH (roughly $1 million).

The Role of Smart Contracts: Unforgiving but Fair

This story highlights the power and precision of smart contracts. Smart contracts are programmed to execute exactly as they are written, without any room for error or human intervention. They don’t account for mistakes or intent—they simply follow the rules. In this case, the contract required a higher counter-offer to block the buyout, and when Gmoney’s counter was too low, the contract automatically awarded the Punk to 0x282.

This event demonstrates the beauty and the potential pitfalls of decentralized systems. Blockchain technology ensures transparency and fairness, but it also demands accuracy. A single mistake, even as small as 10,000 wei, can have massive consequences.

A Million-Dollar Cryptopunk Deal

For 0x282, this small mistake by a rival bidder resulted in one of the best NFT deals in history. By purchasing the entire CryptoPunk #2386 for 10 ETH, 0x282 acquired an asset that was previously valued at around 600 ETH—a 70% discount from its actual worth.

While this event might seem like a stroke of luck, it’s also a testament to the importance of acting quickly and strategically in the NFT market. It underscores the need for precision and understanding when interacting with smart contracts and decentralized finance systems.

Key Takeaways for NFT Investors

This story offers valuable lessons for anyone involved in NFTs, DeFi, or blockchain technology:

1. Understand Smart Contracts: Know the rules and how they work. Smart contracts are rigid and precise—there’s no room for error.
2. Pay Attention to Details: Even the smallest mistakes can have huge consequences, as we saw with Gmoney’s 10,000 wei error.
3. Act Quickly and Strategically: Opportunities like this are rare, but those who act fast and understand the system can score big wins.
4. Decentralization Can Be Unforgiving: The decentralized nature of blockchain is what makes it powerful, but it also means there’s no central authority to correct mistakes or offer second chances.

Bye Cryptopunk

The story of how 0x282 managed to buy a 100,000 ETH CryptoPunk for only 10 ETH is a perfect example of how blockchain technology and smart contracts work. While this was an incredibly fortunate deal for 0x282, it also serves as a cautionary tale for the rest of the NFT world – showing that even the tiniest error can lead to a massive loss.