You may think that NFTs (non-fungible tokens) are yet another bubble in a world full of bubbles. How can easily-replicated JPGs that can be screenshotted at a click have a real, long-lasting value?
This is just another pyramid scheme to come out of crypto, which, let’s face it, has a long and checkered history when it comes to dodgy schemes.
Well, you’d be right –and you’d be wrong. Today we talk NFTs; we explain why they are a bubble and we explain how they are going to change the way we think and operate.
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The “not owning stuff” bubble is bursting
The more venerable readers of this column – anyone over the age of about 45 – might recall the days when content had value. Records, for example. Blokes (mostly) would spend years, decades even, building up a collection of records. As plain a signal of amorous intent as he could ever give would be to record a mix tape of his favourites and hand it to the object of his affections.
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And then along came digital technology – iTunes, Spotify and all the rest of it – and the value of that priceless collection went pretty much to zero. The object of affections, now his wife, declared he would have to put that priceless collection in the attic if they wanted the relationship to succeed. Or, better still, give it to a charity shop. And so did the bubble of analogue tech deflate.
Now nobody owns anything. Stuff isn’t an asset, it’s a burden. Generation Rent hires the house, the Rolls-Royce, the holiday home – it doesn’t own it. This asset-light generation prizes experience over material things.
The LP-owning hero of our story makes do with a Spotify subscription, which takes up far less space in his home, which, thanks to an inflated housing market that is verging on the fraudulent, is of a much lower square footage than he would ideally like.
“Most people who own homes are like rich people or old people,” Generation Rent disparages. “We don’t want homes. We don’t want the hassle.” It wants wealth, but is less bothered about physical possessions, so the story goes. They don’t work in the “real world” economy; they work in the digital economy.
In fact, the bubble in “not owning stuff” got so bloated, it had Klaus Schwab of World Economic Forum fame declaring – in what must be one of the most misconstrued statements ever uttered – that by 2030, “You’ll own nothing and you’ll be happy about it.”
Well, surprise surprise, it turns out that people do want to own stuff. In fact, owning stuff – whether it’s caves, or glinting gold nuggets hanging round one’s neck together with shell necklaces, shares in Tesla, or originals of easily-replicated digital art designed by artists with groovy names like Beeple – is about as basic a human urge as there is, surpassed only by eating, reproducing and keeping safe.
What the easy replicability of digital tech did was to devalue content and make ownership much harder. Now NFTs have come along and they are, to misquote Donald Trump, making ownership great again.
What NFTs are really for – owning digital stuff
For sure, NFTs are a bubble –bubbles always accompany new technology. But bubbles also serve a purpose in that they accelerate investment and adoption. Without the railway bubbles, the tracks would not have been laid; nor, without dotcom in 2000, would the cables. Tulips were a bubble and, 400 years on, the Dutch still rule the roost in flowers. Scorn bubbles at your peril.
Remember Frisby’s Law: “A bubble is a bull market in which you don’t have a position.” The first to declare something a bubble are outsiders who have missed out. How many times have the media declared that the bitcoin bubble has burst?
Now the media are declaring the NFT bubble has burst. Figures recently published by nonfungible.com show that the average price of an NFT has “plummeted” (they always use the word “plummeted”, it’s so much more sensational than “gone down”) by 75% from a peak of around $4,000 in February to little more than $1,000 last week.
Well, whatever. It’s a 75% correction. That’s normal in cryptoland. How many 75% corrections have there been in bitcoin? I’ve lost count. $1,000 last week is still ten times higher than the average price of $100 being paid six months ago.
When digital came along, easy and instantaneous replication meant nothing was scarce any more. So content was dramatically devalued. Thanks to blockchain, digital scarcity has now been made possible.
The NFT is essentially a digital token representing ownership. Anyone can view Beeple’s “Everydays — The First 5000 Days”, the artwork recently sold for $69m at a Christie’s auction, but only one person has the ownership token.
That ownership is now verifiable, digitally secured, potentially divisible and easy to transfer. “Everydays” can be copied and pasted – but the token cannot be (that is, assuming the underlying platform is secure, which is another matter).
Most NFTs don’t have any value and the majority of submissions on NFT art markets don’t sell. Most art in the real world has little value too, though some is worth extraordinary amounts. Enough people have to believe in it for it to have any value –Banksy’s work is million-dollar-art to some; graffiti to others.
If an NFT gets a lot of media exposure, its value will increase – just as the stock in a Hollywood star will. If it gets none, it will be the equivalent of the unemployed actor. But the implications of independently-provable digital ownership go way beyond works of art. NFT art is just where the current focus is.
“We are going from a world,” says philosopher Naval Ravikant, “where every protocol has a token, to where every (decentralised) application has a token, to where every valuable digital representation of an object or person has a token. Public blockchains will be the title registries for everything of value. Ultimately, NFTs will authenticate the world.”
We will know who owns what – what is genuine and what isn’t. The implications for content creators are enormous. Online content might even have value again.
Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.
