Are NFTs the Emperor’s New Clothes?

Non-fungible tokens (NFTs) are the hot new thing. New online marketplaces are popping up to sell everything from digital art to digital homes that you can’t live in.

You may have noticed, for example, I have a $69 million digital artwork at the top of this post. (Impressive, yes?) You can get the Beeple artwork for yourself by simply hitting right-click and copying it straight off this page or pretty much anywhere off the internet.

NFTs, I’ve learned, are simply a way to keep track of something using blockchain. “In the simplest terms,” CNN explains, “NFTs transform digital works of art and other collectibles into one-of-a-kind, verifiable assets that are easy to trade on the blockchain.”

The CNN explanation isn’t altogether accurate in the most literal terms. NFTs, for digital works, are not one-of-a-kind.

Possession is 9/10ths of the internet

Can you or I claim to own “Everydays: The First 5,000 Days”? Not really. Can we print it or use it as a screensaver? Why, yes, we can. Thanks to the internet fewer and fewer things are original.

If you have a Rembrandt in your home, but no one else has seen it, does it really exist?

The Beeple artwork above and below sold for $69 million at a Christie’s auction. You’d be hard-pressed, however, to tell the difference between the $69 million version and the ones here. The reason is, you can’t. Because they aren’t. I can’t show that I own the original, which is the only difference. If you own the NFT, you own the provenance of whatever “it” is as secured by blockchain.

While I don’t have the provenance provided by an NFT, they look pretty much the same to me. (And I didn’t pay anything for “Everydays: The First 5,000 Days.”)

As Bill Tai explained in a recent Brookings webinar, much of the attraction of an NFT, especially as it relates to artwork, is ego. An NFT’s value is based more on ego than intrinsic value.

When we own something unique or cool, we want to show it off. Let others know we own “it.” Could be an exotic car, your first home or a rare book. If you have a one-of-one Rembrandt in your home, but no one else has seen it, does it really exist?

Provenance and the NFT

When you have a blockchain-enabled provenance-maker to prove you own the NFT, you retain the provenance of the one-of-one, even if a million versions are floating around on social media platforms, news sites, LinkedIn and myriad of other websites. You’ve got bragging rights and the ability to share your NFT artwork far and wide, knowing you have the “original,” if not the only copy. But does that make the purchase worth nearly 70 million bucks? Doubtful. Will it increase in value?

Why would someone buy your NFT for $69 million (or more) if they can get the same image free from tens of thousands of online sources? (Or, like they used to say when I lived in Montgomery, “why buy the cow if you can get the milk for free?”)

Why would someone buy your NFT for $69 million (or more) if they can get the same image free from tens of thousands of online sources?

You might purchase an NFT for the bragging rights, but that would likely be the only reason. Because while you may own the provenance, everyone owns the image. You could enter your ridiculously long password to access the NFT via blockchain and show the folks at a cocktail party that you own the NFT. Which is sort of cool, I suppose.

Back to the real world

In the physical world, an item’s scarcity, uniqueness and/or desirability often is congruent with value. The NFT marketplace seems to thrive on the opposite concept: the “it” can be reproduced by the millions or billions, but the ownership is unique.

In the real world of collecting and antiques, even some hard-to-find items have become less so thanks to the internet. Even so, in the real, physical world you own the item and no one else does, even if you don’t have the provenance, which is important only in rare cases.

Seemingly rare items, it turned out, were common and worth less because of their availability.

In the past, it was often difficult for collectors to find an item. You were generally limited to your geographic area or, if you were savvier and well-heeled, physical auctions taking place around the world. The price for the item was higher because it was “rare.” It turns out however, most collectibles are far less than rare thanks to the internet.

Once the rarity-factor was decimated by eBay and now-similar platforms, like Facebook groups and Facebook Marketplace, or even the advent of white-glove auction houses joining the online auction movement, the items lost value because it became easier for collectors to buy from dealers or home sellers anywhere around the world. The effect simply drove down prices.

Scarcity in art, antiques, cars and collectibles, drives value and cost on the open market. But a digital NFT, while the provenance can be tracked to ensure you have the “original,” is not scarce and never will be once an image of the artwork is shared online.

Are NFTs the Emperor’s New Clothes? I believe they are. NonFungible.com monitors the NFT market and shows the recent peak being around April 14 with nearly 34,000 sales. More recently, however, the NFT market has been dropping (precipitously?), especially from April 16 to April 21, when sales dropped by about 10,000 units of collectibles, art, sports and more. This could be the simple ups and downs seen in any market, especially one that is in the midst of being established. Or it could be something more dire.

If you look at NFTs in the strictest terms of the value of a collectible, for example, the end may be near. And it’s the fault of the internet and the wide ability to download just about anything that can be converted to a digital file. Anyone can do it and most everyone does. It turns out that in the online world no one is unique when everyone is.

I think Syndrome of The Incredibles said it best: “And when everyone’s super, no one will be.”

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