I wrote some stuff about NFTs a while ago, these crypto-currency related ways to "buy" art, which people keep struggling to understand. In the piece I point out that traditional art derives its value largely from the activities of those widely hated gatekeepers: the curators, dealers, publishers, collectors, and no doubt others.
Let's back up a bit. Or maybe a lot.
Something is valuable if there's a community of people who think it's valuable. A loaf of bread is valuable because lots of people
would like to eat it. A dollar bill is valuable because, collectively, we've agreed that you can swap that dollar bill for a lot of other
things, so many different things that there's practically certain to be something you want in there. A Monet is valuable because it's attractive
to look at, and because we collectively agree that it's valuable.
A loaf of bread also has utility, you can eat the damned thing. A Monet has a lot less utility, but it is at least pretty and if pressed you
could fashion a crude shelter out of it.
A dollar bill doesn't have a heck of a lot of utility. You can snort coke through it, if you don't have a $100 bill. Which, if you have a bunch
of coke, you probably don't. Other than that it's pretty useless by itself, although it gets a kind of knock-on utility in that you can swap
it for stuff like bread.
Bitcoins don't have much utility at all, they don't even exist hard enough to snort coke through, and the knock-on utility is pretty limited.
You can trade them for other, even less useful,
cryptocurrency, you can unransom your ransomwared computers and that is... about it. Even trading them for USD is apparently super dicey
and subject to change without notice.
You can also buy NFTs if you swap your Bitcoins for Ethereum tokens. An NFT is essentially a cryptocoin that's "connected" to some sort of other digital
object, could be anything, but it's often a picture. So, in a sense, this is just more sloshing pretend coins around. They're just coins with
pictures on them.
Anyways. Cryptocurrencies, including NFTs, have value for the same reason anything else does: a community agrees that it has value. Utility is a different
I observed in my earlier piece that NFTs seem to lack any coherent social system for creating and maintaining value. The NFT market lacks the mechanisms,
the gatekeepers, that produce value for a Monet, and I felt that was a problem. Well, bless their hearts, the NFT market is now offering up a solution.
Props to them, right? They recognized the problem, and now we have white papers (i.e. blog posts)
offering up the answer to the problem in a suitable distributed Libertarian way: communities.
Crytopunks, which are shitty little graphics of characters tied to NFTs, are the canonical example here. They are valuable because people want them,
and apparently there is an active community of people who want them. They talk to one another using something called discord, they create consortia
to buy specific punks, and so on. They
decorate their social media with the graphics that they own, or own shares of. There's a whole thing going on here, without (supposedly) any
central gatekeeping, no firm hand on the tiller, it's just an emergent social phenomenon.
Cool, right? I mean, this is legitimately a solution to the problem I called out in March.
What it is not is stable.
The crowd as a setter of value is notoriously fickle. Even stuff with super high utility, like wheat, has to have a complex and highly regulated market just to ensure
that, mostly, the people who grow it get paid more than it costs to grow it. The US dollar, like any national currency, is heavily managed to maintain its value at something vaguely resembling a constant.
When the crowd sets the value by itself the value tends to both to fluctuate, and to be easily manipulated. To the extent that you can manipulate the crowd,
you can manipulate the value. Worse, vice versa, creating the potential for ugly feedback loops. The value, whether manipulated or not, tends to be
volatile. When in the normal bouncing up and down it takes a downward
leap that scares The Crowd, the value can (and usually does, eventually) drop to zero, and then game is over. Once the crowd loses faith, it will not
obligingly assign value to the thing any more, at least not a value incommensurate with its utility.
The value of wheat will recover from a catastrophic crash, because it can be made into bread, which people want to eat. The value of a cryptopunk will stay zero
forever once the crowd loses faith, because it has zero utility.
There is a secondary problem in that not everything that is NFTable is compatible with a robust community of fans that set a value. A single photograph, for instance,
seems unlikely to inspire a large enough social following (except, perhaps, in very special circumstances.) Collections of things, whether it be "a band, and their songs"
or "10,000 cryptopunk character graphics" seem well suited to this model.
Yes, people are experimenting with fractionalizing single artworks, but I am having trouble seeing how this goes anywhere. The social value of "woo, I own 1/10000 of a
fairly ugly photograph" is not, as far as I can discern, very high. The little toon dudes that are cryptopunks, I get that. I mean, they're dumb, but whatever,
they're recognizable and compatible with coolness in a way that some Very Serious Photograph is not.
I daresay it's impossible to really characterize what things work and what things don't, but if you can't imagine how a community could rally around a thing,
wrap themselves in it, and use it to signal their community membership in various, fun, creative ways, then it's probably not something that's going to work.
The Beeple "one large artwork, one large buyer" model is not this, not at all. It seems to me to be a simple aping of the Fine Art Gatekept model, except without
any gatekeepers, and thus no sustainable way to generate and maintain value.
The sage continues. Let's see what these idiots do next!