Whenever I read a new article about NFTs, all I can think of is the Beanie Baby craze of the late 90s. At the time, I worked at a children’s educational toy store. That place was predictably busy on weekends and during the holiday season, but we also sold Beanie Babies, and release day was like Black Friday—every month. Adults would swarm the store, ready to stomp their neighbors and elbow their way to the display case to “invest” in stuffed animals. Of course, most of these investors would also pick up a pack or two of Pokemon cards on the way out of the store.
NFTs also makes me think of another bit of meta-nostalgia, the 2011 book Ready Player One. In this book (and a 2018 movie), the main character escapes from his mid-apocalyptic world to the OASIS, a VR world where his knowledge of late twentieth-century pop culture and gaming ability lets him compete in a contest to find Easter eggs for a lot of money. He outfits an avatar, fights the bad guys, and wins the day, all in OASIS and using the most stable money of his steadily-decaying 2045 world: a digital currency.
The parallels are just a little too close for my own comfort. So are NFTs a way for geeks to make OASIS and the Ready Player One fantasy a reality? Or is it just the modern version of baseball cards, Beanie Babies, and art collection?
Why not both?
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What is an NFT?
NFT stands for non-fungible token. A token is an item that is tied to a cryptocurrency. Its ownership is secure and verifiable since NFTs can be tracked via a blockchain record, and a token can be traded on the cryptocurrency market. A non-fungible token is a unique or nearly-unique (meaning released in limited quantities) token that cannot be interchanged with another. For example, in the art world, a non-fungible piece would be an original painting or a numbered print of a photograph.
Non-fungible tokens can be bought and sold with digital currency like Bitcoin, Dogecoin, or Ethereum, and the record of the transaction—and therefore the record of the ownership—is indelibly, securely, and eternally recorded in the blockchain.
So whereas physical art could be stolen, forged, or destroyed, an NFT exists as long as there is a digital record and computers to look at it. This may explain, in part, why an artist name Beeple sold an NFT for $69 million.
But, why NFTs?
At the risk of sounding like the curmudgeon I am, I think it’s important that we discuss why NFTs, or anything else, is considered worth our money.
We know why we purchase shoes, but why did I purchase a $100 pair of Birkenstocks (humble brag, I know) instead of a $2 pair of flip-flops? Of course, there are aesthetic reasons—I need footwear that looks good with my socks—and arch-support reasons. But I also know that the shoes will last a long time and that the value I receive from this pair of shoes will make the money I pay worth it.
NFTs tap into a different capitalist idea that is no less worthwhile: If I can own something unique, I am important. No one can buy the Mona Lisa and no one can own LeBron James’s talent (except, of course, LeBron James and whatever basketball franchise he is currently contracted to), but you can now “own” an NFT clip of James dunking a basketball. Betting on the lasting value of James’s popularity is pretty much a sure thing.
If you purchase an NFT of James dunking a basketball, you own it, but that has limited meaning. You can’t stop other people from viewing the dunk clip. You aren’t even the only person who can use it on the internet. But the blockchain record says you own it, which means you could sell it in a pinch.
Some recent developments in the NFT world
Considering the sales of NFTs have increased 55% since 2020, the digital art NFT bubble may not be any different than the tulip, Tickle Me Elmo, Beanie Baby, or even the Birkin bag craze. Of course, there is the chance that the bottom will drop out of the digital art market tomorrow, but there are plenty of non-art NFTs being formed that could support the format as an investment platform.
Just in time for the Triple Crown season, the New York Times covered digital horse racing, where people can purchase, race, and even breed crypto-backed digital horses. In addition, the 2017 NFTs Cryptopunks (2017), backed by the Ethereum cryptocurrency, have resurged in popularity now that tokens have hit the mainstream. And, of course, ecommerce is getting in on the game by making it an option for online payments.
And the closest echo of Ready Player One is the digital avatar company Genies, which lets you build your own digital avatar, outfit it with a range of clothing, helmet, shoe, and hairstyle options, and—you know what, I don’t actually know what you do with the avatars. Presumably, you use them in a game. I’m sorry, I got lost in the echoes of RPO and just didn’t follow through on that.
Ok, but why should you care?
My friend Etienne said recently that what makes NFTs inherently valuable, and in the same vein, cryptocurrency, gold, diamonds, or government-backed currency, is trust. We trust that gold is inherently valuable, and so we pay a higher price for it than, say, potting soil. Likewise, as our collective trust in cryptocurrency rises, so does the inherent value.
Pokemon cards have value to those who play the Pokemon card game. Beanie Babies have value to those who collect Beanie Babies. And NFTs have value to those who invest in, believe in, and trade these assets on the market.
And as the value of cryptocurrencies rise and gains popularity, so does our trust in them, so their value rises. There are plenty of things in this world that I don’t stake value on that others are willing to pay for. But these things exist, and they help to drive the economy. It would be best if you cared enough to know what they are because plenty of other people care. And maybe one day, someone will make an NFT that you care enough to invest in. Or maybe as our society decays, we’ll all escape to a VR world where our avatars live out our dreams for us.
But probably not.