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In October 2020, Miami art collector Pablo Rodriguez-Fraile spent $66,000 on a 10-second video he could have watched free online. He just sold it for $6.6M.
Since then, YouTuber Logan Paul made $5M selling digital trading cards. Investors poured $31M into OpenSea and SuperRare crypto art markets. Singer (and Elon Musk baby momma) Grimes sold 10 digital art pieces for $5.8M. And Christie’s auctioned a digital mosaic for $69M! I even bought Jack Dorsey’s first tweet for $2.5M! Kidding. I wouldn’t pay a penny over a mil. What kind of sucker do you take me for?
So, what is this black magic money machine? What weird future did we conjure? Is it all B.S.? Read on.
Artsy Fartsy
NFTs are Bitcoin’s artsy sister. “Non-fungible tokens” – or“crypto art” – are media files saved on the blockchain. It’s a permanent public ledger with copies across networked computers that verify authenticity. Some, like Adobe executive Scott Belsky, who bought the “Furry Lisa” NFT from Christie’s, believe this will disrupt how art is made and sold.
Let’s start there.
I’m all for creators having more ways to profit from their work and wear cool hats.
The two main perks of crypto art are verifying ownership and removing middlemen. NFT buyers can bypass snooty, greedy gallery owners, knowing their NFT is authentic. Frictionless, like KY.
This is true as long as you overlook that the biggest sale so far was through Christie’s auction house, a middleman as traditional as the top-hat.
NFTs also struggle to fulfill the three historical functions of fine art: investment, status, and decoration.
Splurged on a $69M NFT? You’ll need to Print. It. Out. to show it off in meatspace, where your cocktail parties and P-Diddy are. Better have your butler order a good inkjet!
The problem with digital is NFTs are just picture, video, or song files. Each is trivial to copy and can appear on a million screens at once. You’ll need an audit or blockchain tattoo on your belly to prove you’re the owner. It’s why I’m doing planks right now. And wearing a crop-top.
Art and luxury goods don’t work like other markets. Discounts, sales, and low prices harm status and bragging rights. So do online buying and knowing others have (or can afford) the same item. Luxury is a world built on others’ perceptions of you…that shape your perception of you.
Turns out gallery owners aren’t “snooty, greedy middlemen” or “friction” that ruin the experience. They are the experience. That deference and personal touch is how you know you made it. It’s how others know.
The next generation of one-percenters might be different. But for now, digital intangibility would traumatize The Trophy Wives of Orange County.
Let’s talk investment.
Like all art, currency and luxury goods, value of NFTs isn’t based on utility or necessity, but on belief. A picture is worth 1,000 words – or 1,000 Bitcoin – only in the eye of the beholder. Beyond these early adopters, you need enough believers to sustain a market. If vintage sneakers can be a $30B market, so could NFTs. Belief now comes in many curious forms. (Definitely listen to my podcast on this: The Future is Belief.)
Baby Drivers
Beyond ‘belief’, other forces are driving this oddball moment.
As the Fed prints us into Zimbabwe, every financial asset looks like it OD’d on Guy Fieri’s Donkey Sauce. From stocks to SPACs to homes to startups to commodities, everything is bloated and belching. But one asset shines above all…
The insane runup in cryptocurrencies created piles of “funny money”. A weird, speculative wealth that’s like Monopoly knocked up the lottery. A decade in, nothing tangible was built, gigawatts were burned, and 100,000 Bitcoin millionaires landed on Mr. Monopoly, collapsing his lungs.
Half are single men under 30 and the rest are guys under 45. They’re worth millions and ready to share their Cheetos flumes and backyard skate parks with the right lady.
They gambled on coins when they cost pennies. Now, they’re doing the same for all things blockchain.
In fact, Justin Sun who bought the $69M mosaic, paid with cryptocurrency and founded crypto platform Tron. He might as well deduct this as a business expense. The PR is great for his company – and the blockchain business itself.
It wouldn’t surprise me if NFTs were a marketing blitz to drive blockchain adoption. A few hundred million is a rounding error next to the value of the crypto ecosystem and asset base.
This might also be the latest attempt to invent a use case for blockchain. Despite billions invested and countless corporate experiments, there are few scaled applications. Little beyond foreign currency exchange, cryptocurrency trading, and minting new coins. Even Bitcoin reanimated as a ‘store of wealth’ after flopping as a ‘digital currency’. So far, blockchain’s promise dwarfs its reality.
The Future
At least until the economy reopens, expect more NFT Mania. Funny money abounds and supply is trivial to produce. A cottage industry of marketplaces, marketers and consultants will blossom. They’ll help a few tech-savvy creators profit…and milk the rest. In a way, NFTs are a GoFundMe for artists with loyal fans, instead of classmates with Cholera. Thanks, CryptoMonsters.
Like ICOs (Initial Coin Offerings) raised millions for fake coin businesses, there will be scams. Except, everyone will have a nice JPEG to commemorate it.
Few early adopters expect utility, status or long-term appreciation. They want a quick buck or they’re all-in on blockchain and the libertarian utopia it represents. (More on that in a second.) It’s that next group of non-believers who’ll demand more. What might “more” mean for NFTs?
(My ratings on a 1-10 scale, w/10 being highest potential.)
1. Art & Collectibles (6/10)
NFTs won’t replace the fine art market but complement it. No one’s giving up those juicy tax or money laundering perks.
NFTs will diversify gallery and auction house revenues – and shrink their Viagra smoothie budget. In the process, their reputations will legitimize NFTs.
I’m not a fan of using blockchain for authenticating, tracking, or selling physical art. Benefits are only as good as the reputation of custodians handling the art and adding it to the blockchain.
Collectibles like baseball cards, Pokemon and Magic the Gathering cards make more sense as NFTs. Will collectors surrender the physical treasures currently preserving their virginity? TBD.
2. Digital Rights (5/10)
Music, video and image NFTs can act like “smart contracts”. They can contain licensing rules that track and enforce usage across the web. For example, a CDN (or host) could serve blockchain-linked files to galleries or streaming services. It could enable payments and partial ownership.
Little of this infrastructure exists. If it did, piracy would abound. This kind of tracking can be oppressive. It’s almost as unsavory as how companies like Getty Images make money: legal threats.
Enforcing copyright is a powerful, still theoretical use case. Many issues remain unresolved. And there are decent non-blockchain alternatives.
In practice, rights enforcement is only as good as your legal budget.
3. Ticketing (4/10)
Tickets issued on the blockchain are hard (if not impossible) to forge. But in the US, live events are a monopoly. Live Nation/Ticketmaster is taking all ticketing digital, inside its own app. That includes resales and transfers. Unfortunately, there’s nothing about NFTs that solves a monopoly problem. It might work for international or closed-loop events, like conferences and bullfighting competitions.
4. Prelude to The Matrix (5/10)
In a way, NFTs unbundle digital goods from gaming, unlocking some strange possibilities.
Inside a game, you’d buy a sword, a castle, or magic spells. Inside that world, the game developer has little incentive to use blockchain. Gamers are captive audiences and will buy what’s available. Unless…companies can charge hefty premiums for unique items that gamers must trust are exclusive.
Strangely, this solves all three problems of art:
- It’s a good investment if it’s unique and can be resold.
- You get status in the form of exclusive powers/privileges.
- You can peacock your item inside the game. Duel with demons in a room decorated with my stick-figure NFT of Ponce de Leon riding a Vespa.
The more time spent in the game, the more valuable in-game NFTs. With VR, both quality and value of objects increases. And blockchain can enforce rights across digital worlds.
Now what if these digital goods could jump into the real world?
With AR (augmented reality), you can beautify any hellscape. Vagrants become princes, rats will be Smurfs, and encampments turn into Narnia. Who wouldn’t love this L.A.? Of course, none of this requires NFT, unless the items must be unique. They don’t.
5. Libertaria (2/10)
The dream of blockchain, crypto and NFTs is Krazy Glued to a libertarian utopia. There are no giant banks, paper money, borders, or middlemen. Everyone trades directly and blockchains ensure trust. It’s live and let live.
This worldview deserves its own newsletter (and will get it). Let’s say this vision subverts vital aspects of human nature, incumbent power, and DNA of the “decentralized” system now being built.
To be continued…
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