Just as Bitcoin had reinvented money, and Ethereum had redefined the digital platform, non-fungible tokens rekindled excitement around digital art, an excitement that had arisen decades prior when computers first hit the scene but gone quiet once creators realized there was no way to preserve the scarcity of their work. Not the scarcity of consumption— that activity was liberated by the web—but rather the scarcity of ownership. Understanding this distinction is important, as it hints at the coming revolution in art, media, and pop culture. NFTs
With physical art, every unit is both scarcely owned and consumed. There is only one Mona Lisa, and it can only be viewed at the Louvre. There might be thousands of prints hanging in people’s apartments or millions of photographs on the web, but those are cheap knockoffs. They don’t look, feel, or even smell the same. Digital art by way of NFTs shatters that model because only the ownership bit is scarce. Consumption and enjoyment of the original, on the other hand, are open to anyone, anywhere. Case in point, Christie’s, the auction house that sold the record-breaking Beeple work for $69m, put an ultrahigh-resolution version of the image on its web page to promote the sale, meaning that people who didn’t pay a penny for it (along with those who bid millions but still lost) could consume “the original image” just as much as the winner of the auction. A skeptic could refer to this as the ultimate “winner’s curse.” That skeptic would be wrong.
The belief that only the owners of fine art (or those who can afford trips to Paris) should be able to enjoy it at its highest quality is rather gauche. It’s also elitist. Most artists do not want only a privileged few to have access to their work. They want everyone to be able to enjoy it at its highest quality, regardless of their location, wealth, or circumstances. That’s why musicians go to recording studios and use expensive equipment to record themselves. Otherwise, only the small subset of fans who have the luxury of attending a live concert would get to enjoy their music at its highest quality. Art elevates us all, and there should be no limit to the consumption of beauty. But the artists who provide that beauty shouldn’t have to starve either. Historically, the easiest way to monetize art has been by selling it to a collector. NFTs represent the best of both worlds: art that is universally enjoyed yet singularly owned. Their existence on a programmable platform ruled by code opens the door to other innovations that benefit artists, such as tokens programmed to always send a percentage of their resale price back to the original artist. Gone are the days when a work of art originally sold for $10,000 now trades for millions, but with all the additional value accruing to wealthy collectors.
Such features are not available to traditional artists working in the physical domain. For all we know, the fact that a digital work of art could be enjoyed by anyone, anywhere, in a fashion that continues to financially benefit the creator, could ultimately make digital art more desirable than the physical variety. Indeed, young people who go out of their way to snatch up NFTs are happy to pay up for videos and images that have gone viral. The reason why is status.
Status and Scarcity
Signaling social status has always been an important driver in the domains of art and collectibles. From Cezanne paintings to Swiss watches to limited-edition sneakers, people like to own rare and coveted objects to indicate a certain place within society. But not all objects are good at signaling status. The first requirement is that the item is provably scarce. The second requirement, counterintuitively, is that it lacks day-to-day utility. The fact that a $5,000 Gucci leather handbag is less useful than a $50 canvas equivalent is part of its appeal. Wastefulness
is the ultimate form of conspicuous consumption.
Non-fungible tokens are the ultimate status-signaling mechanism. The blockchain makes verifying the scarcity and authenticity of each one easy, far easier than with a handbag. Since they are often nothing more than bits of data, there is little utility beyond signaling status. This is why owners of the most coveted NFTs such as the CryptoPunks often use them as their profile pictures on social media. The digital domain was always going to be the ultimate place for status games, but not without the invention of digital scarcity. Now, there’s a blockchain for that. Not surprisingly, many of the world’s biggest luxury brands, including Gucci, have begun selling NFTs. Those who criticize the high amounts paid for these virtual items miss the point. Why bother with the pretense of a physical item when the only thing anyone cares about is the logo on it.
About the Author:
Omid Malekan is the Explainer-in-Chief of blockchain technology. He is an adjunct professor at Columbia Business School, where he lectures on blockchain and crypto. A nine-year veteran of the crypto industry, he spends most of his time as a consultant, educator, and advocate for this new way of building trust. His writing on this topic has previously appeared in the Financial Times, New York Times, and Harvard Business Review. He was recently the in-house crypto expert at Citi Ventures. He is also the author of the new book, Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets and Platforms.
By Omid Malekan, excerpted from Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets and Platforms.