By Diego Serebrisky
There has been a lot of hype regarding NFTs recently. NFT is short for non-fungible token – a unique digital identifier that is recorded in a blockchain, and that is used to certify authenticity and ownership of an underlying digital asset, typically a digital image. Most digital assets could be copied easily; the NFT is an identifier link to a specific asset that could not be copied. So, the owner of the NFT has a unique registered copy of the underlying digital asset, although there could be an infinite number of copies of the digital asset.
Initially, NFTs gained popularity as a way for digital artists to get fairly compensated for their work, in a way similar to how art photography works. Every photograph has a limited number of printed copies (1, 10, 50, 100, …) which then determines its value. One single copy is more valuable than a series with 10 and so on. Each print is clearly identified and signed by the artist. Typically the artist commits to not print additional copies in the future.
This is a good idea and the NFT system reduces the risk of having a multitude of copies of the underlying asset (although some serious security weaknesses exist in the current system). But it does nothing to eliminate the risk of having an infinite number of different images. Lowering the barriers to creating unique pieces devalues the value of an individual piece.
That is what has happened. The market has evolved to series of images algorithmically created by changing basic elements of the image. These series are done in relatively large numbers, typically 1,000 or 10,000. The creators of each series try to build a “community” around it where people can get early access to the NFTs. The creators and community then work hard to create a perception of value of these images, creating demand from latecomers and then increasing the value of early buyers.
Some famous series are the Bored Ape Yacht Club, CryptoPunks, Mutant Ape Yacht Club, and hundreds more. You get the idea. Some of these have obtained ridiculous secondary prices for images with very little artistic value and with zero of the work and cultural message normally involved in good contemporary art.
In my mind, this is a market only based on the speculation that a greater fool would come to buy later at a much higher price. I highly recommend you watch the lengthy video essay below from Dan Olson that explains the economics of cryptos and NFTs in much more detail.
I have no doubts that valuable applications of NFTs would emerge, as the concept of having unique non-duplicable digital assets makes a lot of sense. But the current “artsy” NFTs do not. What we are seeing is speculators trying to get rich (or richer) by convincing many others that these NFTs are scarce and valuable assets when in fact they are not and most have minimal artistic or cultural value.