The Key Ingredient to Make an NFT Actually Valuable

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Avatar for dave_gutteridge
3 years ago

As a person who would like to make a living off my creativity, the idea that I could sell art as NFTs sounds great. But, as much as I'd like to capitalize on the hype, I just have a hard time seeing NFTs as having real value.

Value, which is different from price. NFTs clearly can command a high price. But, a price is something that happens at a moment in time, in the instant of transaction. Famously, a screenshot of the first Tweet was sold as an NFT for about 2.9 million US dollars, which is a high price. But will that price, or higher, be attainable again? Not if that NFT doesn't retain some kind of inherent value, which is a product of desirability lasting over time.

I was, for a while, pretty sure that all NFTs lacked any value, and that all the headline making sales was just a bubble on top of a fad on top of a mania. But, then I saw this video, and it changed my mind. There can be value in NFTs.

Or at least, there's value in NFTs if you accept the premise that there are some things in this world that can be collectable. Which is by no means a premise you have to accept. But, if you don't, then we might end up arcing towards the existential angst of confronting the reality that everything beyond our basic food and shelter needs is just a bunch of bullshit we make up to fill time until we die, and nothing we make is valuable beyond the importance we arbitrarily assign to it. No want wants to think about that, though, so let's move on.

You may not collect things. I don't collect things. But still, you and I both understand that people collect things. People collect stamps, coins, comics, historical artifacts... maybe cars if they're rich enough. Or paintings. Whatever.

One thing that people collect is sports cards. In the video I mentioned, they talked about baseball cards. Where I grew up, people collected hockey cards. I'm sure people probably also collect cards for soccer or whatever else.

If you think about it, it's a little strange how sports cards, baseball or hockey, get their value. Their value comes from the player they refer to. Usually. Sometimes there are misprints and things that are special to the card themselves. But, for the most part, a sports card has value if the player has value.

A Wayne Gretzky rookie card can be worth up to 1.29 million dollars. Lots of rookie cards get printed, but none of them have anywhere near the value of Gretzky's rookie card. The other cards are forgettable because the other players they refer to were forgettable. The Gretzky card gets its value because the Gretzky player turned out to be the highest scoring ice hockey player of all time.

I think there other collectables besides sports cards that might work in a similar way, at least some of the time. There are probably stamps and coins that are made more valuable by who or what is depicted on them.

And that's how NFTs can be legitimately valuable. If you're willing to accept that it's normal for a sports trading card to be valuable because it's a reference to a player, then why not accept that an NFT has value because it's a reference to something? That's where the video left it, and it's a reasonable position. Again, though, only reasonable if you are comfortable sitting on top of the premise that people and cultures can all agree that various arbitrary things have any value at all.

But I'm unsatisfied with stopping at the conclusion that NFTs derive value from the item they point to, because that simply passes the question of value to the item being referenced. Why does that have value?

I'm nearly 100% certain that whoever spent almost three million dollars to buy a screenshot of a Tweet has essentially lit their money on fire. Well, except it seems that the money was mostly, if not entirely, passed on to charity. As a stunt to raise funds for a good cause, maybe that's fine. But, just on the level of what it means to buy an NFT, I think the long term potential to resell that Tweet is diminishing rapidly.

As opposed to a Gretzky rookie card, which is likely to sell for a slightly higher price some time down the road. Both are collectable references, but one has something the other doesn't. Something that fuels lasting value.

Community.

The Gretzky rookie card didn't become worth millions of dollars merely because it's unique and auctionable. I don't even think it's unique, there are probably a dozen or so surviving cards, so it's merely rare. In any case, it took decades of both hockey and cards, players and fans, teams and markets, to build up a world in which there are common points of reference among large groups of people. People who have a shared understanding of what things are important, what's interesting, and what's special.

I'm only a casual hockey fan, but I know who Gretzky is and understand that anything associated with him has a certain gravity to it. Owning the card is like owning a small piece of the Gretzky story, which is a small piece of the world of hockey, which is a place inhabited by millions of people.

A screenshot of a Tweet has it's own story, but it's mostly self referential. A lot of what makes it valuable is the story about how valuable it is. There isn't a lot of depth to that story, not a lot of shared reference among the people who tell it.

That doesn't mean that a screenshot of a Tweet can't build from wherever it starts and attain a community that supports its value. Who knows, in ten or twenty years maybe there will be conventions for screenshot and meme collectors, the same way there are comic conventions and sports events.

But I doubt it. When you compare the depth of community that sustains the value of other collectables compared to the value that NFTs are trying to claim, it's not even close. Most collectables are built on decades or more of growth before anything they made got converted from sentimental value to commercial value. NFTs are trying to short circuit the process, leveraging their properties of assured uniqueness and proof of ownership, without putting in the ground work of figuring out who should care and why.

Which is not to say that NFTs can't have community value. They absolutely can. I'm only saying that so far there hasn't been any community that has established itself in any way that's sufficient to both exploit the useful features of NFTs and sustain value in the long term. There are definitely attempts to try and create communities and shared stories around NFTs, but, most of them are still stuck in the phase of only being worth talking about because everyone is talking about NFTs.

I'm certain eventually there will be communities that manage to build NFTs with agreed upon value that lasts. It's just not clear yet who is going to be able to pull it off. Even if a well established community were to start issuing NFTs, for example, if the NHL issued a Wayne Gretzky rookie NFT of some kind, it's still unclear if that would be accepted by fans and collectors. Most projects to create collectable items, even using well established intellectual properties, simply fail. NFTs won't be any different in that regard.

Bottom line, if you want to sell NFTs, then make them and sell them now before the heat dies down.

But if you want to buy NFTs in hopes that they'll have a higher price later on, the question you need to ask is, what is the community that gives this value?

If you can't answer that, then all you're buying is a number stored on a blockchain.

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Avatar for dave_gutteridge
3 years ago

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then all you're buying is a number stored on a blockchain.

Which anyone can copy (to his hd, to another blockchain, whatever). Such a thing can only have value if there is a community generally accepting that blockchain or nft system as kind-of authoritative for certain classes of nfts... over a long period of time.

$ 0.00
2 years ago

Good discussion of the issues involved.

If there was a single official Gretsky NFT token created before he became well known, I think it's value would have risen like the card, but slowly until the NFT awareness grew. Making one now would create something of low value unless a big fan was also a nerd. Making it a way to support the Gretsky family with a share of all sales going to them (maybe using a smart contract NFT?) might help. Over time if NFT's become well known and an accepted "store of value" such a token might grow in value just because enough people have decided to believe in their value. I would guess a lot of people making them now are gambling/dreaming that will happen some day.

Is the first Bitcoin ever mined an NFT? I assume it is and the proof is in the blockchain without the need to create a token to represent it. If someone had that available for sale I think they could get more value than that Bitcoin's current inherent value. Just a thought.

$ 0.00
2 years ago

That's an interesting point about the first Bitcoin that was mined. In a sense, every Satoshi on any blockchain is technically unique like an NFT. Except that their uniqueness doesn't matter because of the volume of similar Satoshis. However, in some cases, like the very first Bitcoin coin mined, has inherent historical value, making it worth more than other Bitcoins. It would be like owning the first US dollar ever printed.

The first Bitcoin ever mined has almost certainly not been marketed or sold as an NFT, though. The reason being that, so far as I know, the first million or so Bitcoins are owned by Satoshi Nakamoto, who has, of course, not been active for a decade or so. No one else can access or move the coins, so, they aren't for sale as NFTs or anything else simply because they can't be touched.

If, however Nakamoto San ever re-appeared, or somehow someone got access to his wallet, then I think you're right that the first Bitcoin would would almost certainly be made into an NFT.

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2 years ago