People want to believe, NFT edition - 13 December 2021

There is a message here, and it is both uplifting and depressing.

 I have been reading about NFTs for months and still fail to succumb to the allure.  I just watched a video, courtesy of BoingBoing, that is located here -  

https://www.youtube.com/watch?v=xXaYUEspyG8

and as referenced from BoingBoing -

https://boingboing.net/2021/12/13/what-is-the-true-nature-of-the-nft-bubble.html

The video, named "How Celebrities are Making MILLIONS with Selling JPG’s (NFT’s)" [sic], takes seventeen minutes to explain, first, that NFTs are a bubble and, second, that NFTs are not a scam.  I will grant that the first ten minutes are correct: NFTs are a bubble.  I take issue with the second part: NFTs are a scam.

The best argument for the long-term validity of NFTs is that they provide some sort of a guarantee that one possesses an original.  This is the non-fungible aspect.  The presenter notes that it is trivial to make a perfect copy of a digital original;  he somehow completely glosses over this key fact when comparing NFTs to conventional works of art.  He argues that, somehow, an authenticated work of art by Picasso, Rothko, Rembrandt, or Banksy is equivalent to an NFT.  This is either self-deceiving or disingenuous.  The unacknowledged fault in this argument is that the conventional work of art is unique.  It cannot be duplicated or reproduced and it exists in exactly one place.  It is true that there is a large business, science, and art for the authentication of art works, and it is true that this sometimes has its failures, but it generally works to support the uniqueness and origin of a particular piece of art.  For NFTs, there is no such thing.  A particular NFT, itself, certifies to the uniqueness of a collection of bits, but those bits can be copied perfectly with no way to determine the original.  Further, those exact bits can "exist" in many places (hundreds, thousands, millions of URLs) and they can be moved to a new location trivially - with or without leaving a copy behind.  If the Mona Lisa is removed from the Louvre, there is no copy left behind, perfect or otherwise.  Further, if an artist can make money from the resale of the art (likely a good thing), it seems likely that the artist (or agent) can make another NFT.  Nothing makes the second NFT more valuable than the first.  One can argue that the first NFT is a "first edition" and that brings value.  However, this discussion again calls the basic question - what is the value of an NFT?  

The presenter argues that an NFT has the same exclusiveness as owning a Ferrari or an exotic watch.  The Ferrari has no value on city streets as 35 remains the speed limit for all cars; the watch does not keep better time than the cheap digital watch.  Thus the Ferrari and watch bring status because of exclusivity and expense.  But a fancy car or watch is difficult to make - they are not mass produced using a "copy" command on a cheap PC.  They are not trivially distributed on cheap USB memory sticks.  So if you are the kind of person who is impressed with logos imprinted on leather or carved into steel watches, then maybe an NFT is for you.  But the Ferrari will still be putt-putting along at 35 and will eventually become scrap metal, so enjoy it while you can.  Ferrari will make more cars next year while Rembrandt will remain dead.  The exclusiveness analogy fails.

The presenter mentions in passing that Bitcoin whales are buying NFTs to evade taxes on BTC gains.  The whale converts capital gains on the BTC investment (wager) into the value of an NFT.  Well, yes, that works now.  But eventually the whale will want to convert that NFT into cash to buy their yacht or their pizza, so the NFT will collapse into an cap gain at that point and taxes will be due.  Of the NFT market will collapse and the cap gains will evaporate.  Ultimately, this practice is a statement that the long-term promise of the Bitcoin world is not good (a purchase of NFTs signal low confidence in BTC; if confidence in BTC was high, investments would remain in BTC).  This also means that the world of NFTs is rather like the island of dry cleaners that prospers because everyone takes in each others' laundry.  That will not last long.

To summarize the depressing part of the NFT story, NFTs represent people who are seeking something for nothing.  They seek huge profits at the expense of others with no effort from themselves.  Think about that NFT booster - they add nothing to the value proposition of NFTs.  They are in a pump-and-dump model with the hope that they will get out before the crash caused by the dump.  Which NFT whale will start dumping first?

I said at the start that the moral here was both depressing and uplifting.  I have dwelt on the depressing bit.  The uplifting bit is that many people remain optimistic.  Now that I see that written, it feels inadequate.  NFTs are depressing and a lot of innocent people will lose money.