The value of NFTs, explained by an expert
Non-fungible tokens, it seems, have entered the mainstream, even as the technology remains confusing and largely inaccessible to regular Americans. Brands are very excited about them, selling limited-edition Taco Bell cryptoart, old Time magazine covers, New York Times column, and a virtual Pringles chip flavor
What are Non-fungible tokens (NFTs)?
NFTs codifies and enforces a metric of scarcity on a digital file that is at odds with the idea of an open internet
- There is a distinction between functional and hedonic value
- Functional – you’ll flex with your NFT, show people your cryptocurrency wallet, and display your taste in art or music
- Hedonic – people like collectibles because they have some sort of biographical element that indexes some important events in the past or its relation to a person’s life in history
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There’s been a lot of attention given to the bidding wars that are happening in the NFT space.
This price inflation is confusing regular people, who are trying to wrap their minds around digital scarcity and the novelty of this technology.
- How are you making sense of this range of prices, in relation to the vague idea of digital scarcity?
- A way to think about scarcity is that it’s a supply and demand phenomenon. What NFT technology does is give you the supply. It doesn’t give you demand.
- Other people have to want it.
In some sense, NFTs do impose scarcity on something that naturally doesn’t have scarcity.
There’s immediate pushback as to why someone would want to make something more scarce if people want it.
- Elinor Ostrom, a Nobel Prize-winning economist, has an interesting theory on this.
- The free aspect of the internet and social media possibly depletes the stock or value of the content out there.
- Anything you make – even something that took you a lot of time – as soon as you put it on the internet, the price of that is basically zero because the marginal cost of reproducing it is zero.