On scarcity, ubiquity, and value; or, what is an NFT?

The last few weeks, “NFTs” have been all the rage. So far, the US National Basketball Association Top Shot product from Dapper Labs has had over $230US million in sales. And there’s purportedly another $150 million in NFT art. Some of these things may be bubbles, but I do think there’s something real going on here. There’s a difference between owning something, and owning a copy of something, even if the copy is identical (or even nearly so), and there’s an argument to be made that copies increase the value of the original. I can go buy a print of the Mona Lisa. For that matter, I can pay someone to paint a copy of the Mona Lisa that to 99.-a-lot-of-nines% of the population would be indistinguishable from the original. But that doesn’t decrease the value of the real one sitting in the Louvre; in fact, the more people know about the Mona Lisa, the more the original is worth. This is true, even if the person buying the copy doesn’t know about the original. If I’m walking across Bondi Beach, and I see a local artist sitting there painting, and I buy his painting because I like it, and it turns out its a copy of the Mona Lisa but I don’t know that, nothing changes. This is the idea behind NFTs and digital assets.

NFTs, Non-Fungible Tokens, are a way to use blockchain technology (the same technology that enables Bitcoin and other crypto currencies to be trusted in the “untrusted environment” of the open Internet) to prove ownership of the original of a digital asset. I can buy a LeBron James digital highlight reel for $200,000. Yes, it’s a digital video, so millions of identical copies can be sent around the Internet. But anyone so inclined can go look at the blockchain and confirm that I’m the owner of the original. That has value, even with all of the copies out there. It’s about provenance. Now, I don’t know how long LeBron’s highlight reel will be worth $200,000. There will certainly be bubbles around some of these assets. But it does feel like there’s something new and enduring here.

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