NFTs Are Dumb: Here’s Why

As many readers know, I did a deep dive into cryptocurrency a few years back and in fact, had purchased an initial Bitcoin long before that, in 2011, so 11 years now. And I’m still as confident in at least Bitcoin and Etherium as ever and hold some of each.

I think there’s good reasons for doing so and I treat it the same as I would holding gold in a vault.

When I first heard about NFTs (non fungible tokens) perhaps about a year ago, I began a dive into them. I was seeing some smart people go all in on promoting them. More on why I think that is, later.

So let’s get meaning in place. First, what is fungibility?

Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Fungible assets simplify the exchange and trade processes, as fungibility implies equal value between the assets.

https://www.investopedia.com/terms/f/fungibility.asp

So, fungible: money per denomination, gold by weight, bitcoin by ledger entry. Each denomination of those is equally interchangeable. A dollar is a dollar, whether hot off the presses, or old and wrinkled.

Non fungible: houses, cars, boats, airplanes, tulip bulbs. None of those are equally interchangeable, because they are not identical. Even the same make and model of car, same year, is different and each minute of use makes their similarity diverge.

And so now you see the reason for the header image. NFT should really denote Non-Fungible Tulip, not Token.

“Token” is merely a slight of hand whereby a unique cryptographic unit (token) tied to some digital creation is written onto a blockchain, making it permanent. Unlike a ledger entry, like bitcoin—fungible—the typical reason for a token is to have something unique—like a tulip bulb or a snowflake.

That’s where things end and NFTs become even more ridiculous than Tulip Mania. So let’s move on…

Fungible and non fungible are two critical elements of market making for tangible goods, services, and assets. Non fungibility is the sizzle, fungibility is the medium of exchange. Even though a dozen eggs or a loaf of bread is unique one from another, they’re similar enough to be priced identically when new and fresh.

Then there are things that begin as fungible but over time, become non fungible. Collectables like stamps and coins are the classic examples.

What NFTs seek to do is relieve people of the cost and trouble of securing their non-fungible assets by faking it and making them “digital,” but with zero function…say, like software code, which has copyright protections.

What they most closely try to be like is art, to cash in on that phenomena without going to any of the effort to make good art. Modern “art” is itself a prime example (mostly just a huge tax evasion and money-laundering scheme). Classic art is something where you know it when you see it and occasionally reaches that lofty level of priceless. Because it’s truly unique, a one of a kind, by a single, particular artist.

…I said I caught wind of this new tulip mania about a year ago, and it’s exactly so. Christie’s auctioned off an NFT for about $70 Million in March, 2021.

Beeple’s Everyday: The First 5,000 Days

Wondering what it is?

The First 5000 Days comprises every single individual image from Beeple’s first 5,000 Everydays compiled into a single composition. This work presents an extensive glimpse into Beeple’s artistic journey from his early days of anonymity to the digital art phenom he is today, while creating a poignant timeline charting the progression of United States history in real time.

Well, ok. I like quite a lot of digital art and typically, the good stuff has some sort of signature, watermark, or something to denote the artist. Plus, the good artists are well known and followed enough that nobody with any following can realistically pass it off as their own. There’s myriad ways for digital artists of all sorts to make money on their work through subscription sites, early access, insider access, etc.

So, this guy Beeple creates a digital image for 5,000 days, every day. Good work and dedication. But a first-year computer student could write a script to take all 5,000 images dropped into a folder, whatever sorting desired, specify the sizing parameters, and drop them into a single montage.

70 million bucks, OK! Gotta be worth it.

But here’s the kinda dumb thing about it. The only bragging rights, and I mean only, is that the one who paid 70 mil can say he “owns” it, which is meaningless. Ain’t hanging on his wall or in a vault, the classic thinking when it comes to owning a one-of-a-kind 70-mil piece of art and kinda the whole point of it.

The NFT is merely a permanent token on a blockchain that certifies that this guy made it this date and time, and this other guy paid 70 mil on this date and time, and now “owns” it and can resell it. But anyone in the world can get the full-resolution digital image and go have it printed on one of those large-scale mural printers, frame it, toss it on the wall and that’s what that person owns, and legitimately. Should the “owner” drop by to say he “owns” it, has a digital token to show it, you can say “yea, well I own that…but I can let it go for $5,000.” Now we’re in reasonable reality where shit tends to make sense.

At least that’s curious, unique, and interesting art to me that demonstrates real dedication and hard work. I do think it’s cool. Not 70 million cool, but cool. Wanna enter the realm of the utterly ridiculous?

A good crowd turned up for last Wednesday’s NFT auction at Sotheby’s in New York.Photographer: Dolly Faibyshev for Bloomberg Markets

You gotta read the article and laugh. How a Big NFT Auction at Sotheby’s Ended in MysteryA collection of 104 CryptoPunks was hastily pulled off the auction block when bidders were already in the room. What could it mean for the industry?

It was supposed to be a triumph. 

Sotheby’s first ever standalone live, in-person auction last week devoted to NFTs—104 of the famous CryptoPunk series, grouped into a single lot that carried an estimate of $20 million to $30 million—was trumpeted to be historic. It was enough to get an expectant crowd  to trek to Sotheby’s York Avenue salesroom on Manhattan’s far East Side to bear witness to an auction that might last just minutes.

“It doesn’t get bigger than this,” the auction house tweeted about the sale, writing in a further post that “CryptoPunks were experimental, but are now antique masters. Owning one is symbolic. Owning 104 is iconic.”

By this, Sotheby’s was referring to the fact that CryptoPunks are one of the most established series in the world of non-fungible tokens or NFTs, a shorthand for digital artworks tied to smart contracts. Created in 2017 by the studio Larva Labs, CryptoPunks number 10,000 items, each different from the next. And even though their market has slumped in recent months—the 30-day average price has sunk around 47% from its November 2021 high of about $510,000, to roughly $270,000 in late February, according to market researcher Nonfungible—CryptoPunks still represent one of the closest things to a safe investment in the NFT space.

Hmm, such a mystery indeed. Let’s see if we can get a clue. Plus, that looks like a lithographic recreation up on stage? I wonder who got that, and what it’s worth. I bid $1,000! I like it, and I don’t toss around a thousand bucks.

So, in case you’re confused, they—Larva Labs—create these amazing works of digital art like that and have created about 10,000 of them since 2017. Can you imagine the number of graphic artists they must have to employ and the payroll…in order to pump out 10,000 masterpieces like that in only 5 years?

And at only $270K to a half mil each! Imagine what they could be worth in an original canvas painting!

Now, at those kinds of low prices, why wouldn’t you get the idea to make a tableau of 104 of them and perhaps sell it for 30 mil?

In that format, surely more of a cool factor. I don’t dislike it at all. Would be kinda fab printed in a large format, framed, and hung in a nice game or fun room—complete with an original and restored Pong game machine and similar. Very cool. About $1,000 cool, for me.

But alas, uh, oh.

Who coulda guessed it? And, I wonder what the ratings for great TV shows like American Pickers and Pawn Stars are, by comparison. Those are true, solid, and legitimate exercises in non-fungible assets. Do you get the clear distinction?

NFTs Soared in 2021. Now They’re SinkingHigh-value NFT projects are falling in price as trading dries up on marketplaces like OpenSea.

  • The floor prices of many blue chip NFT projects have been declining for over 30 days straight.
  • Bored Ape Yacht Club NFTs have fallen roughly 60% in dollar-denominated terms from their all-time highs.
  • Volumes on the largest NFT marketplaces, OpenSea and LooksRare, have also seen a significant decline over the last two weeks.

The flaw in that article is that they’re likening this to same-same as markets in crypto—which have been around only since 2009. Anyway…

Wannanother LOL? Of course you do.

EtherRock 42

Sometime in early August, 2021, some guy “bought” this for 1.7 ETH (Etherium, crypto, about $5,300 at the time).

19 days later, he “sold” it for 400 ETH, about $1.32 million.

Well, this one is #42, so there’s gotta be more of them out there, so you may still be in luck.

My final thought is that for some reason, the absurdity of stuff like this seems apparent to most only in the aftermath. Tulip Mania was the thing for months and I’m sure many made a lot. They were probably the ones well aware that it was temporary bullshit and they knew when to get out. Probably the unbeliever sorts.

I wrote at the start that I took a dive into this because I saw people I know to be smart, all into it. One of those guys is Kevin Rose, co-founder of Digg way back, and married to a friend of mine. As I recall, he paid about $700K for some NFT. But he’s also a VC now. If you’ve ever dealt with VCs and I have, it’s exceedingly difficult to secure an initial investment.

I have to guess that some of these monied folks have simply been pumping the NFT market and they’ll get out of it just when it’s time. I could be wrong.

I could be wrong about all of this.


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5 Comments

  1. Mark J on April 2, 2022 at 22:21

    Ty ty ty. Agreed and amen. I have a buddy who has been around crypto for a long time and is deep into NFT speculation (ironically a quite liberal dude who decries the big money and greed around bitcoin) while I sit here just quietly holding my bitcoin.

    And yes my buddy is into the upcoming release that Kevin Rose Is involved in. Interesting point about him and the VC angle.

    • Richard Nikoley on April 3, 2022 at 00:14

      “Upcoming release.”

      Fools and their money, LOL.

      Hey Mark. Check out the new docu-series Titans: The Rise of Wall Street.

      I’m about halfway in.

      • Mark J on April 4, 2022 at 13:17

        Cool thanks I’ll check that out.



  2. Ralna Cunningham on April 3, 2022 at 05:35

    I can’t help but share that the wildly flamed tulips of a few hundred years back were a product of virus dna breaks. That is what produced novel forms that people coveted and led to rampant speculation, yet fundamentally weaker and weaker plants. Eventually all had to be mercilessly culled because of the infection. They live on in paintings of the day. Evidently there was first a mania in the Ottoman empire over the tulip (aka little turban).

    Diverse wild tulips thrive naturally in central Asia, the silk road countries. Plants are travelers, just like people, and we tend to be captivated or repulsed by the exotic. https://tulipconservation.wordpress.com/2018/11/02/a-brief-history-of-tulips/

    Pixelated do-dads as art or money interest me not at all. I will geek out at any time about plants and the fungi that facilitate them. Therefore I hold zero crypto currencies but a substantial bank of seeds and mycorrhizae, a storehouse of potential for the belly and the soul.

  3. Peter Collins on April 3, 2022 at 08:05

    As with the art industry, elites create, sell & buy useless highly inflated art as a tax dodge money laundering exercise.
    NFT bears similar hallmarks in my estimation.

    Thanks for the article Richard, very interesting research.
    Pete

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