😱NFTs are a Scam - I wouldn’t pay for something I can just copy!! ("Crypto N00B" #Q1)
Not everyone is born into Crypto and there are no Dumb questions. We all start from the bottom of the ladder. Conversations with a Crypto N00B aims to answer some of these questions
🚨Disclaimer: This is not investment advice. I am not an investment advisor. This information is meant to be for educational purposes - DYOR(Do Your Own Research).
Noob… What is that?
Seriously. Is that where we are starting from. As I said, there is no dumb question around here. I was surprised when I referenced Crypto Noob and I was asked- what’s that?
Noob: A person who is inexperienced in a particular sphere or activity, especially computing or the use of the internet. Generally used in gaming.
Informal: A person who has recently started a particular activity : NEWBIE
So who is a Crypto “N00B”
Someone new to Crypto, still figuring out their way in this new world. Not a believer yet, many times asking the right fundamental questions that old-timers just take for granted. But as I said, no dumb questions only dumb answers. So let’s get started.
If you are new here and have not read some of my earlier articles, I would recommend starting from there before your dive into these topics as it would help to know some of the terms and contexts.
Are Digital Art NFTs having a Tulip Mania?
The Tulip Mania gripped Dutch Investors which created an artificial price bubble
Let’s get this one out of the way - I think so!
A bit like the 2000 Dot Com boom or the 2017 ICO boom.. Lots of crazy ideas getting funded. Lots of ART concepts coming around.
People making millions just by holding something for 26 minutes.. come on!
There were reports this week that well-known NFT whale Pranksy held a CryptoPunk NFT for just 26 minutes before selling for a $1.23-million profit. Full Article
Will most of these things lose value - possibly. A bit like the musical chairs we have come to see some of these boom cycles.
But the point here is just like the DotCom Boom or the ICO Boom, the companies that came out of the rubble of the crash had true intrinsic value. They build great products continued on their journey and become - Google, Facebook, Amazon or in the Crypto world Bitcoin, Ethereum, Cardona, etc
This Article is not looking at the current craze and trying to find specific NFT Digital Art projects that will survive a correction in price when it happens. I am looking to explain this asset class in terms of its long term value and mass applicability
Q1. NFTs are a Scam - I wouldn’t pay for something I can just copy!!
Let’s unwrap this statement because we have 3 items being discussed here:
What are NFTs and whether they are a scam?
How much is something worth - To you and To others?
Is something that can be copied worth anything?
#1. NFT = Non-Fungible Token (A file that lives on a blockchain)
“Non-fungible” means that it’s unique and can’t be replaced with something else. For example, a US dollar note is fungible — exchange one for another, and you’ll have exactly the same thing. A one-of-a-kind trading card or painting, however, is non-fungible. If you traded it for a different card, you’d have something completely different.
An NFT registered on a blockchain has truly become a “unique” asset that cannot be faked, tampered with, or spoofed. Blockchains enable public access and private ownership of any digital media file
An NFT is not just about “Digital Images”. It could represent:
Digital Items: GIFs, Collectibles, Music, Videos and sports highlights, Virtual avatars and video game skins
Real-World Items: Collectibles (Art, Watches, Wine), Designer sneakers, Deeds to a car, Tickets to a real-world event, Tokenized invoices, Educational records & Legal documents, Signatures
Many more interesting and creative options.
NFT is a Concept ----> Digital Art is a specific use case.
Eventually, this technology capability will be used for many things where ownership and authenticity need to be established without a central intermediary for both real-world & digital items.
At the bottom, I have listed various non-art NFTs use cases being used TODAY.
OK So. NFTs the concept & associated Technology are not a Scam!! ( I hope you agree)
#2 How much is something worth - To you & To Others?
The basic premise of economics is that the price of something at its core is determined by an intersection of Demand & Supply. That does not mean that demand is always rational as that is typically influenced by human psychology and herd behavior. So yes demand is created by hype like the Tulip Mania that gripped Dutch Investors, and a lot of wealth was destroyed or it could be created because something truly is scarce and has value.
I am sure that was the question on people’s minds in Nov 2017 when Dmitry Rybolovlev paid $450M1 for “Salvator Mundi” a painting by Leonardo da Vinci in an auction at Christie's, New York. Have you ever stopped to wonder what factors may cause this painting to be so expensive - it is rare (only 1 of its kind), by a very renowned artist, in demand by a community of individuals who value these paintings. Dmitry is one of those who value this painting, expect it to go up in price, and has the financial means to purchase it. I might even be happy seeing an image of that on my computer and derive value from it. But the price of my copy is $0. It is free because there is an unlimited supply of pictures of the painting online. These guys taking a picture also have a free copy.
Just because I don’t understand why a Da Vinci Painting is valued at $450M and I won’t pay that much for it (not that I have the money), doesn’t mean it is overpriced. It just means I don’t know how to appreciate or value it.
Price (what you pay): Price is the amount of money paid by the buyer to the seller in exchange for any product and service. Value (what you get): implies the utility of worth of the commodity of service for an individual.
2.1 Copy Vs. Original Impact on Value
Damn, I was busy right-clicking on the video and downloading something someone paid Millions of $$ for. That’s nasty but true. So where is the value??
The value lies in owning the authentic file - Would a photocopy of the author-signed book have the same value as the actual author-signed book. You can copy a digital file as many times as you want, including the art that’s included with an NFT.
But NFTs are designed to give you something that can’t be copied: ownership of the work (though the artist can still retain the copyright and reproduction rights, just like with physical artwork). To put it in terms of physical art collecting: anyone can buy a Monet print. But only one person can own the original.
2.2 But the Digital Copy is exactly the same as the original
Not always. It may seem so on the face of it, but not every copy is the same as the original
Lower Quality - In today's context, if you get a WhatsApp forward of a video you can see the video on your phone or small device but it has been substantially reduced in quality from the 1080p or 4k version that it might have been originally created in. If you decide to cast it on a big screen it might not look as nice (pixelated). Same for pictures, it is better to have images emailed to you because if you want them printed later in high resolution.
Limited Cross format capabilities - You can get a copy of a book in Pdf. But it might not show up on your Amazon Kindle. Even if you find a kindle version of the book (for free), it would not come with features like cross-device linkage, highlights etc.
Future Proof - For those old enough, what happened to all the Music on Tapes or Movies on VHS that you had made copies of. It would be hard to find a Cassate tape or VHS player. Who knows which format will today’s digital content need to be streamed in whether backward compatibility will be taken for granted.. Learning from Apple products that’s not always the case.
#3 Is something that can be copied worth anything?
What it if could not be copied in the future???
Let’s take a walk down memory lane.
Most of us arent art collectors, so let’s start with a more relatable example of Music. Back in the day, the only way to purchase music was in the Physical form. You had bought it as a CD, LP, Vinyl, Tape in order to experience it (radio was just streaming content).
Then came the Digital Age - Where any song or album could be converted to an MP3 compressed file and copied/duplicated any number of times without any cost. This with peer-to-peer file sharing dramatically devalued the perceived worth of recorded music. Artists now had wider “exposure” for their work but had to rely on other means of generating revenue i.e. touring, merchandise, brand sponsorships, etc.
Let me make a bold statement - In the last 20 years, the internet has destroyed more value for the Creators than anything that came before it. It has made us believe that all content should be available for free. We can copy images, books (pdfs), music (mp3) . It takes a few seconds to make a copy, download, share - its now second nature for us.
Streaming services like Spotify have created a new business model of distributing music, but the earnings from these are still extremely skewed to a selected few and don’t even come close to the profits that successful artists made in the age of the CD.
Well, there’s good news for the coming decades, with the onset of blockchain technology, music is becoming scarce again
What I wont be able to fire up my favorite P2P pirating program and download full albums or movies anymore. Yes!!
In December 2020, Deadmau5 sold 6,000 collectibles as NFTs with a collective value estimated at $96,940. Grimes auctioned 10 NFTs for $6 million, including unique images and short videos set to her music.
But there is always someone is hacking these things. I am sure they will find a way to make it available for Free!
That is possible, But at this point, my educated guess is that more and more creators will start shifting their content over to NFT based platforms that give them more control over the distribution and earnings from their work - art, music etc. As the big artists and creators move over to these platforms, their fans will move with them and embrace this new model of rewarding their favorite creators and consuming their content. This will lead to the elimination of many of the middlemen and platforms that have to build a business around sucking away the revenue between Creators & Consumers.
As for the hackers or freeloaders, their life would be a bit harder to crack the robust encryption of a blockchain database. I am sure there will be some workaround but as more online services come to life it might be harder to bring your pirated/fake goods to this online party.
Just like we saw in the move from Xbox to Xbox Live - Pirated games and hacking the consoles became a thing of the past because you were not allowed to connect to the online servers and play with your friends till you bought a legitimate copy of the game. And just that 1 thing created incentive enough for kids to pester their parents to buy them the original games.
Understanding our biases of Physical vs. Digital Goods
AN IN-DEPTH POST ON THIS TOPIC NEXT WEEK…
If you don’t see value in something, does not mean there is no value in it!
Understand your own biases before evaluating a new technology or a social shift
NFTs will bring much-needed shift back for Digital Assets - authenticity, scarcity, clear ownership, tamper-proof & smart contract capabilities
Some of my earlier posts if you have not read them yet
🚨Reminder of Disclaimer: This is not investment advice. I am not an investment advisor. This information is meant to be for educational purposes - DYOR(Do Your Own Research). Please do your own research before you decide to invest your hard-earned money. If you are unsure seek help from a professional financial advisor who can understand the full breadth of your financial needs & commitments to advise you on what you should do.