NFTs are everywhere. Friends, strangers and renowned auction houses like Sotheby’s have long ago all picked up on the trend — and are going strong. Upland is selling the world’s real estate once over in tokens. And last but not least, one of the older players in the space gives you kittens. CryptoKitties to be precise. In short: It’s a hype. Like myself, you may have been asking yourself: What are the forces driving all these developments?
NFT is short for non-fungible token. In the oldest meaning of the word, a token is just any store of value. Before money, there were rocks. Now, money, stocks and houses are all considered stores of value. The world had moved from a gold-backed currency to fiat cash, led by the US moving to a fully fiat dollar in 1971: new money. Previously, the dollar was backed by gold: If at any time you wished to convert your US Dollars to their equivalent in gold, the US would be happy to help: that was old money.
A similar paradigm appears in the world of cryptocurrencies. When the cryptocurrency / blockchain tandem first took off, the belief was that the underlying technology would facilitate the blockchain as a secure store of value for exchange — in short: new new money.
This did not come true. Bitcoin showed immense volatility throughout the past decade. With growing popularity and market access for the world, speculation soon became the driving force in the bitcoin markets. Without regulation, or shareholder participation encouraging long-term, sustainable growth, course swings of a few thousand US dollars per day are the norm.
Yet still, I measure the cryptocurrencies price in dollars. Why? To establish a price, goods need to regularly change hands. This is where NFT promises to be different. By abstracting into another layer of currency (trading virtual goods for a fiat currency), the promise is that supply will be forever limited. This in turn is expected to guarantee long-term value for the acquired goods.
At the same time, the classic laws of supply and demand predict soaring prices when demand is high but supply is low. Currently, this holds for both bitcoin, where a massive speculative bubble is building again, as well as derived currencies and the goods they are exchanged for.
News of sales generate further demand, and prices follow suit. In sales terms, this generates massive awareness on a global scale. It’s hard to ignore a market where individual pixels get sold for millions of dollars.
Exacerbating this growth is the pandemic of the 2020s: A majority of the world’s population is affected. Many are staying at home, working from home, socializing from home. Today’s world is evermore dependent on the internet, and the services therein. With the focus on digital life, previously niche topics such as crypto are gaining mainstream popularity.
Such attention comes with a price. Ever since technology advanced enough to allow near-instant, world-wide information sharing, “what you look at” has become the scarce resource.
There are many ways that your attention is regularly traded, bought and sold. It comes as no surprise that numerous internet businesses exploit just this marketplace. Building an advertising marketplace is dual to building an attention marketplace. Buy an influencer, and you’re buying their following’s attention. Paying for an ad-free service? You’re paying to allow the marketplace to harvest other’s attention through content.
For that reason, NFTs are a great display of wealth. Publicly verifiable, yet with little real-life purpose. A spot market of sorts for attention. Not unlike cars and boats, most of which have shown themselves to be liabilities rather than assets, tokens of all sorts have yet to prove their long-term value.
To sum it up: It’s only just begun. Digital currency is relatively new, and everybody is still figuring it out. Major drivers so far have been the fear of missing out, as well as the validity of NFT as very public displays of wealth.
The value propositions of NFT as an asset may validate themselves with time.
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