The NFT of the first tweet collapses in price. What does this tell us about what value NFTs have, if any?
A recent story says that the shady figure who purchased an NFT of the first tweet (by Jack Dorsey) for $2.9 million tried to auction it recently, and got only 8 bids, the largest around $280. Aside from the schadenfreude, this is interesting and counters what I thought might be the pony in the pile of shit that is the NFT market.
The NFT market is mostly scams and fraud. But there is, or could be, something real under the pile. The best way to understand it is realize that what an NFT represents is a readily tradeable form of provenance, and that provenance is actually the core source of value in traditional art and collectibles. Provenance is just a "pointer" to the history of an object. NFTs are criticized for just being pointers to non-physical things.
Collectible items can sell for high prices, but they don't do so without provenance, which is evidence or proof of the item's claimed connection to its creator. When people buy collectibles and art, they partly buy it for the aesthetic value of the item, but mostly they buy it to own a connection to a creator, and in particular a rare connection. NFTs can be best understood by looking at signed/numbered prints. Such prints are just manufactured items. They cost small amounts to make, and they are generally identical. Their value is in the creator's declaration that they came from her, and the declaration that they are limited in quantity even though manufactured.
With fine art, there is no denying that seeing a real great masterpiece can be far more impressive than a high resolution photographic view. I remember getting much more seeing the works of Van Gough, particularly "starry night" in person. At the same time, with modern scanning and robotic techniques, it should be possible to reproduce such works with all their textures and shades in a way that an ordinary viewer would not be able to tell the difference. But they would not sell for the same, for they lack that connection to the creator.
NFTs represent provenance either without the original, or in the absence of a physical original. Since the provenance is the actual valuable part, that's interesting. Done properly, an NFT is a superb instrument of provenance. You can trace the chain of ownership with high security. The main part is the "root" connection to the original creator. If that creator had a well known public key, that could do it. Large art houses can also lend their own reputations and make a cryptographically signed declaration that a given original NFT was authorized by the creator, and that the creator has made a contract that they will make no more, just as with the numbered print. You could feel fairly sure that the connection to the creator is real and rare, and that the path to you is solid.
That seems useful, particularly as we move to a world where we value intangible things more and more. In the past, there was no way to sell them. NFTs create that -- if that original link is verifiable. It becomes possible to certify not just the creation of digital art, but even more abstract things like performance art (as I satirized in my April Fool about an NFT of "the slap") or events. As long as the abstract thing has a creator, and you can trust that the creator is the source of the NFT, and that the creator is bound to not simply mint the same NFT more than a set number of times, and NFT of such a thing seems as collectible as a baseball card, an artwork or a numbered print.
Of course, rarity is also valuable to collectors even without connection to the creator. Indeed, connection to the creator is a prime assurance of rarity so the factors are mixed. But things like moon rocks and other rare natural items, as well as items lost to antiquity, are valuable without a creator connection -- but they need provenance.
As such, my first impression was that the NFT of "the first tweet" made more sense than most NFTs. This was a well known event in history. It was issued by Jack Dorsey, who holds a unique status as its creator. His reputation gave some assurance that he would not just create more of them, though a formally bound promise of that would be better. (NFT smart contracts might very well be created that attempt to punish a creator who breaks their promise of limiting supply.)
And yet, this is the first to collapse. This makes me ponder what I am missing (or to say with some hubris, what the world has yet to get.) If this NFT is of minimal value, many might take it to mean that all of them are equally valueless. Many are, most are, but I don't think all of them.
I predicted NFTs, in a way, in the prior decade when I gave talks about the economy of a post scarcity world. I have attempted to discern just what would be valuable in a world where physical manufactured items are abundant (thanks to nanofactories) and I came up with a list.
- Raw materials
- Cool locations (but no longer all real estate)
- Services (of all sorts, including attention and social connection.)
- Intellectual Property (legally artificial scarcity)
- "Originals" or other fetishized connections to creators
It is that last category that NFTs belong, for they help us buy and sell our fetish for "originals" when the original has no physical form. We already value things like "first printings" of manufactured items like books, or the original of something that has been copied, even when it looks identical.
As physical things lose rarity, I suspect something like NFTs, if not NFTs themselves, will become a source of value. It may not be rational, it may just be a fetish, but collecting is real and people spend lots of money on it.
As an interesting experiment, if one were Satoshi, would be to auction off the first Bitcoin block with its coinbase of 50 bitcoins. Most of those early blocks have never been spent, which is a big mystery. Bitcoins are called "fungible" but they aren't really. Each has a unique identity and place in the chain. It is only by popular convention that they are fungible because people will happily trade them as though they are all the same. US dollar bills all have serial numbers too, but social convention keeps them fungible.
This makes the NFT somewhat ironic. All blockchain tokens are non-fungible if we wish to treat them that way.
But the first Bitcoin block is unique and historic, especially to Bitcoin fans. I suspect if that first block were put up for auction it would get bids far, far above 50 bitcoins. Many of the early blocks might. Of course Satoshi has not spent them -- either because she's hiding, dead, or lost the hard drive depending on what theory you believe. This would be an interesting way to come out. Satoshi may not sell the coins because it would cause a collapse of the price of the coins, "Satoshi is getting out!" But an auction of the early blocks as collector's items might not cause that.