Time to invest in NFTs? A thought experiment
NFTs and the social value of everything
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When you go on a vacation, do you ever visit a spot just to get a photo to share on Instagram? I don’t mean to judge those who travel to Instagram spots. There is genuine joy that comes from sharing a photo. But I do want to understand why. Why do we get so much joy out of showing what we are up to to the world?
Something else I would like to understand is, why is everyone obsessed with NFTs? Am I missing out? As you will see, these questions are related.
NFTs (or non-fungible tokens) have been described to me as an online version of a baseball card. By owning an NFT, you own the digital rights to an image. People buy, trade, and invest in baseball cards. What makes an NFT any different? Well, the digital nature of it. Something about it being digital makes it feel less valuable. Anyone can easily copy and paste a digital image. On the other hand, photos have moved from physical albums to phones, and people still save them. Pokémon cards became Digital Pokémon in Pokémon go, and people run all over the city for them. Getty makes millions selling the rights to upscale photography for online use. Why wouldn’t a digital baseball card hold collection value? And in that case, a digital work of art?
I’d argue an NFT is valuable if the underlying image or file is valuable. An NFT of a Picasso? Yeah, probably valuable. An NFT of a Cryptopunk (a series of pixelated cartoons currently going for hundreds of thousands online), I am not sure I see the value in it. Then again, many other people seem to think Cryptopunk NFTs are quite valuable. And, knowing that, it immediately becomes valuable to me. And not just because I could sell it. But because I could also not sell it. Even if I personally do not see the value in a Cryptopunk (I think they are ugly), there is a non-zero value in holding it and being able to share that I hold one of these in-demand products. I could tweet about it. Add it to dinner party conversation. Hang it up with a certificate. Here is the trendy NFT that I bought. Which ones have you invested in?
It’s similar to sharing that vacation Instagram. Here is where I am. Here is what I am doing. Here is my funny caption. There’s a joy (and a dopamine boost) from sharing.
Why does sharing feel good? The Guardian likens social sharing to gambling. There is potential for reward (positive response from audience), but this reward is variable (maybe no one responds… or small chance I go viral!). As a thought experiment, imagine posting on social media, but remove the potential for social validation (e.g. you share a photo to Instagram, but the post will be guaranteed to be seen by no one). Is sharing the photo still valuable? A bit, because you know your post is saved somewhere. But most of the value from posting is gone. The value stems from knowing that others have seen my post. That others might comment or like the post. And sharing a post that gets a lot of responses? Well, that’s ecstasy.
So what is the link to sharing on Instagram, and buying an NFT? Social value. The value in an Instagram post comes from sharing.
Similarly, an NFT might have some nonzero value on its own. But that value is the same as a digital photo. What makes an NFT truly valuable is knowing that this digital photo is limited. That no one else can have it unless I sell it. And because it is limited, someone might be interested in claiming ownership over it. After all, even an NFT of a Picasso is not valuable unless others know it exists and also want it. And for others to know it exists, the owner must make its existence public. No wonder everyone is sharing their NFT purchases on Twitter. As soon as you own one… you are compelled to share. That is how you realize the value of it and grow the investment.
One conclusion is that there will be more NFT sharing on social media. Much, much more sharing. Digital art galleries are bound to open up. But those poised to gain from the NFT craze are those who already have social capital to monetize their NFT with. Or who can connect the NFT to social capital (e.g. I bought this NFT from a famous artist). A randomly minted NFT from you or me? Well, better work on getting famous if you want it to be worth something. Then maybe you can sell your ‘pre-fame’ NFT. Everyone loves being the first to discover something. Assuming others eventually jump on the bandwagon, that is.
So, back to my original question. Does it make sense to invest in an NFT? Depends. How much social capital do you have? How much will you have? And how much will people care about ‘liking’ your vacation photo before you were famous?
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