NFTs & The Culture Economy
NFTs have burst out of the literal and proverbial ether into our world, but like many “overnight successes” they have roots going back longer than one might expect. After all, the first currencies were collectibles, such as seashells.
These new collectables called NFTs, or non-fungible tokens, are pieces of computer code that, like Bitcoin, exist on a blockchain — in this case, the Ethereum blockchain. Unlike Bitcoins, each NFT is unique, referencing a specific piece of media. The most basic NFT contains three components: an owner ID, a file, and a protocol for transferring to a new owner. It’s important to note that the file — commonly a piece of art, music, or other digital good — is not exclusively contained within the NFT. In this way, the NFT is more similar to a certificate of authenticity, signifying the current owner without guaranteeing exclusive access to the file.
So then where do NFTs as art derive their value? Art is valuable because it has two characteristics: scarcity and context. Since the token itself does not provide exclusive access to the art, more scarcity is often perceived than is guaranteed. This is not to say that the NFTs entirely lack scarcity. Indeed, scarcity of the NFTs are guaranteed by the technology, but the NFT-encoded file can be infinitely copied. For this reason, context is key to an NFT’s value and to NFTs as a whole. Indeed, the NFTs themselves — separate from the item they encode — must be established as a cultural item. Like baseball cards, NFTs operate as a simulacra that simply references an object of cultural significance. This holds intrinsic value to collectors; however, some NFTs also hold explicit value.
Many NFTs have distinct utility, which bolsters their cultural relevance at an individual level and subsequently as an asset class. These all require 3rd parties to enforce the utility, as they are not in any way encapsulated in the NFT itself.
For example, internet personality Gary Vaynerchuk (Gary Vee) recently announced a series of NFTs which operate as event tickets, vouchers for occasional 1-on-1 interactions, or other exclusive access. All of this is guaranteed by Gary Vee — not the token. Indeed, the only difference between these tokens and traditional ticketing mechanisms is their compatibility with NFT exchange marketplaces, which comes with both benefits and costs.
Beyond utility, context can be created through the acquisition experience. Some NFTs are given to fans concurrently with other purchases, operating like memorabilia. Experiential contexts like “I got this for going to the World Series” add cultural value, regardless of the linked file’s value. Currently, utility and experience are two of the strongest drivers of context, and thereby value, for NFTs.
The future of value for NFTs relies largely on 3rd parties creating platforms that interact with the tokens, like Gary Vee’s project. There has been much talk of how NFTs will enable independent musicians and artists to license their work. Indeed, it seems that one of the most prominent grand visions for NFTs is allowing songs, artwork, performances, and other media to be deconstructed into components for others to remix and reconstruct. Ultimately, this will rely on the 3rd party media platforms to honor the data encoded on NFTs, which in theory, is no more guaranteed than if that 3rd party maintained the database themselves. Leaving aside such technical concerns, there is indeed a beautiful use case for NFTs, whereby they provide a detailed depiction of a new work’s lineage. Music, art, and other NFT-linked IP can be deconstructed and remixed to extend the new work’s provenance by referencing the myriad of composite NFTs. With proper 3rd party platforms, royalties could be paid accordingly.
In all, NFTs are an attempt to commodify culture. The value created by context is stored in a discrete unit, which can be exchanged on the market. It is the ultimate capture of art by capital while simultaneously converting capitalism itself into art. It is uncertain if this odd couple will persist in this form, but if it can, the union could prove to be revolutionary.
