Most NFTs look more like baseball cards than works of art


Some expensive NFTs grant membership to exclusive groups that enjoy perks like yacht parties, but the asset class is vulnerable to speculation and its complexities put off regular investors

  • By Scott Duke Kominers/Bloomberg Opinion

Earlier this month, rap impresario Eminem spent 123.45 units of ether cryptocurrency – worth over US$450,000 at the time – on an image of a monkey that looks a bit like. Earlier this week, Madonna signaled that she, too, might be interested in splurging on a monkey cartoon.

Sure, celebrities often crave the notoriety that comes with spending sprees, but it’s always fair to ask: cartoon monkeys? What the hell are they thinking?

The likely answer could help address widespread bewilderment over the popularity of non-fungible tokens (NFTs) – those digital cachet emblems whose collectors are often equated with connoisseurs of fine art or collectibles like cards. baseball.

Photo: EPA-EFE

While there are indeed similarities between the worlds of art, collectibles and NFTs, there are also important differences that are crucial to understanding both the appeal and the risks. As strange as they may seem at first glance, NFTs offer owners psychic and practical benefits that are not obvious to others.

The monkeys are part of a 10,000 piece cartoon series called Bored Ape Yacht Club, and the entire series is available on the internet for anyone to access. What Eminem actually purchased was an NFT, a database entry linked to his likeness that is stored on the Ethereum blockchain – in effect, a cryptographic record declaring him proprietary, a kind of digital deed.

Eminem could conceivably get many artists to create monkey images for less money and in a form that would give him more control over how the image is used. After all, there’s nothing stopping anyone from downloading Eminem’s Bored Ape.

So why buy one? These particular images have a moment in the cultural zeitgeist, with articles in The New Yorker and Rolling Stone, but there’s more to it.

Owning a Bored Ape NFT grants access to an online community of holders, as well as limited edition merchandise and a range of physical and virtual events. With the cheapest Bored Ape on the market priced around US$240,000, owners form an exclusive, self-selected club.

This is one of the reasons why the wealthy have always collected art. Ownership provides access to a community of similarly endowed owners and sometimes career-enhancing status symbols, such as museum board memberships.

NFTs simplify the process of forming a community around works of art: all a potential community builder needs to do is create an online chat room and cryptographically control access, so that people can only enter it if they have a cryptowallet – an application for storing digital assets like bitcoin or ether – which holds the appropriate NFT. (The creators of The Bored Apes didn’t stop at virtual connectivity. In November of last year, they threw an actual yacht party for the holders.)

Bored Ape NFTs also give people trading rights to their apes as long as they hold the associated tokens. This means that if Eminem wanted to use his Bored Ape in a music video or concert promotion, he would be welcome, unlike someone else uploading the image.

This type of app isn’t far-fetched: Another Bored Ape holder has started creating a virtual Ape band with support from Universal Music Group, something like a 2020s Gorillaz.

The more people like Eminem acquire Bored Ape NFTs, the more publicity the project receives and the more valuable it becomes to be in the associated network. This drives up the prices of the tokens themselves, to the benefit of current holders.

Additionally, many NFTs are programmed in such a way that their original creators earn royalties each time the NFT is resold, which means that the more sales an NFT collection has, the more money creators have to invest to deliver. additional benefits to cardholders.

There are also dangers. Some NFT categories catch on, but most don’t. As with any new asset class, speculators distort the NFT market, and the inherent anonymity of crypto makes it easier to perform pump and dump or Ponzi schemes. As with cryptocurrency, the regulatory frameworks surrounding the creation, ownership and trading of NFTs have yet to be settled.

On top of that, digital assets like NFTs face an unusual existential challenge. When someone buys a painting, they have a physical object that can adorn a wall and – except in special circumstances such as conflicts of provenance – no one can remove it.

With most NFTs, however, images live on file servers; if these servers fail or are replaced, images may be lost. The tokens themselves can somehow become disconnected and effectively worthless if crypto platforms choose to stop recognizing them. Efforts are underway to address this issue by creating more robust and distributed ways to host and access NFTs, including encrypting entire assets on the blockchain.

Equally important is resolving access issues. Crypto markets are notoriously difficult to break into and while most NFTs aren’t as expensive as Bored Apes, especially with the transaction costs, even the cheapest ones can still exceed the budgets of ordinary collectors like me.

If the NFT market is going to become truly mainstream, buying them should be as easy and cheap as picking up a pack of baseball or Pokemon cards.

As the market for NFTs grows, many NFTs would serve less as art or investment assets, and more as collectibles that anchor communities of like-minded enthusiasts. While some rare collectibles fetch high prices, most of them never qualify for auction at Sotheby’s or even a spot on Pawn Stars. This means that NFTs can be appropriate for Eminem, who can afford to lose US$450,000, while being accessible to people for whom Bored Apes is out of reach.

Another benefit of digital assets is that virtually anyone can create them. Creators can start their own NFT projects around their favorite animals, vegetables or minerals – and that means at least in principle there can be an NFT community for everyone.

Scott Duke Kominers is an MBA Class of 1960 Associate Professor of Business Administration at Harvard Business School and a faculty member of Harvard’s Department of Economics.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

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