The Genius Of NFTs — How ANYTHING Can Be Sold As An Investment Product
If you want to understand what an NFT is and why people are creating them, read this column
By David Grace (Amazon Page — David Grace Website)
In a simpler world, Non-Fungible Tokens (NFTs) would have been invented by a Wall-Street genius in a fit of caffeine-induced brilliance. It didn’t happen that way, but it would have been a much more interesting story if it had.
Why Non-Fungible Tokens (NFTs) Were Created
Here’s the deal:
- Rich people have huge amounts of wealth that they need to do something with. They don’t want to simply park their money in a CD for one or two percent interest. They want an Investment Product, a vehicle that offers them the opportunity to get a 20%, 50% or an even greater return in a relatively short period of time.
- On the other end of the equation are the brokers, the Auction Houses and Wall-Street Traders, who are always looking for a new Investment Product that they can sell.
Traders invented Exchange Traded Funds (ETFs), essentially, a new form of gambling instrument, to fill the void, but now those ETFs are old hat.
NFTs Are A New Investment Product
NFTs are the latest Investment Product designed to give Wall Street something new to sell on one end and wealthy investors something that might quickly appreciate in value on the other.
But, let’s pretend that there actually was one, particular, unique, Wall-Street-Trader genius who invented NFTs. Let’s call him “Emerson Bling.”
How A Genius Might Have Invented NFTs
In this imaginary scenario, how might Bling have come up with the idea for the NFT?
First, he might have identified the types of investment Products:
- Things that generate a cash flow to the investor
>>>Shares in profitable companies
>>>Bonds
>>>Interests in patents & copyrights
- Things that are gambling instruments
>>>ETFs
>>>Shares in “hot” companies that are losing money
>>>Commodities
- Physical things that have inherent value
>>>Land
>>>Houses
>>>Machinery
- Physical things that have both uniqueness and celebrity
>>>Art
>>>Collectables
>>>Celebrity artifacts & possessions
In our fictional account, it was while Bling was half-listening to an episode of The Big Bang Theory and idly contemplating the recent auction for an obscure and very valuable Faberge Egg that two disparate notions collided in his brain with hypergolic results.
At the moment that Sheldon had just finished explaining Schrödinger’s cat to Penny, it all instantly came into focus inside Bling’s head.
Anything Locked Away Can Be Considered Simultaneously Both There & Not There
As long as the box is closed, the cat might be either dead or alive OR, Bling excitedly realized, as long as the box is closed, the cat might or might not actually still be in the box at all!
“What will the new owner do with his Faberge Egg?” Bling asked himself?
He’s not going to put it on his mantle or in his desk drawer or even keep it in his house. When someone buys a $30 million Monet, they don’t hang on their living-room wall. Your wife doesn’t wear that $3 million diamond necklace when she goes to her brother’s cocktail party. She wears a $10,000 copy.
When really wealthy people buy multi-million dollar necklaces and the like they lock them up in a safety-deposit box someplace, rarely if ever to be taken back out.
Unless and until they sell them and the new owner opens the safety-deposit box, the Egg, like Schrödinger’s cat, can be simultaneously both in the box and not in the box.
When you think about it, the actual, physical, existence of the Egg in the box is only theoretical.
From the point of view of the Egg as an investment vehicle, it doesn’t actually matter if the Egg is in the box or not in the box. The only thing that matters is that the investor has a trustworthy and transferable certificate of title that says that he owns the Egg and a document that says that the Egg is in the box.
In theory, the new owner could re-sell the Egg to another investor by simply transferring the certificate of title and handing over the key to the box.
As long as each subsequent owner was never going to take the Egg out of the box, the Egg, like Schrödinger’s cat, is still theoretically in the box even if it isn’t.
You Can Transfer A Thing By Transferring Your Right To The Storage Location Holding The Thing
From this realization Bling extrapolated that any valuable physical object could be bought and sold without there being any need for the physical delivery of the item. All that would be needed would be the execution and delivery of the document of title and the assignment of the rights to the secure storage medium.
Once you had completed the paperwork, the actual, physical transfer of the thing was irrelevant.
From that realization Bling concluded that any physical item that possessed the two characteristics of (1) uniqueness and (2) celebrity could be converted into an Investment Product that could be electronically purchased and sold solely through the transfer of digital paperwork.
You Can Transfer Non-Physical Things By Transferring Access To The Data Bank That Is Storing The Thing
From that fact it followed that anything, whether physical or NOT PHYSICAL, that possessed the three characteristics of (1) uniqueness, (2) celebrity and (3) secure storage could be converted into an Investment Product which could be electronically bought and sold through the transfer of the digital paperwork appointing the new owner as the assignee of access to the storage location.
That was Bling’s Eureka Moment:
An Investment Product could be based on a unique, celebrity “item” that didn’t need to be a physical thing at all.
Let me repeat that: The item didn’t need to be physical at all!
It was at that moment when Bling remembered his sister giving their mother a certificate proclaiming that “Star UDF 2459 is now named ‘Marsha Bling.’” His sister had purchased the naming right to a distant star. Someone had turned the stars in the sky into an Investment Product. Wow.
Why hadn’t he spotted this opportunity sooner?
An Example Of An Electronic Transfer Of A Physical Thing
“Suppose,” Bling thought, “I acquired a letter indisputably written by Abraham Lincoln.”
Such a letter would possess the two required characteristics: (1) it was unique, namely, there was one and only one such letter, and (2) because it was written by Abraham Lincoln, it possessed the required patina of celebrity.
Sure, Bling realized, he could place the physical letter in the hands of a trusted escrow holder and sell the electronic documents of transfer: (1) the Bill of Sale and (2) the Assignment and Transfer Of Escrow Rights, but that was overly complicated.
No, he could take the process one step farther.
An Example Of An Electronic Transfer Of A Non-Physical Thing
“What if,” Bling thought, “I created an ultra-high resolution image of Lincoln’s letter and stored that image as a blockchain record, then I destroyed the physical letter. Now the only person in the world who could have legal ownership of the letter would be the person who possessed the blockchain code holding the image of the letter.”
That blockchain code would be the Investment Product. That code would be (1) a valid, secure, transferable title to (2) something unique that (3) had the required patina of celebrity.
It wouldn’t really matter that the physical letter no longer existed any more than it mattered whether or not the Faberge Egg was actually still in that sealed safety-deposit box.
In fact, it was better that the original letter had been destroyed because then no one else in the world besides the person who held the blockchain code could ever create non-watermarked copies of it.
Bling realized that he now possessed the secret to turning ANYTHING, either physical or purely digital, into an Investment Product.
All he had to do was put a digital image of or the data comprising the unique thing with a celebrity patina into a blockchain record and he could then sell the blockchain access code as an Investment Product.
An Investment Product Can Be The Code Needed To Access Data Stored On A hard Disk
The “thing” being sold could start out as a letter, a painting, a song, a voice recording, a tweet, title to land, ANYTHING, because what the seller would be selling wouldn’t be a physical thing at all but rather he/she would be selling the encrypted access code to the hard disk where the DATA representing the thing was stored.
That is pure God Damn genius right there!
The Title To A Digital Thing Is Divisible
And then Bling had his second epiphany. The title was divisible!
Instead of just one blockchain entry for the Lincoln Letter, he could make dozens, hundreds of separate blockchain records representing fractional interests in the Lincoln Letter!
“Suppose,” Bling thought, “I made a deal with David Hockney to create a high-res, digital photograph of one of his paintings and then he publicly destroyed the original painting. Then we could make one-hundred copies of the image, like a lithographer making 100 prints and then destroying the plates.”
To each of these 100 digital images we would add a caption at the bottom that read: “The House On The Purple Hill By David Hockney — 1 of 100” and “2 of 100”, “3 of 100” and so forth. Each of those 100 images would be placed into its own separate blockchain record.
Then, Bling could sell each of the one-hundred blockchain codes separately to a hundred different investors.
Selling 1% Ownership Shares In JFK’s Limo
Or, suppose the person who owned the limo JFK was riding in when he was murdered in Dallas in 1963 wanted to turn it into an Investment Product.
He could photograph the limo, the pink slip and a signed “Transfer of a 1% Tenant-In-Common Interest” form with the name of the transferee left blank and create 100 copies, each stored in their own blockchain record.
Once he had done that, then he could sell each blockchain code representing a 1% ownership interest in JFK’s limo to a hundred different investors.
He could either keep the limo in a 50-year, pre-paid, secure-storage facility, or he might simply reduce it to a crushed cube of steel. Who cares about the actual car? What would matter would be the 100 blockchain access codes to the 100 copies of the photo and title documents.
Are you starting to grasp the brilliance of Bling’s insights?
Anything Can Be Converted Into Fractional, Digital, Ownership Shares
Now we can see how anything that was ever associated in any way with a famous person or PLACE could be converted into a fractional, digital, Investment Product that could be traded on a public market.
You could enhance the sale experience by giving each buyer a photographic print suitable for framing — a full-color, high-res photo of Hockney’s painting or a photo of JFK’s limo with the words “67 of 100” watermarked on the front together with an 8 X 10 embossed “Certificate of 1% Ownership,” issued by the brokerage house that handled the sale.
Wow, wouldn’t that look fantastic on your wall next to your 1/10,000th interest in Van Gogh’s Starry Night and your 1/100,000th share of the Statue of Liberty.
Who knows, they might actually be worth a lot of money twenty years from now.
Sucker.
— David Grace (Amazon Page — David Grace Website)
