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NFTs Are a Gimmick; They Won’t Be For Long

(A kinetoscope — ancestor to the movie theater and VR goggles; image via The American Society of Cinematographers)

Nate Nelson, 23 April 2021

It’s not just NFTs; lots of technologies started off as gimmicks.

A History of Gimmicks

Humans had been building primitive machines for centuries before applying those same mechanical principles to better use. King Solomon used automata to decorate his throne — an ox and a lion which seemed to lift him up onto the seat, and a dove that placed a crown just above his head. A millennium later, Constantine VII used the same tricks to intimidate foreign diplomats. From Aeon:

Emperor Constantine VII received foreign guests while seated on a throne flanked by golden lions that ‘gave a dreadful roar with open mouth and quivering tongue’ and switched their tails back and forth. Next to the throne stood a life-sized golden tree, on whose branches perched dozens of gilt birds, each singing the song of its particular species. When [a diplomat] performed the customary prostration before the emperor, the throne rose up to the ceiling, potentate still perched on top. At length, the emperor returned to earth in a different robe, having effected a costume change during his journey into the rafters.

Between Solomon and Constantine’s times, the water mill and cotton gin were invented in the east. Imagine what more could’ve been achieved had those emperors invested less in cheap tricks, and more in things that people could actually make use of.

Recent technologies have fallen into a similar trap. Before film was used to tell elaborate stories and capture historical events it was a novelty attraction. At fairs and exhibitions and vaudeville shows, for just a few cents, you could watch a recording of a stage performance or some kind of candid imagery that looked much better IRL.

Laptops were invented and then nearly disappeared, because apparently the cheap thrill of computing from home was outweighed by how much simpler it was to just “take home a few floppy disks tucked into an attache case.”

The internet was destined to change the world from the beginning, and its early proponents knew it. And yet, even by the 21st century, we still believed the future of global connectivity was ordering toys and pet food. There was no cloud, IoT, social media in its present form, or blockchain — half these ideas weren’t even conceivable yet.

In the context of all the revolutionary technologies that began as gimmicks, it’s no wonder that, today, such a useful thing as NFTs are being used in so many ways, so few of which are of any material benefit to society.

Are NFTs Gimmicks?

You’ve heard the stories by now. There are the CryptoKitties — collectible cartoon cats that can “breed” but do little else — and the CryptoPunks — which don’t even do that. The rarest of these collectibles run for tens or hundreds of thousands of dollars a pop. Top Shot has moved hundreds of millions of dollars worth of glorified GIFs in the past few months, some for five figures. A blockchain CEO recently bought an Elon Musk tweet for over a million dollars, then Jack Dorsey’s first tweet for three.

And then, most famously, is “Everydays: the First 5000 Days,” the digital artwork that sold for 70 million dollars a few weeks back. Everydays’ creator, beeple (Mike Winkelmann), is a talented and widely loved artist. His piece, unlike a CryptoPunk or a Tyler Herro clip, is the culmination of many, many hours of labor. It’s no joke, and should command a nice fee on the market. At 70 million, however, it enters into gimmick territory.

(Bosch’s “Garden of Earthly Delights,” 1515 vs. beeple’s “Everydays,” 2021)

After all, these kinds of high-ticket artworks and collectibles don’t actually do much. A video of a Luka Doncic 3-pointer grants its owner little value past its eventual sale price, and what few endorphins might be had in the interim. The same goes for CryptoKitties and Elon Musk tweets.

Interestingly, though, Everydays’ owner has found a way to put his investment to work. He’s displaying it in a metaverse art gallery, and allowing anyone to purchase a stake in it through a unique crypto token. In the future, one could imagine such a gallery earning revenue off entry fees.

This is really important, because all of the billions of dollars being made in NFTs today are in the form of capital gains. Generating other kinds of income from these assets is evidence that NFTs can be more than just collectibles. That they can do more than just exist. That they’re worth more than their asking price at any given time.

In fact, NFTs can do so much more than what we’re focusing on now. Like ancient automatons and pets.com, we’ve been using groundbreaking technology for largely superficial purposes.

It won’t remain that way forever. The evolution has already begun.

What NFTs Are Really For

To grasp the full power of NFTs, we have to strip away all the pomp and circumstance and think about them at a very fundamental level.

At their core, non-fungible tokens are one-of-a-kind digital assets backed by the security of the blockchain. The principles of the underlying tech are beyond the scope of this article, but suffice it to say: every NFT is unique in the world, and can be proven such. If you own one, nobody can imitate or deny or steal it away from you.

Perhaps it’s because the value prop of NFTs is so similar to that of historic artwork — scarcity, authenticity, irreproducibility — that the world gravitated to beeple illustrations and cartoon cats. But if we hone in on the basic idea — one-of-a-kind digital things — there are all kinds of more attractive use cases.

Take a simple, largely unsung NFT niche: crypto domains. Domain names aren’t sexy like unique collectibles, but for decades now the internet has proven just how valuable a good ‘.com’ can be. Insurance.com and LasVegas.com have sold for tens of millions of dollars because they’re highly marketable. Like real estate in the popular part of town, merely owning the right sequence of characters can turn into tons of income. The right ‘.crypto’ domains selling today on Ethereum may one day be worth tens of millions.

As domains demonstrate, irreproducible digital items can have practical business applications. In fact, they can be used by individuals and businesses in any number of productive ways.

All the Things NFTs Can Do

● Recordkeeping

The original, most basic function of blockchains is recordkeeping. There’s no other recordkeeping system that can compare with the secure immutability of decentralized cryptography.

It’s only natural, then, that important records should be transferred from ordinary pen-and-paper into NFTs. Think legal contracts, licenses and certifications, financial records, real estate deeds and so on.

● Combatting scammers

It is a problem common to fashion designers and live event venues in equal measure. Scalpers can stand outside sporting arenas selling forged tickets, and shady black market dealers can recreate Louis Vuitton bags with cheaper materials.

In both of these cases, NFTs can be used to make verifying authenticity simple and easy. An NFT ticket could, instantly and by default, show purchasers where they came from. A Louis bag with a QR code can do the same. Because NFTs can’t be faked, criminals will have to come up with newer and more creative strategies.

● Combatting (non-criminal) secondary markets

It’s why concert tickets are so expensive. It’s why you can’t get a PS5. Resellers can use bots to quickly flood markets, buying up all the supply then making a clean profit off the backend. To date few companies have put up a worthy fight against this practice, and even government legislation has largely failed.

But imagine if these same items were sold over blockchains. Every gaming console could be tied to an NFT, every ticket an NFT itself. The blockchain tracks all transactions, and can apply rules to prevent or disincentivize the unwanted kind. For instance, Mark Cuban has pointed out that this model would allow the ticket issuers to profit off of secondary sales, cutting into resellers’ bottom line by sending more money back to the value creators.

● Fundraising

As the ancient philosopher Maimonides once wrote: “Giving is most blessed and most acceptable when the donor remains completely anonymous.” In practice, fundraising tends to do better when its benefactors get something in return. Think university buildings and performing arts centers, GoFundMe campaigns, or those commercials where “for just 25 cents a day” you can save a puppy and get a certificate for it.

What if, instead of blanket requests for donations, charities auctioned off NFTs? By donating to your local shelter or a relief fund, you could receive a digital token forever commemorating just how much you care about puppies and/or hurricanes. The tokens themselves could be worthless, but if “I Voted” stickers and Livestrong wristbands are anything to go by, worthless little knick knacks can positively influence altruistic behavior.

● Collateral for lending and borrowing

Individuals and businesses often have to post assets as collateral in order to take out loans. If NFTs have value then they can, presumably, be put to the same effect.

For the foreseeable future, though, doing this would be tricky. The reason is that, by their nature, non-fungible items are difficult to reliably appraise.

Let’s use an analogy. It’s easy to tell how much a U.S. dollar is worth, because the market for USD is so liquid. At any moment in your life you can obtain a dollar using any other currency, cryptocurrency, non-fungible item of value or even another dollar. By contrast, a Luka Doncic 3-pointer, sold by Top Shot for 70K, might be worth twice or twenty times or half as much the next month on a secondary market. There’s no good way to tell until the sale happens.

If the market for NFTs, or even one particular genre of NFTs, ever levels out, they might be useful in lending and borrowing. As it stands, even volatile cryptocurrencies are preferable.

Our New Age

A few centuries after Constantine VII, engineers not too many miles away from his capital began to study the nature of simple machines. da Vinci, Galileo — great thinkers sought to understand exactly how levers and pulleys, wheels and wedges could be used to achieve physical effects greater than the sum of those parts. Effects that could transform societies. The work they did set a course towards industrial machinery, motor vehicles and robotics.

Like the mid-millennium Italians, we today are living through the onset of a new age. We’ve got our hands on an immensely useful technology yet we hardly know what to do with it. We’re starting to understand its capabilities, starting to push the boundaries, but only just. Naturally, the most forward-thinking projects are being outshone by the flashier ones. But there are so many great uses for NFTs this article hasn’t even covered — uses that’ll transform how people socialize, play, work and live.

One day we’ll look back on early 2021 and recall how silly it was that, with mills and engines just on the horizon, we spent so much time building fancy thrones.

For more weird and amazing ways you can use NFTs, visit zoobdoo.com.

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Crypto trading and gaming in the cryptoverse.

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