NFTs, speculative bubble or cultural shift?

We are hearing more and more about NFTs, the "Non Fungible Token". If we put aside our doubts and fears of seeing a future we don't aspire to, the real question to ask ourselves is: do NFTs have value?

Like many of you, the subject was starting to bother me. So I undertook some additional research to form an opinion and came to this conclusion: yes, NFTs have value, and this value is even sustainable.

(You already have the conclusion, but I invite you to read to the end anyway 😉)

What is an NFT?

Literally, NFTs refer to "non-fungible tokens" (or nifties for the initiated). They are digital assets linked to an underlying asset and registered in a Smart Contract. These digital assets have a certain value and exist in limited quantities.

Each of these tokens constitutes proof, in the eyes of the world, of the ownership of a tangible asset (a watch, a gold bar, a bottle of wine) or an intangible asset (a tweet, a song, a blog post, a moment of a basketball game or even a patent). Another special feature is that each niftie is unique and has its own authenticity and traceability - because it cannot be copied.

It is this uniqueness, made indisputable by the use of the blockchain, that makes it a non-fungible token - i.e. it cannot be substituted for another token, as could a €1 coin for example (numismatic phenomenon aside).

An NFT is unique, so what?

This uniqueness constitutes the first kiss cool effect: the NFT reintroduces property into the digital landscape, so badly treated since the beginning of the Internet. And some people are now allowing themselves to dream that media, artistic, sporting or intellectual creations could be uniquely identified, "securitized" and that their use could be traced.

What makes NFTs valuable?

It is generally accepted that the notion of value embraces three different realities: exchange (monetary) value, use (or functional) value and psychological value.

In fact, these three types are frequently intertwined, as Adam Smith presents in the paradox of water and diamonds, which was born of the classical theory of value:

The diamond has a very high exchange value, because of its rarity and the psychological value that is attributed to it, but it has no value in terms of use. On the other hand, water has a very high functional value but (almost) zero exchange value, because it is generally abundant (unless it is found in the desert, for example).

An NFT is in essence rare because it is unique, which is not enough to give it a high exchange value. But then, beyond the egotistical quest, what could motivate a buyer to purchase NFTs?

It's all about use value

What drives a buyer to buy NFTs is their use value. Thanks to NFTs, the use value of a tangible or intangible asset becomes monetizable: this is the second kiss cool effect.

I'm not talking about the value that made the glory days of ICOs (Initial Coin Offerings), but the social value produced by the NFT, which carries with it the expectation of future income

The same as the one that makes the owner of the Palace of Versailles wealthy (minus the maintenance costs). And in the digital world, this social value is directly proportional to the number of copies, shares and publications of the underlying media.

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And, guess what, monetization of use value already existed with NTFs. Take Youtube for example, where the income of video creators is directly linked to the number of views. The more people like the content, the more views it gets, the more advertising profits increase, a percentage of which goes directly to the content owner. NFTs allow to extend the monetization of use value to all domains: plastic or digital art work, video game element, real estate or movable property deed...

At a time when we spend more than 5 hours a day on average in front of our screens, it is likely that NFTs are here to stay, and more and more valued.

Are you interested in the subject? Let's discuss it! 😊