July 15, 2022

Are NFTs a Bubble?

Change is inevitable.

I have made great incomes all my working life, I have a masters and bachelors degree in mechanical engineering, and own my own business in addition to a full time engineering salary. Yet I have moved every year since I was 19 years old and I am 32 now. Due to the housing crisis of 2008 home ownership is very difficult for my generation to achieve, banks want proof of income at a time where our skills are most lucrative as independent contractors. Banks want low debt where most of my generation is saddled with insurmountable student loans. So this leaves my generation to essentially rent, which leads to high turnover and thus moving every year.

Moving every year causes me to place an extremely low value on physical goods. Having fine china flatware merely means that I will have to pack said china on an annual basis. Furniture has to be used a lot otherwise it quickly wont make the cut. In lieu of a dedicated toaster oven I use the regular oven to toast my bread. I prefer digital books to physical as I don’t have to pack them up. I prefer to own stocks and crypto currencies over precious metals, physical art, or even cash. In my current condo I have empty cabinets in my kitchen and that actually brings me a lot of peace.

I am not alone in this way of thinking. My generation prioritizes experiences over physical goods and we live in a largely digital world. We zoom for work, we text to stay connected to friends and family, our pictures and memories are stored in the cloud. Social media and streaming platforms provide us with endless entertainment, and we daydream on our phones instead of in our heads. Our focus is constantly shifting to the digital and away from the physical.

A complete transition from the physical world to the digital requires some decent imagination, however not much imagination is needed to understand that NFTs could have a lot of value. Each generation prioritizes things previous generations didn’t so I personally won’t be quick to call NFTs a bubble or dismiss them as meaningless.

As hard as it is for even my generation to wrap my head around the NFT boom, its not difficult to foresee why there is going to be value in this space. Critics will call NFTs a bubble but those same critics have been calling bitcoin a bubble since it was worth $200 a coin in 2010. Mislabeling a movement or a trend to digitization as a bubble generally falls short of the mark and could keep you from adopting the next big wave.

Digital art has recently sold for more than most classic art would, and I actually get it. Owning a physical painting that is worth millions of dollars would cause me a lot of stress. I would have to insure it, I would have to protect it, I would need a home to put it in that had a wall big enough and nice enough to showcase it. Contrarily, a NFT tied to digital art would be visible to me wherever I was. It would be secured on a digital wallet that only my 24 words can unlock. If I lose the wallet I can just buy another one and set it to my cryptographic key. It can be stolen and the thief would never be able to access what is on it. I would know that my valuable investment is safe and would automatically move with me every year.

The biggest criticism of NFTs is that you don’t own the copyrights associated with the digital item, you don’t own broadcasting rights, and in most cases you don’t even have exclusive access to the item. However these kinds of issues are common for investments. With stocks for example you are supposedly buying a share of ownership in the company, but in reality you won’t get that exact percentage of their annual profits. If they liquidate the company you don’t get your percentage of what the company gets liquidated for. The amount of shares in circulation are arbitrary and change often. Stocks have value only because people give them value. Gold is similar. Sure the metal has all these fantastic properties and is hard to pull out of the ground, but it just sits in people’s safes. The properties of the metal are meaningless in actuality. It only has value because other people believe that it has value. This point goes on and on. Right now it seems especially obvious that NFTs should not have value because they are new. If NFTs hold their current valuations for 100 years, no one will doubt that the NFT of Jack Dorsey’s first tweet is worth millions.

NFTs are certainly in their infancy, but the concepts behind them are not. Scarcity has value and NFTs provide scarcity in a space where there is none. It’s hard to see a cat gif gaining tremendous value, but the future is hard to predict. Change is hard to understand, and sometimes even harder to accept, but I do know that with each day the world is going more digital and any tech that rides that wave is at least starting off in the right direction.