This is my companion piece to yesterday's post about NFT Hate And Hype and, I hope, something that makes sense to my non-crypto friends who ask me about NFTs because they know I know a little about blockchain.
Disclaimer: I AM NOT AN EXPERT. Nor am I a techie, a coder, a crypto bro, or whatever tf else might "qualify" someone to be More Expert Than My Silly Ass. I am just a normie blogger who has hung around in this space enough that I sometimes try to translate crypto-speak to non-crypto people.
Hung around long enough to have giggled when I made a whale sculpture in the Netherlands spray water by paying one Hive
The Metaphor
Think of NFTs (which stands for "non fungible tokens") like non-legal-tender silver coins. They have perceived value based on two things: the perceived value of the silver they're made of, and the perceived value of the art/rarity/specialness of the coin minting.
The price of silver by itself fluctuates, based on the perceived value of it as a commodity. Silver can be used for practical things, but also as an investment tool/store of value. People hoard silver coins that aren't doing anything but collecting dust in the hopes they will be valuable to them in future; people use silver in various items like electronics, utensils, jewelry, etc. in a more practical sense. In this way, the price of NFTs is influenced by the perceived value of NFTs in general, or of crypto/blockchain in general. People can hoard NFTs that aren't doing anything but sitting in their wallet; people can use NFTs to make smart contracts for their work.
Non-legal-tender silver coins might be minted for various reasons; perhaps they were minted to celebrate an event, perhaps to showcase someone's art, perhaps to fundraise for a cause. Let's imagine that a wildlife refuge minted some silver coins to sell as a fundraiser for their work. They made five coins with five different endangered animals on them, with 1000 of each style, and one of the styles has a panda on it. Maybe someone bought a panda coin because they want to support the work of the wildlife refuge; maybe someone bought a panda coin because they just love pandas and collect anything to do with them; maybe someone bought a panda coin because they are a coin collector and the panda coins rarely come up for sale after the initial offering so they like them for their rarity. In this way, an NFT might be bought because someone likes the art/artist who made it; it might be bought because of it's rarity; it might be bought because it was sold as a fundraiser for some cause.
The price of the panda coin might go up or down because the price of silver goes up or down, or it might go up or down because of how rarely the panda coins are up for sale for collectors. Maybe a huge silver mine starts up somewhere in the world and floods the market and the price of silver drops; maybe it turns out the wildlife refuge was shady and actually doesn't help pandas at all (coughPETAKillsAnimalscough) and so everyone's mad at the wildlife refuge and no one wants their coins anymore. All sorts of weird and unexpected things might influence the price of that coin, and it has little to do with how practical or utilitarian silver itself is. Such it is with NFTs.
But You Don't Own The Copyright
Correct, you don't own the copyright to whatever art is on the NFT (though maybe it's possible to write a smart contract that way, I don't know. In general though, when you buy an NFT, you are not buying the rights to that work). Some of you may think what's the point then, but what's the point of buying a print that you like or a trading card game that you like or a t-shirt that you like; you aren't buying the rights to that work, either, you're buying the thing because you like it (or maybe because you think your Pokemon cards will be worth money someday). That's how NFTs are, too.
But There Are Scammers
Yes, there are, just as there are in any other aspect in our money-driven world. There have always been money forgers, or people who would shave off a little of the sides of rare metal coins so that it has less silver or gold than it should have but still get passed off as legal tender worth however much that legal tender is worth but the shaver has a pound of shavings of gold or silver that they've accumulated over time (fun fact: that's why modern coins have those ridges on the side, so officials can see if they've been shaved or not and if so then they are no longer legal tender). Scammers gonna scam and will find a way with any new technology. That doesn't make it right, but it IS a practice as old as money, so it isn't new or special to crypto and NFTs.
But It Might Be Worth Diddly Squat In Future
That is also true, but that is true of any investment where you are investing in the perceived value of something. Beanie Babies (as I spoke about yesterday), baseball cards, unopened Star Wars figurines, stocks, bonds, silver coins - they all are only as valuable as people agree that they are, as valuable as people are willing to pay for them, as valuable as they are perceived to be. If people decide tomorrow that Pokemon cards are a silly thing to pay thousands of dollars for, they are now worth only a few bucks or the cardboard they're printed on. If tomorrow someone decides that that particular Charizard is worth a thousand dollars to them, then it's worth a thousand dollars. It's all arbitrary, and again, not special or new to NFTs.
So Do They Have Any Value Beyond Collecting?
I think so; NFTs as a technology I believe***** have a use case beyond collecting, and people will eventually use them for work contracts and the like (*****this is my guess, I AM NOT AN EXPERT NOR A PSYCHIC WHO CAN SEE INTO THE FUTURE). Silver also has a value beyond being an investment tool, but the price of the metal itself is still affected by the price of the perceived investment/store of value - the electronics manufacturer still has to pay silver prices just like the collector does. NFTs are also being used in games online, so you can buy your game component, like a collectible digital trading card, as an NFT. People pay real dollars for in-game items that are not NFTs, so this is much the same.
In Conclusion
This is my basic, normie, non-techie understanding of NFTs. If any NFT experts want to chime in with more nuance or because I got something wrong, please feel free.
