Why Non-Fungible Tokens are Worthless Garbage

Non-fungible tokens or NFTs are the latest craze in the world of cryptocurrency, Ethereum and digital trading. I really thought we had reached peak insanity when Bitcoin prices hit $50,000 USD, but it looks like I was wrong again! Welcome to the nuthouse!

If the crypto space wasn’t confusing enough already, with thousands of alt-coin projects, …hey, what the heck, let’s add digital collectibles or NFTs into the mix!

So what on earth a non-fungible token or NFT?

What is an NFT

A non-fungible token, as I understand it, can be many things but is essentially something that is considered a collectible item. The fact it is “non-fungible” means that it’s one-of-a-kind and cannot be exchanged for something of equal value – because it’s unique and therefore has its’ own value assigned to it.

Make sense?  You’re probably scratching your head a little bit at this point… it’s confusing.

Pretty much anything can be ‘minted’ as an NFT. You could go draw a picture in MS Paint right now, upload it to a website and pay a few dollars in Ethereum to have it minted.  Your token will be created and authenticated, representing ownership of your creation as the original work and voila – you have an NFT!

Where can I Buy & Sell NFTs?

If you are interested in buying, selling or creating your own digital assets or NFTs, you don’t have to look far. Lots of online sites are popping up, offering marketplaces to do all of this.

A couple of the most popular marketplaces are OpenSea (Buy Crypto Collectibles) and Rarible (Create and Sell Digital Collectibles Secured with Blockchain).

I’ve visited them both, and to be honest, it looks like a digital version of the Chuck E Cheese prize counter.

What Makes an NFT Valuable?

Recently there has been a flood of news about NFT sales, people buying and selling digital collectibles for huge sums. These NFTs are considered valuable at times solely based on their scarcity or originality, which I find somewhat perplexing.

A recent example of this is a video clip of LeBron James, sold as a collectible licensed by the National Basketball Association under the brand “Top Shot.” This NBA collectible, which pretty much amounts to a digital trading card, just sold for $208,000!

Maybe I’m missing the point here, but in my humble opinion, this is borderline insanity. It appears to be a good reflection of the overall state of the markets and the amount of cash floating around. People are happy to throw money at basically anything, as long as they think there will be a quick profit on their investment.

Now with that said, the NBA Top Shots series is an extremely well-executed product and a first of its kind.  It’s exciting to open digital packs of cards, just like when you open physical packs of trading cards, the surprise of seeing what you get. I just don’t understand the inflated values that some of these new ‘NFTs’ are selling for.

CryptoPunks – How Did NFT’s Start?

Cryptopunks claim to be one of the original or first non-fungible tokens released on the Ethereum blockchain in June of 2017.

What likely started as an interesting hobby or side project has evolved into a collection of major significance in the NFT space that has recently garnered lots of attention. CryptoPunks are digital drawings of punks (or other characters) that are limited to a release of only 10,000.

Each CryptoPunk was generated using an algorithm. No two characters are the same, and there will never be any more of them created, thus making them digitally scarce. The punks all have similar and unique features or characteristics, but some features are rarer than others. This makes some more ‘special’ or collectible. For example, most are “punks/humans,” but there are also 88 Zombies, 24 Apes and 9 Aliens. So you could assume an alien, being rare, would be pretty pricey (9 of 10,000).

Initially, when the project was new and posted online, these digital ‘punks’ could be claimed for free by anyone. Now they have been selling for tens of thousands of dollars, and in some cases, even more!

You can view details and sales history for each Punk on the website.

I’ve drawn my own unique CryptoPunk art below, which I’ll happily sell you for $10.

Cryptokitties

What would an Internet craze be without including cats right?

If you haven’t heard, Cryptokitties is a blockchain-based game that operates on the Ethereum network and lets you buy/sell and breed your very own digital cats. What’s not to love?

I’ll have to admit, the concept, the imagery, animations, storyline and everything about the game are exceptionally well-executed and impressive. That shouldn’t come as a surprise, as Dapper Labs produced it; the same company contracted to produce the NBA Top Shots collectible NFTs.

Although impressive and fun to play, you still won’t catch me shelling out $100,000 for a digital cat. It’s pretty safe to say that I could buy a real cat for that much money, which would also be considered non-fungible.

There have been around $40 million trading hands in the form of Cryptokitties to date.

Real-World Applications

So, what sort of professional or business applications might the technology behind digital punks and cats present? Well, investors have pumped a bunch of money into what is called the ERC-721 token standard. This is the standard that was used to develop prior mentioned NFTs, and investors seem to think the technology will have real-world use applications in the future.

Examples such as smart contracts between two parties for real estate transactions have been suggested as a scenario.  In such a case, your smart contract would only allow funds to change hands upon certain conditions around the sale being met.

Maybe I’m clueless, but can’t you easily verify all of these conditions yourself before you sign on the dotted line?

• Is the buyer’s financing in place?
• Did the sellers leave the fixtures and furniture as agreed?
• Do all the appliances work?
• Is it the closing day?

Check, check, check… send the cheque!

Where is the need for a smart contract? Why do I need an NFT or some magical token to approve and validate this transaction as authentic?  It seems that similar to Bitcoin and related blockchain technologies, we’re trying to find solutions to things that aren’t really problems to begin with.

Do you Hate Cats or something?

Hate is a strong word. I’d say I dislike cats but probably dislike digital cats and what they represent even more. Plus, you can’t pet them.

You might be wondering why I’m so skeptical or down on NFTs.   The real problem with digital art or NFT’s is that you can simply reproduce them or save a copy of the piece instantly at any time. The only real (assumed) value is the idea or perception that you are the true owner of that collectible.

To the NFT collector, for some reason, it doesn’t matter that anyone else in the world can create a copy of their collectible.  Or the fact that you own the token associated with that item, which is the only thing that assigns its value to you. It seems like one of the greatest scams ever.

I don’t get it.

So let’s explore the area of collectibles a little more to examine if ownership of a unique token, in and of itself, is valuable.

What Makes Something Collectible?

Investopedia defines a collectible as something worth more than it originally sold for, based on its popularity or rarity. It could be several items, such as baseball cards, rare toys, classic cars, artwork and more.

I can understand how being the first of its kind would make something like CryptoPunks and Cryptokitties unique and desirable.  But will the NFT trend continue to support their perceived worth? Are these items likely to carry forward their high valuations into the future and become even more desirable as time goes on?

Trading Card Similarities

We have to remember that just because something is collectible doesn’t mean it will remain collectible or valuable. I have thousands of old baseball cards and hockey cards in my basement that are pretty much worthless. We used to buy these cards for fun, not generally because we thought they’d be worth millions of dollars at some future date. When they became valuable, we started buying more new cards, in hopes that they would become valuable too.

The problem with easily producible collectibles such as trading cards, similar to NFT’s, is when they suddenly become more valuable, the market gets flooded. Companies began printing excessive amounts of sports cards to cash in on the excitement from collectors.

NFTs & Art

There has been a massive flood of NFTs of every kind emerging. You can even make your own on websites by uploading artwork and paying a small fee in Ethereum to have your piece “minted,” and an associated token created.

Therein lies the problem. Anyone can produce artwork and make an NFT for it, but it doesn’t mean anyone wants to purchase it. Artists have struggled to sell their work for years. There are online platforms where you can sell your paintings, reproductions or prints, digital art and music. Technology has made it so much easier and cheaper to create artwork, but it is still challenging to sell any substantial amount of artwork.

In the art world as a whole, most creatives sell hardly anything. A tiny percentage of artists sell the majority of the work. They are skillful at their craft but also good storytellers or good salespeople. In most cases, they connect with the galleries and their representatives who are the ones that actually sell pieces.

Pricing in Cryptocurrency

There also seems to be a flaw in how many NFTs are currently valued. Most NFTs are priced in Ethereum – so what happens if the price of ETH plummets? Trying to value and price these digital assets for sale becomes increasingly difficult by tying them to a highly volatile cryptocurrency.

What Makes a Collectible Valuable?

So if most NFTs are worthless, what would make them valuable? The only case I can see a being made for something like CryptoPunks being valuable is the storyline behind it. They have a historical significance of being the ‘first’ and having a scarcity element to them in that regard. But they shouldn’t be worth anything near the valuations that are currently being assigned.

Why?

One of the reasons people value art is for their ability to display the physical piece. You can discuss its’ features and show off characteristics of its’ authenticity. You can point out textures of brush strokes on a painting, where it got damaged during a famous heist, where the artist hand-signed their name. The same characteristics can’t be attached to an NFT.

The Problem with NFTs

The problem with the majority of NFTs is the work they represent is entirely replicable and easily copied. You can’t just magically age a piece of canvas 300 years. The only thing supposedly worth anything is the fact you own the token.

I would define the traits of something that is genuinely collectible as:

• unique, rare or scarce
• commands interest from other collectors
• has historical significance
• cannot be replicated or easily reproduced

Anyone can create a digital cat and an NFT to go with it. While certain cats might hold more value than others, anyone can still create an exact copy of the artwork.

Compare that to a piece of rock taken from the moon, something you can not easily replicate. It’s a feat of magnitude to travel to the moon and back compared to drawing pixels on a computer screen. A moon rock is an extremely rare physical object that is tremendously difficult to obtain. Even meteorites are considered extremely rare and valuable, but apparently not as valuable as digital NFT artwork.

Tangible Versus Digital Items

Let’s revisit the LeBron James digital basketball card, a video clip of him dunking. Anyone can watch or save the video clip. Nobody is paying to watch the clip over and over. Is the play historically significant? Not really. Can you keep a copy of the clip for yourself? Yes.

Compare that with this story, something I’d consider a true collectible.

Auston Matthews played his first game as a Toronto Maple Leaf against the Ottawa Senators on October 12, 2016. Something unique happened. He was the first player in NHL history to score four goals in their debut.

A single player scoring four goals in a game is an extremely rare occurrence in its own right, let alone their first game ever in the league. It’s an accomplishment that will likely never be matched. The accomplishment carries historical significance.

The NFT Version

Now let’s use the NBA Top Shot NFT concept. We’ll pretend the National Hockey League has just minted the first Auston Matthews NFT – a digital video clip of him scoring the fourth goal that night and celebrating.

What would you rather own?

The only jersey in existence that he wore that night, the night he performed an ultra-rare feat while playing for a historically significant franchise?  How about one of the four pucks he scored the goals with?

Or… would you rather own a few lines of code, a token representing ownership of a digital sports card, commemorating that moment? A clip that everyone else in the world has access to 24 hours a day, seven days a week.

And yet here we sit, at a time that someone would likely pay more for a digital token representing a moment rather than the actual memorabilia itself.

Hopefully, you see my point here, even if you’re not a hockey fan.

False Scarcity

I’d like to mention that many of these tokens are scarce only because we’ve designed them that way. Many trading cards, on the other hand, became rare over time, organically. Trading cards would get lost, damaged, faded, would be printed incorrectly.

The quality of cards also plays a huge factor in what makes them valuable. That’s precisely why they’re graded. The condition of a card can be the deciding factor of whether it’s extremely valuable or not. Are the corners sharp, are the borders aligned? There are no such objective qualifications with NFT’s.

In the past, you held onto rookie cards but had no idea how a player’s career would evolve or how long it would last. You didn’t know who would be stars or which cards would command more value in the future.

There is a disconnect here since it’s not the piece itself that is unique but the “token” that accompanies it.

And if you really want proof that you own a collectible, we already have physical versions of NFTs. They’re called COAs – Certificates of Authenticity.

The Case for Video Games

Another use for NFTs that I’ve heard of is for video games, which is one application that I can understand and at least appreciate where the value might come into play.

Video games are big business. There are tournaments, online competitions and big prize money. While I think it’s dumb to buy a digital item simply for the sake of having it, video games are an application that presents cases where digital items might be worth something.

A quick example is if you bought digital real estate – land or territory in a game that helped you earn money other assets in the game. A special weapon that gave you an advantage over other competitors. I understand how these digital items could translate to real-world value, in that they could potentially earn you more income from winning games.  They might aid you in creating and selling other digital assets in a game that are of value and can be sold to other players.

This is similar to stocks in the sense that they can be valued for their income-producing qualities. They can generate a real return on your investment besides just their price appreciation based on speculative valuations.

However, like stocks, you do have to be cognizant of whether these items will remain valuable in the future, based on the popularity of said games, whether other items or realms become available or more valuable.

This is one area where I can at least make a connection between the scarcity of such digital assets and their monetary value.

Craze and Hype to Make Money?

The rise in popularity of NFTs also has people quickly taking advantage of the opportunity to cash in – like the NBA with their Top shots cards.

As mentioned, there are websites now dedicated to creating NFT of your artwork.  All you have to do is pay a small fee in Ethereum since it uses ‘gas’ on the network to create the tokens. Creators of such platforms are smart if they’re able to skim a bit off each transaction and take advantage of the current popularity of NFTs.

Others are using their celebrity status to endorse or cash in on NFT artwork or collectibles. Take, for example, Logan Paul, a YouTuber famous for “unboxing” rare Pokemon cards. Yes, he opens boxes of cards in front of a camera.  He’s sold NFT’s that I guess are representative of  ownership of some of the unique clips associated with these famous unboxings, to the tune of 5 million dollars (about 2,500 at 1 ETH or roughly $2,000 each)

I’d consider this the scammy side of NFTs, that I don’t like. Are people buying any of these items for their collectibility or artistic value? Or just in hopes, they can resell the NFT later for more money?

Have you heard of an artist named Da Vinci?

How about Beeple? If your answer is no, you’re not alone.

“Beeple” is an artist that has been big in the news lately. He has supposedly created a unique piece of digital art every day for the last 5,000 days. Recently, these were assembled into a collage and put up for auction as an “NFT” to go on sale at a Christies auction.

Leading up to the online auction, one of his NFT artwork pieces has just sold for a whopping $6.6 Million dollars. And as of writing this piece, the auction has concluded with a sale of $69.3M.

In my opinion, Beeple has just won the lottery in a sense. He’s probably speeding off in his Ferrari Private Yacht, laughing his head off at these nonsense sale prices.

I’m still a little dumbfounded as to why ownership rights to a digital piece are worth so much money? Why not just sell the source file? Wouldn’t that be worth more money than an NFT representing ownership of the art?

Mainstream Acceptance?

Since this NFT has now been offered and sold by Christie’s, a seasoned auction house, people will argue that NFTs are gaining mainstream acceptance. The same could apply to the NBA’s Top Shot series being so popular – or is this just another fad that will quickly fade away?

I’ll guess the latter and counter that auction houses will sell whatever makes them money. If the current hottest trend nets them a huge commission, they’ll be more than willing to participate.

I’ve been involved in the art world and collectibles space for some time. I’ve even met the owner of a very prestigious, world-renowned auction company. These are businesses that make hefty commissions, so I can only imagine how enticing an on-trend digital piece such as this would be. Huge profit potential with low costs involved compared to other physical items they would typically be tasked with overseeing the care and marketing.

It will be intriguing to see how many NFT’s are offered and bid on going forward.

Conclusion

NFTs are not revolutionary. I’m not even sure NFT’s are art, but simply a Certificate of Authenticity in digital form, representing an accompanying digital collectible.

The naysayers will attempt to make you feel inferior by claiming you don’t understand the technology behind a non-fungible token, calling you names like “Boomer” or relegating you to a dinosaur of sorts.

I’ll argue that similar to Bitcoin, scarcity alone doesn’t make an NFT valuable. The lack of physical attributes and qualities also makes such collectibles less desirable.

Would you rather own a million-dollar classic car, a game-worn jersey, a 300-year old painting, a rare piece of geological history…… or a digital token?

Wouldn’t you rather have a genuine certificate of authenticity? The actual pen strokes belonging to a living and breathing artist that created the work, lines which can not be 100% replicated?

If you answered, “no” – give your head a shake.
I’m starting to feel old and dislike the Internet.

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