Rainbow Cat was sold by its creator Chris Torres as an NFT for nearly $600,000
Text | Hairball technology
Imagine this scenario if the resolution table in the Oval Office was an NFT.
The table was a gift entrusted by Queen Victoria to then-U.S. President Rutherford in 1880. Since then, the table has been used by every president since the White House.
As an NFT, the name of its original owner, Queen Victoria, and the names of every U.S. president of the United States over the past 140 years, are permanently inscribed on the table, unquestionably validating its significant historical provenance.
That's why some NFTs can become valuable: it's a blockchain-based built-in proof of origin.
I'm sure many people have read about what NFTs are and how NFTs work, but there may not yet be a document that succinctly discusses why NFTs are able to advertise so high prices for seemingly non-unique digital assets.
Most people agree that NFTs represent a new era of "popular art" as a subversion of the art industry traditionally dominated by the super-rich.
But what we still don't understand is why anyone is willing to pay thousands, tens of thousands, or even hundreds of thousands of dollars for a digital asset that anyone can download, copy, and own for free. This is in stark contrast to traditional works of art such as Veronese's The Wedding of Cana, which is essentially unique and priceless.
Veronese's The Wedding of Cana, 1563, is currently on display at the Louvre in Paris
Unfortunately, probably most don't get to the point.
The intrinsic value of NFTs lies not in the 1s and 0s that make up digital assets, but in how they verify the origin of these 1s and 0s.
In other words, the value of the NFT is in contrast to that of The Wedding of Cana, as it was certified by the Louvre in Paris as the original painting by Veronese in the 16th century. The value of a work of art is fundamentally dependent on the verification of its authenticity and provenance.
However, NFTs do represent a revolution in a slightly different way. This is a completely decentralized but verifiable authentication method, which is also a revolutionary aspect of NFTs that are different from traditional art buying and selling methods.
<h2>Speculation-based value? </h2>
The word "speculative" is often mentioned when it comes to the value of blockchain assets such as Bitcoin or NFT; implying that the value of these assets is largely based on what people expect from them, or that "hyping" them will add value to themselves.
Therefore, the value of an NFT depends on how much money people think it is worth. But technically, this is no different from traditional works of fine art.
If no one is willing to buy Van Gogh's paintings, then the canvas painted on them is not worth much. Of course, this is just a hypothetical example, but the point is that the word "speculative" is not a good way to understand why NFTs can be lucrative investment assets.
The best way to understand how NFTs derive value is to see that both NFTs and traditional art forms derive value from verifiable sources.
However, the question of verifying provenance has traditionally been a tricky matter.
Famous auction houses such as Christie's and Sotheby's charge a handling fee of up to 20% of the final transaction price for a reason. They charge this premium because of their ability to generate interest and competition among interested buyers.
But perhaps more importantly, they are responsible for verifying the authenticity or provenance of the listed items, which is why the simple act of listing an item at a prestigious auction house can add value to the item.
Collectors spend extra time and resources verifying something because provenance is the only basis on which value can be established. Only after this has been established can other factors such as rarity, conditions, content, and needs be incorporated into the equation.
But the authenticator is the person, and the person will make mistakes or have ulterior motives. Therefore, sometimes there will be oolong incidents in art auctions, after all, art appraisers are also human beings and will make serious mistakes that are not uncommon.
In 2011, Sotheby's sold a forged painting by Dutch Golden Age painter Frans Hals to an American collector for $11.75 million. But another independent art appraiser at the time argued that the painting was in fact a complete forgery. However, the question of whether the painting is true or not has not been solved.
Controversial Frans Hals fake, Portrait of a Man
<h2>Where is NFT suitable? </h2>
NFT allows digital assets to become unique because it validates the original assets with certainty. In addition, the subsequent transaction process after the creation of the NFT is completely transparent, which means that every sale, transaction and owner of the asset is built into the NFT ledger, which can add more value to the NFT depending on the provenance of the asset.
It can be said that NFTs are where blockchain technology thrives as a form of currency.
Decentralization of authentication
The process of validating collectibles in traditional forms is very centralized. For example, collectible coins and trading cards are centrally certified by the Professional Coin Grading Service (PCGS) and the Professional Sports Accreditation Body (PSA), respectively, which are responsible for verifying and setting industry standards for collectors. In return, they charge a fee for each identity verification, and the higher the value of the item, the higher the fee.
Financial institutions are centralized, agencies such as the Ministry of Finance are responsible for protecting and verifying people's funds, and other institutions such as banks also play a role in protecting, storing and managing people's funds in order to earn commission fees.
To be sure, these centralizations and intermediaries can't be said to be meaningless, after all, they also protect your financial assets. Institutions that fail to do so, such as the Venezuelan government, could lead to currency depreciation and inflation.
More importantly, NFTs eliminate the need for centralized value protection, regulation and certification.
By keeping a record of all transactions and tokenized assets on a blockchain-based ledger, NFTs are able to instantly verify who created what, when, and where. In other words, it is a blockchain-based "certificate of authenticity."
However, the verified authenticity has no value in itself, it only acts to protect the value of the asset. For example, creating a cat's meme on Microsoft Paint to become an NFT doesn't suddenly give it value. However, the created "cat" is a unique version, and its provenance has been linked to its creator through tokenization.
Tokenized contests
Another metaphor that explains how NFTs create and protect value is to think of it as a kind of patent office. Of course, there are many differences between the two, but the important similarities are in the importance of registering knowledge assets.
This is especially important for digital assets, as they are essentially intellectual assets; consisting of 1s and 0s that can be easily copied exactly.
We can think of Alexander Graham Bell (the recognized inventor of the world's first telephone) before Elisha Gray went to the patent office, who also developed an "acoustic telegraph" similar to Bell's. Both applied for a patent on the same day on February 14, 1876, and in the end, Bell's patent was accepted first, although his concept required the use of the "liquid dispenser" that Gray had first invented.
So while Bell and Gray's intellectual assets have the same nature, only one becomes valuable by being approved first. When you own two assets of the same nature, the value of protection is to have their problems verified by a third party with jurisdiction to protect it.
The value of NFTs works in a similar way. The digital meme for cats consists of codes consisting of 1s and 0s. The exact same sequence of 1s and 0s can be copied, copied, uploaded and downloaded a million times, and it cannot be unique to this digital asset.
However, if the creator "tokenizes" his/her digital asset to an NFT, that asset is now a unique asset on the blockchain ledger. So even if someone has the exact same sequence of 1s and 0s, thus claiming the same number image of a cat, it will never be the NFT cast by that particular person at a particular time.
NFTs are blockchain-based timestamps that validate the location of digital assets in space and time in a decentralized, verifiable, and secure manner. This is the essence of NFTs, and the essence of why NFTs have potential value.
However, the legal validity of NFTs and their compatibility with copyright law remains to be seen.
<h2>Will NFTs maintain their value in the future? </h2>
Of course, there is no definitive answer. However, two things that can be determined that NFTs can guarantee.
First, what is certain is that the source of NFTs will never be an issue. Anyone, any place, at any time can universally verify the authenticity of NFTs. In contrast, if the original version of Mozart's Requiem is purchased, it will have to invest a lot of resources to certify it and then verify it again when handing it over to the next owner.
Second, the condition of the NFT will always remain perfect. Since a digital asset is tokenized on an immutable blockchain, it cannot be tampered with or destroyed. A physical asset, on the other hand, like a painting, only deteriorates over time. Fragile or ancient works in particular will require considerable resources to transport, store, protect, preserve and restore.
The main threat to the long-term value of NFTs is market demand. This threat applies to any type of investment asset, but it remains a particularly large question mark for relatively new technologies such as NFT-based collectibles.
This is where the value proposition of traditional works of art shines, as these assets have a long record of holding demand. After all, the chances of Veronese's painting The Wedding of Cana suddenly depreciating after 500 years are very slim.
Another big question mark is how NFTs will be regulated/restricted by governments in the future, but this is another big topic that should be discussed in detail at another time.
All in all, for the first time, NFTs have laid the necessary foundation for digital assets to be held or add value in the same way as non-digital collectible assets. With these conditions in place, determining whether an NFT is a good investment will depend on one big question mark: long-term demand.
If there's anything worth learning from here, it's that NFTs come from essentially the same sources of value as traditional forms of collectibles, and in this regard their future value will depend on similar factors.
However, it must also be recognized that NFTs are inherently distinct from traditional art assets, as NFTs are ultimately a knowledge asset.
Unlike the Mona Lisa, which can only be truly experienced by standing in front of the Louvre, digital works can be perfectly replicated. In this way, the value of NFTs is closer to the content of the novel; copying the content of the novel word by word produces the same experience; but only the holder of the intellectual property rights of the novel is the "owner".
<h2>Will NFTs liberate art for the "masses"? </h2>
The answer may not be. While NFTs have played an important role in the decentralization of the way art is traded, the value of NFTs does not come from decentralization.
As argued earlier, the value of NFTs comes from provenance, so those who are already in positions of wealth, fame, power, and influence will be in the best position to ride the NFT wave.
Take, for example, Twitter founder Jack Dorsey recently sold his first tweet for $2.9 million. The only reason this NFT sold for millions of dollars was because it was generated by Jack Dorsey himself, and the provenance of his first tweet is now permanently integrated into the NFT. Without social impact, the cost of creating one's first Tweet NFT would be higher than the price it could sell.
Twitter founder Jack Dorsey's first "tweet" was sold as an NFT for $2.9 million
In this sense, NFTs occupy the fascinating intersection of mass decentralized transactions and high-value digital artworks created primarily by the wealthy and celebrities.
From almost recorded history, art collections have been a valuable resource for elites to store, accumulate, and transfer wealth. While NFTs offer ordinary people better opportunities to participate in collectibles trading, it seems that the mature elite are still in the best position to reap the direct benefits of this new technology.