Having observable phenomena named after you is the ultimate acknowledgment for an economist. Even though it is impossible to see, Adam Smith is revered for his theory of the “invisible hand” that directs the market.
Veblen noted phenomena in which certain commodities’ price elasticity of demand was tested by their rising popularity. Veblen products, whose value rises as demand increases—were coined to describe this phenomenon. Rolex watches, which have fewer functions than a life-saving Apple Watch, are examples of luxury products whose value rises in proportion to the item’s scarcity.
Even though conventional economists, digital numismatists, and collectors of rarest items may have to suspend their skepticism, NFTs are the world’s first digital Veblen products.
Indeed, the artist Mike Winkelmann (aka Beeple), whose digital work Everydays: The First 5000 Days sold for $69million, has confirmed that NFTs are breaking into the normally unreachable realm of fine art and auction houses. Even though this was Christie’s first digital auction and one of the most costly artworks ever sold, the piece has no actual form, enabling beauty to live in a person’s mind’s eye.
There is a rising market for NFTs of more than $2 billion in the first quarter of 2021 alone. A multi-billion-dollar industry like esports, online gaming, or in-app purchases is being created thanks to NFTs, which return blockchain to its original promise of digital scarcity and democratization. There has long been insidious socialization of creative and intellectual property and privatization of profit for content creators in the internet age, generally by publishers, producers, or auction houses that are prone to ripping them off. These dynamics are changing due to the fast development of the NFT sector.
You may get a one-time payment from a content marketer for your work, or you may only get half of what you deserve if you’re fortunate enough to be paid on a sliding scale. There are two online scourges—copyright trolls and patent hoarders—because trademark or copyright misuse is hard to control on the internet.
Like other public blockchain features, NFTs harness the inherent power of blockchains to solve the accounting world’s most irritating problem, namely double counting. NFTs apply the notion of digital scarcity to collectibles, making the market of digital rarity accessible to everyone, from sports fanatics to digital philatelists. With over one million users, NBA Top Shot harkens back to when sports fans swapped cards with detailed facts about their favorite players.
There is little doubt that NFTs are here to stay, even if the market is a bit frothy. One of the most significant undercurrents of NFTs is overlooked by the ICO boom. It’s a move from a command economy to a creative economy. Black artists have created and sold NFTs that continue to attract a dedicated fanbase as widely dispersed as the blockchain itself.
Digital scarcity is the key. On a virtual blockchain, the owner or creator of NFTs may “license” people in choosing what the outside world gets to see, from a single person to a whole internet. This has to do with the storage of an NFT. Offline cold storage wallets—the digital equivalent of a bank vault—and so-called hot, internet-connected wallets, which allow anybody to observe and possibly steal digital assets, are options for all highly treasured digital goods. The value of NFTs, the newest incarnation of blockchain’s value, was originally uncertain (and may still be), and the same holds for bitcoin. While NFTs may not suit everyone, the right to digital scarcity (and the ability to create unique online content) must be safeguarded.
Virtual art galleries showcasing carefully chosen collections of NFTs may exist as an extension of this authorization or authentication and access control mechanism. Two-way marketplaces and renowned auction houses like Christie’s and Sotheby’s are harnessing blockchain technology, notably NFTs, to cater to the crypto affluent by selling digital Veblen commodities. While the NFT craze may be skewed corporate, up-market, and even gimmicky, the ultimate change is about empowering content producers and reducing the barriers to entry for tech-savvy developers. Similar to how eBay or Amazon expanded the reach of physical commerce to the internet, NFTs are decreasing this size to the digital singularity of digital assets.
Rarity does not necessarily imply high cost, impossibility to get, or incomprehensibility to grasp on the internet. When it comes to asymmetric information, value creation, and value capture, think about all the other places in your life where the asymmetry works against you. Buying a house is a good illustration of this. To what extent is your deed susceptible to being changed by a dishonest official running a land registration who doesn’t like your name or your family’s name or who falls for a bribe? Life insurance policies and how recipients (often children) may not realize what they are entitled to, resulting in billions in unclaimed life insurance benefits. How can blockchains, which record trust as an Atomic clock records time, not be good enough to permanently preserve other items of real-world worth, such as a $69 million piece of fine art?