Thread by @stephsmithio

There's a lot of hype around NFTs and very little nuance around them.

I tend to see 2 arguments:

1. This is the future
2. This is worthless

The world is not black & white.

NFTs are not useless, nor are they that useful intrinsically. But so are many other things in life.

🧵

1/ Let's first agree on a definition:

NFTS are unique, digital assets. You may liken them to a trading card or art.

Scarcity is built into the asset, so is often worth more than its inherent utility.

In buying an NFT, you are betting that ppl will care about it in the future.

2/ Now let's address whether "NFTs are worthless"

NFTs = tech, allowing you to monetize & track ownership of the underlying asset.

Ex: An artist can sell X to A, but also get a cut when A sells that asset to B.

This tracking mechanism is worth something. How much? It depends.

3/ Why does it depend? NFTs tend to trade on *extrinsic*, not *intrinsic* value.

Intrinsic value is the utility of X.

Beef has utility bc I can eat it. A stove has utility bc I can cook the beef. Gas has utility bc it powers a stove.

Extrinsic value is harder to quantify.

4/ But this concept is not new, nor is it crazy.

A trading card is worth 5c intrinsically. But ppl still buy them for thousands.

In doing so, they are betting that someone will care about them later.

The extrinsic value is determined collectively by the market over time.

5/ Similarly, ppl buy designer bags for thousands.

We already know that there are knock-offs of every designer bag, but people still choose to pay a significant premium for the "real deal", even if utility is the same.

Why? Again, bc of extrinsic value (status, in this case)

6/ Another common argument is that you can just take a screenshot of an NFT. It's true!

You can also take a picture of the Mona Lisa or buy a print for pennies on the $.

Look, I just shared the original here!

Yet, there's still value in the OG, at least in our society today.

7/ There are numerous ex of a scarce asset's extrinsic value >>> intrinsic value.

1. Supreme shirts for $k
2. Sneakers for tens of $k
3. Arowana fish for hundreds of $k

Humans are irrational.

NFTs' utility doesn't "add up", but that's true for many other things in this world.

8/ The hard part of "getting" NFTs is that ppl view their intrinsic value as 0 and a premium as a multiple.

And of course, 0*anything=0...

But extrinsic value is additive, not multiplicative.

✅ Value = intrinsic value + extrinsic value
❌ Value = intrinsic value * premium

9/ That's why ppl have an easier time wrapping their head around a physical asset.

They know the asset is worth AT LEAST X (intrinsic value), whereas they know an NFT is worth AT LEAST 0.

But remember: there are many things in life worth AT LEAST 0, that trade for much more.

10/ OK, is the hype justified?

That's not for me to decide. The market will decide.

But just remember: for a collectible to continue having value, it must continue having relevance.

And just one person's opinion: many of the NFTs today will not be relevant in the future.

11/ If you want to speculate on NFTs, you should be asking:

"Do I think ppl will care more or less about this in the future?"

That's why IMHO paying $m for @beeple art actually makes more sense than paying $5k for an avg image, where the extrinsic value is v likely to decline.

12/ NFTs trade on scarcity, so the very fact that there are so many NFTs concerns me.

Imagine if EVERYONE said they were selling "designer" bags. You would laugh.

There is value in status, but it can't be invented overnight, much less by just putting something on a blockchain.

13/ NFTs, much like other assets in their infancy, will mature over time.

Until then, there is a lot of noise to cut through. But that doesn't mean that the asset class is useless.

Just do the diligence of understanding what bet you're making, if you want to speculate.

14/ TL;DR

NFTs are neither useless, nor that useful (intrinsically)

But, that doesn't diverge from many asset classes that already exist.

Separating from B/W arguments like "this has no value" allows us to think through its role in the world we live in: an irrational one. 🙃

PS:

This is not financial advice! (Duh)

I'm just a girl sending 280 character messages into the ether. 💁🏻‍♀️