What follows is a guest post by Jack Simpson, and it is one of two pieces we are running on NFTs. See another take on NFTs here.
In recent weeks we’ve seen an exponential rise in discussion around NFTs (non-fungible tokens, for those who’ve missed any of this). In industries ranging from sport to art to music, bets are being made on NFTs being the next big thing. Proponents suggest they can return value to art in digital form by creating an artificial level of scarcity. In music, it has been suggested that they could be transformative for rights, and who gets paid. Sceptics argue that there is no “real” value being created, that NFTs represent yet another piece of crypto hyperbole. First, let’s look at some basics and then at two key areas: One, how could NFTs have an impact on creative work? And two, what are the merits of creating artificially scarce art?
To the basics. “Non-fungible” is economics-speak for something unique and irreplaceable. A “token” is blockchain-based data that locates a particular piece of information. So crypto-coins are tokens. Each one is marked and can be identified as different from any other. But a crypto-coin is fungible because each one is replaceable with any other.
This is all made possible by blockchains, which are essentially decentralized ledgers. They’re a “place” to store information, and crucially, because they are decentralized, cannot be edited without the knowledge of other users on the blockchain. The idea is that blockchains are able to store records of information without the need for third parties (e.g., banks and financial institutions), so that the system is essentially self-sufficient and self-regulating. As a digital infrastructure, an added benefit is that huge legal fees added by third parties are avoided.
Blockchains have been widely used to create cryptocurrencies like Bitcoin and Ethereum. They’re also being described as the potential building blocks of the future infrastructure of, well, almost everything. Any systems which require a ledger or record of action (think: banking or voting systems).
NFTs rely on this innovative digital infrastructure and have recently paved the way for some eye-watering sales. In perhaps the most public NFT announcement yet, a work by digital artist Beeple recently sold at Christie’s for $69 million. The work is a series of images brought together as a collage. Damian Hirst, too, has recently sold works for $22 million. It’s worth noting that Beeple’s sale takes the artist into the heady heights of Jeff Koons and David Hockney in terms of artists able to command such prices. The global NFT market has grown from tens of millions of dollars in annual sales a few years ago to over $300m in the past month alone.
NFTs are touted as potentially able to help resolve some of the inegalitarian results of the digitization of arts and culture. Problems of financial support obviously arise when we consider the value of art that can be reproduced at virtually no cost and shared widely in ways unimaginable 30 years ago. NFTs offer a digital middle ground by encoding royalty shares into a given piece of art. This fundamentally involves creating a sense of artificial scarcity in a world where the very idea of scarcity makes little sense.
Creatives Creating Value in a Digital Age?
The music industry is rife with debates about how streaming has revolutionized the way artists are being paid—or in many cases, not really being paid. Spotify CEO Daniel Ek argues that the days of taking three years to make a record are gone. Not only that, artists are now expected to maintain “continuous engagement with fans.” The creative is now expected to be at least part social media marketer, it seems.
In the 1980s, the British Phonographic Industry battled those copying music with the cry that “Home Taping is Killing Music.” Albums were passed between friends, and thus the music industry, artist, label, etc. received a single payment despite multiple people consuming their content. Copying music from tape to tape however saw a quick degrading of the sound, and cover art was rarely copied well. In other words, you could receive a cheap, copied version of an album, but the quality was not the same as the real deal.
Fast-forward to around the turn of the millennium, when Napster and other file sharing services created a much more realistic existential threat. Record companies feared the onset of this new technology, but the tech came anyway. Now, fast-forward to 2021 and virtually nobody is still buying physical music, aside from vinyl purists.
The beauty of streaming is in its simplicity. Artists are able to reach audiences from around the world; audiences are able to find their favorite (and new) artists with a few strategic taps. We can access millions of tracks from something around the same size of our old friend, the cassette.
This technological development has revolutionized the way we experience music and art. But it has also modified industries from a royalties perspective. One thing that has been battled over has been how artists ought to be paid fairly. One thing that plays into this is how to create the sense that any individual piece of art holds value, when it can be replicated at negligible cost?
The internet can give a slight weightlessness to each stream or download. That Netflix film would once have been viewed in a darkened cinema environment. That Spotify track would once have had cover art, physical weight, and printed lyrics to pore over. All these things played into a sense that a) one was buying something and b) that the thing you were buying was in some way yours.
The internet has, needless to say, changed all of that. In many cases, we rent access to many of our cultural experiences. Through subscription services, we have temporary access, but never own a thing. In some quite important sense we might ask, were we to own something, what would it be? An original master of a film or music? Perhaps. But in reality what we can say is ours is either the temporary access, or a download. The download is likely to be absolutely identical to every other download that exists. In other words, our owning it doesn’t preclude others from owning it.
This is why even the thought of owning a piece of art online has a tinge of absurdity about it. If the song exists as a file, it can exist identically in an infinite number of digital spaces. But NFTs provide a kind of “solution”: artificial scarcity. They give us digital collectibles in a world where duplication has zero costs.
As has been discussed, NFTs have seen skyrocketing interest lately. In that sense, NFTs have definitely encouraged people to invest in art, which at present is enough to deserve our attention. In a world where people increasingly don’t understand why they should pay for art, music, or journalism, NFTs have created a space where people can pay for something they’re used to getting for free. So what are they buying? Some, at least, are clearly purchasing a perceived investment.
NFTs Creating Added Exchange Value?
NFTs differ from cryptocurrency. Bitcoins are replaceable by other bitcoins (they are fungible) whereas NFTs are not. They do, however, share some important characteristics. Operating in a world increasingly reliant on blockchains, they offer a space for people to speculate. Those ready for the future now want to ensure they are early adopters. We can see this more clearly through Marx’s concepts of exchange value and use value. The distinction between the two is quite intuitive. We have a use value, the value something has to the person using it, and we have an exchange value, the value that one could exchange it for. When I sell something, I am in part valuing the potential spending power from the cash I will receive as higher than the thing I am selling. An NFT has very little use value in itself; its value may primarily be in its exchange value. The NFT investor perceives a future increase in exchange value. Here then the NFT and artwork combine to produce an asset.
NFTs may also offer their owners some special social status, something we also see in the world of high art. To own a work by the artist Beeple may say something about the owner. Here, it’s useful to think about the idea of conspicuous consumption, coined by social scientist Thorstein Veblen. Veblen argued that certain kinds of spending are essentially about raising social status. Marx too understood this, arguing that “the mystical character of commodities does not originate … in their use-value.” This may make NFTs into something that is worth the price paid. The NFT reintroduces a kind of ownership not possible when each piece of art is identical and infinitely replicable, with no other signifier attached.
But this raises questions about what value really is. After all, it’s easy to suggest that either this exchange value, or the perhaps vain satisfaction of elevated status, is not real, but on what standard of reality would this be? In The Construction of Social Reality, philosopher John Searle attempts to show why money is money – and is valuable – whereas fake money, although perhaps anatomically identical, is valueless. Searle’s argument is that much of the world has the meaning that we collectively agree it has, and that language allows us to come to some kind of agreement. A cocktail party, money, the rules of sport: these are not things that exist outside of human constructs. But they do exist.
It is the faith that we all have that a legitimate dollar, pound, euro, or yuan carries trust forward that gives it some kind of perceived value. Money is of course primarily valuable for its exchange value. But that exchange value maintains itself through trust, that is, through the way I expect it to stably bring me goods and services in the future (though look at examples of hyperinflation for how this stability can erode pretty quickly). As Searle shows, perceived value, or perceived agreement on norms, is part of what creates some kind of real value or real normative rules. They are real because we agree they are.
For instance, the grower of apples doesn’t need to convince the barber of the value of apples in order to get a haircut. Instead, our orchard-plucking friend sells apples for a medium of exchange or store of value (money) and uses this to get their haircut. The barber then does the same to buy their eggs and the chain goes on. The value of the currency is in some important way not linked to the material value of the currency, but—to put it simply—a psychological value. It is linked to a chain of thoughts we have about the way in which we can trust the world we’re in and the political order backing it up.
This explains at least in part why a signed baseball card is worth much more than an unsigned one. It similarly explains why a series of prints approved by the artist is worth more than those not approved. And ultimately, it can explain why an NFT may hold some value, even if it is bound to that value by a rather ethereal thread. The perceived value is socially created, but that doesn’t make it not real. It is, like Roadrunner not looking down or Peter Pan believing he can fly, real as long as the relevant actors in the situation believe it is. In our case, the relevant actors are just those who exchange and benefit from the sale of NFTs.
This perceived value creation is then at the root of one potential benefit to artists: direct financial compensation for their work. There is also another potential benefit, and that lies in some of the other benefits of blockchain tech. In particular, NFTs may create a nicer and more efficient environment for artists to track royalties. The unique digital signature of an NFT enables one to track additional downstream sales of the NFT and pay a cut to the artist. For example, Beeple recently sold a piece of his art which was sold on to a further party, and he received a 10% cut of the resale. Artists can also pre-sell shares in their rights, so that others receive a certain cut of their cut.
The blockchain’s strength lies in its ability to remain in some sense neutral and transparent, its ledger open, for all to see. If royalties can be tracked well and artists can maintain greater control over them, then this is something that should be applauded.
The Elephant in the Valley
In the early days of the internet, many people foresaw a glowing egalitarian future. All opinions would count, power would be decentralized, and there would be a golden, abundant age of information. For those that have lived through the last decade, some of that has certainly come true. Maps, Uber, Airbnb, Google, and Twitter have transformed what many of us are able to do. We have seen upsides and downsides to this. The incredible development of communication technology globally has changed job markets, how we socialize, date, geographically navigate the world, and—especially in the past year—how we teach and learn. It has also radically altered rents in some places, as residents and entrepreneurs spotted opportunities to rent apartments. Companies have claimed to not be employers while having hundreds of thousands of “freelancers” work for them. It is not for nothing that, for a period, it felt like every business claimed to disrupt the status quo.
We have also seen terrible political division. Tech has enabled a small amount of people to gather enormous power. So when we look at developments like NFTs, we have to ask who will really benefit. More pointedly, if there are market-based problems with the current distribution of wealth, why does Silicon Valley think almost exclusively in market-led, neoliberal responses to those problems?
NFTs are an attempt to create value. It is very true that this may help artists, and to the extent that this is really at the heart of any of the thinking around it, it should be commended. But we should ask whether the only way to do that is to create artificial scarcity. For all the clearly brilliant, creative thinking that comes out of tech, why is there so often a poverty of the imagination when it comes to ideas we might describe broadly as pertaining to political theory? In Silicon Valley’s utopia, you can 3D-print the future you desire – so long as you’d like it market-led, libertarian, and not touching the wealth of those on its event horizon.
I’m reminded of the libertarian philosopher Robert Nozick, who argued for private property rights based on the idea of an initial period of fair and just ownership and subsequent appropriate transference. Of course, there has never been such an “initial” period. Likewise, those working in crypto and NFT spaces currently speak very little about undermining the causes of poverty. With respect to the current issues, this manifests in thinking about how to earn a living as a creative. In response, Silicon Valley’s answer is to engineer and commodify. But who will be at the forefront of this? But for a few outliers, it will be those already in an advantageous position, whether through financial or cultural capital.
To create scarcity where there is none is a banal and absurd reaction to what could be a new golden age of culture. On the whole, any technology that makes it easier for people to spend their time being creative, doing the things they love should be lauded as a good thing. We might react in two ways. We might see the problem as too little commodification of culture. Commodify it more, and artists can make more money. This is the neoliberal, NFT path. On the other hand, we might see the problem as resting on deeper structures in the way opportunities and wealth are distributed. It’s this, not lack of commodification, that causes few people to have as much time as they might like to be creative, and earn a living doing what they love.
It may be the case that NFTs help develop a wholly new way of organizing and distributing value around art. But so far, there is very little to suggest that the paradigm in which the internet has been developed is producing anything other than big winners and big losers. The fundamental skepticism at the heart of the tech community for anything other than libertarian solutions to problems is very troubling. Across the world we are seeing problems that are only exacerbated by technology. From the condensing of power through data ownership to the divisive nature of politics, tech seems to be a driving force. The technology may be predisposed to some of these outcomes, but if true, that itself raises questions. Ultimately these are deep issues of ethics, of how we coexist in an increasingly technological age. In a world of potential abundance, engineering artificial scarcity is both a sign of wealth—and poverty—of imagination.
This is one of two pieces we are running on NFTs. See another take on NFTs here.
Notes on the Contributor
Jack Simpson is a researcher at the University of Leeds, currently writing on the impact of globalization and technological development on political agency. Alongside research Jack works in culture, co-running the arts space/venue Hyde Park Book Club, recording studio Eiger Studios, and culture site The State of The Arts. Jack is a member of the executive council of the Human Development and Capability Association, and advises various cultural projects on their communications and project development.
May 17, 2021 at 9:27 am
—I am sorry to keep talking about it because it is so stupid, but there really is something unprecedented and amazing and almost magical about Elon Musk’s continuing ability and inclination to move the prices of Bitcoin and Dogecoin with his slightest whim. Imagine if you had gone to Warren Buffett 30 years ago — or J.P. Morgan 120 years ago — and told him: Here is a lamp. In the lamp is a genie. When you rub the lamp, the genie will come out and invent two assets. They will trade like stocks in many ways, but unlike stocks they (1) will not be subject to U.S. securities laws, (2) will trade 24 hours a day, seven days a week, and (3) will not represent claims on any businesses or cash flows. One will have a market cap — a total circulating supply — of about a trillion dollars; the other will be smaller but still like $65 billion. They will be liquid enough, with lots of people trading many billions of dollars’ worth per day; you can buy or sell lots of them without too much price impact. And: Any time you want the price of either one to go up or down by 10% or more, you can just whisper “price go up” or “price go down” into the lamp, and it will happen instantly. You are the only person who can do this, and you can do it as often as you want.—
You refer to “creatives”; that’s the language if wall street and silicon valley.
A military aesthetic is the manifestation of a military ethic; a file clerks’s aesthetic is the manifestation of a file clerk’s ethic. Librarians are bureaucrats of books. Philosophers are pedants. Pedantry is an ethic and an aesthetic. This is all so obvious and so boring.
June 7, 2021 at 9:36 am
I think this is a fascinating take with regard to the “value” of NFT’s and I can see that the author wants to argue that value is what we make of it through social conventions based on trust. I agree that NFTs are overvalued commodities. But I have some questions with regard to why this as problematic as this article makes it out to be.
(1) We already live under a capitalist system that commodifies everything. This was bound to happen with digital art at some point. Does this overvaluing of NFTs make them discount as works of art?
(2) the world of high art has *always* had overvalued works of art that were enshrined in museums or art galleries. Why are we so outraged about this phenomena moving to the digital world?
The first creators of NFTs, Kevin McCoy and Anil Dash claimed that they did not intend for NFTs to gain the value that they have and they wanted to create a way for artists to profit from their digital art. (https://www.theatlantic.com/ideas/archive/2021/04/nfts-werent-supposed-end-like/618488/). I am not sure why that possibility is lost. Besides Beeple, there seems to be growing NFT space online with varying prices for works of art.
My take on this is that the problem of overvaluation is not new to the artworld. What is worth noting about NFTs are that they are providing a platform that is accessible to everyone to participate in. Especially for artists that could have possibly been denied access to art galleries before this.
Wonder if anyone has any thoughts on this.
Department of Philosophy
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