Want to understand NFTs? Consider the Beanie Baby.
Last year, the world spent $18.5 billion on them.
The most expensive one sold to date netted $69 million.
Familiar brands like Coca-Cola and McDonalds have entered the market.
Meanwhile, the majority of the world is left scratching our collective head about what they are exactly.
Their name is usually just a three-letter acronym: NFT. Its longer label provides little additional clarity: non-fungible token.
So what is an NFT, exactly? We’ll do our best to explain.
An NFT is more of a classification than a category. It can be almost anything. An image of bored ape, a once-viral video, or even a tweet. What makes an NFT an NFT is a record of its ownership on the blockchain – that same universally accepted ledger that gives cryptocurrency its (alleged) muscle.
And yet, despite the confusion about what they are, certain sectors of society have deemed them valuable.
But why?
To understand the perceived value of NFTs, we must first understand the concept of value in the first place.
In 2019, a dime sold at auction for $1.32 million. Put another way, a buyer was willing to part with 13.2 million other dimes in exchange for this one. Why? The 132-year-old coin was one of just 24 ever made. Its rarity gave it great value to the buyer.
Dictionary.com defines “value” as “relative worth, merit, or importance.” Relative. It’s a funny word to use to describe something we perceive as being so absolute.
And yet relative is exactly what value is. It’s the amount of one thing we’re willing to exchange for another thing at any given time. And it changes. Quickly.
Television viewers gasp at the proclamation that an antique is “valued” at $500,000.
Airtime is devoted to dramatic unveilings of a season’s “most valuable player.”
Books are published with alleged “values” of collectibles, down to the penny.
And yet, value is ultimately determined by us--people. Fickle people. People who may occasionally pay $120 for a white t-shirt. People who spend thousands on Beanie Babies with the hopes of making a fortune, only to toss them to the garage sale heap and watch them go unsold at a quarter-a-piece. People who see last year’s fashion as all but worthless.
What we determine to be of the utmost value has always changed over time. And yet the speed of change is increasing like never before.
Less than three centuries ago, a newly discovered metal was determined to be more valuable than silver or gold. Its name? Aluminum. When Napoleon threw a party in the 1800’s, his most honored guests ate with aluminum utensils while the commoners settled for gold.
In 1637, sky-high value was placed on an object that all knew would ultimately wilt. Tulip bulbs were selling for ten times the average worker’s annual wage.
And in the 1990’s, Beanie Babies were bought and sold with near certainty their holding onto them would ensure a healthy retirement.
The lesson here? No one knows for sure what will hold its value in the future. One way to lessen the blow of whatever comes in the future? Make sure you actually value whatever you’re investing in, rather than doing it for the approval of others.
When in doubt, remember: a penny saved is a penny earned.
