One of 10,000 unique CryptoPunks. Image courtesy of the owner

According to Oscar Wilde, a cynic is someone who knows the price of everything and the value of nothing, while a sentimentalist is someone who sees an absurd value in everything and doesn’t know the market price of any single thing. The sudden surge of cultural interest in non-fungible tokens (NFTs) has already sparked a battle between cynics and sentimentalists in the creative economy, and it’s playing out on the blockchain.

Image: NBA Top Shot

For the uninitiated, an NFT can be difficult to explain and appreciate. Non-fungible tokens are a type of crypto asset; they are not currency. While cryptocurrencies, like Bitcoin and Ether, are exchangeable or “fungible,” one NFT is not mutually interchangeable with another because each token is a unique digital asset. An NFT represents a particular (i.e. non-fungible) work, which could take the form of almost anything, like a work of art or a basketball clip. These tokens are held on various public blockchains, which provides proof of ownership and security for the holder of the digital asset.

The NFT ecosystem is still in its infancy. And yet, in a mere seven-day period, from February 18–25, Top Shot, the NBA’s platform to buy and trade NFT basketball highlight clips, generated sales of over $143 million. On Top Shot, each numbered NFT is known as a “moment” and takes the form of various player highlights. You either own that moment by holding the NFT, or you do not. There is no in between.

Top Shot went online in October 2020 and has become the most lucrative crypto collectible in the NFT marketplace. The NBA is not some esoteric universe of crypto nerds. It is decidedly mainstream and is now a proven new revenue stream for the league and its players while fans remain away during a global pandemic.

Another popular set of NFTs are the CryptoPunks. The CryptoPunks are an exclusive set of 10,000 pixelated characters (i.e. alien, zombie, male, female) with a variety of “attributes” and levels of rarity, like 3D glasses, beards, and messy hair. CryptoPunks were the first pieces of digital art run on the Ethereum network, and the interest in owning these Punks has exploded in recent weeks. In the past 30 days alone, CryptoPunks have generated sales of over $81 million, and a single ape character sold recently for 800ETH, a value in excess of $1.5 million.

The key component to the success of NFTs, whether it’s a CyberPunk or a Top Shot moment, is the value intrinsic to its authenticity and scarcity, all secured by blockchain technology.

So is the surge of interest in NFTs the dawning of a new era in digital art, or is it the sign of another bubble that could end like the Dutch Tulip Mania? Let’s look at it through the lenses of the cynic and the sentimentalist.

The sentimentalist

What is something worth? To the sentimentalist, the question here is not the price of the good but its value. Predicting the value of current and future NFTs is much more of an art than a science.

Like gold, or even Bitcoin, collectibles should be perceived as a store of value — it is a good that has been valued and purchased by those who believe the good will increase in value. As Mark Cuban wrote on his weblog recently:

To so many the idea that a CryptoAsset could be a store of value is crazy. To them, there is no there, there. There is no intrinsic value. To them it is a digital representation of nothing, that crazy people are paying good money for. That is not the case.

This is the idea that tangibility, being able to touch, see, and hang a painting in your office or in the Louvre, is a prerequisite to the intrinsic and commercial value of a work. Cuban sees this as an “old school” mentality.

What seems missing from the debate over the legitimacy of value in an “invisible” good is the fact that incorporeal rights have been part of the intellectual property landscape well before NFTs, Napster, and the internet itself. From a technical standpoint, incorporeal rights give the owner a set of legally enforceable claims over the ownership of their intangible property. The most timely and commercially prudent example is the songwriter and/or music publisher who holds copyright in his or her work and can sell their catalogue for vast sums of money (See: Neil Young and Bob Dylan), and with it, the right to exploit those works.

The notion of an incorporeal right is important to NFTs because it slams the door on the argument of illegitimacy intrinsic to intangible works. It also answers the basic question of why someone would pay hundreds of thousands of dollars to own a five-second clip of Lebron James dunking a basketball — the same play I can find on YouTube and ESPN at this very moment. The NFT confers authenticity, scarcity, and originality to one instance of that clip — all providing a form of immediate cultural credibility.

The cynic

So, is a pixelated ape worth over $1 million? The cynic’s answer, of course, is that it’s worth whatever the market will pay for it. The NFT markets for Top Shot and CryptoPunks have two very important and analogous factors creating value in their particular assets: A great narrative maintained by an enthusiastic community and scarcity.

The NBA has a built-in community of both basketball fans and astute cultural consumers. The NBA has also created a forum for its players to engage with its fans on a level unmatched by other professional leagues. The CryptoPunks’ popularity is maintained by a similarly ravenous online community. The enthusiasm for CryptoPunks is fueled by two narratives: They were the first form of digital art to exist on the Ethereum blockchain, and anyone could have claimed a Punk for free when its NFT initially launched. The CryptoPunks have the OG stamp of approval from all NFT consumers that probably won’t sour anytime soon.

Scarcity also maintains the value of CryptoPunks — only 10,000 were originally created, which creates a self-perpetuating seller’s market. For Top Shot, there are three tiers of packs you can buy: Common ($9), Rare ($22), and Legendary ($230). The number of packs available are limited with strict production maximums for the Rare and Legendary packs. If you thought it was hard to buy a PS5 at launch, just try snagging a Top Shot pack when they drop.

NFTs are having a moment, and there will undoubtedly be a flood of new NFT content coming very soon. But for every unicorn NFT, a thousand more are doomed to fail. However, this should not be the focus of cultural consumers. Here, the medium really is the message. The information or content contained on an NFT is less important than its rapid adoption as a form of mercantile matter.

In a cultural ecosystem where authenticity is scarce and intermediaries are everywhere, NFTs fulfill the desire for consumers to maintain verifiable ownership in something rather than a reproduction of anything. Fans of NFTs want to own digital works and demonstrate unique ownership as a new kind of status symbol. On February 25, the digital artist known as Beeple (Mike Winkelmann) had one of his works sell for $6.6 million on the secondary market; the most expensive NFT ever created. That same day, Christie’s began the auction for another Beeple digital piece known as Everydays: The First 5000 Days.

If the NBA isn’t mainstream enough for the art world, perhaps they’ll pay more attention when a pixelated ape goes up for auction next.