What Makes an NFT Valuable?

When exploring NFTs, it’s natural to look at Bored Ape Yacht Club (BAYC), with its explosive success and over 110 ETH floor price, and ask, what’s the next BAYC?

To which there’s an easy reply: There is no next BAYC.

BAYC is BAYC.

But, if we look beyond just the JPEGs and recognize that BAYC’s value is coming through the creation of some kind of web3 social network, then we can ask a more useful question: what other significant web3 social networks might emerge?

This question hints at the reasons why people are buying NFTs, as among observers who aren’t yet involved, there can be confusion about what it is that traders and collectors are actually paying for.

Trading JPEGs?

At the most basic level, an NFT is simply a token that (in most cases) links to a file. Are people trading JPEGs? Yes, in a sense, although you could make it all sound even more bizarre by pointing out that they’re actually trading links to JPEGs.

Still, this isn’t too much of a stretch to make sense of. There are some hugely talented artists selling their work through NFTs, and the token you buy gives definitive proof of ownership of a digital asset. In the traditional art dealing world, provenance is critical, and NFTs actually provide a more secure form of provenance.

Viewed in this way, if someone still chooses to dismiss NFTs, then that seems like a personal choice. There are people who will never accept the technology, and that’s their decision or inclination, and is something that happens in any area of change.

However, it’s certainly valid to ask why buyers are paying these amounts (meaning ETH equivalents of many thousands, or even millions, of dollars), for these particular JPEGs (meaning some of the collections which don’t fit the usual criteria of high quality or valuable art).

Expensive Stickmen

An example would be the MFers collection. Take a look at it and what do you see? It’s a 10,000 piece collection of stick figures, all in identical positions, roughly colored in with bright colors. Each asset is distinguished by its colors and accessories (headphones, sunglasses, watches, and so on), and every picture could have been drawn by, basically, anyone who can do stick figures.

And yet, currently, you can’t acquire one for less than 3.29 ETH (around $10,000), and many have sold for much higher sums.

To be clear, the “anyone could make that” criticism is nothing new, and you’ll hear it thrown at modern art all the time. The usual response in defense is something along the lines of, “yes, but anyone didn’t make it, this person did.”

With NFTs though, there are factors at play that aren’t present in traditional art, meaning it is worth addressing such criticism.

Digital keys

On the one hand, NFTs involve simple speculation, profit motives, and a curiously distorted Veblen effect. Veblen goods are high quality, luxury items for which demand increases as the price increases. The more expensive they are, the more desirable they become.

The strange aspect of this phenomenon when applied to some, but certainly not all, NFT collections is that the goods in question stretch the definition of what constitutes a high-quality luxury item, and neither do they appear to be attempting any kind of artistic, conceptual messaging.

And, this is where we come to a distinctive factor that has been overlooked by critics of NFTs. The token part of non-fungible token is crucial. Literally, this is a technical meaning: it’s a token on a blockchain