NFTs means the future value of art is zero


At the moment, it is not possible to sell a 2nd hand eBook or MP3. This seems fairly reasonable because a re-seller might keep copies of their original files after selling them. This would allow the re-seller to undercut the original publisher and sell the file multiple times.

We tend to label this "Piracy". Someone buys a DVD, rips it, then either sells or gives away copies.

The Blockchain book that I'm reading suggests NFTs as a way to combat this (stop giggling at the back). Let's say that we replaced every MP3 player with an NFT player. You load your file onto your NFTman, sign in with your wallet, and it checks whether you have the rights to play that piece of music.

Later, you decide to re-sell the digital album. Your NFTman refuses to play the files because the BlockChain says you're no longer the owner.

Hurrah! We've created a second-hand market for digital goods!

But, here's the thing… you can only listen to one album at a time. That huge collection of music you have is mostly sitting idle. So why not turn your library into a tradeable asset?

With a CD or vinyl collection, this is impractical. It is physically and logistically difficult to sell things. And if you decide that you want to listen to an album you sold, you have to go through the effort of buying it again.

Digital makes this easy. The digital world is about reducing and removing the friction of the analogue world.

I can buy an NFT album, listen to it, and then immediately sell my copy. The minute I want to listen to it again, I find someone else to buy it from.

People will want to recoup some of the money they spent, and they will probably charge less than a "new" copy. Otherwise, there's no incentive to buy 2nd-hand.

What if, with a click of a button, my music player could find the cheapest seller of The Best of The Beatles, buy it, play it, and then re-sell it afterwards?

The same goes for my Kindle. An NFT eBook reader can go online buy a book and then sell it the second I finish it.

At the moment, I buy a hardback book for £15 and then sell it for £5. So it costs me a tenner over all.

In the future, I could buy an eBook for £15 and then sell it for £14.99.

Given enough competition, this means the price should drop to zero.

Digital copies don't degrade. A second hand MP3 sounds as good as a brand new one. If you want someone to buy your NFT/DRM music, you'll have to charge less than the original seller if you want to recoup any money. You will also have to charge less than all the other resellers. Sure, maybe there's a natural price floor. But it only takes one person to decide that they want to sell their copy for free - and the floor becomes zero.

Think about it this way - you don't charge your friends when they borrow a CD, do you? When you donate a CD to a charity shop, you don't take any payment. Why should it be any different with digital files?

What happens to art when NFTs drive the price down to zero? That what I'll cover in tomorrow's blog post.


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One thought on “NFTs means the future value of art is zero”

  1. says:

    I think the overlooked part here are transaction fees. Fees that seem reasonable on a $15 purchase can become significant on a $0.01 purchase. Also, transaction fees are a loss realized when selling and due to loss aversion, people may (unreasonably) refuse to sell.

    And finally, if you purchase a song for $0.31 (gross) and expect to sell it for $0.01 (net), the economics of this model look much less promising when compared to buying mp3's (breakeven at ~4 "listens") or paying monthly for a streaming service (breakeven at ~45 "listens"/month).

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