Collectibles are not really NFTs: Why we need to stop misusing the term
Foreword: I was really happy to see Part 1 of this NFT series receive some attention on Reddit and Twitter! I think this can continue as a weekly series as long as I keep getting original ideas to test out in these essays. In the meantime, any questions or suggestions surrounding the topic are more than welcome :)
It’s funny to think of how often the concept of NFTs gets misused by the same people sporting it. I say this because, amid a heavy media hype, artists themselves and the platforms used to issue NFTs do not seem to agree with what an NFT is supposed to be, in principle.
The line is blurry, but it’s still there
The concept of a non-fungible token should be pretty self-explanatory, but I think that the fact that most of us do not use the word fungibility in our daily lives creates a gap in meaning. Therefore, we might ascribe the name “NFT” to any scarce digital asset, which is plainly wrong.
Something fungible, the typical example goes, can be showcased through the fungibility of your wallet’s euros, Argentinian pesos, or Zimbabwean dollars: Each single $1 unit is worth the same as all others, and they’re all interchangeable.
Now, suppose that I take a drawing of mine and decide to NFT it (that is, to make ONE non-fungible token out of it). By definition, and regardless of whether the platform I use allows me to mint more than one token out of it, there could only be one copy of my drawing that is, effectively, unique, non-fungible. What happens, however, is that these sites (whether they’re OpenSea or the superior Hic Et Nunc) often feature the option to create one or more copies of tokens representing the drawing. And, if I choose to issue 68 copies, this means that every single token is fungible, since they could easily take the place of one of the other 67.
By using the multi-copy option, the same one used by NBA Top Shots or most other collectible collections, I’m not issuing NFTs: I’m creating a limited distribution of very much fungible tokens.
Annoying semantics, or something of substance?
I’m as much of a fan of wasting time with semantics as anyone here, so I promise you that this is leading somewhere, and I’m not just getting fixated on an adjective.
There are easy counter-arguments that you could utter against my case. But, by the time we finish this article, I hope to have convinced you that we should stop calling limited-edition fungible tokens “NFTs”. Therefore, let’s address these objections quickly before moving forwards:
Argument #1: But sir! You could check the blockchain explorer to see the exact address of your token! They ARE unique.
In theory, yes. However, what’s the difference between doing that and checking the unique serial code in a $1 bill to differentiate it from others? That could lead us towards a never-ending stream of “but what if”s benefiting nobody, and to a discussion of which numbers or small differentiating factors are of substance to anyone.
A simple way to assess whether there is a relevance to something like this is by letting the market price the assets, which would more likely than not result in token 0xyz1 being of equal value as token 0xyz2 by virtue of them representing the same thing. This actually happens and proves the fungibility of this type of token.
Another good example of this is the comic book market: You can see how first editions of a given comic book are all priced in a certain tier, the rest belonging to another one. And how, in the rare cases there is a misprint or issue, the affected units tend to be worth more given their uniqueness.
Argument #2: Oh, but what if one of the copies represents something else? Like, it tells a different story?
Now, to continue using the $1 bill example, what happens if your particular bill was signed and handed to you by Cristiano Ronaldo in his underwear while tossing away a bottle of Coca-Cola, making the stock price drop dramatically?
In that case, both you and the markets will likely regard that particular $1 note as a token of higher value than the piles of regular bills sitting in any old bank. Is it now non-fungible?
Well, my argument would be that the signature itself (and the act of placing it in this particular bill) causes it to become non-fungible. However, if Cris did everything above but sign it, you probably could still sell the bill for significantly higher than $1. That, I would argue, makes the story non-fungible, not the bill. Your $1 note will eventually, either because of time passing and people forgetting/not caring about the story or by depreciation, end up being worth as much as a regular note without the story.
To humiliate his old boss, Breaking Bad’s Walter White spends his framed $1 bill in a vending machine. Sorry about your NFT, Bogdan! Someone else certainly sees it as fungible.
Now, this is also the case with “non-tainted” Bitcoins, which are freshly (and likely greenly) mined, and owners buy them at a premium since they know they’ve never been in the black markets. Is the Bitcoin itself more or less valuable? Or is it the fear/story surrounding it what gives it additional value?
The exception that proves the rule here is when a variant of a given copy has an intrinsic property that makes it non-fungible. You could say that, in a Michael Jordan collectible series, copy #23 (his legendary number) would likely be regarded by users as unique or more valuable. This however, doesn’t prove every copy is an NFT, it just does so for that particular one.
Argument #3: This definition is unnecessarily limiting to the NFT space and can actually hurt artists since there’d be less hype around their creations if they’re limited to unique pieces
This might be the objection that makes the most sense. At the end of the day, who cares whether something is genuinely non-fungible or not, as long as it’s scarce? Still better than old dirty fiat money or digital art with no rights, right?
Well, not really. The reason we should start using the term LEFT (Limited-Edition Fungible Token) as opposed to NFT to regard collectibles has a lot to do with how the industry might move forward. Having people issuing fungible things based on the false promise of non-fungibility is problematic at best and could constitute fraud at worst. And, if NFTs are to realize their true potential, there needs to be a distinction that creates the framework for both kinds of tokens and their use cases to be regulated separately.
… and this leads to the point I was hoping to make, which is:
A distinct framework for LEFTs and NFTs should be coming any day now
Not the most fun conclusion, but something I really think those in the NFT space should start taking into account: It might just be a matter of time for the difference between LEFTs and NFTs to be just as important as that between a utility and a security token.
And, just as it happened with the cases of conducting token sales under wrong or naive pretensions, my intuition is that some centralized NFT platforms will inevitably get burnt when the lines are drawn.
In my next piece, I’ll explore how the regulation of something like this might look like. So, stay tuned!
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