NFTs are not property rights just like Bitcoin is not money.
Property rights are usually described as a bundle of rights, but this is true of nearly every concept which can be described as having a bundle of qualities. But some qualities are more essential to defining a concept than others. For example, money is usually defined as having at least three properties: (1. Unit of account; 2. Medium of exchange; 3. Store of value) as well as many others such as being fungible, easy to transport, hard to counterfeit, and easily divisible. But some properties are more essential than others. For example, most stores of value that are easy to transport, and hard to counterfeit are not money. On the other hand, everything that is used as a unit of account IS called money. So being a unit of account is the most essential function of money followed by usefulness as a medium of exchange. Bitcoin is not money because it is never used as a unit of account and it is rarely used as a medium of exchange except for illegal transactions which are safer when completed using the bitcoin payment system rather than using the banking system.
Blockchain enthusiasts claim bitcoin is a better form of money, but it is not even money at all. It is a fungible collectable that is useful for two things: speculation and facilitating illegal exchanges. Some argue that it is also a good hedge against social collapse which could be true someday but in many scenarios where the monetary system collapses, the internet is also likely to collapse, so bitcoin isn’t the best hedge against societal collapse as demonstrated by the fact that in societies where there is no functioning monetary system the dollar or other foreign cash and commodities like gold are more popular than bitcoin. Bitcoin is simply less convenient as a medium of exchange for most legal transactions and it is impossible to use bitcoin whenever any party to an exchange lacks an internet connection.
NFTs give no property rights over anything.
In addition to claiming to have revolutionized money, blockchain enthusiasts also now claim to have reinvented property rights using “non-fungible tokens” or NFTs. Again this is wrong because NFTs have almost nothing to do with actual property rights. It is a total sham. Property rights can entail a complex bundle of rights, but the one essential feature of every property right has is the power to exclude other people from doing something. A property right is essentially a right to restrict the freedom of everyone else and because an NFT doesn’t give anyone any power to exclude others from anything (except an encrypted number that has no intrinsic value), it is nothing new. It is just an property right to an encrypted number. That’s it. There is nothing revolutionary there.
The advent of NFTs is a logical conclusion of cryptocurrency evolution because every cryptocurrency mostly has value from being a kind of collectible. Collectibles get their value from speculation and from an underlying value of ownership. The wild swings in the prices of collectibles is due to the crowd psychology of everyone speculating about what other people will pay for them. Plus, there must be some underlying use. There must be a scarce (very inelastic) supply or else there is no point speculating because a rise in price will simply cause more supply which will limit the price rise.
Most collectibles are aesthetically pleasing for a large population, and some collectables have practical uses too. For example, gold is both an aesthetically beautiful metal and it has industrial uses. Bitcoin gets it value as a collectible from the fact that many libertarians have political values that appreciate the aesthetic dream of replacing government-run monetary systems. Bitcoin also has a use value because it is the best way to facilitate many illegal transactions. Bitcoin thus gets underlying value from both its aesthetic value and its practical use value.
NFTs clearly have the same kind of aesthetic value as cryptocurrency, but unlike cryptocurrency which are useful for facilitating illegal transactions, NFTs currently have zero practical use value because they do not confer any more rights than any unit of cryptocurrency confers. Both NFTs and cryptocurrency only give the property right to exclude others from an encrypted number. The sellers of NFTs CLAIM that an NFT gives the property right to something—usually something aesthetically pleasing like a digital artwork–but because an NFT does not give anyone any exclusive power over anything but the token, this is a false claim. It is certainly possible to own an NFT, but that is just a number which gives zero property rights over anything else.
The idea that an NFT gives power over whatever is named on the token is a bit like the idea some tribal peoples have about cameras. They think that when a photographer takes their picture, the photograph takes part of their soul and achieves some ownership over part of their being. But owning a photograph doesn’t really give any power over whoever is pictured any more than owning an NFT gives power over anything named in it unless we all believe that it does. But it is the shared belief in property rights that gives them power and there is no more reason to believe in the power of an NFT than to believe in the power of a photo.
Six ways to justify property rights.
There are various ways to justify property rights and Michael Heller and James Salzman argue that they all fit into six fundamental stories that are traditionally used. The use of an NFT doesn’t fit into any of these stories:
- attachment, “My home is my castle, and anything attached to it is also mine.”
- first-in-time, “I was first.”
- possession: Nine-tenths of the law. Mine because I’m holding onto it.
- a labor claim.: “It’s ours because we worked for it.”
- self-ownership, “It’s mine because it comes from my body.”
- family – “it’s mine because I’m in the family”
Ultimately, most property rights in capitalism are created by government and IF governments start using NFTs to keep track of property rights much like they use legal deeds today, then NFT’s may someday actually confer the right to exclude people from something much like a copyright gives owners the right to restrict everyone else’s freedom of speech. But until governments give NFTs some legal weight, the whole concept is just a sham and the people who have paid over $1.5 billion for NFTs in the first three months of 2021, mostly for “ownership” of artwork are a bunch of suckers. That money gives them zero rights except the right to brag about buying an encrypted number for a ridiculous price. Anyone can enjoy the digital artworks that the NFT buyers think they bought just as much as the suckers who really did buy the NFTs.
An NFT is a receipt for patronage, not ownership
NFT enthusiasts like Chris Berg are confusing ownership and patronage. These are two completely different things.
[NFTs] offer ownership – cryptographic, certain, secure ownership – but none of the exclusive rights we usually associate with ownership. You can freely stare at my two miserable CryptoKitties [that I ‘bought’ NFTs of] as easily as I can explore Beeple’s $69 million “EVERYDAYS.”…
To buy an NFT of a piece of art is to own something without having the means of excluding others from enjoying it… The pleasure a buyer gets from owning something is the experience of ownership itself… [It is] ownership-as-consumption.
This is wrong. The pleasure an NFT “buyer” gets is the pleasure of donating money to the “seller”. It is patronage-as-consumption, not ownership-as-consumption because ownership confers rights over something and NFTs don’t confer rights over anything except the token itself.
So until governments start giving legal power to NFTs, lets call them what they really are. An NFT is a unique receipt for a donation. It is just a mechanism for giving money to someone and getting an uncounterfeitable proof of that donation. Those receipts may be worth money because they might get collected by others, but they are just receipts for donations and their value has very little to do with the amount of the original donation and nothing to do with ownership of anything other than the receipt itself.
The future of NFTs is brighter than the future of cryptocurrency
Whereas crypto currencies are not money because they suck as a unit of account and as a medium of exchange, NFTs could be useful for keeping track of ownership if a government recognizes their legal legitimacy. NFTs might be a better than a paper stock certificate for trading shares of stock and better than a paper deed for keeping track of ownership and other contractual debts like bonds. (These are sometimes called “security tokens“.) This seems reasonable in theory, but time will tell if there is really any advantage over traditional receipts for ownership and government will have to decide what kind of receipts have legal authority over any real property for NFTs to confer any real ownership.