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The current state of NFTs is incompatible with a potential metaverse

In the early 1600s, the Dutch were obsessed with tulips. The bulbs circulated at higher and higher prices, the first speculative bubble of its kind as people inflated their perceived value. The tulips were sold for thousands of guilders, passed from sailors to the misled elite, and the owners displayed their purchases with pride. But eventually, in the 1630s, the market collapsed once people saw that its inflated value deviated from its intrinsic qualities.

In other words, they realised it’s just a bloody tulip. 

I’ve been thinking about NFTs for some time, having some doubts about their actual usefulness – but it was this thread by Stephen Diehl that crystallised my reasoning.

  • By paying an extortionate amount of money, people are paying to be a unique entry in a database, with a JPEG to prove its connection. 
  • Then, the value of the connection is inflated via speculation and hype, fuelling the increased value.
  • From inside communities, it becomes a status icon to own an NFT, a golden ticket into closed spaces where owners can feel good inside an expensive clique. But to the outside, it looks like people madly hyping up internet images that people can copy-paste to their desktop. 

Fundamentally, the JPEG is worth very little. But the bloat of hype around it inflates its perceived worth to ludicrous degrees, which is then used to auction off to people reeled into the NFT hype. But strip the social presence away, and you see AI-generated images which look pretty, but should not be worth thousands of dollars. It feels like calling out an emperor with no clothes, as it’s simply an image with no additional value. 

Okay, how does this tie into the metaverse? Well for me, I do see NFTs having value in shared social spaces. Permanent ownership of a virtual space is valuable if it is defined by a centralised system that minimises fraud. If there is no limited land that can act as an asset, then the virtual plots could be sold as NFTs to convey some sense of value. When reality is stripped away, then NFTs help to give land some value in a virtual world. 

This has promise, and when the metaverse evolves, we may see decentralised chains which can work to regulate ownership, without also destroying the planet via gas fees. But the current system is broken, fuelled by speculative greed where people are blind within their own bubbles. It’s nothing new that perceived value is more important than actual value; high-brow marketing thrives to inflate the value of products based on the perception of exclusivity. But while handbags and jewelry relate to the real world, so should NFTs relate more directly to a virtual one to give some meaning to their financial worth.