Why the NFT Boom Takes Me Back to Fifth Grade in Moscow

(Bloomberg Opinion) -- There’s a lot about the multibillion-dollar Non-Fungible Token phenomenon that reminds me of Secondary Comprehensive School 538, a draughty, gloomy brutalist five-story building on the southern edge of Moscow where I suffered through class and recess alike in the early 1980s.  

For a Soviet school, a lot of capitalist commerce was going on. We’d trade comic-strip chewing gum wrappers (a rare commodity, since the gum wasn’t sold in stores) for cowboy figurines brought back by a classmate’s parents from a trip to East Germany or for coins from Algeria, where Soviet engineers were building a dam, and South Yemen, which was also getting some kind of COMECON assistance. Since the items could be described as non-fungible — their value was different to different kids, depending on what I later came to know as utility curves — there were a lot of win-win deals. 

At one point, a new craze swept the fifth grades of School 538: dollars. Not real greenbacks of course but those printed using plates made from giant, rock-hard erasers with the help of a razor blade. Since there was no central bank, everybody could print their own, in the most vivid colors, with images of cowboys (yes, they were really popular at School 538), tigers, eagles and whatever else a fifth-grader thought should be printed on bills (no Lenin profiles — sorry, teacher!). New batches were distributed in the stairwell: The issuer tossed handful of bills up in the air, and classmates scrambled to catch as many as they could. Not everybody’s dollars were popular: Adoption depended on the issuer’s personal popularity and on the printing quality. Bright red dollars crudely crafted by the class’s number one bully were all the rage until a rival went him one better and printed his dollars on semi-transparent, rustling tracing paper.

Since we didn’t have much to buy or sell with the currency, we spent every recess gambling for it (rock paper scissors was the game of choice). Some got fabulously rich, others quickly went broke and started spending their lunch money to buy dollars. Parents got worried. The principal interfered. But that interference wasn’t what killed the dollar madness. It had been too intense, and we were already getting tired of it. We didn’t know what to do with it next. Reality settled back in.

What does all of this have to do with NFT? Well, let’s see.

The objects changing hands in the NFT market appear to have the most value (or perhaps any value at all) to folks in a specific community: crypto/blockchain enthusiasts. It’s not just that most of that community’s outsiders attach considerably less value to the work of artist Beeple than to that of Picasso; that’s a matter of taste, and tastes differ regardless of whether one is long cryptocurrencies. It’s also that owning a Picasso painting is a more or less universal status symbol, while the ownership of an NFT only appears to be meaningful to a person’s status within the blockchain community. Most outsiders would require an explanation, and many would get bored and drift away before they figured it all out — just as, in my School 538 days, I would have quickly lost my mom’s attention if I tried to explain why I valued a particular Bazooka Joe gum wrapper over another one almost exactly like it.

There’s nothing wrong with niche phenomena, of course, but true greatness requires the whole world as its niche. The stuffiest philistine respects both Picasso and the owner of his art. NFT? TL;DR.

The most curious listeners would keep asking questions, however. And I suspect they would end up incredulous after finding out that the NFT representing the collage of Beeple’s digital graphics that sold for $69.3 million at Christie’s earlier this month references — if one gets past some technical detail — a link to an NFT-minting company’s website. What if the company goes belly up and someone else buys the domain? Will the tenuous hold of the current “owners” on the infinitely reproducible work persist?

There are other questions, often of a conceptual nature. Until a lively secondary market develops for NFTs — including the million-dollar ones: after all, expensive paintings do change hands all the time — it’s hard to say whether even crypto players will want to buy an NFT from someone other than the creator of the original art. As Sean Hollister of The Verge recently wrote, commenting on a game developer’s ill-advised attempt to sell NFTs representing other people’s digital art he’d once commissioned for games, “Since an NFT is effectively a digital autograph, I’d much rather own one from the original artist.”

To an outsider, a lot about the NFT and its uses can look as ephemeral and naively homespun as those dollars printed with a carved eraser on tracing paper. There was something of a secondary market for those — but one could always print more. Social capital and technology only went so far in ensuring lasting value.

The current hype doesn’t necessarily make the NFT concept a long-term winner. The dollar craze at School 538 petered out because too much about our impromptu currency market wasn’t well thought-out, and its limitations made us seek other ways to have fun. 

The other part of the NFT phenomenon that brings back my fifth grade memories is, of course, the small amount of fiat money changing hands in that market. The buyers of the $69.3 million Beeple — crypto enthusiasts, of course, who keep their real names secret and call themselves MetaKovan and Twobadour — didn’t exactly pay $69.3 million. They paid in ether, as Twobadour revealed in an interview with Artnet. Over the last couple of years, the market value of the cryptocurrency they shelled out for that link has fluctuated between $3.1 million and $73.4 million. Ether’s 30-day volatility is three times that of the Turkish lira, the world’s most volatile currency (barring perhaps some exotics).

As I recall from my school years, it was easier to trade away something received as a gift than something for which I’d already had to trade a gum wrapper or a coin. It was also fun to gamble away “dollars” picked up in that stairwell. The windfall nature of crypto wealth and the community’s buccaneering spirit make for extravagant gestures. And of course it’s all coin well spent if it helps to advertise the blockchain technology and to bring glory to the community. The issuers of our fifth-grade “dollars” tossed the “cash” in the air with similar promotional purposes, hoping their currency would end up more popular than others.

And yet: Far be it from me to badmouth NFT, its promoters and beneficiaries. Back at School 538, even at age 11, we felt like such misfits in the ossified, state-dominated system that surrounded us that we rebelled by playing at capitalism. The crypto community, as much as the retail investors who staged the GameStop rebellion earlier this year, are out to disrupt any number of rigid hierarchies, be it the hedge fund elite with its shiny tools of market dominance or the art world in which value is more of a social concept than an aesthetic one. Money that’s not made by any antiquated rules, art that’s not endorsed by critics and gallery owners — for all their respective imperfections, they were exciting stuff. To be honest, I don’t remember anything I learned at School 538 — but I remember the week of the “dollars” in all its embarrassing, glorious detail; it probably shaped me in ways I don’t quite understand. In the same way, crypto and now NFT are shaping a future different from the present.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is a member of the Bloomberg News Automation team based in Berlin. He was previously Bloomberg Opinion's Europe columnist. He recently authored a Russian translation of George Orwell's "1984."

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