Bill Gates says NFTs '100% based on greater fool theory' amid crypto cataclysm
Plus: Non-fungible tokens for dummies
Comment Microsoft co-founder Bill Gates has declared that "expensive digital images of monkeys are going to improve the world immensely."
He was joking, obviously, though considering Gates's supposed connection to microchips in vaccines, one can never be too careful. What he's talking about are non-fungible tokens (NFTs), which came up at a TechCrunch event in Berkeley, California, on Tuesday. Specifically the Bored Ape Yacht Club variety.
You know those kids' books where the picture is divided into three (head, body, legs) so you can turn different sets of pages to get a different image? That's what the Bored Ape Yacht Club is for those willingly parted from large amounts of money for the right to stand next to a picture of a cartoon chimp.
Non-fungible tokens for dummies
Want to buy nothing? You'd probably say no. That's because people don't like nothing, they like scarcity and status. In the digital world, scarcity doesn't work because data can be infinitely replicated.
But what if I faked digital scarcity? A database with limited spaces, each identified by a unique number. Think a line of people queuing for nothing. There's no value inherent in one spot over another, but I sell you a position in the queue. I'm not selling you the queue, or its destination (there isn't one), just the right to stand in this particular position.
You give me a dollar, and I give you some paper work, signed by yours truly, that says you have the right to stand there. Your position in the queue combined with my paper is a token that can't be recreated. There is only one of each position. It is, therefore, "non-fungible." The blockchain checks every single sale of a queue position and once you've bought your spot, it's listed on the blockchain. Want to sell your position to someone else? You can, and that transaction will be listed on the blockchain too.
Why would anyone want a spot in my queue? Well, what if I put up a poster next to your position? Every spot now has a unique poster, and buying a place in the queue means you can now stand next to that poster. You don't own the poster, you don't own the image on the poster, you can't reproduce the image, or sell copies, or claim any other type of ownership. What you've bought is the right to stand next to that poster – that's it. You can show your friends the receipt that says you can stand there. They might even think it's cool.
Congratulations, you now understand NFTs. Yes, it really is that stupid.
"Fools" is the operative word here because Gates believes that NFTs and the related cryptocurrencies (both are traded through the blockchain) are "100 percent based on the greater fool theory."
- Coinbase CEO cuts 1,100 jobs, warns of 'crypto winter'
- OpenSea staffer charged with insider-trading of NFTs
- Infusion of $3.5bn not enough to revive Terra's 'stablecoin'
- Crooks steal NFTs worth '$3m' in Bored Ape Yacht Club heist
This is the idea that one can make money by purchasing overvalued assets. As we noted above, NFTs have no intrinsic value whatsoever, but have sold for multiple millions. Cryptocurrencies likewise have no inherent value. So you are a fool for buying something worth nothing, but there will be a "greater fool" who will buy it for more than you did.
Or will they? The cryptocurrency market is going through an unprecedented crash, starting with the meltdown of the TerraUSD "stablecoin" and its associated Luna token, which wiped $40 billion off the system, inflamed by tech stock declines, rising inflation and interest rates, and regulatory challenges. The largest cryptocurrencies, Bitcoin and Ethereum, have fallen 30 and 38 percent respectively in the last week.
NFTs have not been spared the "crypto winter," as Coinbase CEO Brian Armstrong described it as he laid off 1,100 employees. The Bored Ape Yacht Club floor price fell to below $100,000 for the first time in nearly a year yesterday, showing marginal recovery today.
Now, who wants a spot in my queue? ®