Could Bitcoin become a non-fungible token (NFT)?
Non-fungible tokens are unique to the world of NFT art, and cannot be directly exchanged for another unit of the exact same thing.
Cryptocurrencies on the other hand are fungible tokens: you could trade 1 BTC for any 1 other BTC, or break a Bitcoin down into smaller units (satoshis).
But an understanding of how art and certain NFTs have value, might indicate that BTC could, in some cases, become non-fungible. Are we waiting for the advent of Bitcoin art?
Certain Bitcoins may one day be worth more than other Bitcoins. Read on to find out how.
A history of art provenance before blockchain
Sometime in 18th century England, a con man called William Sykes bought an authentic 15th century Flemish painting of a bishop being enthroned in a cathedral. But no one knew who had made the painting, who the bishop was, or who had owned the painting previously. So Sykes added a fake inscription to the back, in which he indicated that the painting had been made by Jan van Eyck (a hugely famous 15th century Flemish painter whose works sold for more than any other artist in 18th century England); that the painting had been owned by British king Henry V (of Shakespeare fame); and that it depicted the most famous British saint, Thomas Becket, being enthroned as Archbishop of Canterbury.
All three aspects of the painting’s provenance were falsified (it actually shows the enthronement of Saint Romold as bishop of Dublin, and its owners and artist are unknown), but the perception that they were the case led the painting to be purchased for a fortune.
Sykes’ forged inscription on the back of the painting ultimately meant that it was bought for a small fortune by the Duke of Devonshire. But had blockchain been available in 18th century England, then William Sykes wouldn’t have been able to pull off such a con.
Art and Non-Intrinsic Value
It’s easy to spot goods with intrinsic value. These are objects that, if disassembled into their constituent parts, would have roughly the same value as their worth when the parts are assembled. Consider a necklace made of gold and dotted with pearls and a large ruby at the center. The necklace may have a high value because it was made by a master craftsman. But it also has high intrinsic value. Take it apart and the price of its gold, pearls and ruby remain high.
Consider, by contrast, a dress. It’s made of silk, which doesn’t have a particularly high intrinsic value. But if that dress were designed by Yves Saint-Laurent, and had been owned by Marilyn Monroe, then its value would be very high, for non-intrinsic reasons.
The item’s provenance, the term for the documented history of an object, adds to its value, as does the cultural importance of its designer.
The value of art is linked to its non-intrinsic value. Most art, if you break it down to its basic parts, is of minimal value. A painting is just pigment, canvas and wood. A drawing may be just charcoal and paper. But if that drawing was made by Picasso, then its price soars, for non-intrinsic reasons.
The value of art has been defined, in The Art of Forgery (Phaidon, 2015) in the following way:
Value of Art = Perceived (Demand + Rarity + Authenticity)
Demand, rarity, authenticity are all subject to perception. If potential buyers believe that something is authentic, rare and in-demand, then it is valued as if this is all true, whether or not it reflects reality.
In parallel, 1 bitcoin is just 1 bitcoin, right? That’s a question we will explore here. If a dress owned by Marilyn Monroe would be more valuable than the same dress owned by a non-famous person, might 1 BTC owned by someone famous--with ownership history stored in the blockchain--be worth more than “just” 1 BTC?
Understanding Cryptocurrency Value and NFT Art
Like art, the value of cryptocurrencies is non-intrinsic. There is no gold or silver standard that cryptocurrency can be exchanged for. Crypto is a series of numbers stored on a blockchain. Some time, effort and electricity went into mining it and adding it to the blockchain, but its value remains non-intrinsic. You cannot break a Bitcoin down into its constituent parts and resell it for anything remotely approaching its value as a whole, as one BTC.
In this way, the value of crypto resembles art.
Value of a Cryptocurrency = Perceived (Demand + Rarity + Authenticity)
Let’s break down this equation as it relates to crypto.
There is clear demand for Bitcoin as evidenced from the dramatic price increase over the past decade. If there were an infinite number of BTC available then its price could never rise to such an extent. But since the total supply can never exceed 21 million, each coin purchased has a gradually higher value, due to its rarity.
By contrast, a currency with a far more limited total number of possible coins, 21 for example, could in theory be a million times more valuable. Blockchain-protected authenticity is also important because buyers need to know that their purchase of 1 BTC (or a fraction of it) is linked to a real bitcoin that has not been double-sold.
Unlike with art however, crypto is built on blockchain technology, which guarantees authenticity because it is transparent, immutable and has a documented digital history. Perception does not come into it the way it would for a Titian painting, the ownership history (provenance) of which may have been lost over the centuries. But, if a Titian painting was owned by the Habsburg imperial family and decorated their palace in Madrid, its value might be higher for this reason than if it remained in a private collection that was not of such historical import.
The key importance for cryptocurrencies is the perception of demand, and this is why bitcoin prices can be so volatile. The public view of demand for the currency ebbs and flows, though it seems to always trend upwards over the long term.
The Value of Provenance to NFTs...and Possibly Bitcoin Art
The value of an NFT, like cryptocurrency or art, is non-intrinsic. NFTs are made of computer code, nothing more. But could an NFT’s value increase based on its provenance, as is the case with art?
In June 2021, “Quantum”, the first NFT ever minted, sold for $1.4 million at Sotheby’s. The auction house praised the moving image as a “seismic genesis work” comparable to Picasso’s Les Demoiselles d’Avignon (1907) or Kazimir Malevich’s “Black Square” (1915).
Consider also the NFT of the very first tweet ever sent out on Twitter, created and sold by the founder of Twitter, Jack Dorsey. This is of no artistic value and certainly of no intrinsic value. It’s value, instead, is based on the perceived demand, rarity and authenticity but also due to its ownership and role in cultural history. It was created and owned by someone famous and it was a historical first. This is why it sold for $2.5 million.
Considering the value of crypto in the context of the value of art, one wonders whether there might be a future in which a single unit of cryptocurrency, for instance 1 BTC, may be worth more than 1 BTC on the open market if its ownership history, as recorded in the blockchain, includes a past owner or transaction of cultural or historical significance.
For instance, if 1 BTC had been owned by Satoshi Nakamoto, the pseudonymous founder of Bitcoin, might its value increase due to this non-intrinsic reason? Calculations suggest that he (or she or they) mined 1.1 million BTC in Bitcoin’s earliest days, which has never moved from the landing address, where it still sits today.
One could envision a collector offering more than 1 BTC for 1 BTC that can demonstrably be proven to have been mined by the founder, although access to these Satoshi’s bitcoins may be lost.
Similarly, imagine a future in which the IRS allows American citizens to pay their taxes in BTC. Might the very first BTC used to pay taxes in the US, with this fact recorded on the blockchain, be worth more than any other BTC? What about a Bitcoin that was bought or gifted from a celebrity or famous person?
Once bitcoins can be broken down into smaller parts, called satoshis, it may be harder to trace the original owners. But art has a parallel for that, too. The famous Renaissance architect, artist and biographer, Giorgio Vasari, kept one of the great lost treasures of art history: 12 oversized books into which he pasted drawings by famous artists of the 15th and 16th century:
These books, called the Libri dei Disegni, are lost. But individual pages of them survive, including some kept at the Uffizi Museum. Their provenance is traceable to Vasari and the original 12 books.
If we imagine those 12 books as akin to 12 BTC, and each page in the book is equivalent to 0.01 BTC, then that non-intrinsic value remains for the component parts, not just the original whole.
At some point, a unit of cryptocurrency, which is technically a fungible token--meaning that it can be exchanged for another unit of the same type--may become non-fungible if its history on the blockchain indicates something remarkable enough to make that precise coin something akin to "Bitcoin Art", something more desirable than a normal, run of the mill coin.
Stranger things have happened, both in the world of art, and the world of cryptocurrency.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.