NFTs and the explosive rebirth of artificial scarcity

Making a living from music is tough.

Live events haven’t exactly been buzzing over the past year, physical media sales are largely in freefall, and — unless you’re a Drake or a Taylor Swift — streaming revenue is probably more of a drip than a stream. For more than a decade — 4,450-something days to be precise — Jonathan Mann has been steadily plugging away at his career as a musician. In addition to doing corporate gigs and commissions, he writes and posts a Song A Day on YouTube. He’s attracted a decent amount of attention from this but, like the overwhelming majority of artists, it’s still a grind to find ways to monetize his talent.

A couple of years ago, Mann learned about CryptoPunks, a project carried out by a pair of technologist-artists who posted and sold a set of 10,000 unique characters on the Ethereum blockchain, with no two figures quite alike. He was fascinated. What if, Mann wondered, he took his first year of Song A Day songs, 365 in all, and put them on the blockchain as non-fungible tokens for purchase? He set a price of 0.1 Ethereum each, roughly equivalent to $180. Then he waited.

“It was really just an attempt to find a new way of, essentially, monetizing Song A Day,” Mann told Digital Trends. “I’m on [artist-supporting platform] Ampled, which is like Patreon, I get YouTube ad revenue, and I get royalties from Spotify. And all of that adds up to something … but it’s always been a dream of mine to make Song A Day, in and of itself, sustainable.”

Within half an hour of putting it on the block last week, the first year of his back catalog, rendered as individual saleable tokens, had been snapped up by eager buyers. “365 songs just sold out in 30 minutes,” Mann wrote on Twitter. “I am speechless. Thank you all so, so, so, so much. I’m going to go cry now.”

NFTs are running wild

In total, the endeavor netted $65,000, of which Mann keeps a little over a third. (There are others who helped make the endeavor possible.) “It’s not completely life-changing for us,” he said, clearly still emotional and, by his own admission, not having slept a great deal. “But, like my wife said, it’s [equivalent to] a couple months’ worth of if I get really good gigs, which doesn’t always happen.”

365 songs just sold out in 30 minutes.

I am speechless.

Thank you all so, so, so, so much.

I'm going to go cry now. https://t.co/bf0cINJBg2

— 16 years of song a day (@songadaymann) March 15, 2021

Selling his music as crypto isn’t a fire sale, either. This isn’t the story of a struggling artist selling off a year of his life for pennies on the note. Any time Mann’s Song A Day NFTs sell in the future, he gets a 10% cut. In the hallucinogenic crypto-dream world where they could become the hot new thing on the blockchain, as did a piece of NFT art which sold this month at Christie’s for $69.3 million, Mann stands to get rich. Filthy, non-fungible wealthy.

The chances of that happening are, of course, slim. But even if they just tick along, he stands to create another recurring source of revenue.

Unsurprisingly, Mann’s not alone. All over the world, there are artists across a wide range of media figuring out how to turn what they do into a blockchainable commodity. Some of the stories are pretty touching. A former DC Comics artist, 87-year-old José Delbo, this month sold $1.85 million worth of Wonder Woman non-fungible tokens in partnership with “decentralized artist” and “pioneer of #cryptoart” Hackatao. Given the history of exploitation of artists in the comic industry, it’s hard not to cheer on an octogenarian potentially pulling in more money from an NFT sale than he made in page rate during his career.

Trying to catalog every entry right now is impossible. NFT mania is, to paraphrase pro wrestler Hulk Hogan, running wild. Elon Musk, Tesla and SpaceX founder, as well as erstwhile flamethrower merchant, recently teasingly tweeted out a message to his 49.1 million Twitter followers about his own NFT project: “I’m selling this song about NFTs as an NFT.”

Tulip mania and the long boom

After discovering what an NFT is (you can check out our handy guide here), the next question most people ask is, understandably, how long all of this will last. Via email, I asked Vili Lehdonvirta, professor of Economic Sociology and Digital Social Research at the U.K.’s University of Oxford, how he viewed the current NFT boom. “Short-term bubble,” he messaged back within minutes.

Like the mythical tulip bubble, which supposedly took place in the Netherlands during the 1600s, NFTs appear to represent the archetype of what Scottish poet Charles Mackay would call the “madness of crowds,” or what Alan Greenspan, the former chairman of the Federal Reserve Board, once referred to as “irrational exuberance.”

But whether NFTs will cool off as a Google Trends prospect (they will) is, really, the less interesting question. The better one is asking if this is simply a one-note gimmick or symptomatic of something more profoundly interesting? After all, the biggest technology bubbles — think the A.I. boom of the 1980s or, more notably, the dot-com boom of the late 1990s — are often notable for being both significant collapses, and also not actually being, well, wrong.

Anyone who wrote off the idea of internet companies in 2000 is a fool, even if they were probably right about internet companies actually making money in 2000. The micro story (Pets.com can make money selling $10 bags of cat litter that cost $20 to deliver) was wrong, but the macro story (the internet has great potential for businesses) sure wasn’t. Case in point: If you had invested just $100 in Amazon in mid-2000, you would have $10,000 today.

As the Venezuelan economist and technology expert Carlota Perez has pointed out, there are often a couple of waves for technological revolutions. There’s the phase that opens up new types of behavior and opportunities. This is the period where new infrastructure is implemented, and old ways of doing things experience a paradigm shift. This is also the boom period in which casino-like behavior runs rampant, despite the fact that all the business fundamentals may not yet be in place. The second phase is a longer-lasting boom, which is also less turbulent. We’re almost irrefutably in the first phase right now for NFTs. But that doesn’t mean the second one isn’t coming down the pike.

“There’s a lot of speculation at the moment,” Fabio Catapano, a visual artist and UX designer who recently launched his first NFT project, told Digital Trends. “I can see many people looking for old stuff in the hard drive with the hope to sell to a random wannabe collector or people ‘creating’ a few things quickly to make some money. But I don’t think it will last long. The hype will go down, and real artists, collectors, or art investors will stick around.”

Challenging market economics

NFTs are, by their nature, both cultural and economic entities. In both cases, what makes them particularly fascinating is what they say about the yearning for scarcity online. Unlike the physical world, the digital world is one of abundance. It is, broadly speaking, a world of anti-scarcity. Unlike the rivalry-based economics of IRL, in which actors compete over scarce resources, the economic model of the digital domain is one of the anti-rival: A high-tech gift economy in which resources are to be shared with few limits.

“Artificial scarcity is sort of the founding idea of market economics,” Rachel O’Dwyer, a lecturer in Digital Cultures at the National College of Art & Design in Dublin, who has written extensively about this subject, told Digital Trends. “[It’s] the sense that there is ‘not enough’ of something and that the price system is the best way to allocate it.”

The digital world has disrupted this. Much as a spoken language gains currency the more people speak it, the digital world is full of examples of goods that grant increased utility to individuals the more widely they are shared. The open source movement is a great example of this. So are the neural networks that power today’s most exciting A.I. applications, which grow more capable the more data they ingest. So, too, are social networks, the largest of which have been pushed to hundreds of billions of dollars in market cap through the power of network effects.

Even a single digital file bears the hallmarks of the anti-rival commodity: What real world, nondigital product can be so identically reproduced without losing any quality in the process? In the digital domain, each reproduction and subsequent circulation is a perfect copy that’s indistinguishable from the original.

As noted, this power of anti-scarcity scale has set loose dozens of unicorns. It’s also shaped the culture of the internet. For example, a 2012 work by digital artist Addie Wagenknecht, titled “Limited Editions of Unlimited,” was designed to challenge the idea that goods are worth more because there are fewer of them. The work was made freely available to download. Sharing was encouraged. “Put it on your walls, on buildings, hang it up in MoMa, give it to your friends, your Grandma, lick it, eat it (maybe it tastes good) … We want to see us everywhere,” the accompanying text on the website enthused.

From DRM to NFT

The idea of limiting the free flow of information has, at least classically, been viewed as the buttoned-down, spoilsport flip side to this copyleft wonderland of abundance. In the 1980s, an entrepreneur named Victor Shear, who was then the head of a Maryland-based company called Personal Librarian Software, filed a patent for a form of “tamperproof” protection for software that would limit — or at least control — how much access a user could get based on how much money they paid.

Although software was already decoupled from hardware, and being sold on a per-copy basis, this was nonetheless a radically new idea. It was the start of Digital Rights Management (DRM), a means by which to stop unauthorized redistribution of digital media. Software was widely copied in the decades before Shear’s invention. In 1976, a 20-year-old Bill Gates upset members of the Homebrew Computer Club that begat Apple by writing an indignant “Open Letter to Hobbyists,” blasting people for the rampant software piracy he saw taking place in the community. However, it was really the 1990s, and the rise of the internet, that pushed piracy — and, therefore, the focus on DRM — into overdrive.

DRM was a corporate pipe dream; the idea that it would be possible to stop content from being stolen or “shared” in the first place, rather than having to rely on catching and punishing poachers retroactively.

There are three things that fundamentally separate NFTs from previous DRM implementations. The first is the presence of the blockchain. “The digital scarcity does not refer to the artwork [itself],” Jonathan Mann said. “The digital scarcity refers to what you could say is the receipt for the artwork. It’s the ownership of the artwork that’s scarce, not the artwork itself. All you really own when you own an NFT is an entry in a database on the blockchain, because of the way the blockchain is immutable, right? That entry is scarce.”

The second is that owners of NFT creations can pass that ownership onto another person. DRM was focused on ensuring that everything was locked down so that even the original buyer only had limited access based on how much they had paid. NFT allows buyers to also be sellers, which is what has driven the current market.

just setting up my twttr

— jack (@jack) March 21, 2006

The third and final part of what separates it is the anticorporate, hacker ethic pranksterism that underlies the notion. To call it a grassroots-driven premise ignores the fact that, right now, plenty of tech bros and hedge fund types are riding the NFT wave. Heck, Twitter CEO Jack Dorsey recently auctioned off an NFT version of his first-ever tweet. But it certainly feels more decentralized and subversive than a corporation trying to lock down your music.

Artificial scarcity online

NFTs are, on some level, patently absurd. Users aren’t buying a work of art that they alone can enjoy. They are purchasing a nonexclusive addition to a public record that associates their name with a virtual item on a ledger that virtually no one will ever read. It’s like a strange hyper-capitalist parody dreamed up by William Gibson. But, like the macro story at the heart of tech bubbles, they have a truthiness to them that makes them resonate.

NFTs are far from the only place online where this artificial scarcity is rearing its head. Merry pranksters MSCHF, the closest thing the internet has yet created to a Banksy, does it with their limited-edition product drops which, once sold out, cease to be available. Their more recent work — such as the controversial occasion they strapped a paintball gun to one of Boston Dynamics’ Spot robots and let users control it over the internet — are time-based events straight out of the experimental Fluxus school.

Recently, Clubhouse monetized exclusivity and artificial scarcity by creating a social network with constraints on who could join. And even the big tech giants, the ones that have made a killing on network effects, tap into it when necessary. “Successful platforms like Facebook, Twitter, and Amazon enforce artificial scarcity in things like ‘likes’ and user reviews,” Lehdonvirta told Digital Trends. “And they make money by selling scarce attention.”

The gamification of limited supply

NFTs build on this conceit, but make the scarcity even more central to their core identities. “It’s about the gamification and illusion of limited supply,” digital artist Wagenknecht told Digital Trends. “It plays with our need to desire what is rare or limited to an extent.”

However, regardless of whether it’s leveraged cynically or genuinely, this artificial scarcity taps into a real need. The notion of ownership in a digital world clearly has mass appeal, even if it’s appealing solely to the hunter-gatherer angels of our nature. Perhaps it reflects something about a world in which the owned quantities that were once staples of American middle class prosperity — a car, a house, a 9-to-5 job, a decent record collection — have been displaced by a short-term rentier class: Uber, Airbnb, gig-based work, a monthly Apple Music subscription. Is it any wonder that people are eager to grab a little piece of something for themselves, no matter how ethereal — or Ethereum?

“Ownership in the NFT world becomes important again as it is expressed in an extremely fast liquid market, where owning a digital object, even of little value, could for some reason be worth thousands of dollars in a few months, but the opposite is also true,” Hackatao, the crypto artist working with comic artist José Delbo, told Digital Trends.

Where will NFTs be a week, a month, or a year from now? That remains to be seen. But, whatever happens, the fascinating itch they’ve scratched related to subjects like digital scarcity and ownership in a digital age is sure to hang around for the long term.