William Gibson famously remarked that the future is already here, it’s just not evenly distributed. So we are seeing with the immense popularity of non-fungible tokens (NFTs).
For decades, science fiction writers have tried to imagine what a post-scarcity society might be like, but I suspect none of them predicted that, in the absence of urgent material needs, we might go about re-inventing scarcity for its own sake.
Paul Brody is EY's Global Blockchain leader.
Much of the focus on NFTs has been about their role as ownership tokens for unique pieces of digital art. From tweets to GIFs to video highlights, people may soon discover there is an infinite supply of limited editions and only a few of these may stand the test of time. This kind of discovery process is a normal part of growing markets and it will be as true in the digital world for art as it has been in the physical world.
But the post-scarcity world is not evenly distributed and it can be jarring to watch this play out in the middle of a pandemic with so many people unemployed and hungry.
My own belief is that one of humanity’s greatest achievements has been the ability to eliminate the scarcity of knowledge and art. Nothing sums up how far we have come than the thought that nearly anyone anywhere on Earth has more information, knowledge and art accessible through the little device in their pocket than the richest people 50 years ago.
Whatever happens with the market for collectibles, however, NFTs are essential economic infrastructure with a bright future. Even while digital content and software drive ever-larger parts of our economy into a post-scarcity era, real world constraints will always be with us. There is a finite supply of land and, at any given time, finite supplies of many other critical resources. NFTs have a role to play in putting the finite resources and assets to work.
NFTs are powerful because they allow us to represent both commonality and uniqueness in a single asset class. Smart contracts that define and manage NFTs allow you to define the asset class in general, from a GIF to a work of art to a car, while the individual tokens can represent a specific, unique item in that group.
In the world of supply chains, as things become more valuable they often transition from being representable as fungible tokens (that is, undifferentiated) to unique assets. The washers and screws in my car have no distinct value, but by the time my vehicle rolls off the production line it is a unique item, with my color choices and accessories. Once I’ve driven it a while its value is also determined by how well I care for the car and how much the back seat is covered in dog hair.
See also: Paul Brody – This Isn’t the Revolution I Signed Up For
At EY, we have long assumed NFTs are going to be the critical mechanism for managing the digital representation of high-value assets. We also see them as the key mechanism for representing the inputs and outputs of business processes. Purchase orders are, as a class, pretty typical, but each one is for unique products and amounts. Turning POs or invoices into NFTs means they become transactionable online, opening up credit markets and accelerating digital payments.
Once you take a finite resource and digitize it, you make it possible to manage, transfer and use that resource to an exceptional degree. One of the most galling things about the way our less-than-fully digital economy works is how many people lack access to resources even when those resources are available and nearby.
From MRI machines to construction equipment, many products and services are underutilized because their capacity isn’t visible to users or owners do not have an easy way to monetize that capacity. In both those cases, digitizing those assets, representing them as NFTs and making them visible and accessible can change that situation.
Scarcity will always be with us, and NFTs provide one of the best tools ever invented for making the most of what we have.