The founder of the Litecoin blockchain, Charlie Lee, has published a series of posts on Twitter explaining that the market for Non Fungible Tokens (NFTs) could be doomed to collapse.
With all that said, I’m willing to be proven wrong. I created a unique NFT with my profile pic. It cost me nothing (well except for the ridiculous ETH gas fee) and no effort at all. Prove me wrong and show me that this has value: https://t.co/ucmu8KB1Us
😂
— Charlie Lee Ⓜ️🕸️ (@SatoshiLite) February 15, 2021
Lee’s first tweet reads:
“The problem with NFTs is that they are Non-Finite Tokens. There is zero cost to create unlimited number of tokens.
Sure, Justin Roiland’s NFT is unique and awesome. But what’s stopping Matt Groening or Mike Judge or thousands of other artists from creating millions of new NFTs?”
In reality, this is not technically true as creating multiple NFTs, even equal ones, has a cost. For example, if you want to put 100 identical NFTs up for sale on Opensea, you will have to pay Ethereum fees 100 times over and therefore it actually costs more than creating just one, especially considering that recently ETH gas is at 125.
Charlie Lee’s (Litecoin) theory on NFTs
Lee then goes on to explain his theory:
“Unlike NFTs, real world art is not zero cost. It takes effort and time to create a piece. This is effectively Proof of Work. A famous artist like Picasso can only create thousands of pieces of art in his lifetime. This limitation creates scarcity, which helps keep the value high”.
In reality, although there are no costs of canvases and colours or time, we have seen that creating a copy of an NFT is expensive and can reach hundreds of dollars.
But the creator of Litecoin goes on to say that because of the near-zero cost there will always be more NFTs of zero value.
“NFTs, on the other hand, create artificial scarcity. Because of the near zero cost to create another NFT, the market will eventually be flooded with NFTs from artists trying to cash in on this craze. Supply will overwhelm demand and the prices will eventually crash”.
This thesis is also rather easily refuted by following his own example: the art market is full of artists who create works of zero value, this certainly does not mean that a Picasso is worth less because there are other works by other artists that have no value.
The same applies to NFTs: assuming that creating new NFTs does have a cost (Ethereum’s fees, since the market for non-fungible tokens is still largely on this blockchain – in addition to the fact that creating different NFTs also has a cost in terms of time and implementation), given the same technology, there can be works that are rare or less rare; more artistically valuable or less; created by famous or less famous artists.
Having so many NFTs on the market does not therefore mean that all of them are of high value or all of them are of low value, any more than it does for physical artworks.
In fact, the opposite could be argued. As Ethereum’s fees have skyrocketed, given also the recent ATH of the ETH price, fewer and fewer amateur authors will be able to afford to create works, hence an elite market could emerge, made up only of famous artists.
In any case, Lee ends his series of tweets by saying that he would like to prove otherwise and that’s why he has put one of his NFTs up for sale on OpenSea:
With all that said, I’m willing to be proven wrong. I created a unique NFT with my profile pic. It cost me nothing (well except for the ridiculous ETH gas fee) and no effort at all. Prove me wrong and show me that this has value: https://t.co/ucmu8KB1Us
????
— Charlie Lee [LTC⚡] (@SatoshiLite) February 15, 2021
