March 20, 2021•770 words
With all the perpetual hype around cryptocurrencies and recent hype around non-fungible tokens, it can be easy to forget just how uncommon rarity is. Try this exercise:
Look around you, or outside your window, and point to any object and ask, “is this rare?” The answer will almost certainly 100% be “No.”
The tree outside my house — not rare.
The bushes by the trees — unique, but not rare.
The brick my house is made of — not rare.
The gravel on the road — not rare.
The ceramic my coffee cup is made of — not rare.
The lightbulbs embedded into my ceiling — not rare.
The chair I’m sitting on — not rare.
In fact, I’d challenge you to find a single rare item in or outside your home. Chances are if you do find such an item (you probably won’t), it would likely either be gold, jewelry, or some explicitly collectable item.
Rarity is extremely, extremely uncommon on Earth. Everything is so easy to replicate and reproduce.
So it shouldn’t be too difficult to rationalize that when something rare is found, and it is certifiably rare, the human instinct is to harbor it. Imagine walking the mountain path for miles and seeing all the same trees, animals, bushes, leaves, dirt, branches, rocks—but then suddenly your eyes alight on this shimmering yellow rock type element that you’d never seen before. Would you not stop to pick it up and lust over its exquisite uniqueness? You’d carefully stash it in your hide satchel and take it back to your tribe. Perhaps foolishly you'd hold it up in the air and exclaim, Look what I found! Likewise enchanted, ooo’s and aah’s emanate as a crowd forms around you, everyone reaching up trying to get a piece, or—if they’re lucky—a closer look. Eventually someone with more foxskin than you decides they simply must have that item, if for no other reason than because everyone else is likewise swooning over it, and makes you an offer you can’t refuse. Thus is born the value of gold. Gold is truly rare. And gold is extremely uncommon.
By now we’ve hopefully established that rarity is extremely uncommon. We've simply defined a word. Here comes the boss level:
In the physical world it is somewhat labor intensive to reproduce artifacts. Yet even given the relative difficulty of reproducing physical items, rarity remains extremely uncommon. In the digital world, it is virtually cost-less to reproduce artifacts. So if in the physical world there is no abundance of rarity, the digital world is nothing if not infinite copies perpetually propagated through the ether. In the digital world, where artifacts are comprised of commoditized bits and bytes, rarity is by definition impossible.
So how shall we react when we are told the news that rarity is now possible in the digital realm, via making the reproduction of digital artifacts so expensive, that it is by the laws of physics nearly, if not totally, impossible? If I produce a 1 of 1 digital artifact and I say—nay, prove—that it would require more energy than is available to most nation states to recreate this digital artifact, should this exquisitely rare item not have value? The answer is simply, non-controversially yes. The more difficult question is, what should be its value? The answer to that is still somewhat simple: the most someone is willing to pay for it.
Speaking less abstractly, a digital art piece should be valued the same way a physical art piece is valued. There is no need to struggle with “I can’t believe someone paid millions of dollars for a JPEG!”—NFTs do not invent the art market. They simple translate it to the digital realm. If ever you find yourself struggling with the valuation of NFTs, simply translate your qualms to the physical realm (“I can’t believe someone paid millions of dollars for oil on a canvas!”) and quickly end your befuddlement.
Bitcoin of course is the aboriginal rare digital item. Should Bitcoin have value? Well, let’s hash this one out real quick:
Is Bitcoin rare? Yes.
Is it virtually impossible to reproduce a Bitcoin? Yes.
Do a lot of people want Bitcoins? Yes.
Do a lot of people agree Bitcoins should have value? Yes.
So, it shouldn’t be hard to imagine why someone would want to pay tens of thousands of dollars for—yes—bits and bytes. Why remain so befuddled by this concept? Rarity is platform agnostic. It does not matter if it occurs in the physical realm, the mental realm (ideas, poetry, literature), or the digital realm. Rarity is extremely uncommon, and thus extremely valuable.