The Rodman Law Group, LLC
[author: Natalie Afshar]
With NFTs becoming such a thriving sector of cryptocurrencies, some big-name billionaires disagree whether NFTs are worth all the hype they receive. In a recent interview, Bill Gates mentioned how he is not a fan of cryptocurrencies[1] and believes that NFTs are a part of a “Greater Fool theory.” But what is the Greater Fool theory?
Viki Borgan, a finance professor at Cornell explains it as the following, “one can make money by buying overvalued assets and selling them for a profit later because it will always be possible to find someone who is willing to pay a higher price.”[2] Further, someone who would contribute to the Greater Fool theory buys overvalued assets without any regard for their fundamental value, kind of like a gambling game.
Bill Gates classifies himself as an old-school investor and would not invest in cryptocurrencies, stating that NFT pictures ‘do not help the world immensely.’ With the bitcoin and crypto market struggling in the summer of 2022, Gates deemed his Greater Fool argument successful, but are NFTs as bad as Gates sets them out to be?
Since the recent surge of NFTs – non-fungible tokens are regarded by many other stakeholders as a very valuable investment as NFTs verify the authenticity of a non-fungible asset.[3] For example, if you have an original Banksy piece, this painting you own is irreplaceable and unique. If you turn it into an NFT you make the piece digital, and it still can be irreplaceable and even more valuable. The basic idea here is that if something is non-fungible it cannot be replaced for an identical value.
So then how is this tied to the Greater Fool theory? We can establish that NFTs are not a part of the Greater Fool dilemma due to the underappreciated value and beneficial usages they produce. Items that have value are labeled as collectibles (art, wine, movies, etc.) and NFTs are the digital version of these valuable collectibles. Hence that the people who invest in NFTs do seriously consider the fundamental value of their items and what the profits will be, unlike what Gates believes.
Likewise, the real-world uses of NFTs change the playing field in terms of technology and help make the sector of NFTs steer far from the Greater Fool Theory. For example, one of the uses is event ticketing. Instead of purchasing a ticket-on-Ticket Master someone who owns NFT can sell their ticket through Open Seat and make for example 10,000 NFTs on a ticket.
During this process, the ticket is uploaded onto a blockchain sequence where it is confirmed and removes the possibility for ticket scams. Unlike Ticker Master there is no use of an intermediary third-party seller when using an NFT and people can send out tickets for someone else’s possession much quicker and safer than other apps.
Another beneficial use of NFTs can be the ownership of gaming assets. For example, if you play a game like Fortnite and one day realize that you no longer want to play but have spent a lot of money on assets for your character, you can use NFTs to sell your character to someone else.
In this instance, you can re-sell your character alongside its assets and make a profit off it. You can also set your own price which opens a price free market. The gaming asset side of NFTs has been revolutionary in terms of being able to sell gaming components to others for a fair price.
Although Bill Gates argues that cryptocurrencies and NFT’s are not worth the investment, there are many valuable usages to NFTs. From the collectible side to the actual developments in the gaming, and ticketing industries there is substantial evidence to show that the Greater Fool theory is not relevant to NFTs due to how valuable they are. For Gates to say NFTs are not valuable is like saying any type of collectible such as a signed jersey from a famous sports player has no value- which is not a logical argument. Therefore, as Bill Gates makes his opinion about NFTs and cryptocurrencies it should be taken with a grain of salt until there is extensive data regarding the proven value of these investments.
[1] Browne, Ryan. “Bill Gates Says Crypto and Nfts Are ‘100% Based on Greater Fool Theory’.” CNBC, CNBC, 15 June 2022.
[2] “The Greater Fool Theory: What Is It?” Hartford Fund
[3] Alex Gomez. “Why Are Nfts so Valuable?” Cyber Scrilla, Cyber Scrilla, 11 Apr. 2022
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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