Next time you see Matt Damon or Larry David or LeBron James telling you to invest in cryptocurrencies or non-fungible tokens (NFTs) now because “fortune smiles on the brave”, remember this: Original NFTs were not tokens, but tulips.
Imagine yourself in Amsterdam in the 1630s. There are no cyclists careening along the canals, terrifying tourists like you. There are no clouds of marijuana smoke above pedestrian bridges, or junkies hanging around street corners. There are only the charming barges moored along the canals, the crenellated storefronts and townhouses and, almost everywhere you look, the sight of people exchanging tulips and tulip bulbs for goods as currency. . Since their arrival in the 1560s, tulips have become so entrenched in Dutch life that the greatest artist of his time, Rembrandt, features one that goes viral in the 17th century equivalent of a painting by his wife; it has since been known as Rembrandt’s tulip.
But, tulip bulbs, you ask? As currency?
Of course, you are informed, why not? There really is no such thing as verifiable intrinsic value; things are worth what we are collectively comfortable paying for them. In the 1630s, speculation in the value of tulip bulbs changed from a pastime of the wealthy to a mainstream commercial enterprise.
As Charles Mackay describes in his 1844 classic “Extraordinary Popular Delusions and the Madness of Crowds,” “In the beginning, as in all these gambling madnesses, confidence was at its height and everybody won.” Demand for the odd commodity was fueled by swindlers and peddlers, who “speculated on the rise and fall of tulip stocks and made large profits by buying when prices fell and selling when they rose”. Tulip counters have been installed on the trading floors of Amsterdam, Rotterdam and Leiden.
A whole society has taken the bait. “Nobles, citizens, farmers, mechanics, sailors, footmen, servants, even chimney sweeps… converted their property into money and invested it in flowers.”
As the fever reached its peak, someone was willing to trade “4,600 guilders, a new carriage, two gray horses and a full harness” for a single Semper Augustus tulip bulb – known in the slang of the time as NFT, or non-fungible tulip. A single bulb from another NFT, the Viceroy Tulip, could be traded for four fat oxen, eight fat pigs, 12 fat sheep, or 1,000 pounds of cheese. What does it matter, after all? They were worth everything people could be persuaded to pay.
Except, well, not really. Eventually, as tulip capitalization penetrated the mainstream Dutch economy, Mackay tells us, “we saw that somebody had to lose terribly in the end.” They might not be fungible, but they were, after all, just tulips.
“Hundreds of people who, a few months before, had begun to doubt the existence of poverty in the country, suddenly found themselves in possession of a few bulbs, which no one would buy…. The few who had contrived to get rich hid their wealth from the knowledge of their fellow citizens and invested it in English or other funds….
Fortune, we are constantly reminded these days in the marketing blitz of cryptocurrencies and non-fungible tokens, “favors the brave.” Matt Damon likens investing in crypto to the risk taking of great world explorers, mountain climbers, space travelers; Larry David arises ignorant who had no interest in the telegraph, the electric light, the computer, and who now doubts the viability of crypto-currencies. LeBron James advises his younger self to be brave in going to the NBA and likens the decision to investing in cryptocurrency.
Fortune can sometimes favor the brave. But he is more often cruel to the reckless. Think of George Custer giving the order to charge the invisible Sioux Nation. People who send their children on the crusade of the condemned children. Napoleon or Hitler invading Russia, or Russia’s current criminal misadventure in Ukraine.
Think of investors from Bernie Madoff, Enron or DeLorean. Courageous all, of course. And they are also broke.
None of the celebrity-soaked advertisements for cryptocurrencies attempt to explain what they are and why they are valuable. I suspect the reason is that they can’t. Try it: Go online and ask what you’re buying when you spend your money on cryptocurrency or NFT. What do you get for your money? You get a percentage of a “coin” registered non-fungibly and anonymously on a blockchain ledger which can enable faster transactions. Really?
The best answer you’ll get is the one Mark Cuban gave regarding his purchase of Dogecoin for his son: “That doesn’t mean it has any intrinsic value. This is not the case. You are, in essence, buying the hope that this relentless marketing will persuade others to join, thereby increasing the “value” of your anonymous fractional coin of an abstract ledger entry.
I’m sure there is a value proposition in encoding transactions on a blockchain ledger. I suspect this value has been dangerously overhyped, entirely dependent on extensive social media marketing, subject to untraceable manipulation and, like the Dot.com bubbles and subprime mortgages, is growing enough to endanger our economic system. if we are not careful.
Tulips also had a valid value proposition. It appeared once speculation was banished, and it still lasts today: you can buy a pack of seven Rembrandt bulbs at Holland Bulb Farms. They charge a whopping $3.99.
John Farmer Jr. is director of the Eagleton Institute of Politics at Rutgers University. He is a former Deputy United States Attorney, Attorney for the Governor of New Jersey, Attorney General of New Jersey, Senior Counsel for the 9/11 Commission, Dean of Rutgers Law School, and Executive Vice President and General Counsel of Rutgers University. .