Will NFTs Make Money Less Relevant?

In The Wealth of Nations, Adam Smith proposed that what preceded the invention of money was a pure barter economy, in which goods had to be exchanged for goods.

Although many historians and anthropologists debate the validity of his claim, the idea of a barter economy with no intermediate portable medium of exchange seems undesirable, and almost inconceivable.

Imagine having to carry your assets to every marketplace, and not knowing reliably what they are worth, given every individual would evaluate them differently.

This type of economy would have been impractical, and too subjective to remain stable.

Money is useful in the context of trade, because it allows us to easily transport purchasing power, evaluate goods on a relative basis, and store value for a purchase you might only want in the future.

That being said, the fundamental value of money is set by a standard we define by ourselves. Should that standard or narrative erode, the purchasing power of that money would erode as well. And although our narrative is relatively well established in developed countries, some struggle to maintain it (due to several factors such as poor monetary policy and hyperinflation).

Many think of Bitcoin as a decentralised alternative to the fiat monetary system, that would shield us from the risk associated with the money management failure of centralised governing systems.

That being said, what if there was an alternative way to run the economy, that eliminates, or reduces, the need for an intermediary medium of exchange all together? What if we had the modern technology to make the barter that once was (or could have been) more functional and convenient?

This is what I see as the ultimate function of NFTs.

NFT-isation of The Economy

An NFT (Non-Fungible Token) represents a unique asset that is recorded and tracked on the blockchain. It is called “non-fungible”, as the asset it represents has unique properties, and is not interchangeable with other assets.

That being said, the NFT is not the asset itself. The NFT digital representation of the asset is actually the underlying verified proof of ownership of that asset.

The blockchain acts as the verification and tracing layer, only providing access and rights to the NFT asset to its owner through public-private key encryption.

This concept is powerful — if physical money is a representation of fiat denominated value of purchasing power, then you can think of an NFT as a representation of an asset-denominated value of purchasing power.

Just like the money you own can be transferred and exchanged, an NFT is owned, and can be transferred and exchanged, but in the digital realm.

An NFT therefore does not have the physical limitations of assets, but can act like a portable and liquid medium of exchange.

Simply: NFT can be both the asset and the money.

In a scenario in which assets were uploaded to the blockchain as NFTs by standard, peer-to-peer barter would become practical and efficient.

Instead of pricing assets according to a currency standard, assets could be priced against each other. This type of system would most likely be more volatile, but perhaps would calibrate supply and demand curves more readily in real-time. This would result in a more transparent free market.

Moreover, since the NFT assets would be backed by themselves and denominated relative to one another, they would be decoupled from any monetary valuation risk associated with unstable fiat regimes.

Value Attribution Beyond What We Think Of

A new NFT-barter economy would enable the exchange of not only digital assets and physical assets, but also intangible assets.

An NFT could be a brand, an experience, a right, intellectual property, a promise of future cash flows (accounts receivable/payable), a reputation badge, or other.

For example: think of trading a carbon-credit NFT for a “good citizen” NFT reputation standard badge. Or a real-world NFT asset ownership in exchange for an NFT membership to a social club. Or even collateralising an NFT real-estate loan based the NFT ownership of a start-up idea, all verified on the blockchain, with no agents needed.

What holds value in the subjective realm could become value in the objective realm.

This opens the door to new forms of value flows, with more use cases than we can imagine - which might introduce competition to the ubiquitous use of money as an intermediary in trade.

A Utility Layer to Compete

Another interesting facet to explore in this thesis is that the international currencies that run on the fiat system we know today mostly compete on history and heritage, in a conquest for monopoly or power.

Needless to explain the market inefficiencies related to monopolies and dominant centralised power structures to suggest that there might be a better basis for currency competition: features and utility.

The physical nature of our money limits its functionality, but the digital and programmable medium of NFTs does not have those same limitations.

The programmability of NFTs (or even other cryptocurrencies for that matter) could be particularly interesting, enabling smart contracts to make asset-based programmable value flows possible.

Already in application today, in the case of art, a smart contract can be programmed to give back a royalty reward to the artist for each transaction of transfer of the art asset.

Perhaps the “fee” requested by the artist could be something other than monetary value, such as the right to obtain the information from user identity NFT data record to inform their next work based on their audience preferences and demographics.

The evolution of smart contract design will compound utility, and add more use cases to how NFTs can act as better denominators of exchange, making the use of intermediary inconvenient in certain circumstances.

But — What if the fundamental assumption behind money was wrong?

From a first principles thinking standpoint, what if the assumption that humans always had an exchange-based mentality was wrong?

This would invalidate Adam Smith’s idea that the economy that preceded money must have been barter.

An example of an alternative to this could have been a “gift economy”, in which generosity and cooperation would have been standard communal values, and in which the giving of goods and services would have been the standard expectation.

This might seem similar to barter, but perhaps would have been more personal. Instead of choosing to invest, share, or give your goods or services to a stranger, one might be more prone to support other individuals or causes they care about. In this system, connection and trust is at its core.

In this scenario, the purpose of circulating economic goods would be to support the network you are a part of. The economy would therefore represent the community’s interests, and be owned and shared by its members.

In this hypothetical scenario, objective value denomination would be even less relevant, and future purchasing power might not be as useful. Hence: less reliance on a money standard of value.

In this context, transfers and exchanges of ownership via NFTs would be simply more flexible, transparent, and efficient.

That being said, I do not suggest we become delusional: even if this might have been the case, I have trouble imagining a scenario in which human nature would welcome going back…

Best of Both Worlds

Just to be clear: this thought experiment was not to say that an NFT-barter economy will overtake our current standard, but rather that it has the potential to introduce new trade dynamics we could not have imagined or conceived in the past.

It is not about one or the other, but one with the other.

NFTs have the potential to create new ways of denominating value in the multiverse: transcending the physical, digital, and intangible.

The inception and evolution of NFTs is exciting in many ways, and this is just one type of impact I foresee in the future.