This broken diamond NFT is the perfect microcosm for all NFTs
I stumbled across this Twitter thread the other day, by some web3 profiteer who came up with ideas on how to extract value from existing brands using blockchain tokens. Most of them are monetized loyalty programs that operate under the assumption that the loyalty rewards will have an exchange value as currency alone; otherwise, they are just another way for companies to shift costs to consumers by gamifying their externalities.
Naturally, I clicked on the person’s profile, where she brags about being the creator of “the world’s first broken diamond NFT,” which began as another Twitter thread that…honestly explains it all pretty perfectly:
If I make an NFT of a 1980 Lando Calrissian action figure and it gets destroyed in a fire, I still have the same resource… right?
…Right…
To prove her point, Tasha labs actually bought a diamond, destroyed the diamond, and then minted an NFT of the diamond on OpenSea. From the listing:
I went and bought a real diamond for $5k—> destroyed it—> minted an NFT for the diamond. I wanted to see how much value NFT retains.
Many people do not understand why this exercise would work, including my mother who has been a savvy investor and accountant for 30 years. I had a long debate with her, which I wrote about here (https://taschalabs.com/nft-is-better-than-diamond-heres-why/).
But my basic idea is that a physical asset like a diamond has value because of two functions:
1/ physical utility function 2/ asset function as store of value (SoV)
When you destroy a diamond and create an NFT instead, you transfer function #2 to the NFT. Since destroying the diamond cements the 1-to-1 mapping between the diamond and the NFT, the NFT should retain the SoV portion of the diamond’s value.
An NFT can serve the role of an SoV, because it is able to satisfy 3 basic criteria for something to qualify as an “asset”:
1/ durability 2/ supply limit 3/ social agreement
I also believe overtime NFTs will replace physical assets like diamonds and real estate, because NFTs are a much more user-friendly asset class for holding and transacting, compared to physical assets.
Sure, Tascha did finally transferring her broken diamond NFT to someone else, for 5.5 ETH – which at the time of sale was equivalent to about $16,500, although it is currently closer to half that value. And to be fair, that’s an increase in value from her original investment! So maybe I’m the idiot. Or maybe this just cements my belief that this is just a value extraction scam that perpetuates the inherent worthlessness of government-derived currencies. But hey, I guess it’s a cool idea to skirt around the system?
Tascha’s Broken Diamond [OpenSea]
