What does a dollar bill have in common with the Mona Lisa and a pair of Nike shoes?

On March 11th 2021 Beeple sold Everydays, a purely digital piece of artwork, for $69 million — the first 8-figure sum paid for an immaterial collectible, a new class of financial assets that first appeared in 2017 (CryptoKitties).

Everydays: The First 5000 Days - Will Gompertz reviews Beeple's digital work - BBC News

Collectibles are objects that have no intrinsic value but have a significant perceived value. They are generally one-of-a-kind or few-of-a-kind. But why do they exist? What makes a good collectible? What’s the deal with immaterial collectibles? And what do they mean for the future of science funding?

Collectibles primarily exist to serve the needs of the ultra-rich. They exist as a solution to the challenge: “How can I store lots and lots of money for 100+ years?” For multi-millionaire fat cats, relying on paper bills just isn’t good enough — What happens if the banks collapse? If there’s a war? Hyperinflation? Revolution? Legal reform? There is a non-zero chance that the dollar bill will become worthless in the 21st century.

The basic solution to the challenge is diversity. In essence, they don’t put all their eggs in one basket. The pragmatic investor might put some wealth into natural resources, some into infrastructure; spread it around venture capital, paper bills, collectibles, etc. So, for them, it’s not a complete disaster if one kind of asset is confiscated, becomes worthless, or otherwise depreciates. An aggregate of several unstable assets can form one stable asset.

So, what makes a good asset? An asset that a moneyed individual would want to include in their portfolio?

Trust — Who’s there to back-up its value and what’s their track record like?
Appreciation — Could it become more valuable? Or become damaged or fail?
Fluidity — How easily can it be exchanged for another kind of asset?
Anonymity — Can it be hidden from the government?
Rarity — If the number of X doubles then the value of X may half.
Orthogonality — The value should not be affected when other assets in the portfolio depreciate.
Volatility — How much does the value go up-and-down? Are these swings predictable?

Art in-particular ticks a lot of these boxes.

Let’s look at the numbers first. The world’s richest people (net worth >$30 Million) invest 4% of their wealth into rare collectibles, and these collectibles have become 4.8% more valuable each year over the past 60 years (Art as an Asset, Oxford University Press). It’s estimated that there’s currently $3,000 Billion stored in artwork, a figure comparable with the $36,000 Billion stored in tax havens.

Now let’s look at the criteria. There are a network of people and institutions who collude to maintain and drive art valuations upwards (sometimes actively, sometimes unknowingly): multi-millionaires, auction houses, galleries, museums and liberal arts colleges; There’s a community of practice dedicated to verifying the authenticity of artwork, certifying provenance, and weeding out forgeries; As unique one-of-a-kind objects collectible artwork cannot be diluted by governments printing money; The value of artwork isn’t tied to the success of any particular nation or economy. All-in-all, there are several rubrics by which rare artworks are better stores of wealth than dollar bills.

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So collectibles are a big business. What about immaterial collectibles? Let’s look at cryptocurrency first. Despite their volatility (in the 2 days it took me to write this article my $1000 in crypto went down to $900 and back up to $1000), currencies like Bitcoin are remarkable stores of wealth: verifiable, anonymous, and backed-up by a worldwide coalition of powerful technocrats. They are one of the best assets available for facilitating financial fraud (personal experience, as a victim), laundering drug money, and covertly moving wealth. They have significant potential as a new wealth-storing asset in nations experiencing significant instability such as Venezuela, Nigeria and the USA.

As a new asset class immaterial collectibles may offer the combined advantages of cryptocurrency and conventional artwork. But how do they work? Before answering that we have to understand the difference between the Mona Lisa and THE Mona Lisa. From a collectibles perspective, one is worthless and the other is worth $850 Million. The Mona Lisa includes every single reproduction of the painting, including those displayed on computer screens, printed on shirts et cetera. But there is exactly one copy of THE Mona Lisa, at the Lourve (Ways of Seeing, John Berger). THE Mona Lisa is more valuable because of all the currency-related criteria we have already examined — Although it can be freely copied, this one particular representation is unique, backed-up by institutions, the ownership and provenance are verifiable. By making it more recognizable, all copies of the Mona Lisa make the one “authentic” copy more valuable (The Work of Art in the Age of Mechanical Reproduction, Walter Benjamin).

Until very recently it was virtually impossible to sell digital artwork as a collectible, but that changed with NFTs. Circa 2016 digital artwork could be freely copied just like the Mona Lisa, but unlike THE Mona Lisa, an artist couldn’t create and then transfer ownership of a representation that was guaranteed to be unique; couldn’t provide a way to verify who owned the artwork; couldn’t point to any precedent for resale value. An NFT, or non-fungible token, is a permanent and public record that says “This is a representation of Item X, Person Y owns this, and they paid $Z amount for it”; Person X is then able to resell the NFT so long as they can find a buyer; these NFTs are made of Ethereum, a cryptocurrency, and all Ethereum-related records are stored on a public document called “the blockchain”.

Beeple, the creator of Everydays, still owns Everydays. He retains full copyright over it and it can still be freely copied across social media — just like before. The representation is separate from the thing. Beeple kept the thing and sold the unique representation (THE Everydays, an NFT). Such a precedent — $69 Million (nice) — raises a question: what other immaterial collectibles can be sold this way?

At the time of this writing the first tweet by Jack Dorsey, CEO of Twitter, is up for auction and bidding at $2.5 Million. The 2020 Breakthrough Prize, “The Oscars of Physics”, was awarded for the first black hole image; a discovery that was first announced via a tweet. Could that announcement tweet be sold?

What makes a cultural artifact a good candidate for becoming a collectible? Does science have cultural artifacts that fulfill these characteristics? What barriers might prevent this trend from reaching science? What factors could accelerate it? What does it mean for science?

In many cases, “the special something” behind a collectible is attention and/or prestige. The Mona Lisa is a good painting, and Leonardo Da Vinci is a good painter, but it’s not the quality that makes it a valuable painting. Its extreme valuation is predicated upon the myth of singular genius running from the Renaissance, through the blood of White Europeans, and into fat cats who trade art and pretend to appreciate it; a myth that’s called “meritocracy” by some, “gatekeeping” by others, and manifests itself in 20th Century power structures; it represents power, and too many people want it; the myth supports the structure and the structure supports the myth.

So a collectible is a way to capture something intangible like “white supremacy”, put it into an asset, and — so long as whatever that collectible represents doesn’t become unpopular among the wealthy — the collectible will retain its value or appreciate. Prestige often takes the form: “Person/Group X has Virtue Y, as shown by Object Z”; for example:

White people are cultured, as shown by this painting
Black people are creative, as shown by this album
Entrepreneurs are generous, as shown by this building
Scientists are smart, as shown by this theorem

The world of academia has some of the strongest brands and most sophisticated social structures for allocating prestige in existence, yet is critically underfunded. And with the emergence of NFTs, a tool that opens up new possibilities for converting prestige into wealth storage, comes a potential way forward.

In death, Einstein earns $18 Million per year through licensing fees. James Watson recently sold his Nobel prize medal for $4 Million. There is a nascent market for science paraphernalia, and one can probably find a smattering of medals, signed manuscripts, and telescopes used by such-and-such. What would it look like if Einstein’s estate used an NFT to sell the General Theory of Relativity as a collector’s item? Would it make a good asset?

Our original criteria include: Trust, Appreciation, Fluidity, Anonymity, Rarity, Orthogonality and Volatility. It’s on the blockchain so one could hide the owner’s real-world identity (Anonymity), it’s almost totally unique as an asset class (Rarity, Orthogonality), all of its predictions have turned out to be correct (Trust, Volatility), it’s instantly recognizable (Appreciation, Fluidity). It fits, so maybe there’s something there.

But what would this actually mean for science? Let’s look at its current state:

Biased incentives. Research institutions typically incentivize scientists through standardized metrics such as publication count & citation count. These have created a “publish or perish” culture that introduces biases into the kind of research that is done and how it’s done, often emphasizing quantity over quality. The biases have created and now maintain shibbolethic structures in academic institutions that undermine merit and objectivity. There are areas of science, such as nuclear fusion research, that are very promising but remain underfunded because of their misalignment with institutional incentives and therefore academic career success.
Increasing competition. Across OECD nations, the number of PhDs awarded annually has grown 40% from 1998 to 2006, but the number of academic job openings has not grown to reflect that, and pursuing an academic career is becoming increasingly hard.
Funding. Per annum: $1200 Billion total, 60% from industry, 30% from government / university, 10% from philanthropy / crowd-funding / charity (OECD). Industry money is biased towards research with commercial applications in the short-term. Government money is subject to burdensome and restrictive regulation and compliance: the average researcher spends 15% of their productive time applying for funding.
Unbundling. Publishers are shifting their answer to “Who pays fees?” from institutions to individuals, and “What do we sell?” from bundled subscriptions to individual papers (personal experience as an employee at Researcher in 2019). If academic publishing can be unbundled, could funding be unbundled too?
Open Access. The barriers that prevent the broader population from gaining skills necessary to participate in cutting-edge research are falling apart due to the recent and ongoing rise of: open access journals, preprint servers, science communication via social media, and OpenCourseWare

Getting an answer to a basic question like “How many doctorate degrees were awarded worldwide in 1995 vs 2015?” is unreasonably dificult. I still don’t have an exact answer after scanning through several multi-hundred-page reports and academic papers for it.

So we have three overlapping needs and incentives, from three different groups:

Scientists. A growing number of people with the capability to do research, and who are also unable to get funding for it.
Angel Investors, AKA, “move fast and break things”. Looking for economies to disrupt, high-risk/high-return investment opportunities, and have a special interest in cryptocurrency.
Wealth Managers. Looking for diverse, long-lasting, and anonymous places to store money.

Here’s what the NFT-Science funding model could like:

Scientist announces a thesis they intend to research and creates an NFT for it. The sale of that NFT will finance the research.
Angel Investor buys the NFT in the hope that the research will yield good results, memes, and have an impact — Whatever will push-up the NFT’s value.
Wealth Managers will buy NFTs for research with high impact over long periods of time, and which is likely to remain relevant for 100+ years.

What impact would this funding model have on science? At most we can expect $30 Billion, or 3% of, annual science funding to come from this model by 2030 (wild guess); so the amount involved in the predictable future is not revolutionary. We can expect the money to be more risk-tolerant than existing funding sources, biased towards the aesthetic tastes of angel investors, and biased towards research with high meme potential.

It’s unclear whether the research outcomes for science funded by angel investors will be better than the outcomes for science funded by existing models, but that doesn’t feel like the right rubric to me. What seems more important is creating a wide range of funding opportunities for aspiring scientists and this NFT-based approach might do that.

There are advantages for cryptocurrency too. There are two key sources of volatility for crypto. First, crypto investment is motivated by insurance against political instability which is, by definition, unstable; unstable demand leads to an unstable value. Second, and of particular interest to us, traditional currencies maintain their stability through consumer price indexes and interlocking constraints; for example, it may be generally agreed that a 1-bedroom house is worth 5 cars, and a nice shirt is worth 20 loaves of bread. Making ties with consumer price indexes is challenging for cryptocurrency for two reasons; first, many consumer goods are impractical to purchase with crypto; second, the price of most goods varies more across nations than within nations, and whereas traditional currencies are national, cryptocurrency is international. A diverse range of collectibles represents one way in which cryptocurrency can make ties to goods with agreed-upon valuations. Since some of these collectibles are exclusive to cryptocurrency they add an element of sovereignty to crypto that could work in its favor.

So in this article we explored artwork, science, wealth, and cryptocurrency. I hope you learned something useful, or at least feel entertained. Thank you for reading. Subscribe or follow me on Twitter for more, @ashtonsix.

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Can you sell science? With NFTs, yes