The next time you see Matt Damon or Larry David or LeBron James telling you to invest now in cryptocurrencies or non-fungible tokens (NFTs) because “fortune favors the brave,” remember this: The original NFTs were not tokens, but tulips.
Picture yourself in Amsterdam in the 1630s. There are no bicyclists careening along the canals, terrifying tourists like you. There are no clouds of marijuana smoke hovering over the pedestrian bridges, or junkies lying about on street corners. There are only the charming houseboats docked along the canals, the crenelated storefronts and townhomes and, almost everywhere you look, the sight of people exchanging tulips and tulip bulbs for goods as a form of 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 the 17th century equivalent of viral in a painting of his wife; it since has been known as the Rembrandt tulip.
But, tulip bulbs, you ask? As currency?
Of course, you are informed, why not? There is no such thing as an ascertainable intrinsic value, really; things are worth what we are collectively comfortable paying for them. By the 1630s, speculation in the value of tulip bulbs has migrated from a pastime of the rich to a mainstream commercial enterprise.
As Charles Mackay describes it in “Extraordinary Popular Delusions and the Madness of Crowds,” his 1844 classic, “At first, as in all these gambling mania, confidence was at its height, and everybody gained.” Demand for the odd commodity was fueled by con artists and hucksters, who “speculated in the rise and fall of the tulip stocks, and made large profits by buying when prices fell, and selling out when they rose.” Tulip desks were established on the stock exchange trading floors in Amsterdam, Rotterdam and Leiden.
A whole society took the bait. “Nobles, citizens, farmers, mechanics, seamen, footmen, maidservants, even chimney sweeps … converted their property into cash, and invested it in flowers.”
As the fever reached its peak, someone was willing to exchange “4,600 florins, a new carriage, two grey horses, and a complete suit of harness” for a single Semper Augustus tulip bulb — known in slang of the time as an NFT, or non-fungible tulip. A single bulb of another NFT, the viceroy tulip, could be exchanged for four fat oxen, eight fat swine, 12 fat sheep, or 1,000 pounds of cheese. What did it matter, after all? They were worth whatever people could be persuaded to pay.
Except, well, not really. Eventually, as tulip capitalization penetrated the mainstream Dutch economy, Mackay tells us, “it was seen that somebody must lose fearfully in the end.” They may have been non-fungible, but they were, after all, still just tulips.
“Hundreds who, a few months previously, had begun to doubt that there was such a thing as poverty in the land, suddenly found themselves the possessors of a few bulbs, which nobody would buy… . The few who had contrived to enrich themselves hid their wealth from the knowledge of their follow-citizens, and invested it in the English or other funds… .”
Fortune, we are reminded incessantly these days in the marketing blitz for cryptocurrencies and non-fungible tokens, “favors the brave.” Matt Damon likens investing in crypto to the risk-taking of the great global explorers, the scalers of mountains, the travelers to outer space; Larry David poses as an ignoramus who had no interest in the telegraph, the electric light, the computer, and who now doubts the viability of cryptocurrencies. LeBron James counsels his younger self to be brave in going to the NBA, and likens that decision to investing in cryptocurrency.
Fortune sometimes may favor the brave. But it more frequently is cruel to the reckless. Think of George Custer giving the order to charge the unseen Sioux nation. People sending their children on the doomed children’s crusade. Napoleon or Hitler invading Russia, or Russia’s current criminal misadventure in Ukraine.
Think of the investors in Bernie Madoff, Enron, or the DeLorean. Brave folk all, to be sure. And they’re broke as well.
None of the celebrity-soaked ads for cryptocurrencies attempts to explain what they are and why they are valuable. I suspect the reason is that they can’t. Try it: Go on the internet and ask what you are buying when you expend your money on cryptocurrency or NFTs. What do you get for your money? You get a percentage of a “coin” recorded non-fungibly and anonymously on a blockchain register that can enable transactions more quickly. Really?
The best answer you’ll get is the one that Mark Cuban gave regarding his purchase of Dogecoin for his son: “That’s not to say it has any intrinsic value. It doesn’t.” You’re buying, essentially, the hope that this relentless marketing will persuade others to buy in, thus driving up the “value” of your anonymous fractional piece of an abstract ledger entry.
I’m sure there is a value proposition to encoding transactions on a blockchain ledger. I suspect that this value has been dangerously overhyped, is completely reliant on social media push marketing, is subject to untraceable manipulation and, like the Dot.com and subprime mortgage bubbles, is growing large enough to place our economic system at risk if we aren’t careful.
Tulips also had a valid value proposition. It emerged once speculation had been banished, and it lasts to this day: You can buy from Holland Bulb Farms a seven-Rembrandt bulb package. They charge a whopping $3.99.
John Farmer Jr. is director of the Eagleton Institute of Politics at Rutgers University. He is a former assistant U.S. attorney, counsel to the governor of New Jersey, New Jersey attorney general, senior counsel to the 9/11 Commission, dean of Rutgers Law School, and executive vice president and general counsel of Rutgers University.