NFTs and the Assignat

NFTs are all the rage these days. My youngest son in Norway got into one of these schemes early and made a small fortune from it. It's a fad comparable to Bitcoin. However, instead of having no anchor in anything but its own scarcity, NFTs are anchored in something real.

NFTs are contracts that assign ownership to those holding them. These contracts can in turn be divided into parts, so that fractional ownership becomes possible.

Damian Hirst has recently adopted this approach for his artwork. People can opt to buy his art as an NFT, and the artist has made $25 million as a result. The owners of his NFTs are happy to hold a contract rather than the artwork itself. Some are happy to own a fraction of one of his paintings. For many, virtual possession through a contract is preferable to physical possession. The owners trust Hirst to store the artwork securely, and they are fine with the fact that they can only see their art indirectly on a website.

This may sound like a novel solution. However, the idea is hundreds of years old. The Assignat that circulated as currency in France during the 1st republic was based on the same idea. Holders of Assignats were part owners in land confiscated from the Catholic church.

The problem with the Assignat was that it separated the owners from actual possession, so the state was free to issue new Assignats on the same land. Ownership was watered out over time, and the Assignat became worthless. Only those who cashed out their Assignats for direct possession of assets like land or gold ended up as winners in this scheme.

NFTs will follow a similar path to oblivion. Hirst might not issue new NFTs on the paintings he already made, but he's likely to produce another batch relatively soon. The lure of another $25 million is not something he's likely to resist for long. Hence, there will be an ever-increasing number of NFTs coming from Hirst and other artists who pick up on this scheme. There will be a huge number of NFTs, and their owners will in many cases be unable to get hold of the underlying asset due to fractional ownership. No-one can go to Hirst and demand half a painting. The whole NFT is required for that.

This highlights the distinction between ownership and control. Ownership is a formality that comes with responsibilities and liabilities. Control, on the other hand, is about physical possession. Hirst can display NFT artworks that he's storing for their owners. He can stand next to them and make good PR for himself. He can charge people for coming into his studio to see them. He has control of it. However, he has no responsibility or liabilities related to the art apart from keeping it safe. If the taxman decides to tax the value of his collection, it's the NFT owners that have to pay.

Hirst has managed to retains possession of artwork that he sold, thanks to NFTs; the Assignats of the 21st century.

Assignat

By National Museum of American History - Image by Godot13, Public Domain, Link