The original NFTs were tulips, not tokens

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Next time you see Matt Damon or Larry David or LeBron James telling you to invest in cryptocurrencies or non-fungible tokens (NFTs) now because “fortune favors the brave,” remember: The original NFTs were not tokens but tulips.

Imagine Amsterdam in the 1630s. There are no cyclists tearing through the canals scaring tourists like you. There are no clouds of marijuana smoke hanging over the footbridges or junkies lounging on street corners. There are only the charming houseboats mooring along the canals, the crenellated shop fronts and townhouses and almost everywhere the sight of people trading tulips and tulip bulbs as currency for goods. Since their arrival in the 1560s, tulips have become so firmly established in Dutch life that the greatest artist of his day, Rembrandt, depicts a tulip in a painting by his wife, which becomes the viral equivalent in the 17th century; Since then it has been known as the Rembrandt Tulip.

But, tulip bulbs you ask? As currency?

Of course you are informed, why not? There is actually no ascertainable inner value; Things are worth what we collectively are willing to pay for them. By the 1630s speculating on the value of tulip bulbs went from being a pastime of the wealthy to a mainstream commercial enterprise.

As Charles Mackay describes it in his 1844 classic, Extraordinary Popular Delusions and the Madness of Crowds: “At first, as with all this gambling mania, confidence was at its height, and everyone won.” The demand for one or other merchandise was fueled by scammers and peddlers who “gambled on the rise and fall of tulip stocks and reaped large profits by buying when prices fell and selling when they rose”. Tulip desks were set up on the trading floors in Amsterdam, Rotterdam and Leiden.

A whole society took the bait. “Noblemen, commoners, peasants, mechanics, sailors, footmen, maids, even chimney sweeps … converted their property into cash and invested it in flowers.”

When the fever was at its peak, someone was willing to trade “4,600 guilders, a new carriage, two gray horses and a full set of harnesses” for a single Semper Augustus tulip bulb – known in slang as the NFT at the time, meaning a non-fungible tulip. A single onion from another NFT, the Viceroy’s Tulp, could be exchanged for four fat oxen, eight fat pigs, 12 fat sheep, or 1,000 pounds of cheese. After all, what did it matter? They were worth anything people could be persuaded to pay.

Except, well, not really. When tulip capitalization finally entered the mainstream Dutch economy, Mackay told us, “it was clear someone was going to end up losing terribly.” They might not have been fungible, but they were still just tulips, after all.

“Hundreds who just a few months ago began to doubt the country’s poverty suddenly found themselves in possession of some flower bulbs that no one wanted to buy… . The few who did manage to get rich hid their wealth from the knowledge of their descendants and invested it in English or other funds…”

Luck, as we are constantly reminded in the cryptocurrency and non-fungible token marketing blitz these days, “favors the brave.” Matt Damon compares investing in crypto to the risk-taking of the great global explorers, the mountaineers, the space travelers; Larry David poses as an ignoramus who was not interested in the telegraph, the electric light, the computer and now doubts the viability of cryptocurrencies. LeBron James advises his younger self to boldly enter the NBA and likens that decision to investing in cryptocurrency.

Fortune may sometimes favor the brave. But it is more often cruel to the reckless. Think of George Custer, who gave the order to attack the invisible Sioux nation. People who send their children on the doomed Children’s Crusade. Napoleon or Hitler invading Russia, or Russia’s recent criminal misadventures in Ukraine.

Think of the investors in Bernie Madoff, Enron or DeLorean. All brave people to be sure. And they’re broke too.

None of the prominent cryptocurrency ads attempt to explain what they are and why they are valuable. I suspect the reason is because they can’t. Try it: Go online and ask what you are buying when you spend your money on cryptocurrency or NFTs. What do you get for your money? You get a percentage of a “coin” that is non-fungible and anonymously recorded on a blockchain ledger that can facilitate transactions faster. For real?

The best answer you’ll get is the one Mark Cuban gave regarding buying Dogecoin for his son: “It doesn’t mean it has intrinsic value. It doesn’t.” You’re essentially buying into the hope that this relentless marketing will convince others to buy in, thereby inflating the “value” of your anonymous fraction of an abstract ledger entry.

I’m sure there is value in encoding transactions on a blockchain ledger. I suspect that this value has been dangerously overstated, relies entirely on social media push marketing, is subject to untraceable manipulation, and like the dot.com and subprime mortgage bubbles will grow large enough to jeopardize our economic system if we don’t do it carefully.

Tulips also had a valid value proposition. It started after speculation was banned and it continues to this day: at Holland Bulb Farms you can buy a packet of seven Rembrandt bulbs. 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 US Attorney, Advisor to the Governor of New Jersey, Attorney General of New Jersey, Senior Counsel to the 9/11 Commission, Dean of Rutgers Law School, and Executive Vice President and General Counsel of Rutgers University.

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