Last Monday, when Visa announced it had bought a CryptoPunk non-fungible token (NFT) collectible to add to its financial history collection, I noted that these weird little 8-bit crypto tokens were valued for the same reasons people buy luxury status symbols like jewelry or sports cars.

But really, that amounts to “they’re valuable because they’re valued,” barely scratching the surface of the deeper why. When you’re talking about bitcoin (BTC, -1.12%) that’s enough, because it’s money – “it’s valuable because we agree it is” is inherent to the design.

If you’re talking about a collectible or status symbol, though, you’ll usually find some nominal root of value: A diamond or a painting is beautiful, a Ferrari goes fast and a $300,000 Charizard could still theoretically win you a game of Pokemon. These are things of inherent value whose rarity pumps them into the stratosphere.

So here’s a harder question: Once you’ve subtracted the status value of an NFT, what’s left?

The allure of NFTs, as much as it might make no sense to our rational brains, is clearly intense. You can look at the exploding transaction volumes on platforms like OpenSea, or the success of collectibles like NBA Topshot or, of course, CryptoPunks, and the numbers speak for themselves.

But as with most things in crypto, you can’t really understand what’s going on until you dive in and try it out. So I loaded a bit of fresh ethereum (ETH, 3.10%) into MetaMask and went shopping on OpenSea, hoping to find a poor man’s CryptoPunk so I no longer had to be a sad pleb with a disgusting Twitter avatar featuring my frail and wretched human body.

The best comparison I can make is that NFT shopping is like crate diving for vinyl records, of which I own far too many. When I’m in a record shop (and my condolences to anyone who hasn’t had this experience), I spend most of my time thinking of reasons not to buy one or another record, because they all have some degree of appeal and in a truly perfect world I’d own all of them. NFTs, likewise, trigger a kind of obsession distinct from a day trader’s itchy urge to ape into a trendy offering.

So what is that extra something that comes from buying an NFT – and how does it play into demand and pricing for digital collectibles? To try and answer that key question, I got some help from NFT investors, industry leaders – and the surprisingly relevant insights of a German philosopher who has been dead for nearly a century.

Here’s the quick version of the theory I wound up with: In the physical world, an object’s authenticity is the root of the status it confers on the owner. Authenticity is, largely, another word for an object’s history. That history, whether individually or in connection with a tradition or brand, or artist, is the source of the ineffable allure that makes collecting so satisfying for many.

NFTs are valuable in themselves and represent a totally novel category because they give digital objects a claim on the sense of presence, history, and authenticity previously reserved for physical objects. And the deeper and more interesting the history, all things being equal, the deeper that aura of authenticity is, the greater status conferred on the owner – and the more they’re willing to pay for it.

However, all of this depends on a shift in perception, one happening right now and based on a growing appreciation of blockchain technology. It requires that a critical mass of people learn to see digital objects as real.

A status game

To understand the deep value, a good place to start is how a thing is actually used. So how are people actually using NFTs today?

The most visible use among influential collectors is pretty simple: They’re Twitter avatars.

NFTs come in a few different flavors, and some of the headline-grabbing sales have been for single pieces of art. There’s also significant demand for pure collectibles like NBA Top Shot, and a growing market for game assets like cards or virtual “land.”

But the critical mass of real frenzy is for a particular genre of cartoonish headshots. Jay-Z made news recently when he made a CryptoPunk his Twitter avatar, which was soon followed by NFL player Odell Beckham Jr. Spend about five seconds on crypto Twitter and you’ll see all manner of punks, apes, penguins and herrings where you might expect to see a human face.

In theory, of course, you could just use a screenshot of any NFT and put it in your Twitter profile. But that would be a major faux pas.

“It’s almost like, why would you do that?” asks Henry Love, a managing partner at Fundamental Labs, an investment fund focused on NFTs and NFT infrastructure. It’s “implicit,” he says, that posting an NFT as an avatar implies that you own it, even without any technological guardrails to enforce the norm.

“Twitter is a place where you want to gain credibility,” says Love. “That’s really the game of Twitter. So if you have a fake NFT or a CryptoPunk that you don’t own [as an avatar], that’s detrimental to your credibility in the long run.”Volume 90% 

This is an early, informal version of what could become a technological element of online spaces like Twitter. A platform coded to only display only NFTs in a user’s own Ethereum address, for instance, would make their authenticity much clearer for a wider community.

So that’s, you might say, layer 1 of the NFT value question. “Why does this image have any value at all? Because of its ‘flex’ utility,” as NFT leader money.eth wrote in a recent thread. The more valuable or rare an NFT, the more status it conveys.

But that still doesn’t quite answer the question: Really, why do we care about these things?

Walter Benjamin and the threat of the photograph

The philosopher Walter Benjamin was born in 1892, just in time for his life to coincide with a major technological revolution in art.

Though the printing press and lithograph had already been around for a while, it was in the late 19th and early 20th century that photographic reproduction and cinema became widespread. Before about 1850, it was impossible to view more than a rough approximation of the Mona Lisa without standing in front of it. By the time Benjamin was in his prime, you could get a Mona Lisa postcard for a penny, then go around the corner to watch a silent film depicting Da Vinci painting it.

Benjamin was fascinated and bothered by these changes. He wondered, among other things, whether these photographic reproductions made the original less attractive or interesting. He worried that the original would lose its unique, ineffable value thanks to the wide availability of copies: “That which withers in the age of mechanical reproduction is the aura of the work of art,” he wrote in the 1935 essay “The Work of Art in the Age of Mechanical Reproduction,” which remains the most influential thing ever written about the human relationship to art in a technological age.

A century later, the power of the “original” seems to have endured: a staggering 10 million people traveled all the way to the Louvre in 2018 to see the Mona Lisa in person, even though they could access a high-definition copy, for free, with a single click.

What, Benjamin asked, gives an original object this immense magnetic pull? Certainly, some small portion of the importance of an original painting has to do with the subtleties of light and texture on the paint itself, which can’t be reproduced virtually now, and probably never will be with sufficient nuance to really replace a physical object. But that nuance, frankly, is beyond the grasp of most museum-goers, and Benjamin didn’t think it was what really mattered.

The aura of an authentic NFT

What, then, is the “aura” of an original piece of art?

“Even the most perfect reproduction of a work of art,” Benjamin wrote, “is lacking in one element: Its presence in time and space, its unique existence at the place where it happens to be. This unique existence of the work of art determined the history to which it was subject throughout the time of its existence. This includes the changes it may have suffered in physical condition over the years as well as the various changes in its ownership.”

This point is vital to understanding the appeal of NFTs. Attaching a piece of digital media to a blockchain ensures its continuity and tracks its ownership. These, Benjamin argued, are what support the “aura” of original artwork, and make it more appealing, and thus more valuable, than a copy. What matters to the awesome power of some works of art, he insists, is the history of their passage through space and time.

This aura is ultimately what separates an NFT on Ethereum from a JPEG on your hard drive – but in a radically different way than the aura of a painting. NFTs, after all, aren’t painstakingly hand-painted onto a canvas, but they aren’t copies of anything, either.

The art, of course, exists on an artist’s computer and a server somewhere and is “reproduced” by the mechanism of a computer screen, not so different from Benjamin’s film screens. But the actual thingness of an NFT (its ontological status, to use fancy words) rests not on an image, but on the ledger entry that secures its continuous existence in time and its location within the geography of cyberspace. The blockchain is what gives digital objects an aura, by giving them both history and presence.

But this sense of history and presence don’t operate according to familiar real-world logic. For the aura of an NFT to hold sway over your little monkey brain, you must already have some awareness of the technology that guarantees its uniqueness. Without some insight into the entire blockchain ecosystem and its technology stack, an NFT really does just look like a JPEG to you.

This sounds weird and untenable, but it’s not novel: Similar transitions in how we “see the world” have accompanied every major shift in media technology. A well-known popular legend has it that screenings of an early short film of a train entering a station caused audiences to panic and stampede because they didn’t yet know the difference between the two-dimensional and three-dimensional worlds.

It’s not clear that this story is actually true, but it epitomizes a broader process of “learning to see” film in its particular relation to reality. And a similar change is happening right now in the realm of the digital.

“To anyone under 40, things that are digital, it’s not a knee-jerk reaction that they’re not real,” says William Quigley. Quigley is a former director of legendary tech incubator IdeaLab; he built marketplaces for video game items before founding WAX, a blockchain for collectible NFTs.

He had a firm grasp on how much some people valued digital objects, well before NFTs were invented. Now, he’s seeing the security of NFT technology supercharge that appeal, and he predicts a future where their aura of authenticity gains more and more power over buyers.

“If you’re in the art business, you better look at the 35 or another set, because when they think about buying art, they’re thinking digital, not some canvas they have to figure out where to hang. I wonder if physical art is just less desired in the next 30-40 years.”

Personally, I think Quigley is overstating the case a bit, in part because NFTs will almost inevitably have less interesting histories than a physical painting. Blockchain systems carry relatively tiny amounts of information, so a “reality premium” will likely persist – not too different from the way reproductions have actually made more people want to see the original Mona Lisa in person.

But we can clearly see the power of history already in action, with the high and growing values attached to CryptoPunks. If Jay-Z ever decides to sell his Punk, you can bet your bottom dollar that his having owned it will add even more to its resale value, well into the future. Conversely, bootleg NFTs that use art or IP not owned by the creators may have a harder time retaining long-term value, since they’re not “authentic” – though for entirely non-technological reasons.

Other standards will certainly emerge around what’s considered legitimate or desirable. The “aura” of a painting, after all, relied on social consensus as much as physical reality, and the consensus around NFTs will form the same way. But ultimately they’ll all rely on one thing: the sense of continuity and history that we can now, for the first time, experience in the digital realm.