[author: Natalie Afshar]

NFTs have been the subject of debate since their boom last year, and while some crypto stakeholders stand by their value, others are decidedly skeptical.

With NFTs becoming such a thriving sector of cryptocurrencies, some big-name billionaires disagree whether NFTs are worth all the hype they receive. In a recent interview, Bill Gates mentioned how he is not a fan of cryptocurrencies^[1] and believes that NFTs are a part of a “Greater Fool theory.” But what is the Greater Fool theory?

Viki Borgan, a finance professor at Cornell explains it as the following idea: “one can make money by buying overvalued assets and selling them for a profit later because it will always be possible to find someone who is willing to pay a higher price.”^[2] Further, someone who would contribute to the Greater Fool theory buys overvalued assets without any regard for their fundamental value.

Bill Gates classifies himself as an old-school investor and does not invest in cryptocurrencies, stating that NFT-minted images ‘do not help the world immensely.’ With the crypto markets struggling in the late spring/early summer of 2022, Gates deemed his Greater Fool argument successful, but are NFTs as bad as Gates sets them out to be?

Since the recent surge in the popularity of NFTs – non-fungible tokens are regarded by many stakeholders as valuable investments as NFTs verify the authenticity of a non-fungible asset.^[3] For example, if you own an original Banksy piece, this painting you own is irreplaceable and unique. If you turn it into an NFT you make the piece digital, and it still can be irreplaceable and even more valuable. The basic idea here is that if something is non-fungible it cannot be replaced for an identical value.

Traditionally, it has been harder to ensure value of digital images because of how easily they can be copied. When it comes to digital art, NFTs allow artists to identify the original work so that collectors can be sure that they own the “original” artwork. This allows a 1/1 digital image to have the same rarity and uniqueness as real-world Banksy work. Copies can be made of both, but the owner of the original can prove it has the original, valuable, piece.

Returning to the Gates’ claim, we can establish that at least some NFTs’ value is not derived from the Greater Fool theory, at least not in a material different way than fine art does, due to the underappreciated value and beneficial usages they allow. Items that have value are labeled as collectibles – art, wine, movies, etc. – and NFTs are the digital version of these valuable collectibles. It follows that that at least some people who purchase NFTs do seriously consider the fundamental value of their items contrary to what Gates believes.

Further analysis of NFT real-world uses remove the tokens from Greater Fool Theory due to the technological promise they offer. One promising example of NFTs’ potential uses is event ticketing – instead of purchasing a ticket on Ticket Master, someone who owns an NFT based ticket can sell their ticket through Open Sea and Ticket Master can receive a portion of that secondary sale automatically through a smart contract mechanism. The authenticity of the ticket would also be unquestionable, providing secondary purchasers piece of mind when buying tickets on the secondary market.

Another beneficial use of NFTs is the ownership of gaming assets. For example, if you play a video game that makes use of NFTs to evidence player characters and decide to stop playing, thanks to the power of NFTs, you could sell your character to someone else.

In this instance, you can basically monetize your gameplay and recoup your in-game purchases in ways that were not previously possible. This in and of itself is truly revolutionary (queue millions of gamers happily telling their mothers that they actually DID make money playing video games).

Although Bill Gates argues that cryptocurrencies and NFTs are not worth the investment, there are many factors that contribute to an NFTs value. From NFTs’ collectible use case to the resulting technological developments in the gaming, and ticketing industries, there is substantial evidence to show that NFTs do not owe their value solely to the Greater Fool theory.

For Gates to say NFTs are not valuable is like saying any type of collectible such as a signed jersey from a famous sports player has no value, which is not a logical argument. Therefore, people may want to take Bill Gates pontification on NFTs and cryptocurrencies with a grain of salt… after all, how many titans of industry believed that personal computers would never be more than children’s toys in the 1970s?

[1] Browne, Ryan. “Bill Gates Says Crypto and Nfts Are ‘100% Based on Greater Fool Theory’.” CNBC, CNBC, 15 June 2022.

[2] “The Greater Fool Theory: What Is It?” Hartford Fund

[3] Alex Gomez. “Why Are Nfts so Valuable?” Cyber Scrilla, Cyber Scrilla, 11 Apr. 2022