This broken diamond NFT is the perfect microcosm for all NFTs

by James · August 2, 2022

I stumbled across this Twitter thread the other day, by some web3 profiteer who came up with ideas on how to extract value from existing brands using blockchain tokens. Most of them are monetized loyalty programs that operate under the assumption that the loyalty rewards will have an exchange value as currency alone; otherwise, they are just another way for companies to shift costs to consumers by gamifying their externalities.

2. Meta / Facebook

Users earn the platform token by posting and commenting. Amount earned is based on the popularity of the content posted. Advertisers pay for ads in the platform token.

— Tascha (@TaschaLabs) 24 July 2022

5. Pepsi

Pepsi owns dozens of food and beverage brands and regularly acquires new ones. A PepsiCo tool — which customers can earn when they buy from one brand and spend on another — could help Pepsi grow new brands by leveraging customers from existing brands it owns. pic.twitter.com/n5xWD3AkUu

— Tascha (@TaschaLabs) 24 July 2022

Naturally, I clicked on the person’s profile, where she brags about being the creator of “the world’s first broken diamond NFT,” which began as another Twitter thread that…honestly explains it all pretty perfectly:

If you make an NFT from a real diamond, and the diamond itself is destroyed in a fire tomorrow, you still have the same resource.

Because the token still exists and is limited available just like before. Nothing has changed.

Few people understand what NFT does with the term asset.

— Tascha (@TaschaLabs) 22 August 2021

If I make an NFT of a 1980 Lando Calrissian action figure and it gets destroyed in a fire, I still have the same resource… right?

See also How to use Solana to buy NFTs

…Right…

To prove her point, Tasha labs actually bought a diamond, destroyed the diamond, and then minted an NFT of the diamond on OpenSea. From the listing:

I went and bought a real diamond for $5k—> destroyed it—> minted an NFT for the diamond. I wanted to see how much value NFT retains.

Many people do not understand why this exercise would work, including my mother who has been a savvy investor and accountant for 30 years. I had a long debate with her, which I wrote about here (https://taschalabs.com/nft-is-better-than-diamond-heres-why/).

But my basic idea is that a physical asset like a diamond has value because of two functions:

1/ physical utility function 2/ asset function as store of value (SoV)

When you destroy a diamond and create an NFT instead, you transfer function #2 to the NFT. Since destroying the diamond cements the 1-to-1 mapping between the diamond and the NFT, the NFT should retain the SoV portion of the diamond’s value.

An NFT can serve the role of an SoV, because it is able to satisfy 3 basic criteria for something to qualify as an “asset”:

1/ durability 2/ supply limit 3/ social agreement

I also believe overtime NFTs will replace physical assets like diamonds and real estate, because NFTs are a much more user-friendly asset class for holding and transacting, compared to physical assets.

Sure, Tascha did finally transferring her broken diamond NFT to someone else, for 5.5 ETH – which at the time of sale was equivalent to about $16,500, although it is currently closer to half that value. And to be fair, that’s an increase in value from her original investment! So maybe I’m the idiot. Or maybe this just cements my belief that this is just a value extraction scam that perpetuates the inherent worthlessness of government-derived currencies. But hey, I guess it’s a cool idea to skirt around the system?

Tascha’s Broken Diamond [OpenSea]