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“With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches.”

- Adam Smith

NFTs’ Big Use Case: Status as a Service

When I started as an equities trader in the 1990s, the understated way to signal success at work was wearing a Hermès tie.

Even the world’s most expensive tie would set you back far less than, say, a Rolex of course. 

But a Hermès tie signaled more than just monetary success: It signaled unofficial membership in a particular tribe of discerning finance people — Hermès ties (never advertised, never on sale) were an if-you-know-you-know kind of thing.

(In Europe, at least. Visitors from the US office were easily identified by their cheezy Bill Blass and Arrow ties.)

As early as about 2005, however, it was no longer wearing the right tie that signaled success — what signaled success was not wearing a tie.

Traders still wearing a suit and tie in 2005 looked like corporate salary men, employed only because they remained in the good graces of some higher-up they go golfing with.

Meeting a trader in jeans and a T-shirt, however, you’d assume they were at a hedge fund or on a prop desk — employed because they did daily battle with the market, and more often than not emerged victorious.

If a Hermès tie signaled anything at that point, it was that you had done well in the 1990s — but not well enough to retire. 

(Yes, I have a closet full of Hermès ties and, no, I am still not retired. Thanks for asking.)

Hermès itself hasn’t suffered from the change: The stock is up nearly 20-fold since 2010, thanks in large part to its ability to change with the times — without losing its timelessness.

As recounted in the most recent episode of Acquired (over just 4 hours and 11 minutes), Hermès has been selling status since about 1870, which is when Baron Haussmann’s renovation of Paris replaced the city’s jumble of ancient side streets with broad, straight boulevards.

Haussmann’s primary aim was to make it easier for the government to disperse protesters, but his new boulevards turned out to be perfectly suited for cruising.

Riding up and down the Champs-Elysées in horse and carriage became the way to see and be seen in Paris — and the way to signal status was to be seen in a horse and carriage outfitted with gear made by Hermès.

After the Revolution, status in France was less about nobility and more about money, and Hermès equipage was one of the first ways to display it — Hermès made status accessible to those not born into it.

The signals have changed over the years: After horse equipage, it was Hermès trunks for traveling by rail, then large Hermès bags for day trips by automobile, and then small Hermès handbags for everyday use (originally sized to fit in the overhead bin of an airplane).

Selling $12,000 Birkin handbags has more than offset the lost revenue from selling fewer ties in recent years.

But there’s a bigger change currently underway: How do you signal status in the age of work-from-home and social media?

Enter NFTs.

Being in style is always in style

I find the bewildering prices of prominent NFTs a little more understandable in the context of status signaling.

If you wear a Rolex, for example, only the people you see in real life will know you are the kind of person who wears a Rolex. 

If you have a Bad Kids NFT as your profile picture, however, everyone online will know you’re the type of person who owns a Bad Kid — and the number of people who see your Bad Kid will far exceed the number of people who see your Rolex.

Unlike watches, however, NFTs aren’t primarily about signaling wealth — using an expensive NFT as a profile pic isn’t a flex because the NFT is expensive, it’s a flex because it signals that you were sufficiently in the know to buy it while it was inexpensive.

Using an NFT that you bought after it got expensive is almost a reverse flex. 

This is not unique to NFTs. 

Hermès handbags are, of course, expensive, but their real value is that they signal you are the type of person Hermès chooses to sell to — because you can’t just walk into a store and buy one off the rack. For the privilege of buying a Birkin bag, you have to either be a long-time Hermès customer or a celebrity.

Yes, you could buy a used one at a big markup on eBay, but that is even more gauche than paying up for a profile pic NFT long after it’s gotten popular. 

You for sure don’t want to sell a Birkin on eBay. 

Like NFTs, Hermès products are non-fungible (each one is inscribed with a unique identifying number), so they will know if you’ve auctioned off your Birkin bag, and if you do they won't ever sell you another one — you will be excommunicated from the Hermès tribe in the same way that selling an NFT will get you excommunicated from a crypto tribe.

The similarities don’t end there.

Buying a Birkin bag is an investment in the Hermès brand in the same way that buying, say, a Pudgy Penguin NFT is an investment in the Pudgy Penguin brand.  

Birkin bags and NFTs are both highly prized because of contrived scarcity.

They can both be categorized as “Veblen goods,” where, unlike normal goods, demand increases when the price increases.

And they can both have utility: Your Birkin bag will carry things for you and your NFT might qualify you for an airdrop.

This is perhaps the true contribution of NFTs to the long history of status signaling. Airdrops directly reward status in a way that in-real-life status symbols cannot — no one ever gave me free stuff for wearing my Hermès ties!

Those airdrops have been wildly profitable for holders of some popular NFT collections as of late and while that is probably not sustainable, the underlying trend certainly is: As more of our lives move online, more of our conspicuous consumption will, too.

Status signaling is the one thing that will never go out of style.

― Byron Gilliam

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On today's episode, Jason is joined by Bitcoin early adopters, Pete Rizzo and Charlie Shrem. They dive into the early days of Bitcoin from 2011-2014, covering topics like the origins of BitInstant, Charlie's experience being arrested, the Mt. Gox hack, and the start of the block size wars.

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