We hate art but what's the first thing we do when we get a break from labor? Stream someone else's creativity. 🙄🤡
The conversation around NFTs both on LinkedIn and other social media sites has been downright depressing. Not because people disagree or because most people are wrong, but because it's exposed how hostile people are to learning by default.
When my friend told me that Blockchain and Decentralized Finance were having a Renaissance after the 2017 bubble crash, I asked why, isn't it the same slow, expensive, not-money money?
No, he kindly explained to me what smart contracts were and I was floored.
Self executing code, hosted entirely decentralized on the blockchain, with a Turing complete programming language running on decentralized virtual machines.
How did I miss the memo on this world changing technological breakthrough!?
Oh... Because I was hostile to learning when this stuff first came out and now I'm playing catch up. What a shame.
I'm hoping this article can help you, my beloved reader (seriously, thank you for reading my constant flow of nonsense) avoid hostility to learning and learn something about NFTs so you're not late to the party like I was!
The foundational technological breakthrough with #NFTs is standardized, decentralized digital scarcity.
Those 4 words are the key of understanding.
When we laugh at people buying song NFTs when the song is on Spotify, or buying an image NFT that we can simply right/click/save, we're confusing access and ownership.
Ownership is the right to sell in a marketplace. Access can be revoked, that favorite movie or song of yours can get pulled off Netflix or Spotify at any time for licensing or cost reasons made without your input. (While link rot has made a similar problem with many popular, but poorly managed NFTs, it's a conversation for another article).
So let's go backward on my standardized, decentralized, digital scarcity.
(1) Scarcity + Story = Sellable
You can have completely useless garbage, but if there's a market for it, and that market is appropriately: stable, liquid, and uncorrelated, then that garbage now has value.
It's that simple. If thing is limited, easy to resell (mechanically speaking: low or 0 shipping/transaction costs, cheap quality assessment, etc.), the price is not correlated with the price of other things, and at least a minimum number of people have shown interest in it- boom you now, by definition, have a market.
Did you know the fundamental theory behind Economic growth is that it is the sum of technology growth (our ability to create more efficiently including in less time) + population growth (more people = more potential buyers in any market)?
Am I personally buying digital band T-shirts? No 😂
Do I think a picture of an @ Jack tweet is worth $2,900,000? No 🤣
But they are scarce- there's only 1 Jack Dorsey, CEO of Twitter.
There’s only X official, re-sellable, copies of his tweet NFT (i.e. the jpg image that *he* uploaded to the system and minted).
Nobody cares if I minted his tweet, it's *Jack* that brings the value to the Jack tweets by Jack market. The Jack tweets by Carlos market probably doesn't exist.
If enough people want it and the sale mechanics are simple enough and the price is uncorrelated enough- boom, we have a Big Tech CEO tweet NFT market now.
The "Big Tech CEO" is the story that makes the tweet NFT sellable on the market (there are a few big NFT marketplaces that handle the mechanics of sale, pricing, and history to confirm it's a Jack by Jack instead of a Jack by Carlos).
(2) Digital doesn't Decay*
With a baseball card or vintage stamp, you have to be extremely careful with how you store, ship, and even assess the quality of the product. This adds costs to the product and these costs can form a foundational price for it as well (cost theory of value- google this).
But digital stuff is perfectly static. You can right/click/save the JPG behind the image right! 🤣. I remember the pre-spotify Youtube to MP3 converter & Limewire days.
There is some complexity here over how NFT images are stored and how stable their metadata is to link rot* (google this). But for now, let's accept the premise that this digital stuff doesn't decay, since it's the #1 argument against NFTs anyway (I rIgHt ClIcK sAvEd NoW i HaVe A cOpY).
(3) Decentralization is the Future
Let's talk about centralized versus decentralized.
Centralized *access* to music is Spotify. They handle the catalogue, what gets added or removed, and the cost of access.
Decentralized *access* to music is like PirateBay. People get copies of the music however they get copies (CDs, Itunes, recording a concert themselves on their phone) and they run nodes (called seeders) making it available to anyone with access to the internet. If 1 node goes down, doesn't matter, there are others. And the way torrent technology works is that it's downloaded in partitions from across seeders to be resilient to any specific node errors
Now, of course, stealing music is stealing, I'm not endorsing stealing.
But it's an easy example of how the duplication and resilience of decentralization adds value. Especially for old music, which can be lost to history when there isn't enough market value to validate licensing deals with major music streamers or producing CDs (high fixed costs, low variable cost).
Decentralization is happening across tons of markets. Randoms on YouTube have bigger followings than major news companies have viewers. That decentralizes the information (and entertainment and other) markets. Have you heard what one 9 year old has done to the toy market?
(4) Standardization Scales Value
Instead of video games doing all the work to make extremely custom gear for characters (the thing that made Fortnite a billion dollar company!) they can make their games compliant with a decentralized video game NFT protocol such that characters in the game can have their clothes be any design that is compliant with the protocol.
Suddenly that digital band shirt becomes your Fortnite skin AND your Sims avatar shirt AND your bitmoji, the list goes on.
Standardization brings portability which scales value.
Those expensive NFT albums you bought? Well if they're compliant with a virtual reality (VR) audio player protocol, then you can hang with friends in Decentraland and stream the song in your VR house natively on the platform. Or hang up that painting from OpeanSea in your VR gallery room.
This portability increases the value of artificially scarce digital values tremendously. When kids buy their favorite Roblox outfit, it can only exist in Roblox. It can be taken away by the company behind the game or simply be lost to the ether when they grow out of the game and into something else. But imagine if it were portable to minecraft? Now suddenly you have a product (video game outfits) that can persist across platforms and be resilient to the owners changing tastes. This makes the product significantly more valuable for end users and we should expect NFTs and gaming to be a big thing over the next 3-5 years.
(5) Art is the low hanging fruit.
It's difficult to talk about NFTs because the discussion is inseparable from the capitalist hatred of art. We are taught to hate art. That creativity is unproductive and anything unproductive is bad. That art (and history and philosophy, list goes on....) is a bad college degree and that of course musicians and painters are broke, it's a terrible career with no value in a capitalist system.
We hate art but what's the first thing we do when we get a break from labor? Stream someone else's creativity. 🙄🤡
So it's unfortunate that NFTs have become intimately associated with art, simply because Art was a prime target for decentralization and digital scarcity. It has become an easy transfer of our capitalist hatred of art.
But standardized, decentralized, digital scarcity is way bigger than art.
A county government could get their property tax data (digital) and make NFTs to manage property metadata (standardized) and transaction histories where each house with a unique address (scarcity) is it's own NFT. The current homeowner could own their home NFT (decentralization), updating the metadata with repairs and upgrades to the home. Improving information flow (e.g. home value) and property tax estimates and reducing information asymmetry problems in home buying. (The seller knows the A/C has a year left at tops, the buyer doesn't...).
An individual could tokenize their browsing data and control which advertisers have access to that data for targeted advertising. I could greenlight targeted advertising for advertisers who I trust to make good product recommendations for me and don't spam me with useless emails or resell my data. I could charge bad advertisers *directly* for access to my data because their advertiser rating is low and I suspect they'll spam me or sell my data.
Standardized, decentralized, digital scarcity will enable a revolution in online identity management & confirmation; privacy/security; secondhand markets (both digital art and real life items with NFT tracked sales); and portability of digital items across potentially adversarial systems (e.g. two competing video game companies can both agree to use public protocols for in-game gear to freely transfer between the games, growing the overall market for both games).
For more on NFTs - check out a16z’s NFT Canon - a curated list of NFT articles to better understand the depth of possibilities (which I could barely address here!).
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