Wiser! #62 (Premium): A year ago, nobody outside of the blockchain community had heard of NFTs. A year later, NFTs are a $40 billion industry and the Word of the Year. But is this a passing fad, or an enduring technology that has re-written the rules on digital asset ownership?
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This 2-Part Series on NFTs
Intro: This is Part 1 of a 2-Part series about NFTs.
In this Part 1, I explore how the two dynamics of scarcity and status are defining the appeal of NFTs, particularly when it comes to paying extraordinary sums of money for digital artwork. More important though is the utility of NFTs. IMHO, NFT technology will be enduring, long after the craze for digital apes, punks or pixellated cats has died down.
In Part 2, I focus on the market, the plagiarism, fraud and copyright infringement that is dogging NFTs. And what the future holds for non-fungible tokens on the blockchain.
A passing fad, or the future of asset ownership?
BackStory: NFTs was one of the most talked-about subjects of 2021. From nowhere to a $40 billion industry in 12 months is unfathomable. But that's what you get when you combine status and scarcity and FOMO and a heavy dose of social media promotion.
Crypto took over a decade to infiltrate the public consciousness. NFTs took less than a year to gain traction. To me, it's evident that NFTs are more than just another passing new fad, a POV seemingly shared by brands like Budweiser, Nike, Adidas, Gap and Gucci. Last month Twitter embraced NFTs by creating a feature to include them in your profile pic.
The debate about NFT's tends to fall into one of two camps. Those that see value in owning an NFT, and those that don't. On the one hand, you have substantial sums of money being paid for real estate that exists in the Metaverse or digital artwork to hang on a digital wall (Samsung even made a TV for you to display your NFT collection).
On the other, there are the scoffers who chuckle at the apparent stupidity of anyone handing over hard cash for some 3D graphic of an ape or cartoon house (Dave S - you know who I mean!). Or laugh at the nonsensical story of a reality TV star who is selling "farts in a jar" as an NFT!
I'll show my hand upfront. I'm in the former camp and believe that not only is NFT technology enduring, but that one day (sooner than you think), we will all own assets with NFTs. The current flurry of headlines for get-rich-quick stories or major brands buying virtual plots in a virtual shopping mall give a false impression. That this is some giant scam to create an illusion of value when in fact the "emperor has no clothes on".
It's a fair point, but misguided and IMHO, misses the big picture. Which is that (a) NFTs create a whole new world of efficient and effective operating models arround asset distribution and ownership. And (b) that the two dynamics of SCARCITY and STATUS that appeal to humans at an emotional level are driving demand side.
The reason the scoffers can scoff is because the current focus of attention on NFTs is on the narrow world of digital artwork and virtual real estate. Here, both scarcity and status are playing out at an emotional level. If you don't get it now, you probably never will, anymore than trying to understand why anyone would pay $1 billion for the Mona Lisa.
It is this focus on digital art and land that is distracting from the use cases and utility of NFTs in everyday life that have not yet come to life. They will and they are. But the headlines focus on the daft stories that create an emotional response (Such as Garry Vee made $90m in 90 days from NFTs).
But that is about to change and NFT's are going to start popping up in everyday life. Where ever there is a form of value, it can be NFTed (I just made that word up...remember where you saw it first! ).
Here's a good example from Alfa Romeo...
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Trust in an NFT
Alfa Romeo have just unveiled the Tonale, an electric-hybrid subcompact SUV (whatever that means!). And it comes with an NFT.
The NFT will capture and hold vehicle data to generate a certificate. This digital certificate (a non-fungible token) will be stored safely and securely on blockchain technology. The car's NFT will provide untamperable information and history about the car, such as its provenance and maintenance records. The important things the owner needs when they want to value or sell the motor.
For the owner, it will (just) look like a record on a computer screen. They log in and, bingo, the vehicle's history is there to see. No more ink stamps in a paper book in the glove box!
For the buyer, they get peace of mind that the information being provided is genuine. (Now, before any smart arses start leaving comments, I accept that nothing much is 100% certain, unlike death and taxes, but the point is that digital records on a blockchain can not be falsified or tampered with in the way that a vehicle's paper records could be, or even a centralised record at the vehicle licensing agent could be.)
But here's the thing...
The way we place value in things is changing
People under the age of 30, the so-called 'Zoomers' who were born between the mid 1990's and late 2010's, appear to have developed a different value system to previous generations.
When I see the amount of money being spent on NFT digital assets, I think it's absolutely bonkers. How could anyone in their right mind pay hundreds, thousands or even millions of (*pick your currency) for a skin or a jpeg of a pixellated cat, let alone a plot of virtual land in a made-up fantasy world. The thing is, the Gen Z'ers don't think like that. Scarcity and Status.
Talk to any 15 year who plays Fortnite or streams live videos on Twitch. Or an even younger demographic playing online games on Roblox. It is totally natural and logical for them to take their pocket money and buy digital tokens on the platform to spend online.
Whether that is V-Bucks on Fortnite, Bits on Twitch or Robux on Roblox, it doesn't matter. These tokens are no more than digital casino chips exchanged for real money. The only difference is that (a) they're digital code and not a plastic coin, and (b) they're being spent in virtual worlds on things to own and play with, and not in a casino on a game of chance.
The point is that you have a whole generation of younger people coming into the economy who are totally at ease with spending digital money to buy and own digital things.
The fact that the stuff they're buying isn't tangible is of no significance to them. Tell them that this is just a few lines of code and they don't really care. That's because they have placed a value on it, even if I can't see it. Their measure of value is not the same as mine.
NFTs will be an enduring technology
This is why I'd bet that NFTs will be around for a long time.
As will digital currencies, whether they are crypto, stablecoins or a CBDC. Mostly likely it will be a combination of all three with interoperability enabling frictionless exchange from one medium to another. Just look at what's happening in China compared to the USA to see the stark reality of adoption versus resistance to digital currencies.
China is building a digital economic infrastructure based on blockchain technology and a digital Yuan. This will enable China to trade with substantially less friction and cost, making it more competitive than it is today. Meanwhile, the US Federal Reserve has dragged its feet and sat on the fence for the past 18 months whilst it thinks about it.
Whatever you think of China, and there's a lot to be worried and unhappy about, be clear about one thing, China is way ahead of the United States when it comes to building, innovating and regulating the tech economy.
To be continued in Part 2 ...
Premium Members will receive Part 2 of this 2-part series on NFTs in the Friday 18th Feb issue of the Wiser! Newsletter.
Nike, NFTs and the Metaverse
A funny explanation of NFTs
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w/Further Reading from Wiser!
w/Sources of Insight and Information
OpenSea valued at $13.3 billion in new funding round. Source: HYPEBEAST
New Alfa Romeo SUV equipped with NFT, blockchain technology. Source: CNBC
The counterfeit NFT problem is only getting worse . Source: The Verge
Play-to-Earn Is Already the Biggest Star in the Metaverse. Source: Coindesk
OpenSea NFT Trading Volume Hits $4.5B in January. Source: DappRadar
Gucci Buys Land in Ethereum Game The Sandbox to Create Metaverse Experiences. Source: Decrypt
Nike sues StockX over NFTs. Source: Vogue Business
The Biggest Celebrity NFT Owners in the Bored Ape Yacht Club. Source: Decrypt