What You Don’t Get About NFTs
Some people think they’re too late. Some people think it’s stupid. Most people don’t get it at all. Hopefully I can help shed some light.
One of the most interesting tweets I have seen recently centered around an interview Bill Gates gave to David Letterman in 1995 where he tried to explain the internet.
Gates was articulating how people could listen to a baseball game using the internet, to which Letterman responded “haven’t you ever heard of the radio?” Gates responded that the value of the internet laid in its ability to allow people from all over the world to tune in to the same game, even asynchronously, to which Letterman snapped back “haven’t you ever heard of tape recorders?”
Today it almost feels like a meme, but the audience roared in laughter alongside Letterman because they didn’t understand the potential of the .com era.
It’s difficult now to refrain from drawing parallels to the development of the Web and the development of Web3. People largely responded similarly when initially presented with many of the potential use cases of blockchain, and for many it’s easier to write waves of innovation off as a fad (which many companies did for social media in 2013) than to take the time to understand why these things are happening.
We are at a point where you can no longer afford to misunderstand what is happening around you, or you risk missing out on a defining opportunity of our time.
In my mind, the rise in NFTs is a bridge in understanding the power of provenance, digital scarcity, and smart contracts. Some people think they’re too late. Some people think it’s stupid. Most people don’t get it at all. Hopefully I can help shed some light.
You’re not too late
When Bitcoin reached 5k, detractors from all over the world called top, and many people refrained from investing in the entire asset class because they felt like they’re too late. Had they closed their eyes and put their money in, they’d have generated a 1,180% return. If they had invested 6 months before that at $1,000, they would have generated a 6,300% return.
The classic and borderline offensive story of the 2008 market crash was that “even strippers owned five houses,” essentially getting at the fact that the market was riddled with unsophisticated investors taking on leverage to take advantage of an opportunity. You might think this similar to today’s NFT fervor, given the amount of noise being generated by the community or how many ape profile pictures you’ve seen on Twitter.
The numbers tell a much different story, and show how small but powerful (and loud) this community actually is.
In reality, there are only ~350,000 total accounts (with many people having multiple accounts and wallets) on OpenSea and just over 200,000 active trading accounts, which is really impressive when you consider the the 1.6m NFTs that were sold last month or $3B USD in volume.
Considering that the scarcity of many of these collections is even lower than that of Bitcoin, it’s not hard to imagine what will happen when there are a million or ten million active accounts (StockX has 15 million active users). There will still only be 10k Bored Apes and Koala Agents, and there’s something to be said about blue chip assets in this space.
You can’t just right-click and save
One of the most ridiculous gripes that detractors have about NFTs is “why can’t I just right-click and save the photo?”
This is like walking up to a lottery winner and scoffing “you just love to gamble don’t you?” Moreover, it demonstrates a lack of understanding of provenance, one of the most important and industry-defining aspects of NFTs.
Online piracy exploded in the early 2000s because of the fact that the system of files that we lived on was infinitely copyable. Streaming services like Spotify eliminated the major need to pirate, but this was essentially limited to music. Digital art could never be valuable because anyone could steal it, and you’d likely never know given the wide expanse of the internet.
NFTs change this because they prove digital scarcity and ownership. You can not only verify that you own the asset, but you can also see the entire history (and price) of whoever else has owned it. The original creator can generate a royalty off of additional rises in value, something which has previously been impossible. In a world where the Fine Art Expert Institute claims that over 50% of physical art is fake, provenance is key in today’s society, and will allow art, both physical and digital, to hold more of its true value.
Now imagine a world in which the NFT you hold gives you exclusive access to content, product launches, or events. Imagine that token granting holders royalties to the brand itself. Imagine NFTs expanding beyond social proof and into the world of utility.
You can’t right-click + save utility.
Bubbles aren’t always bad
“But people once bought rare tulips hundreds of years ago too!” I don’t know what to tell you, those people were dumb and you would have never caught me writing an article about tulips.
To compare NFTs to tulips is reductive and misses the fundamental benefit of the asset class. Tulips had finite use and cost associated to them. A more apt comparison would be to look at the .com bubble of the 2000s.
Many of the assets deemed ridiculous during the .com era of the 2000s were recognized as innovations a decade later. Alexis Bienvenu, behavioral economics expert, has noted that “smart bubbles” are not only inevitabilities in innovative markets, but they actually improve the efficiency of said innovation.
We are at the cave man drawings stage of this wave of innovation. There are less than 200,000 Solidity developers in the world, many with little or no enterprise experience.
Lastly, even if you are to fully concede that we are in a “dumb bubble,” you’d be again missing a major part of what makes bubbles such an incredible opportunity: the melt-up. Stocks fell by more than 80% between 1929 and 1932, but they posted returns of more than 90% in July and August of 1932 and the trend continued over the next six months.
So now what?
NFTs today are a snapshot at what is possible through this technology, and digital scarcity has been one of the first use cases that has really resonated with people.
Today, Steph Curry, Dez Bryant, Jay-Z, Visa, Budweiser, and more own NFTs. Bored Ape Yacht Club is selling apes on Sotheby’s. We are in a world in which NFTs can no longer be ignored or written off.
Will you be someone calling Bitcoin top at $5,000, or will you choose to participate in generation-defining technology in an effort to push us forward? Fully ignoring NFTs is a bit Letterman in ’95 of you, no?
If you’d like to mint your first NFTs, you can check out the guide I wrote here. If you’d like to stay up to date on what projects I like, where I’m spending my time, or just connect in general, you can find me on Twitter.
