Yesterday, news broke that an NFT animation from an artist called Beeple sold for $6.6 million on digital art platform, Nifty Gateway (owned by Gemini). This comes after a month of increasingly record-breaking NFT sales. This got me thinking about a recent Zero Knowledge Podcast episode entitled Where Media & Music meet NFTs & Blockchain.Zero Knowledge Episode 167: Where Media & Music meet NFTs & BlockchainIn this week’s episode, Anna & Tarun take a step further into the NFT/Art space and chat with 2 content…share.fireside.fm
In that episode, Tarun Chitra and I chatted with guests Andre Anjos (RAC) and Trevor McFedries (Brud), both creatives working with blockchain & NFTs. We talked a lot about the work they do to bridge between music and blockchain (in the case of RAC), and influencers and blockchain (in the case of Trevor’s Miquela, the animated AI Instagram star). Both have great insight into the NFT space and hands-on experience working with them. With this follow-up post, I wanted to dig into two outstanding questions I still struggle with when it comes to NFTs:
- What exactly are they for?
- What would make me buy an NFT?
But first: what is an NFT?
I am assuming most of this audience has some sense of what an NFT is, but in case you stumbled on this or are relatively new to the topic, here is a quick primer: NFT stands for Non-Fungible Tokens. Fungible means interchangeable. So an NFT is a Non-Interchangeable Token. Each NFT is unique — unlike a token like ETH, which is interchangeable with other ETH tokens. Put another way: ETH is like cash, and an NFT is like a collectible coin. An NFT is “minted” using a smart contract that is written to a blockchain. This means the NFT is defined on a permanent, immutable ledger. This unique token can then be bought or sold, gifted or destroyed. You may decide to mint a set of identical NFTs — like a set of 8 of the same coin. NFTs are defined on the Ethereum blockchain using the ERC721, ERC998, & ERC1155 standards — we discussed the underlying code a bit in the Zero Knowledge episode on the ERC standards and process (Episode 62)
Question 1: What are NFTs for?
NFTs have always seemed like a really interesting idea, but for the longest time I have struggled to understand what they are actually for. Why are they actually useful or valuable?
Early on, people proposed connecting NFTs to equity in a company, or to represent a share of some off-chain asset like real estate. We have seen them attached to art works and songs. I have received a few random NFTs over the years, usually at conferences or as part of some swag haul. But to be honest, NFTs always struck me as “neat to have”, but also basically useless.
But as Trevor suggested in our discussion, NFTs might also represent a status symbol. If an NFT became valuable, it would become something worth “showing off” as yours. Potentially by attaching this token to a public account, thereby expressing some part of your identify through this ownership.
Now, if you were very privacy-focused, as much of our community is, and you owned a valuable NFT, would you actually want to advertise it? In the way that you wouldn’t wave around your bank account statements, you also wouldn’t display a valuable NFT publicly. But this seems to come down to a matter of sensibility. As Trevor noted, there are lots of people who like to show off wealth by owning and wearing valuable things in public. Fancy cars, art, jewelry, or clothes: these are items that are often displayed by people who want to exhibit their wealth or status. As Tarun joked, this might be more common in LA than elsewhere. But this is a behavior that some people do feel totally comfortable with, and why wouldn’t they eventually want to do the same with digital items.
So going with the idea that people would like to show off these collectible status symbols, in order to do so, you would probably need some sort of venue to do this. In the past, an NFT was simply sent to an address you owned, and would be something you only really saw yourself, in specialised wallets that have the feature to display NFTs. If you happened to have a well-known .ETH address or were being closely followed for your special brand of Alpha, then maybe people would have been interested enough in your account to figure out that there was an NFT in there. But for most of us, these early NFTs were for the owner’s eyes only.
With the emergence of marketplaces for NFTs, like Nifty Gateway, Rarible & Superrare, there are now new “venues” to show off ownership of an NFT. And these marketplaces hold some of the most valuable NFTs in the world. However, these are walled garden NFT platforms and the NFTs hold value only within the native marketplace where they were minted. The reason for this is that the link between the NFT token and the item they represent (image / song /clip) is made through the smart contracts on those particular platforms. The corresponding files are hosted by the NFT platform. And it seems that this is what ties an NFT to these platforms — NFTs can always be moved from wallet to wallet, but the corresponding art piece or song is only recognisable through the platforms where they are minted. For example, the Beeple NFT mentioned at the top of this article is an NFT with a corresponding animation file which is hosted by the Nifty Gateway platform. If you happened to be the owner of this Beeple NFT, you wouldn’t be able to move it to Rarible and re-sell it there. I know that there is work being done on creating interoperable NFTs, with Trevor and Andre highlighting Zora as a project working on this, but it doesn’t seem to be fully fleshed out yet.
The most valuable NFTs so far are those with items that connect the tokens to to existing celebrities or brands — like NBA Top Shot. This platform, a collaboration between the blockchain company Dapper Labs and the NBA proper, is a place where clips of exciting moments in NBA games are released in batches. There are limited numbers of each of these clips released. For example, there are 79 identical Lebron James Dunk from the NBA 2020 Finals clips. Folks on the platform buy these clips in packs, or buy the clips from other members of the site. With each sale, many of these clips are gaining more and more value. NBA Top Shot has in the last month generated $187.3 Million in sales on their platform, no small feat. That Lebron James clip is listing as between $100,000–250,000 depending on the serial number (the lower the serial, the more valuable it is). But this is all still very much a walled garden. As far as I can tell, the Top Shot clips are only issued by Top Shot, only tradeable on Top Shot, viewable and thus really only valuable on Top Shot. It’s like you own some sports trading cards, but you can only look at them and share them with friends if you are all in a particular location on the internet. Besides the cards having demand and thus some monetary value (at least at present), I still don’t really understand what these are for.
Question 2: What would make me buy an NFT?
One issue that I think I might have with NFTs is that so far they don’t really intersect with the content that I love. I don’t actually care that much about sports. I don’t seem to be that moved by digital art pieces (at least not enough to want to own one).
So a framing that I have tried to experiment with to better understand what drives people to buy NFTs is to choose some piece of content that I already love, and imagine someone issued NFTs connected to this. I love Star Trek: The Next Generation, for example. I don’t really get into it enough to buy toys or memorabilia, but I can try to put my trekkie hat on and imagine that I did love it that much. So say there were some Star Trek NFT platforms (like Top Shot), but instead of basketball clips, there were videos of Picard saying wise words, or his go-to lines of “Engage” and “Tea, Earl Grey, Hot”. Would I buy them? I am not sure. I guess if my friends who also loved TNG were on the platform with me and I could use these for some mimetic game, I could see value in this. Maybe I would enjoy owning a clip or 2 for the lolz. But I wouldn’t want to spend much on this.
If you are also a bit lost on the NFT concept, maybe try this exercise yourself — pick a show/song/video game you love and try to imagine if you would buy an NFT with a corresponding physical item, if such a thing was available. Now imagine a digital item or piece of content. Would you spend money on something like this?
The most compelling NFT item that I have encountered in the digital realm is the idea of skins in a video game. Think weapons, accessories, or outfits for your Avatar. These already exist in specific game ecosystems and there are marketplaces for these. But these marketplaces are basically made up of some database controlled by a particular game studio. With an NFT (unique coin tied to a decentralised ledger), you can remove the middleman and link the owner to the object in a way that better mimics the real world. You would own these skins, whether that game company (or the game) still exists. Still, say the game does disappear, these would likely lose their value unless there was a new venue or space to showcase them.
So far, we have spoken mostly about NFTs, which are connected to some other item, whether it is a physical item or a digital item. But remember these are simply unique tokens. They can also just be standalone coins, with no other attached item. No picture, no sneaker, no skin. So the question here is: can the NFT itself be valuable?
The act of ownership is the point
Another idea that I have recently come across is the idea that in Silicon Valley, having invested in a particular startup gives you status. Of course, there is a document that proves you own the equity. But no one shows off the document. These investors may never actually see any true gain from owning this equity. However, having participated in the round, maybe with some other famous VCs, gives them a status point. And is something to tell people about. It gives you street cred. (Feels hilarious saying street cred in reference to the Silicon Valley VC bros… but I digress)