Our world is built on social constructs: money, law, education, jobs with frustrating colleagues — I thought I would never witness a construct as absurdly unique as the NFT.
Who knew that homo sapiens’ softspot the entire time was a fellow species, the hominidae and that we’d be willing to spend USD227,000+ for a drawn image of one!
Naturally, the curious homo sapiens that I am …I had to dive in. Or rather to “ape in” — an actual expression used in the industry, no joke.
I spent the last 12–15 months learning, trading, documenting and interacting with different kinds of NFT projects. A costly adventure from the early-day-degen, through ultra-hype bullrun, till the current standstill.
So what is the craze really all about?
The JPEG.
Most people when they think of an NFT, they think of the image above. In reality an NFT looks like this:
An NFT is a token on the blockchain, which stores certain kind of data. The token often contains a URL to a file e.g. The JPEG, a GIF or a 3D model (FBX or OBJ). It also contains other metadata or properties that define that NFT. In the example of a Bored Ape, it describes the properties of that particular ape e.g. “Bone necklace”.
Ok… so I own a token with some data attached to it — why would any of this hold any value, let alone sell for hundreds of thousands of dollars?!
What does it mean to own an NFT?
“It’s not about what the NFT is, but what it represents.”
Most NFT projects offer some sort of benefits or perks of owning their token. This is what the industry refers to as “utility”. Different projects offer different utility and as the industry matures, so do the ideas of what kind of utility/benefits do the token holders want to enjoy… and that the project can legally offer.
A Bored Ape gives you the ability to mingle with celebrities. A Cryptopunk stands for the early crypto / rich guys. A Steve Aoki NFT gives you private access to his events and inner circles. A Sandbox NFT allows you to hang out in the metaverse, attend Snoop Dogg’s virtual concerts or build a game or an experience on top of your digital plot of land.
Different types of projects offer different utility:
- PFP (Picture For Proof) — digital identity ranging from hand-drawn apes and Doodles to 3D characters and anime art. Examples: BAYC, Cryptopunks, World of Women
- Metaverse — virtual space ownership and access to building tools. Examples: Sandbox, Decentraland, Adidas into the Metaverse
- Metaverse-PFP — metaverse ready digital identity in form of a 3D character. Examples: CloneX, Meebits
- Art/collectibles — access to future projects, behind-the-scenes sneak peaks, tickets to events etc. Examples: HENI, Beeple
So far so good — let’s sum up:
NFT is a token on a blockchain that points to a file and offers certain (mostly virtual) benefits to the people that invested in the token.
But… why on Earth would many of them trade in the thousands of dollars?!
Scarcity & Community
Much of NFT’s value lies in its scarcity. There are only 9,999 CryptoPunks, 10,000 BAYCs and 19,382 CloneXs. Ownership of an NFT token, therefore, gives you access to a fairly small and exclusive group of token holders that get to enjoy the various utilities together — the community.
Imagine an on-line social club, mostly ran on Discord, which requires a token ownership verification to gain access to.
Projects hire “mods” or “community managers” to keep the holders happily engaged and moderate conversations that go south. Communities often get to vote on the project’s direction, contribute creative ideas and get exclusive sneak-peeks of what’s being worked on behind the scenes.
There are events, games and quizzes, announcements, various discussion channels… even (GIF) parties!
The more exclusive and strong the community is, the more people are willing to pay for access to it. Is it worth hundreds/thousands of dollars?
Let’s take the analogy of a golf club. Membership usually means a hefty investment, some in the range of USD25,000. Aside from the upfront cost, you’ll also need to pay an annual fee. In return you benefit from:
- Access to the golf course at a discount
- Access to amenities, restaurants as well as discounts for using those
- Discounts on accommodation
- Car sticker for easy access and parking, but also so you can show-off
- Access to other members of the golf club and events, allowing networking.
This where you and your mates would spend your evenings playing golf, meeting new members and shamelessly flirting with the waitress of course. Knowing “golf networking” is an actual thing, it’s also where you’ll likely to find your future business partners.
Now take it online, multiply by a thousand and put in on the blockchain.
- Club membership = mint price
- Access to amenities = utility
- Discounts = utility
- Car sticker = JPEG
- Access to other members = discord community
If you think you enjoy being part of an online tribe of JPEG-bearing “anons”, making online connections and benefitting from various online perks, as well as happen to have some crypto lying around —you’ll likely find NFTs fascinating and therefore worth the investment.
New social construct or a fad?
NFT ownership offers a unique way of connecting with like-minded online groups, usually revolving around a theme or an idea. Holders are bound by a financial investment and have a common interest in growing the community and supporting the project.
With that said, the extreme pace at which the industry grew also means that many NFT investors aren’t in it for the utility, community or the JPEG in that matter — they’re just here to get rich quick. There are various ways of making short-term bets in NFT projects, resulting in armies of so-called “flippers” investing blindly in projects hoping to “go to the moon”. This technique, while potentially very lucrative, creates an artificial demand hype at the initial stage of the project. Once the flipper realises this isn’t the lottery ticket he was hoping for, he sells at a loss and leaves negative comments behind, so called FUD (Fear Uncertainty Doubt).
It takes weeks/months for the dust to settle, leaving the core community behind. Stronger projects with stronger communities survive the phase. Many simply don’t.
New social construct or a fad? Only time can tell.
If the industry matures, attracts more serious talent and teams, becomes less volatile and discovers new ways to keep their holders in the long-run — it has the potential of changing the way we discover and participate in online communities.
If it doesn’t — I can’t wait for the day I can tell my grandchildren how some hoomans used to gamble life savings for drawing of a monke and called it investment.
