Ride along as we explore concepts like decentralization, local news, civic identity and all the concepts we’ll need to master to build Metacity for St. Petersburg. To read other content from this series click here. Visit gometa.city to dive into our next generation web3 operating system for a physical city.
NFTs are making headlines with mind-blowing sale prices in the digital art space. Digital artist Beeple recently sold an NFT for $69 million at auction. Cryptopunks NFTs, which were originally given away for free, fetch $250,000 and up. NFTs are on fire – and yes, it’s a bubble. And yes, many of the NFTs purchased now will lose most of their value.
But it doesn’t matter that we’re in an NFT bubble. Here’s why:
There was an internet bubble. The stock prices of many internet companies crashed, but some didn’t. Amazon, Ebay and Shutterfly emerged from the internet bubble as well as … the internet. Think of the market cap of all internet-based companies today. Through that lens, the internet wasn’t in a bubble at all – it was just too early, and people were overeager. They bid up the wrong companies that came before the right ones, but they were right to be bullish on the internet.
This NFT bubble is similar, except we’re even earlier. The killer applications for NFTs have yet to be developed. It’s a matter of when, not if, that happens.
We’ll run through some quick basics on NFTs and then look at an important perspective that will prime your mind for ways you might use NFTs to win the future.
What does NFT stand for and what does it mean?
NFT stands for non-fungible token.
Fungible means mutually interchangeable. My five dollar bill can be swapped for your five dollar bill and either will buy a giant Slurpee from 7-11. Note that five dollar bills have unique identifiers (serial numbers) but they are still fungible.
Non-fungible means the opposite. Unique and not seamlessly equivalent to anything else.
When you combine non-fungibility with the permanent, immutable record of a blockchain, you unlock some very powerful use cases. An NFT on a blockchain becomes a record of ownership.
This is the actual function of NFTs for art. What’s the piece? Who made it? When was it made? How much did it sell for? When did it change hands? If you’ve got the private key for that NFT, you can prove all of the above and that it’s you that owns the “digital original” of the piece.
Digital original – what is it and why is it valuable?
Digital original is a new concept that can be hard to get your head around. It’s worth digging into because it illustrates an essential mindset shift for engaging with NFTs.
NFTs are the new store of rarity value.
It might seem weird that data recorded on a blockchain could be worth millions, but it’s really no more weird than the stores of value you’re already used to.
Consider the U.S. Constitution. How much would one of the original 14 drafts of the U.S. Constitution be worth on the open market? We actually know this because one just sold for 43.2 million dollars. Why was it worth that much to someone? Was it the paper that was worth $43.2 million? Was it the ink? No. The ink and the paper are/were simply the culturally accepted vehicles for storing and transmitting that value. It is the rarity, authenticity and connection to an important event that makes the Constitution worth millions. NFTs are simply the modern version of ink and paper.
It makes sense that we need something new. When Elon Musk lands on Mars and drafts the Mars Constitution, it’ll be typed on a computer and saved as a file. Like the U.S. Constitution, it will also be significant in rarity, authenticity and connection to an important event.
If we break down the Mars and U.S. constitutions example to core rarity value elements, blockchain can actually be a better steward of that value. Imagine you saw a story in the Catalyst today about someone buying a painting at a garage sale only to discover another original draft of the Constitution was hiding under the art. The first value-related questions are “How does adding a 15th Constitution affect the value of the other 14 drafts, and how many more could there be waiting to be discovered?” and … “Is it authentic?” The security and immutability of the blockchain make the total copies produced and authenticity questions much easier to answer. The facts are right there on a globally shared permanent record.
Pulling that concept into the collectibles market – we see sport or Pokemon cards as another ink on paper value holder. The rarity of these cards is even more interesting because, unlike historic documents that are unintended collectibles, Pokemon cards are intentionally printed at certain intervals to manufacture rarity. And it works. Pokemon releases new sets regularly and certain cards, printed just days before, come out of the pack worth tens, if not hundreds of dollars.
That leads us to this key understanding: Cultural artifacts – whether historic or modern – have value because people value them.
How that value is stored and transmitted is not the main driver of the value. Therefore we shouldn’t treat it as such. For coming generations, an NFT will be accepted as a store of value just like ink on paper is now.
Joe Hamilton is publisher of the St. Pete Catalyst.