NFT's: Not just JPG's: Signaling, Access and Ownership

NFT’s have exploded in popularity, officially entering the zeitgeist when Beeple sold his Everyday’s NFT through Christie’s auction house for $69M earlier this year. 

Christie’s Online Auction 20447 | Beeple | The First 5000 Days

But NFT’s have been circulating amongst the crypto art scene for nearly a decade—beginning with colored coins minted on the Bitcoin blockchain and growing in utility with the applications of ERC-20 and ERC-721 standards on Ethereum. 

Kevin McCoy: Quantum, 2014 (Sotheby’s Auction Card)

Highly visible projects, including Cryptopunks, CryptoKitties and Bored Ape Yacht Club have driven visibility and interest in NFT’s with price tags up to nearly $12M USD. To give a sense of TAM on the NFT space, market leading NFT marketplace, Opensea, reported last week they had reached $10B USD in lifetime sales on the platform.  

Image: CryptoKitties

But the reaction I get from most non-crypto “nocoiners” when we review the transaction history on Opensea is “$300K for a jpg? Are you f’n kidding me?!?”

In fact, there is a raging debate on Twitter between “right click, save as” group vs. Crypto Twitter, on the value of these NFT’s, and the merits of ownership of a digital image.

I firmly believe that there is merit on both sides, which is why the future of NFT’s is not simply “JPG’s”.

Not Just JPG’s

Scarcity and signaling have been tools marketers have leveraged for years in building impulsive and aspirational brand affinity. The ingredients are usually the same:

Scarcity. Urgency. Association.

All of the previous examples of NFT’s share these qualities.

Unique. Limited Supply. Real-Time Bidding.

But the most important quality for NFT’s is not the collectible component, though there is clearly a massive market for that…it’s the association and access that these NFT’s promise.

NFT’s: The “Meta” Velvet Rope

At the foundation of NFT’s built on one of the many ERC (and similar) standards is the smart contract. The smart contract, in my mind, is the most powerful aspect of NFT’s and one of the reasons Web3 will transform virtually every industry over the next decade. This smart contract is a programmable and immutable license that’s conveyed through ownership of an NFT asset. Gaming is the most logical use case, because it’s so natural to the experience of the player. Instead of in-game purchases, allowing users to trade NFT’s that provide access to a special depot for gear, or access to new Worlds, the ability to contribute to the future of the game, or influence the future experience—transforming users into owners & creators.

As we’ve seen with the most progressive and successful NFT projects today, this “exclusive access” is rewarded through association with wealthy, successful or influential individuals. The signaling happens on social media, with most NFT owners updating their profile pictures fueling the Urgency, Scarcity and Association with people you follow.

Next week we’ll share some emerging use cases for NFT’s through gated access, the commercial and the structural models that are being built to support these innovations.

To be continued…