Why the craze in non-fungible tokens (NFTs) may be the next big thing, and yet is a consumer behavior as old as time.
Welcome to issue #31 of next big thing.
One topic that’s been hard to not think about in 2021 is the cryptocurrency market. Let me start by being upfront that I’m no expert in crypto. I feel fortunate that a couple friends of mine from college, Muneeb Ali and Ryan Shea, co-founders of Blockstack, gave me a stern talking to in 2013 at my apartment in San Francisco, educating me on the potential ramifications of blockchain technology and why I should pay attention. I bought my first Bitcoin that evening, have dabbled in other assets such as Ethereum and Stacks in the years since, have looked at investing in several crypto-related companies, and have found myself fascinated by non-fungible tokens (NFTs) over the past few months.
If I’ve lost you already, or if you’re not familiar with NFTs, fear not. NFTs are digital assets that are unique. They can’t be replicated. They’re one-of-a-kinds.
One example of a non-fungible token is a digital work of art. In the real world, there’s only one authentic Mona Lisa, a one-of-a-kind painting by Leonardo da Vinci which is on permanent display in the Louvre. Similarly, in the digital world, there’s only one Nyan Cat, a one-of-a-kind GIF which sits on the Ethereum blockchain and was acquired this past week in a digital auction for 300 ETH (~$580,000 at the time of purchase). The Nyan Cat digital asset is an NFT.
If you want to learn more about NFTs, check out the following primers:
Twitter thread by Morning Brew (2 minute read)
What Is a Non-Fungible Token (NFT)? on the CoinMarketCap blog (5 minute read)
Nonfungible Tokens, NBA Top Shot, The Creation of Consumption by Ben Thompson in Stratechery (5 minute read)
Why an Animated Flying Cat With a Pop-Tart Body Sold for Almost $600,000 by Erin Griffith at The New York Times this week (5 minute read)
There are two reasons that NFTs fascinate me.
The first is that they tap into a consumer behavior that’s perhaps as old as civilization itself. The motivation to find and hold onto a scarce item, a one-of-a-kind, something that no one else can have, feels so natural. The desire to collect seems intrinsically human to me. In the technology world, online marketplaces for real-world collectibles are numerous, from eBay across many categories, to Artsy in art, GOAT and StockX in sneakers, and many more. Think about your own life — isn’t there something that’s a one-of-a-kind that you possess that you cherish? It could be a ticket from an amazing concert you attended, or your college diploma, or a journal entry, or an autograph from someone you admire.
The second is that technology itself makes the experience of owning a one-of-a-kind digital asset more valuable. Think about real-world assets. A huge part of what makes them valuable is their authenticity, which often needs some level of real-world proof. With digital assets, proof of authenticity lies in the underlying blockchain technology — by definition, non-fungible tokens have a permanent location on a decentralized ledger that defines their uniqueness and authenticity. With real-life assets, you may worry about losing them, or them getting damaged; no such worries with digital assets (well, unless you forget how to access an account or wallet where they’re stored).
As a personal example, one of my prized possessions is a signed Manchester United football shirt by David Beckham. Though he misspelled my name 🤦🏽♂️, I treasure this item from my favorite club and one of my childhood heroes. The ink is unfortunately starting to fade, but it’s a one-of-a-kind. Another one-of-a-kind David Beckham item is this NFT of a card on Sorare from his brief stint at Paris Saint Germain in 2013. It’s rare, and someone out there bought it for €444.94 in September. Perhaps it has much more value to someone else and will get sold at a higher price down the road. The NFT has value to the set of people out there who wish they owned it.
In my conversations with crypto enthusiasts starting in 2013, I remember asking the following questions again-and-again: how easy-to-use is this crypto product for the average person? Why is this a user experience that is made better due to blockchain technology versus any other technology? Is this a magical experience that wouldn’t be possible without crypto?
My thesis back then was that the way for a product or service to become the next big thing would not be because it was a crypto or blockchain application. It would be because it was an amazing user experience that just happened to be enabled by these technologies.
With the excitement today for NFTs, across applications such as digital art, collectible sports “cards,” and more, perhaps we’ve found the consumer behavior that fits that thesis, beyond investing or storing value in scarce assets such as Bitcoin which has slowly grown in popularity over the past decade. It just so happens that this digital behavior has many real world analogues, and it isn’t anything new. It’s an obsession for one-of-a-kinds, as old as time for our kind.
I started next big thing to share unfiltered thoughts. I’d love your feedback, questions, and comments!
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