Why Is Everyone Obsessed with NFTs?
Why Is Everyone Obsessed with NFTs?
NFTs have become the newest topic of conversation in tech - but what is it about the dynamics of NFTs that have made them such a hot commodity?
I have a confession: I’ve always sucked at holding onto collections.
At various points in my life, I’ve had baseball cards, football cards, Pokemon cards, Magic the Gathering Cards, sports tickets, playbills. I even had that one map that allows you to collect quarters from all 50 states obnoxiously plastered on my wall.
Whether it was through distraction, boredom or just pure laziness, I’ve now managed to lose them all.
That all changed this year. I’ve finally found a collection I can’t lose.
A couple weeks back, I was chatting with a friend and fellow NBA fan, who told me to check out this site called NBA Top Shot, a site that sells digital basketball highlights.
I scoffed at first. Why would I need to buy a highlight?
He insisted this was different. It was similar to a virtual trading card market. You could buy single players, packs and everything in between.
I finally surrendered and swiped a highlight from Mavs superstar Luka Doncic and found the process to be simple. As easy as buying a product on Ebay.
This was my first dive into something that I would become casually more curious about over the next week: the phenomenon of something called an NFT.
What the hell is an NFT? I’m glad you asked, because for the longest time I had no idea.
At its most basic definition, NFT stands for non-fungible token.
In economics, fungibility describes goods that are able to replaced by identical items. The value is essentially indistinguishable.
Imagine you and I both had a $5 bill. We put both bills on a table and ask a third friend to choose between one or the other. There’s no way he can go wrong. Whatever bill he picks up, it’s $5. If he replaces it with the other, it’s still $5.
Most currency is similarly fungible. It’s an interchangeable asset class.
Non-fungible in this context, refers to goods that can’t be substituted. There’s a unique attribute or characteristic that make one good’s value different from similar type of goods.
Imagine you and I both had Broadway tickets. I have Hamilton and you have Beetlejuice. If you asked me to exchange my Hamilton ticket for your Beetlejuice ticket, I would probably have some very harsh words for you in return. To point here is that they can’t be regularly substituted: broadway tickets are largely non-fungible.
Now there’s a catch: these assets can be both physical and digital. While bills and broadway tickets are physical, there’s a whole class of digital assets. Bitcoin, for example, is a largely fungible digital asset.
Designer Rhett Dashwood has a phenomenal graph here that shows how these lay out. NFTs are on the bottom right corner - non-fungible digital assets.
The token refers to a digital certificate, a record that identifies the asset and the movement of the asset in marketplaces.
So an NFT is effectively a digital asset that can be traded - but it’s non-fungible: ten different NFTs will have ten different values.
We’ve seen an example of one above, the Luka trading card. There are plenty of other examples: digital art, memes, games, domains, pieces of virtual worlds and more.
Sites like OpenSea, Rarible, and Foundation have jumped into the NFT marketplace world, creating the framework for an Etsy and Ebay type framework to exist for digital collectibles.
But the craziest part: the valuations. Logan Paul sold $3.5 million worth of NFTs within his first day releasing his own branded trading cards. Surrealist artist FEWOCiOUS made $370,000 in one drop on his 18th birthday. Over the weekend, music artist 3LAU made $11.6 million on the sale of new tokens.
There’s a lot to unpack here: Why are NFTs suddenly taking off? Why these crazy valuations? What is driving humans to buy these collections in hordes? Is this a larger movement in the making?
I talked to some artists, some enthusiasts and did some of my own digging to get some answers… the core reason why we’re obsessed.
What Sparked the Interest in NFTs?
There’s a lot of confusion as to when NFTs started or became popular. For a lot of people not already intertwined in the crypto world, it seems like a scary concept.
But here’s the fun part: You don’t need to own a lot of crypto to buy in. You don’t even need to know the ins and outs of the bitcoin market.
What does help to know is the high-level: why there is such an overlap between the Bitcoin world and the NFT movement. The simplest answer is that they both are use cases that rely on a similar technology: The blockchain.
The blockchain is effectively a digital ledger consisting of blocks. No records can be modified, expunged, or censored. Imagine just a huge receipt essentially that extends for thousands of miles.
While Blockchain was largely conceptualized as a core component of Bitcoin in 2008, the first big NFT use case didn’t come until a few years later.
Canadian studio Dapper Labs developed a game in 2017 called CryptoKitties that was effectively like a Neopets of the new decade. You could buy, collect, and sell virtual cats - and it was all public record. Each kitty had its own code.
The site quickly went viral with more than 3.2 million transactions in October 2018 and became lauded as one of the first applications of a non-fungible token.
OpenSea and Rarebits, some of the first big NFT marketplaces, opened up as a response to the popularity of crypto kitties.
But today, as we learned, there are way more applications than just digital kitties. Some of the finest digital art and music can now be turned into NFTs.
What drives the interest from collectors?
At its core, a lot of the psychology around collecting is similar to reasons humans have sought collections for years.
In his paper, psychologist Mark McKinley cites a number of reasons:
Investment: Desire to find an asset that will appreciate in value
Social Expansion: Desire to expand social lives and social signaling
Sense of Self: Desire to create and maintain a sense of identity
Regain Control: Desire to build a comfort zone through secure possessions
Another take I love is from Susan Barrett Price, who writes in her Medium piece The Spirit of Things about the idea that all inanimate objects have life that comes from their owners. She writes:
I operated an eBay store from 2005 to 2010 and sold thousands of small items from my husband’s collections. As I handled old postcards, photographs, and jewelry, I became convinced that each old thing had accumulated a certain “life energy” from being handled and appreciated by its owners. Many owners over a long period of time create a wonderful aura of liveliness. It’s “the real thing,” that air of authenticity that no screen image or reproduction can convey.
When you see the Mona Lisa or Guernica or even a battered baseball card, you can see the energy of a great painter or the spirit of a little boy. That in itself is powerful - and “life energy” is actually a big reason why I personally love NFTs.
Moreover, this explains the psychology of collecting everything from the finest art to even the simplest shot glass souvenirs.
So why this particular NFT movement? Why now?
I spoke to a few enthusiasts in the space to get their thoughts and one of the biggest themes I heard was the parallel rise of creator platforms.
In his piece on Crypto Art, my friend Joey DeBruin talks about the rise of Foundation (one of the marketplaces we mentioned above) and why it’s so powerful. He touches on how creator-led platforms are changing the center of influence:
“Through Instagram, Substack, YouTube, TikTok, and so on we’re living in the world where personal brands can gain massive and lasting value. This is now one of the big topics in tech, and I think the pieces are coming together to power a massive breakthrough in the next few years, one that will marry the financial incentives for creatives and influencers with the impact they already have on society."
Neer Sharma, who has minted his own NFTs, agrees that creator dynamics are changing, especially in the lens of creator monetization. He mentioned the idea that there is an “old world”, where you create content, try to build a following, and then try to monetize that following. In the “new world”, where NFTs live, you create content, find the one person who cares enough to buy it, and wait for the asset to appreciate over time.
This boils down to a core tenet of the NFT movement that has little to do at the end of the day with any technology: It gives agency back to creators.
Without Substack and TikTok really driving the movement of influence, we may have seen less of an impact from NFTs.
My friend and creator James Halldon had another poetic thought behind this: There is a desire for lots of creators to support the next generation.
“People have been moved by the fact that they see kids younger than them profiting off of their art in a way that they would gladly would have had the opportunity to.”
James added one more point that I also think this is incredibly important: The dynamics of digital markets.
The internet has historically never rewarded creators of digital goods in proportion to their impact - if a meme goes viral for example, there is little credit to the meme creator. Now, it’s different.
It explains why silly memes and highlights are worth thousands of dollars. The lowest asking price for an assist from NBA rookie Lamelo Ball is worth almost $4,900!
Not because it costs that much to watch Lamelo Ball - but because, as my friend Joey says, the future upside value of anything is basically capped at the internet’s nearly infinite scale of growth.
There is a sense of pride in investing in an artist early or getting in on the ground floor of a really cool piece of art. To date, there hasn’t really any way to document that pride or the trajectory of that support. NFTs change that. You get their life energy.
Moreover, it’s a blessing for artists. Neer minted a hilarious song about investor Chamath Palihapitiya that sold well on Zora. James has minted some incredible art focused around Nebulas on Foundation.
What Does This Mean For Brands?
While the focus on NFTs and their marketplaces has largely been on creators, one of the few areas I've seen less explored is the hype for brands.
Marketplaces like NBA Top Shot and Sorare (A fantasy soccer trading card platform) are some of the pioneers in increasing visibility and popularity for their respective brands.
It’s clear that there is an opportunity here for companies to essentially give customers and fans a piece of the pie, in a way that works alongside the marketplaces and incentives for individual creators.
There’s no small business vs. Amazon conundrum - you can buy highlights from Top Shot or Open Sea, to your heart’s content.
I pinged my friend and fellow marketer Vincenzo Landino for his thoughts, who wrote recently about the renaissance parallel for NFTs and has been following the mechanics of marketplaces. I loved his philosophy around the idea of an NFT as an added incentive:
I think we will see physical + NFT product drops, like “buy our NFT and instantly skip the line to buy the new Cosmograph Daytona” or potentially even tie the physical product to the NFT. Purchase the watch and get access to digital art, stories, etc. There’s a lot of incentive and gamification that purchasing a physical product can unlock, especially in the luxury space where the unlockables can be rare, 1/1 type pieces.
But the thought above made me mull on another concept: The value of incomplete products. Imagine the first prototype of a new Apple product, a trashed idea of a Rolex watch or the initial concept art from a Pixar movie. Historically, these things just went in the trash. No one cares about unreleased products.
With the digitization of such goods, brands can rewards their fans.
Imagine the boost you get at a party when you show up with the first concept art of Finding Nemo. Literally impossible to be the worst person at that party.
Final Thoughts
When I asked my friends what surprised them the most, the answers I got back were a bit varied.
Vincenzo cited the community. The idea that creators and collectors are super helpful, willing to help, and there is little ego in the space. He mentioned a panel he pulled of NFT creators and collectors with a simple DM to folks and all of them were happy to do it.
Neer cited the dynamics. His lightbulb moment was the realization that the creator was now in control. When his NFT sold and sold well, he mentioned that this was just a bigger incentive to create instead of having to build the audience first.
James cited how fast he has seen lives change. He cited young artists who have cleared thousands of dollars in a week and how much more attention is being paid to modest creators. He emphasized the idea of youth, that age was no longer a barrier for people to get their merit and worth recognized.
For me, the biggest surprise has definitely been the valuations. As someone who has never really bought or sold art in my life, it was hard to imagine the thousands someone would pay for a simple GIF or 3D rendering.
But, the more I think about it - it’s less about the transactional value. It’s more about a longer-term investment.
If you buy a Luka Doncic TopShot and Luka becomes a Hall of Famer in 15-20 years, that highlight has suddenly appreciated in value. If you invest in James or Neer’s art today and both of them continue creating art that boosts their reputation as creators, it’s suddenly a big deal to own.
So it really is, as James described above, betting on future returns - and in turn, building a relationship with a creator.
Another underrated reason why I think NFTs will be big actually has little to do with the returns, but a more obscure concept around psychological gravitation.
In his piece about NFTs, Alex Danco talks about the concept of “schelling points”, in essence a focal point that describes where people naturally go in the absence of explicit communication.
Artists are slowly gravitating towards NFT marketplaces, experimenting with them, and buying into the movement. Some are doing it out of pure catharsis, others out of pure curiosity. But the outcome is powerful: There is now an unspoken meeting place for a generation of fragmented creator spaces.
In his piece, Danco cites the economic value of NFTs as slightly less important than their true value: as a schelling point for discussion:
This current burst of speculative interest around owning LeBron dunks or whatever is really cool, don’t get me wrong. But it’ll conclude, at some point, in its current form. But something really important got created in the meantime, which is a shared understanding and a common gathering point for creatives and developers who want to creatively represent digital scarcity, for any use case now.
Where will NFTs go from here? Will they become more popular over time? Will the current craze die out once the pandemic ceases to lock us all down?
All I know is for now, creators and consumers alike have skin in the game.
As Joey poignantly stated in his piece: “That moment of “I knew Beyonce before she was famous” always feels so tragic in a way; somehow you never feel like you get the credit you deserve.”
It may be only a matter of days before we find the next Beyonce.
Interested in getting into NFTs but have no idea where to start?
Connect a digital wallet - I personally like MetaMask, super cute mascot
Put some ETH in your wallet - Metamask allows you to do so through Wyre with a debit card relatively easily
Bid on something or buy something. You can spend as little as $5-$10!
Feel free to ping me on Twitter if you have questions on this process. I guarantee it’s probably not the most detailed one out there, but I wanted to try and outline one in less than 5 steps :)
Big thanks to Neer Sharma, Vincenzo Landino, Joey DeBruin, and James Halldon for opening both my eyes, my mind.. and vicariously my wallet. Appreciate you all!
Cheers,
Kushaan
Best write up I've seen on NTFs. THANK YOU!!
V nice Kushaan !