💡Demystifying NFTs (#44)

Credit: NY Glamour - our giveaway collections

👉🏼 The token is backed by a social contract from its creator and a surrounding community.

👉🏼 By assigning a unique token to a thing, its ownership (not the thing itself!) becomes programmable, verifiable, divisible, durable, universally addressable, composable, digitally secured, and easy to transfer.

👉🏼 Bitcoin and other completely on-chain assets are provably scarce - scarcity is enforced by code and distributed consensus.

👉🏼 Off-chain assets represented by NFTs are not provably scarce.

👉🏼 The promise of scarcity is a slender thread, only as strong as the social contract with the creator and interwoven with the backing of the community.

👉🏼 An NFT’s creator may break their promise, or be unable to enforce it, or may have picked the wrong underlying platform and community - rendering the NFT worthless.

👉🏼 For NFTs representing digital art and collectibles, the creator cannot enforce scarcity - it’s up to a surrounding community to imbue the authorized NFT with scarcity and prestige within the context of that community.

👉🏼 Just as HODLers imbue Bitcoin with value, and developers infuse Ethereum with value, collectors, admirers, and users imbue NFTs with value.

👉🏼 NFTs gain value when displayed, used, and promoted within vibrant and growing communities.

👉🏼 If the community around an NFT is dying, the NFT is likely bleeding value.

👉🏼 If the community is surging, the NFT is likely gaining value.

NFTs are monetized memes.

- Tyler Winklevoss, Gemini co-founder

👉🏼 “Actual-value NFTs” can draw upon legal and code-based contracts - a song token can provide a royalty stream, a ticket token can provide access, a metaverse token can grant land titles, an item token can have in-game powers, an ISA token can provide a cut of creator earnings.

👉🏼 Even “actual-value NFTs” require a social contract with the creator and community to transfer the value from the off-chain contracts onto the chain where the NFT is registered.

👉🏼 Just as there are those who won’t accept that mere consensus can create digital gold, and those who won’t accept that mere smart contracts can create a decentralized Wall Street, there are those that won’t accept that digitized social contracts will create valuable tokens.

👉🏼 As with most art and most tokens, most NFTs will have very little value.

👉🏼 But a select few NFTs will become focal points for communities who gather to celebrate art, build collections, and explore virtual worlds.

👉🏼 With NFTs, blockchains make the jump from finance into creative applications.

👉🏼 Regulators would do well to recognize that blockchains are the next generation of the Internet, and applying financial regulations to NFTs is a category error.

NFTs tokenize all the things.

👉🏼 We are going from a world where every protocol has a token, to where every (decentralized) application has a token, to where every valuable digital representation of an object or person has a token.

👉🏼 Public blockchains will be the title registries for everything of value.