Quration 27: Do you have NFI about NFTs? Join the Club.
Welcome to Quration - a weekly synopsis of one of the latest stories in tech.
I’ve created a new format for the newsletter so it now includes three key sections:
A curated summary of one of the latest trends in tech;
A handful of Quick Reference quips, quotes and anecdotes that you can use to spark conversations at work or on the weekend; and
A selection of links that will help you dig into the topic if you’d like to go deeper.
When you’ve had a chance to read/scan the newsletter, please take a moment to give me your feedback. All productive feedback is appreciated and needed!
If you still have no idea about NFTs, welcome to the club.
I spent a couple of hours at a recent weekend breakfast arguing that Bitcoin is not the latest iteration of tulip mania. There were too many opinions at the table for me to cut through with any of the usual “store of value” or “on-chain security” arguments, so I cut it short with a snarky reference to “generational differences”.
Less than 24 hours later, as I read a story about Beeple’s 10-second clip selling for $6.6M and another describing how Grimes had sold her collection of NFT’s for $6M, I realised that I had become the head-shaking sceptic.
Why are people flocking to buy non-fungible tokens (NFTs)? When did digital collectibles become so valuable? Is my generation doomed to be démodé?
When discussing this topic with friends, I’ve found a good approach is to separate the technology (NFT) from one of its most popular current uses (Crypto Art & Collectibles).
Crypto Art & Collectibles
Crypto art can be practically defined as any digital art work that has been tokenised on the blockchain (NFT) to establish proof of authenticity and ownership. For me, there’s a blurry line between Crypto art and collectibles. Few would argue that Kathryn Blake’s futurescapes are a prime example of digital art.
Most would agree a gif of LeBron James dunking a basketball is a collectible. But is a CryptoPunk avatar a collectible or an artwork?
How about the 10-second clip, Crossroads, created by a guy named Mark Winkelman (aka Beeple). Someone just paid $6.6M to own it.
What does it mean to own this. You’re watching it right now. Why would Delphina Leucas pay so much to own a piece of digital art that can be copied, shared and seen by anyone anywhere?
Here’s how Luke Heemsbergen from The Conversation puts it (bold emphasis is mine):
Rather than a copy of the files themselves, the eager buyers received a special kind of tradable certificate called a “non-fungible token” or NFT. But what they were really paying for was an aura of authenticity – and the ability to one day sell that aura of authenticity to somebody else.
Jesse Walden is part of a growing tribe that believes the ubiquity of digital content actually adds to the value.
A common critique is that because digital art and digital collectibles can be copied, they don’t carry much value. But NFTs introduce a new possibility that enables true ownership to exist while a work continues to freely circulate online.
The more a file is shared and seen online, the more cultural value it accrues. Consider the mass production of posters and t-shirts of Warhol imagery. With increase in notoriety, the concept of owning the canonical work becomes more thrilling, and more a marker of social status. It can also drive up the value that can be derived from reselling the work should its notoriety increase after purchase. NFTs enable collectors to reap most of the benefits of owning a physical work of art, with the added bonus that their collection can be freely shared across the internet without limitation—and thus accrue more value with wider distribution.
This follows the same argument I’ve heard a few times: people can take a photo of van Gogh’s Starry Night and distribute it to their friends, but that doesn’t diminish the value of the original. Hmmm, okay.
And then there’s this from Ben Thompson:
… there is no actual difference, particularly to the naked eye, between the NFT-secured piece of digital art and the one you might rip off of Google Images. But then again, what is the actual difference between an original piece of art and a perfectly executed replica? The knowledge of authenticity is itself a huge part of the value, which is to say that Christie’s assurance that the piece you bought at auction is the real deal is a huge part of the price; in this case the assurance of legitimacy is the blockchain itself.
This is where I see a huge difference. It’s close to impossible to perfectly replicate a masterpiece. Perhaps some works are easier than others, and perhaps a handful of forgers have the skills to come close. But cloning a masterpiece certainly isn’t a nano-second job executable by everyone at the click of a button.
💡 The difference is fundamental: Scarcity is to physical art as ubiquity is to digital media.
NFTs deliver a level of provenance that far exceeds what’s possible in the real world. But the hope is that they will deliver a sense of scarcity too. Is that possible?
Adam Cochran looks at it from a different perspective:
Those who don’t yet understand the value of NFT art, fail to understand the concept of ‘haecceity’ - the non-physical characteristics of an item within a class that make that item unique.
Great art isn’t about a destination, it’s about the journey that crafted it.
Back in 2004 I bought a pair of converse shoes that artist Maison Martin Margiela dunked one [in] white paint. The concept was that you’d wear the shoes and over time the paint chips away making a unique piece of art that captures your life’s journey. I’ve worn those shoes on the most important days of my life. When I graduated, when I got my first job, on the drive to my wedding and my first day teaching. Those shoes have haecceity, a unique non-physical attachment to me that make them mine. They are a unique piece of art that capture my story in life. You can dunk all the converse you want in white paint, or offer me any other pair of shoes, and it wouldn’t capture their value.
It feels like Cochran is unintentionally arguing for the other team here. The sneakers get their value because of the physical space and time that they’ve uniquely traversed.
How is a set of 1s and 0s uniquely altered through time? Isn’t the whole point of a record in the blockchain that it stands unchanged throughout time?
💡 The most non-fungible element of crypto art is the token that identifies it!
Non-Fungible Tokens
NFTs are a cultural answer to creating technical scarcity on the internet, and they allow new types of digital goods. They are … digital certificates that authenticate a claim of ownership to an asset, and allow it to be transferred or sold. The certificates are secured with blockchain technology similar to what underpins Bitcoin and other cryptocurrencies.
A blockchain is a decentralized alternative to a central database. Blockchains usually store information in encrypted form across a peer-to-peer network, which makes them very difficult to hack or tamper with. This in turn makes them useful for keeping important records.
NFTs provide a permanent and reliable record of authenticity and ownership. But how does ownership equate to value in a world of pervasive sharing?
If your head is already spinning, you may want to take a seat. Valuables is a site that lets you buy & sell Tweets that have been “autographed” by their original creators.
Here’s what you get from them when you click the “More info please!” button!
What are the terms of this transaction and what does it mean to own a tweet?
The tweet itself will continue to live on Twitter. What you are purchasing is a digital certificate of the tweet, unique because it has been signed and verified by the creator.
Why would I pay to own a tweet?
Owning any digital content can be a financial investment, hold sentimental value, and create a relationship between collector and creator. Like an autograph on a baseball card, the NFT itself is the creator’s autograph on the content, making it scarce, unique, and valuable.
✅ Digital art with bullet-proof provenance on the blockchain makes sense.
✅ NBA NFTs that are held like collectible baseball cards. Okay.
❓ CryptoPunk avatars, animated cat gifs, and Hashmasks. Hmmm.
❌ Historical tweets selling for $2.5M. Come on?!!?
Progression
In a 2010 essay, Ben Dixon reflects on our tendency to dismiss game-changing products, services and technologies in their early days because they start out looking like toys.
Disruptive technologies are dismissed as toys because when they are first launched they “undershoot” user needs. The first telephone could only carry voices a mile or two. The leading telco of the time, Western Union, passed on acquiring the phone because they didn’t see how it could possibly be useful to businesses and railroads – their primary customers. What they failed to anticipate was how rapidly telephone technology and infrastructure would improve (technology adoption is usually non-linear due to so-called complementary network effects). The same was true of how mainframe companies viewed the PC (microcomputer), and how modern telecom companies viewed Skype.
So much of what is happening looks like a toy. But am I missing the next big thing?
It looks more likely that we are nearing the peak of the Hype Cycle!
Gartner’s Hype Cycle provides a useful graphical representation of how technologies mature, and are adopted, over time. When a new technology is developed, a first-generation of products is released and investigated by early adopters. Shortly after, the mass media hype begins pushing expectations to their peak and enticing participation beyond just the early adopters.
That’s where we are now. Mass media hype. Activity beyond early adopters is beginning. Expectations are inflated. Next stop, Trough of Disillusionment! Interestingly, the Gartner model suggests that less than 5% of the potential audience adopts a new technology before it comes out of the trough. Hype!
And just because Crypto Art & Collectibles are a super interesting toy right now, doesn’t mean they will automatically become the next big thing. As Dixon went on to point out:
This does not mean every product that looks like a toy will turn out to be the next big thing. To distinguish toys that are disruptive from toys that will remain just toys, you need to look at products as processes. Obviously, products get better inasmuch as the designer adds features, but this is a relatively weak force. Much more powerful are external forces: microchips getting cheaper, bandwidth becoming ubiquitous, mobile devices getting smarter, etc. For a product to be disruptive it needs to be designed to ride these changes up the utility curve.
I guess one could argue that Digital Art is riding a wave of technological change. Cloud computing, Blockchain, Crypto, Algorithms, and NFTs. What remains to be seen is how that increased efficiency will convert into increased utility.
Predictions
Tulip mania was an over-hyped event. So is this.
Apparently, the modern discussion of the tulip craze began in 1841 after Scottish journalist, Charles Mackay, published his book Extraordinary Popular Delusions and the Madness of Crowds.
His account has been thoroughly debunked.
While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Any economic fallout from the bubble was very limited. Goldgar, who identified many prominent buyers and sellers in the market, found fewer than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame.
For the few people involved in the tulip trade, no doubt it was a tumultuous time. I imagine the winners were the people who had been in the flower trade, or reseller markets, for a long time. The big losers were likely the late entrants to the party that didn’t fully understand what they were getting into but found themselves swept up in the excitement.
Long-time Crypto Art makers and NFT resellers deserve to do well with this newly minted market model. Right place, right time for people who have been pioneering in this space for years.
Like me, if you find yourself reading summaries of Crypto Art and NFTs, you are likely a late entrant to the party. If you’re thinking about jumping in, be careful you’re not left holding a wilting tulip.
🌷🌷🌷🌷🌷
Quick References
Super-interesting facts you can use to spark conversations at work or on the weekend.
① Top 3 Crypto Collectibles of all time.
② In February this year, the 10 most popular NFT collectibles earned almost $400m in sales volume.
③ A provenance record (example from Hashmasks).
Go Deeper
Dig a little deeper with a selection of links from this week’s research. Each is ranked from ↓ to ↓↓↓↓↓ based on the depth of content.
↓ Reuter’s summary of the emergent players in the world of NFT collectibles.
↓ Esquire’s background piece on the artist known as Beeple.
↓ Brilliant NFT primer from Jesse Walden.
↓↓↓ Packy McCormick’s deep dive on the Metaverse, Web3, and NFT’s.
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