Why I'm Betting NFTs Will Be Big
Tagged: essay software web3
"This is it, this is when all the holes in the cheese align and blockchain goes from 'that weird geek scam thing' to 'I got you some tokens for Christmas!'"
That's more or less the thought that came to my mind when I first heard about non-fungible tokens, or NFTs. I was surprised, because I don't care much about crypto. I've never worked with blockchain and I own only enough crypto to satisfy my curiosity. But NFTs, it seems to me, will be big–big like "used by millions of users" by the end of the decade.
There are two reasons why I believe this. First, our brains evolved lots of funny features, one of which is signaling. We're constantly jockeying between ourselves for status, so we're always showing off our wealth, power, and fertility. Second, the Internet has penetrated deep enough into our culture that it has become a great medium for the signaling I just mentioned.
Let's unpack all of this.
There's a theory of human behavior that was thought up over a hundred years ago called "conspicuous consumption." In a gist, it says that we sometimes spend money on things we don't need just to signal our status. It's why we have expensive cars, shiny electronics, and uncomfortable clothes–they're there to tell others that we are important. Thousands of years ago, when we lived in hunter-gatherer bands, this behavior helped create cohesive group hierarchies.
Now, at the core of consumption is the concept of ownership. Everyone, even kids, understands how it works. Everyone, especially kids, understands that owning a cool thing makes you cooler. Here's where NFTs enter the picture: they prove to everyone, everywhere that you own a digital asset. Sure, others can make unlimited copies of it, but you are the single true owner and all the status points accrue to your account.
There's one more detail that's important here–developers are working on protocols that would allow you to move digital assets between "worlds." With those in place, you could display a 10-second clip of Nyan Cat in Minecraft one week, then in Fortnite the next, and on social media after that. Can you feel all that status pouring in? It's like having your own globally available art gallery!
A lot of the critique of NFTs that I've read online focus on the digital assert part. "How can a digital asset be worth anything if anyone can make infinite copies of it?" Another version of this goes something like "Since nobody can enforce ownership of digital assets, NFTs are worthless."
This brings me to my second point. Consider how deeply we've integrated our culture with virtual reality. It's like an eighth continent, a place where billions work, shop, date, study, and hangout. Let me illustrate this with just one example: Fortnite.
Its makers, Epic Games, reported 350 million registered players, a little more than the population of the USA. In case you're thinking they're geeky kids, check this out: a majority of them are over 18; a quarter identify as women, and two-thirds play up to 10 hours a week. To me, it sounds like a diverse group of committed adults.
How committed? Fortnite made its producers $2.4 billion dollars in 2018. Most of that revenue came from in-game purchases of "skins"–designs that alter the look of the player's avatar. Skins do not affect the game. Like luxury goods, they signal the wearer's status and allegiance. We've simply coded our standard behavior–conspicuous consumption–into the game.
"But crypto is all speculation scams!", say some critics. "Just look at the wild price swings, the scammy Initial Coin Offerings from 2017, and the whole commotion around bitcoin and drugs."
That's an excellent point. However, it's moot: the crowd of people interested in NFTs is vastly different from the crowd that got on the blockchain train. I would characterize the latter group as geeks, anarcho-futurists, speculators, and of course everyone who wanted to hide money from the government. The appearance of ICOs expanded that group to those seeking risky investments but without the drugs. That was what, maybe a hundred thousand people?
The ones who will love NFTs are the hundreds of millions of gamers, musicians, writers, and designers, and probably a large chunk of regular web users. They won't be interested in crypto-anarchy utopias or risky investments. Instead, they will want everyone they known online to recognize them for the cool digital works of art they own. For them, NFTs will be merely plumbing, like web browsers are for the average user.
The one thing that could prevent this future from coming true are governments. But they won't do anything to stop it from happening. Why? Millions of consumers will demand NFTs, and since NFTs don't kill anyone, those in charge will be under pressure to give the people what they want. Of course, they will bolt on some regulation to make NFTs safer and to get a cut of the revenue in taxes. It's a win-win for both sides.
That's it. That's why I'm betting that NFTs are here to stay. They play into our biological wiring and they appeared just when the Internet has reached some critical mass. Adoption, I predict, will take a while though. We'll see some crazy-looking transactions too. But once the novelty wears off, once the early adopters give way to regular consumers, NFTs will be as commonplace and "invisible" as another recent technological marvel–cellphones