So far in the newsletter, I haven’t discussed NFTs at all. They are clearly a big part of the crypto universe, but I confess I gravitate a bit more towards the financial side of it all. Today we fix that, however, as we dive a bit into what it means to own a unique digital object.
🟢 NFTs as Art
Earlier this week, a 1952 Mickey Mantle baseball card sold for $12.6 million. Fun story, Topps ended up with too many of the Mickey Mantle and a bunch of other cards so, in 1960, they rented a barge and dumped them all in the Atlantic Ocean. You might be mistaken for thinking then that this Mickey Mantle card was now especially rare. The 1909 Honus Wagner card that most recently sold for $6.6 million, now that card was rare. But “at least 44 of the 1952 Mantles exist in near-mint-to-mint or better condition.”
What does any of this have to do with crypto? It’s another data point that the era in we live in, everything is all just f*&@ing made up. Things are just worth what people are willing to pay for them. A pretty weird looking de Kooning goes for $300 million while a shiny rabbit from Jeff Koons sells for $91 million. Birkin bags start at $20K and can go to $200K while Yezzys, the most consistently ugly shoes you’ll ever see, fetch up to $20,000. Don’t even get me started on if a dollar is still worth a dollar if the Fed can magically create 2 trillion of them in 2 months.
So when one of the main complaints about crypto is that “there’s no intrinsic value,” I struggle to take that particular criticism seriously. 90% of the gold in the world (around $9 trillion worth) isn’t on rapper’s necks or in jewelry boxes in India or on circuit boards, but instead gathers dust in vaults as an arbitrary, but long-standing and mutually agreed upon “store of value”. Heck, we don’t even think Gold is the #1 credit card level anymore, now behind a color (Black) and a metal that looks exactly like a less valuable metal (Platinum).
I acknowledge that the removal of a physical component requires a leap of faith. If you pay $12 milly for a baseball card, at least you have an actual piece of cardboard. I’m less sure about the $54 billion in the SPDR Gold ETF, but presumably there is some physical gold someone has somewhere.
The core innovation of crypto is the concept of digital scarcity. Items in the physical world are inherently scarce. There are only 44 Mickey Mantle cards in really good shape. And while digital has all sorts of obvious benefits, until recently, you couldn’t really make digital iteams scarce. Once you ripped a Brittney Spears CD, million of copies flowed freely across the world, killing an entire business model. But crypto allows all of the benefits of digital combined with the ownership inherent in physical items.
To recap, an NFT is a “non-fungible token.” Non-fungible just means it's unique. Dollars and Bitcoin are (basically) fungible in that you don’t care which one you get, they are all worth the same. The token part means there is a representation on a blockchain somewhere. Effectively, it all says “this person owns this unique thing.”
While NFTs can be virtually anything, one of the clearest applications is art. A dude named Beeple (who actually seems to be very nice) sold an NFT at Christie's for $69 million so that must be real art then. Real artists are also increasingly creating real art via NFTs. There’s a series called Fidenza that I think is truly impressive art generated by an algorithm. The artist, Tyler Hobbs, creates certain constraints and patterns within code that, when “minted” with a random number seed, produces an output never seen before. Some are fabulous, others more plain, but that’s part of the art and feels like a natural progression from someone like Sol Le Witt whose art was kind of just an instruction manual.
The digital nature of NFTs also open up a whole batch of new questions and possibilities such as a built-in royalty model to support the artist. When an NFT is created, one can specify a royalty amount (frequently between 2.5% to 10%) that gets paid to the artist every time an on-chain transaction happens. The idea is to allow an artist (or their estate) to share in some of the upside of their work while still maintaining primary ownership rights.
Of course we’re already seeing challenges to the royalty model, but it doesn’t take a big leap to see how this technology may diffuse throughout the art world. Whether it’s Banksy or Christo or Bill Viola, the traditional “paint on a canvas” art world has clearly been changing anyway. NFTs are a pretty clear extension into a new world of what it means to own something.
🟦 NFTs as Fashion
But “true” art is currently a small fraction of the NFT market. More popular are the collections, often featuring around 10,000 variations, of 8-bit CryptoPunks, stoned Bored Apes or, best of all worlds, Crypto Dick Butts. Perhaps their creators might nominally call them art, but their appeal is clearly driven by social status and speculation.
When you roll up to the Hotel de Paris Monte-Carlo in your Bugatti with your Yeezys and Birkin bag, only the people that can physically see you can be duly impressed. When you have a Bored Ape (as Eminem, Jimmy Fallon and Steph) or Crypto Punk (Jay Z, Snoop) as your Twitter avatar, you declare your status to millions. NFTs are just way more efficient way of doing so.
While not evenly distributed, the online world is becoming increasingly more important to huge segments than the offline world. Having a “brand” on Twitter can quickly lead to real world assets and the subtle signaling of a Cypto Punk vs. a Pudgy Penguin or a World of Women NFT has already become significant.
Real world fashion companies are quickly catching on. Earlier in August, Tiffany’s allowed owners of CryptoPunks to have their avatar turned into a real world pendant. The collection, limited to just 250 and priced at $50K each, sold out in 22 minutes and netted Tiffany’s $12.5 million.
Nike, always on the forefront, acquired an NFT studio late last year. So far, Nike has generated $183 million in revenue from NFT sales, half from primary sales and half from ongoing royalties for everything from virtual sneakers to a Roblox virtual world. Dolce & Gabbana, Gucci, and Addias have all made over $10 million each from NFTs.
Just yesterday, Ticketmaster announced they will start offering NFTs in connection with live events. Now that your Cubs tickets are on your phone, there’s no longer a ticket stub to stash away to prove you were at Game 5 of the World Series (if anyone would even to believe that the Cubs were ever in the World Series). The NBA Dallas Mavericks, driven by Mark Cuban, have been early to experimenting with NFTs.
We are still in very early days and much of this will amount to nothing. To be clear, 99% of NFTs will end up worthless, much like 99% of art. But I have little doubt that the next generations will just accept NFTs as completely normal, valuable and a core part of their identity. If you have a teenage boy, you’ve almost certainly had an argument with them at some point about how much time they spend playing Fortnite. At its peak, nearly 300 million people played Fortnite per month. The game is completely free to play and none of the in-app purchases make you faster, stronger or affect game play in any way. Anything you buy is a) 100% cosmetic, b) completely unusable outside of the Fortnite world, c) subject to any arbitrary whims of the game maker. Yet Epic Games sold $9 billion of virtual nothingness in its first two years. Players feel a deep connection to the game and flexing to friends and strangers with a cool skin is a perfectly good use of $20.
When I was a kid, having an Izod shirt was a big deal. And, man, if you had a Hard Rock London t-shirt, you were a baller. Today, people wait in lines outside Supreme for three hours for the right to pay $100 for a plain white t-shirt. As the technology matures and broadens, digital versions of these status symbols will inevitably trickle trickle into Instagram, Tik Tok, Snap, Reddit, and anywhere status comes into play. NFTs, in their various forms, will lead this transformation.
◆NFTs as Access
In the early days of the Internet, most of us probably didn’t envision comfortably getting into a stranger’s car to spend a week in a stranger’s house. We are surely in the very earliest days of the things that can and will be done with an NFT, but “Access” seems another interesting route.
Owning a Bored Ape, for example, gets you not just a funny monkey as your avatar, but access to an exclusive world. Some of that may be online in the form of a members only Discord group where one can (theoretically at least) meet interesting people, get insider knowledge, and generate alpha. Or you can do all of those things while getting drunk together in person.
While digital kind of killed the music business, could NFTs help revive it? Imagine Taytay’s upcoming album came with various tiers of NFTs. Let’s say there are only 10 NFTs in the Platinum tier and beyond their exclusivity, those grant you access to a personal concert at her Nashville studio. The Gold tier has 10,000 and gets you first dibs on front row seats for the next tour. And the Silver tier has 100,000 and gives you premier access and merchandise discounts. Oh, and by the way, you can’t buy any of these unless you already own one of Taylor’s Version line of NFTs. What would you pay to own one of 10 limited edition pressings of Abbey Road?
I mean, I’m not even that creative and it’s pretty easy for me to think of dozens of first-order uses for a scarce, digital object that can independently verify ownership. But I also know, having witnessed it first hand starting in 1992, that the second and third order effects are going to be even more dramatic. That’s why I’m so excited about this technology and why I want you to see it as well.
This Week's Cold Take
As always, thanks for reading. Send me questions and share with your crypto curious friends.