As promised, I am publishing my notes from the prior parts of the NFT Canon that I had completed before starting The Ikaris Project. It’s a basic format, in which I have dedicated one article to each section of the NFT Canon. All articles are expected to be up between today and tomorrow. The actual content of the articles are summaries of the respective sessions split into Key Ideas. Basically, upon reviewing my initial notes, I saw recurring themes sprouting up in every section. I organized the information based on those recurring themes and made it into a topical list of Key ideas. Without further ado…
Key Idea 1: True Ownership of Digital Goods
Until now, digital goods could not be owned. They could only be rented from a handful of companies because the digital goods were on their servers, which means they owned them.
Ownership of our digital goods is important because it endows power. Until now, the rent-seeking companies owned them, which means they had the power. Technology platforms, like Facebook, Instagram or Twitter, are given ownership to your content when you post it on their platforms. When you post, the file is copied to their backend and the ownership of the file is transferred to the company. Then, these platforms monetize your content but keep most of the revenue themselves. Digital goods had no property rights. However, these property rights are crucial for the next phase of the internet, Web 3.0.
For digital goods to be ownable, they need the same guarantees of permanence and openness. With the blockchain, we can count on a service to outlast its creators. Blockchain is creating a world of digital assets and open source software that is as real and permanent as any of our physical assets with the added benefit that these digital assets are built to interoperate. A key characteristic of NFTs is that they provide a record of ownership enabled by the same guarantees of permanence and openness the blockchain provides. Any purchase is recorded on the blockchain forever. This information is immutable, verifiable, public and as a result, we have essentially created authentic and unmodifiable ledgers for all to see.
With NFTs, we have the capacity to transition to true digital freedom where we own our digital assets and do not depend on the institutions that merely rent them to us. A key impact of enabling ownership is that owners now feel like they have skin in the game, in regards to the specific project they have bought which gives them the incentive to share their experiences or information with others. In essence, NFTs give rise to peer-to-peer marketing which is fuelled by community, ownership and excitement.
Key Idea 2: Proof of Fandom
NFTs help creators and fans connect with each other, like never before. Creators can discover their true fans who can demonstrate their enthusiasm with direct financial support. Crypto and NFTs allow creators to monetize directly with fans while cutting out intermediaries. Creators can price their NFTs on a tier-based system. This allows them to capture a larger area of the demand curve, as fans can contribute different levels of financial support based on their different enthusiasm levels. For example, some die-hard fans may choose to buy the creator’s first video’s NFT worth $1,000 while others may only be willing to contribute $10 for a social token and others still may be able to put in $100 for special access pass NFTs.
NFTs make the creator-content-fan business model better for both creators and fans. Creators make money by selling directly to fans and collecting royalties on secondary sales, rather than relying on 3rd party platforms for payment who would keep most revenue themselves. Consumers can gain utility and social currency while also holding the opportunity to turn a profit or experience compounding utility, as developers continue to develop infrastructure around NFTs and the metaverse.
Community tokens involve creators opening ownership of a token to a community, who will be incentivised to make the community better. This allows creators to transact directly with fans, their fans to voice opinions directly with a better chance of being heard, the community can benefit from real-world value and utility from holding tokens and finally, the creator becomes an actual participant in his community. Fans can earn these tokens by investing their time and commitment, rather than money, to make the community better. They would be rewarded based on their contributions. The tokens will act as tools holding real-world benefits for participating and working to improve the community. This erodes the value of institutions and companies as fans will be able to demonstrate proof of passion without branded legitimization in which most revenue goes to the institutions. In addition, they solve the challenge of scaling and the issue that the status of being a member diminishes as the community grows. The idea of the community token is part of a broader idea that shows that NFTs can reshape the nature of patronage and community by allowing fans to become financial supporters.
NFTs thrive on the back of peer-to-peer marketing, which is also proof of passion. When users feel like owners, they have skin in the game and the incentive to spread information about the project and creator to others, so as to be able to later sell their token for higher prices when more people are in the community and there is greater demand. This reduces customer acquisition costs for the creator as his community is spreading his work. Fans are an important part of the value creation process, as the value they put in is, essentially, the creator’s value. However, they are cut out from gaining from the value they put in. NFT changes that by allowing them to receive value, in the form of real-world benefits or capital gains, in exchange for the value they put in to make the community better.
Just as important, NFTs provide social currency. They give the infrastructure, tools and economic incentives to turn any media or cultural behaviour into a transparent and verifiable status game. Humans have always flaunted credentials and accomplishments as a generator of social capital. NFTs improve on that process as any purchase on the blockchain is recorded forever. Thus, NFTs create a transparent ledger of social capital. Being an early fan of a creator or the holder of the most expensive piece in a collection is verifiable, public and immutable when NFTs are involved. The advantages are that people can be rewarded for steadfast support before the project blows up and they have the incentive for diamond hands. On the other hand, people may be incentivised to pile into popular projects with a big following and social capital generation rather than supporting newer creators, as intended.
Key Idea 3: Value of NFTs
The value of NFTs is driven by scarcity and stories. Scarcity gives NFTs value — If supply is low, and there is a level of demand, the item will have value. The value will increase if the item becomes more scarce or demand rises, as we will discuss later on. In essence, scarcity relates to the supply side of the equation. On the other hand, stories relate to the demand side. The story of the digital good is the main way an individual forms their own unique connection with the item which is the main driver for their desire to own the digital good. If the story of an NFT is that it was previously owned by Cristiano Ronaldo, a famous footballer, then, his fans will desire to own the item. However, individuals who have never watched football and do not know who CR7 is, will not see any value in the NFT. The greater the individual’s connection with the NFT because of the NFT’s story, the greater the demand.
Mimetic desire further drives demand upwards. The theory of mimetic desire suggests that humans are imitative and all human desire is based on the desire of others. Essentially, it states that we want to own what others want to own or already own. As more people own a scarce, authentic item, it increases in value, which causes even more people to desire to own it.
Another aspect of demand is cultural value. When an item or artwork has cultural value, the desire to own it is greater. For example, the famous $69 million artwork by Beeple — Everydays: The First 5000 Days — has massive cultural value as the first NFT to be sold by a major auction house. If MetaKovan ever chooses to sell it, the cultural value associated with the piece will be a major factor in valuation. While I have struggled to develop a strong definition for ‘Cultural Value’, it can be thought of as similar to cultural importance. With NFTs, cultural value can increase over the internet as the artwork is essentially a JPEG that can be shared. If the artwork’s file is shared often and gains traction, such as the interest that memes generate, the cultural value rises.
NFTs also find value in social capital. They provide the infrastructure, tools and economic incentives to turn any media into a status game. Humans have already exhibited accomplishments and credentials as generators of social capital. With NFTs, these accomplishments can be verified, accessed publicly and could even be profitable for holders.
The NFTs with real value that will persist for the future, are the ones made by authentic creators which more and more people will desire over time, because of their story, scarcity and mimetic desire.
Key Idea 4: Adoption Outlook
The adoption outlook for NFTs is surprising, yet can be predicted. Established art cultures will not be early adopters. Instead, a crypto-native subculture will emerge first.
However, the NFT subculture will be disruptive. It possesses the properties of disruptive subcultures: (1) Practiced by outsiders from the established group, (2) Considered culturally inferior, (3) New marketplaces and judgment criteria develop around the medium. They will also follow a similar adoption process as other disruptive subcultures. First, there will be controversy and rejection by the old guard, but initial adoption by outsiders of the dominant culture. Eventually, the old guard will start to embrace the new medium — As the cultural and economic opportunities are too big to miss out on. Finally, the new culture merges with the old.
NFTs can be expected to develop in cycles similar to crypto. First, prices rise, possibly to all-time highs, causing a great rise in interest in and around the space. This leads to greater capital being invested to develop and innovate around the space followed by the greater activity associated with the development and innovation of critical infrastructure on the back of the invested capital.
That wraps up the notes on the Big Picture. Next, we will look at the Beginners Guide section of the NFT Canon.
