Posted on February 10th, 2022
The technical explanation is that NFTs are a blockchain-based certificate of authenticity on a digital product. But in the world of memes and screenshots... what's the point of paying to own an authentic digital product?
Digital rights are going to become increasingly valuable with more and more of our lives being played out online. Our entire economic system is based on the idea of scarcity, but how do you create scarcity in a limitless world like the metaverse? As online spaces begin to mature, protocols will likely be introduced that will likely make it impossible to download or screen grab artwork that someone else has the rights to. When you own a digital product, only you, or someone you allow to, can use it. It's a way of manufacturing how economics works in the real world, in the digital world.
Manufactured scarcity is where it falls apart for most people. Those who are currently most interested in purchasing NFT assets, have a desire for ownership linked to their perceived value placed on the authenticity and/or status aligned with it. It goes without saying that these are also likely people who are excited about the opportunities within the metaverse. They also likely have a higher tolerance for risk and an interest in being first to explore the digital investment space. If that doesn't sound like you, that doesn't mean NFTs won't eventually become something you understand and interact with. It just means we're still at the point where the tech is so new, that the mainstream hasn't found a use for it yet.
At their kernel, NFTs are a business model innovation when it comes to digital rights of a digital product, and there's a lot of utility in the way in which you can handle fees. What we're seeing now is the beginnings of something - something that right now seems silly and/or pointless to many people - but this technology has a lot of potential.
For artists it could be a way of turning digital art from a one-time payment to a revenue stream. Think of how many artists sell their works early on in their career to art dealers with a keen eye. With this technology, artists could include a clause in the code of their NFTs that automatically pays them 10% of the sale of their work every time it changes hands. That way artists can continue to earn as their work appreciates, rather than just the art dealers and collectors seeing the financial rewards.
Similarly, this could be a way for musicians to take back control from the streaming services that pay them pennies. Thus ensuring that those who are creating the product continue to earn on their own terms.
Why cheaper, you ask? (Or if you're a metaverse naysayer, why are digital products worth any price?) Let's use a $100 jacket as an example. The price you're willing to pay is usually aligned to various pillars of value:
To keep things simple, we'll weight the value of these pillars equally, meaning each of those things are worth $33. But only 1 of those pillars has fake world value. Style, the image you project and how you want to be perceived can hold equal value in the digital and the real world. So if digital pricing starts becoming more tethered to a sense of reality, then the digital version of the jacket should only cost $33. But what would I know? I'm just a real person, living in the real world with my real world problems. (I am also not a boomer.)
Digital products and the metaverse offer an escape. Much like how we zone out in front of a movie, scroll through social media, or play video games. These entertainment industries are big money. The difference is, that with the metaverse you're able to curate your entertainment experience to incorporate things that might be out of your reach in the real world. And as this becomes more mainstream, NFTs offer a way for those creating and interacting with that entertainment to transact effortlessly, and hopefully, based on real value as opposed to hype.
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