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There's little doubt that you are signing up for a reading marathon when the author themselves suggest that the tome you are about to embark on is:
“possibly longer than anything you've ever read”
“it's the longest piece ever written on NFTs, 30,000 words, 111 min read”
“sorry to subject you to that” [reading it]
“They are the Tolkien of random web articles, for sure.”
“omg no thank YOU for suffering through reading that entire thing”
Nevertheless, the promise of unravelling the logic behind an investment record that grew $10k to $400k through cryptocurrency (mostly Ethereum and Bitcoin); then $400k to $7m through NFT investing (mostly Cryptopunks) was too seductive to bear.
Whilst the insights brought to bear are significant on a biblical scale, so is the packaging, with the original article (published here on medium by Ben Yu) a good three hour read if you end up clicking on links and doing background reading.
The Lay of the Land
For the time strapped, attention deficit scoundrels amongst us (of which I count myself a vigorous member) I offer this beggars can't be choosers 2D rather than 4D version with gaping holes anyone who watched the Harry Potter movies after reading the books will undoubtedly recognise. I expect that, with the wind behind your sails, you’ll ride momentum from here to go on and learn way more than I did to begin with.
Art Seems Dumb
Art seems dumb; without utility or intrinsic value relative to pragmatic and “useful” disciplines like science or mathematics. Digital art - more so! Consider how tough it is to display or interact with. Maybe, except, perhaps, for games which humans love as a social activity.
From the Maslow’s hierarchy of needs perspective, with survival in mind, basic needs (math and science) seem to make sense initially until our most base requirements met. However, thereafter, the arts and the humanities are simply the most essential human practices and disciplines.
Provenance Matters
All art is infinitely replicable (e.g. photography, painting etc) so provenance, where it came from and who it was created by, really matters. The core ingredients of a painting for instance (canvas, paint etc) are inherently affordable. However, we value different paintings based on not only their aesthetic appeal but some level of confidence in their lineage. As a result replicas, with the same level of aesthetic appeal as the real thing, are nowhere near as valuable as having a piece with verifiable origins that are socially accepted as being valuable.
The extent to which we rely on “trusted” authorities to determine this provenance in the traditional art market is profound. Michael Lewis, writer of MoneyballThe Big Short, explores the conflicting incentives that imperil this pursuit in his brilliant podcast Against the Rules. The architecture of the industry, and the relatively weak penalties in place for “independent” adjudicators to audit provenance candidly have led to estimates that 50% of art that is thought to be legitimate - is fake! Existing systems aren't particularly good at tracking provenance.
People are skeptical of everything at first: computers, flight, calculators (vs. Slide rule), and bicycles for instance. It is a natural, innate, predilection we all suffer from. Fortunately one we can seek to be mindful of: Inertia - aversion to change.
Despite our inertia, objectively digital art is in many ways superior to traditional (real world) art forms. Imagine the number of works in real life we have lost due to fire, deterioration, or being lost. Digital art is more difficult to lose (blockchain), never deteriorates, and can be easily fractionalized.
Blockchains
Rather than tracking transactions on paper (analog), you keep an excel file or use google sheets (digital centralised), or can evolve to a distributed LEDGER (digital decentralised), meaning instead of keeping only one version on your computer you keep lots of versions on many computers.
Blockchains make way more sense than a number of traditional practices e.g. compared to keeping records of a marriage at a license office or registry. Other examples of industries which blockchains are already disrupting include healthcare, transportation, finance and government.
Memes are all powerful! Yuval Noah Harrari writes about collective societal delusions like money and religion that have profound impact and hold or even create immense value to us. Humanity’s ability to infuse these memes with meaning are what sets us apart from other species and have enabled us to prosper.
Richard Dawkins suggests that language, political associations, fashion etc are all memes! In fact we become emotionally attached to such fictions and imaginary characters all the time. In a book for instance, or during a play, watching a cartoon. They matter. And have astounding value.
Consider the Mona Lisa which is worth approximately $850million. This astronomical figure was astounding to me we hear from the Louvre museum's art director who indicates that Leonardo Da Vinci’s masterpiece is so famous that 80% of 9.3m Louvre visitors a year go to see it exclusively at $20 a pop ($150m per year is a decent yield!).
The fascinating part is that the painting wasn’t his most celebrated work, and remained relatively unknown for 400 years after he painted it. The first event (that then snowballed into its current notoriety) was a heist and subsequent return of the piece that brought it into the social consciousness. It then acquired status through a series of parodies, uses in media, popular culture, and abstractions by artists such as Andy Warhol, etc that built up the legendary level of status it has now achieved.
Meme is somehat interchangeable with the word brand. Both serve to infuse an idea, product or service with meaning.
Brands like Dogecoin, Gamestop or AMC (the cinema chain) can become self fulfilling prophecies. Their value isn’t derived necessarily by strong fundamentals, technical design or core competencies but rather in our collective belief in their purpose and function. In the case of AMC, a cinema chain which during the pandemic reached all time high stock values (despite people barely being able to leave their homes). Or Dogecoin, a cryptocurrency with a larger market capitalisation than FORD despite having been created as a joke and used to tip people online. Detractors contend that such assets are without utility, what they miss is that their meme-ability serves as utility!
Brands like Louis Vuitton are luxury goods designed to confer status.
Yet it is so very difficult to provably verify LV goods as being original because the materials and designs are so easy to replicate. They too become self fulfilling prophecies in the sense that the higher the price gets, the more this confers power or wealth status to the owner. This thereby induces higher prices in future to demonstrate higher levels of status. These are known as Veblen goods (high price induces status —> higher price). We see this in action with older generations who will break their backs bending over backwards to get their children qualifications from top quality schools and universities even though the educational content is pretty much exactly the same across the board.
Key early brands in the NFT space that have assumed this veblen good role include Bored Ape Yacht ClubTezzardz on the tezos blockchain, Degen apes on Solana, Algoanna’s on the algorand blockchain etc.
is a true OG and procures one of the first projects to take off on the Ethereum blockchain called CryptoPunks
These were given away when they were created (minted) in 2017 and now command millions. Celebrities in particular are using them as status symbol profile pictures across their social media handles. Every record sale of a CryptoPunk to another celebrity further increases the clout of the CryptoPunk meme and brand, further cementing its status as a positional good that can demand Veblen pricing. Snoop dogg, serena williams, jay z, post malone’s twitter handles reflect that not only are the collectors, they are investors who are paying this brand for the privilege of promoting it.
Egalitarian
Fine art in the physical world isn’t very equitable, democratic or accessible.
Curated pieces are often prescribed by a very finely tuned network of kingmakers (dealers, agents, galleries, auction houses, and salespeople). These traditional rent seeking middlemen (gallerists, auction houses, specialists etc) predominantly come from specific networks in confined geographical spaces that tend to propagate works from others within those networks and spaces. These systems are also exploitative with the fees incurred at every stage inducing a deadweight loss that is borne by the artist.
As an alternative, the ?metaverse is a digital landscape that can be scaled infinitely, seen by millions with no geographic limitations, and be constructed in ways that are literally impossible to replicate or express in real life. This can enable fully dynamic interactive immersive experiences that utilize code to change in a way no physical object can.
Thanks for reading! If you found that useful or interesting, some suggestions….
- Highly recommend you read the long form article.
- Highly recommend you join the discord to learn how to avoid scams in NFT land, secure your wallets, mint NFTs, pay less gas transaction fees, etc.
- Check out my mum’s digital generative art
- Check out my NFTs
Love and appreciation to Ben, Matthew, Gabriel for contributions & feedback.
