The old way and the new way
Some 3750 years ago, Nanni (a copper merchant) sent a cuneiform script on a clay tablet to Ea-nasir (a smelter) complaining about the rude treatment and poor quality of the copper ingots his agent was offered, and how he (Nanni) now had neither copper ingots nor his money.
Back then, that was basically how we vented, how we wrote, how we recorded information. We found a scribe to write our message over a few hours in cuneiform, onto a moist lump of clay, then fired it carefully in an oven before arranging for someone to personally deliver the fragile tablet. And writing wasn’t for the masses. It was a privilege.
The world has changed (several times since). We’ve been able to excavate several million cuneiform tablets over the years, but very few are legible. And as for the rest? Well, they’ve turned to ash, and have buried the foundational roots of the many technological advancements that’ve occurred since. Few more revolutionary than blockchain and cryptocurrency, where today, we’re able to create and publish scripts, artworks, content with a few strokes of the keyboard and clicks. And thanks to NFTs, enabled by blockchain, have it globally accessible, verifiable, indestructible, unconstrained by intermediaries, with economic upside.
But first, what is an NFT?
NFTs (non-fungible tokens) are unique digital assets registered and verifiable on a blockchain network. Linda Xie (@ljxie) does a great job at explaining what they are here. But essentially, NFTs are able to convert digital content, stories and moments into scarce assets, replicating some of the limited edition value of physical objects.
NFTs are widely misunderstood. Their complexity and perceived “sketchiness” to sceptics actually forms a big part of their appeal. Some can’t comprehend the idea of paying huge sums for a JPG that can be “right-click-save-as copied”. But this thought process misses the point. It’s like visiting the British Museum to photograph the Complaint Tablet to own it. You just can’t. NFTs provide permission and access. It’ll take some time for mainstream society to fully accept this. But in the interim, NFTs represent both a way to flex on people in the digital world (in its simplest form) to also the beginning of a lucrative future full of possibilities for creators, collectors and investors.
The market reality
In 2021, NFTs entered mainstream consciousness in a way unseen in the modern web.
NFTs sales reached $22bn in 2021 compared with just $100m in 2020. And the number of Ethereum wallets holding at least one NFT rose from 600k in Jan 2021 to 2.1m in Jan 2022 (up 250%):
In the last few weeks, the world’s largest brands have battled out a digital land grab over NFTs:
- Oct 2021: Facebook (market cap $958bn) rebrands to Meta
- Nov 2021: Disney announces metaverse plans
- Nov 2021: Microsoft announces metaverse plans including an initial offering of a version of Microsoft’s Teams chat and conferencing program that features digital avatars
- Dec 2021: Nike acquired RTFKT, a company that makes digital sneakers
- Dec 2021: Adidas sells $22m in NFTs, selling out in hours
And the long tail of creators and businesses are all wanting in too. For artists, NFTs provide a living and can help them earn the equivalent of what would take them years to earn from streaming. For any other creator, now is the time to bring yourself to the marketplace and get rewarded for it.
The NFT Code
The Complaint Letter comes from the First Babylonian Dynasty, during which one of the most renowned kings of Mesopotamia, Hammurabi, had proclaimed one of the earliest and complete set of legal code - the Code of Hammurabi. It provided a significant understanding of the judicial system in Ancient Mesopotamia - the main cradle of Western civilisation. And laid the foundation for key principles found in most legal systems today, including the presumption of innocence and the right to a minimum wage.
The NFT Code that follows is humbly submitted to help creators navigate the NFT market and identify where to focus their efforts. Revolutions are rare and frightening, but the goal of the code is to equip you with the pre-requisite fundamentals that will enable you to approach the market with the mindset that NFTs present not a threat but an opportunity for you to bring your best self to the digital world and be rewarded for it.
Code 1: Tell a great story
Collectible NFTs derive their value from the narrative around the asset, unlike other NFTs such as game assets (utility within the universe), virtual land (location) and art (artist’s reputation). Andrew Steinwold’s (@AndrewSteinwold) succinct write-up here provides a great explanation.
A great story is authentic, consistent, trusted and subtle. Fundamental to the success of CryptoPunks ($245k floor, $3.1bn market cap) was its narrative as the first NFT project on Ethereum in history. The founders provided a fair launch so anyone could claim them for free back in the day. Someday owning a CryptoPunk might signify just how early of an adopter you were, an OG you are, in the world of crypto.
Ground-up, co-created stories have also proven to be a success, where creators facilitate means for collectors to contribute and in some ways spearhead the roadmap for an NFT, and then if successful continue doing so (or resell to capitalise on the growth of the NFT).
Dom Hoffman’s (@dhof) Loot project ($7k floor, $55m market cap) is an example of a pure decentralised play, containing no art, no team, no road map, no central authority to determine the specifics of the project. Instead, the community is intentionally incentivised enrich the value of the NFTs, which they did, through means such as creating tools to visualise Loot items and monitor market prices, create derivative projects, like Realms for a theoretical adventurer with the gear in a Loot bag to explore.
Imagine that instead of the Star Wars universe being crafted and created by George Lucas, that the essential building blocks of the Star Wars universe existed in the form of just words outlined as a framework or starting point, and that those individuals who would one day become known as “Star Wars nerds” could have the opportunity to take that starting point and built out meaning, art, interpretations, stories, characters, quests, games, and more.
The Bored Ape Yacht Club project ($219k floor price, $606m market cap) provides a great example of the collectors adding value to an NFT by buying it, re-mixing it and creating more public interest in the project. NFT owners have created a music video with an ape. Virtual band KINGSHIP, made up of four Bored Apes, signed with Universal Music Group. There's also a beer launched by an owner. And artist Dan Rollman created a comic with his Bored Apes.
A critical get-right for creators is the clarity and communication of intellectual property rights attached to the NFT, which will govern the freedom for NFT owners to do what they want (legally). We cover this in the next Code.
Storytelling should be played with care and delicacy. Inconsistent storytelling or attempts by creators to get away with a story that’s just been slapped on will be sniffed out by the community. Lindsay Lohan missed the mark with her Furries NFT project that failed to resonate with the lucrative furry community, who called out design failures included the lack of furry features, and references to “running every gang from here to Mexico,” guns, and “a fiesta,” that the community interpreted as negative racial coding of the Canine Cartel working with Lohan.
Code 2: Be strategic with intellectual property
For content creators, NFTs present a compelling opportunity to commercialise content. If value is generated by the narrative created or facilitated by the creator, then it’s in the creator’s interest to protect their fruits of mental labor through intellectual property rights and the scope of the IP licence attached to the NFT. Depending on the scope set in the smart contract, the creator can decide what rights collectors have to the content. Options for the creator include retaining ownership of intellectual property, preserving the right to issue official copies or prints off of the original, imposing controls over usage to protect the creators brand, amongst many more.
There is some justification for tight copyright control, in that it encourages innovation by enabling creators to secure exclusive right to their creations. Larva Labs themselves have been able to reap the rewards of their punks beyond primarily market sales, having recently signed with LA-based global talent agency United Talent Agency for representation across film, TV, video games, publishing and licensing. Punk owners won’t be able to get a direct slice of the pie from such a deal. But the opportunities for collectors to be part of a burgeoning entertainment brand can alone unlock significant value. The values of punks will likely rise with the brand’s popularity.
NBA Top Shots are another NFT project with tight licensing restrictions, where a collector who purchases an NBA Top Shot "moment" does not inherit rights to then copy and profit off of that "moment".
Bored Ape Yacht Club have taken a more generous licensing approach, granting collectors a broad right to make commercial uses of the Bored Ape character that they own. The Bored Ape License set out in the website’s Terms grants “an unlimited, worldwide license to use, copy, and display the purchased Art for the purpose of creating derivative works based upon the Art”.
Nouns.wtf (created by @punk4156) are leading an emerging open-source IP movement in NFTs that’s most permissive. Governed by a Creative Commons CC0 licence, anyone can create derivatives and commercialise the nouns IP as they please, even if they don’t own one of the NFTs. It’s in the public domain.
CC0 enables scientists, educators, artists and other creators and owners of copyright- or database-protected content to waive those interests in their works and thereby place them as completely as possible in the public domain, so that others may freely build upon, enhance and reuse the works for any purposes without restriction under copyright or database law. - CC0 “No Rights Reserved”.
Already we’ve seen Nouns merchandise sold by general public members who don’t own Nouns NFTs, and derivative projects generating millions in sales. Anyone can take the Nouns brand and create their own content - songs, movies, clothing and toys. Nouns plans to work with David Horvath (@davidzhorvath), co-creator of the popular Uglydoll toy, book, and movie brand - to expand Nouns into Hollywood and the traditional IP licensing world via the Nouns Studio1 initiative.
The growing discontent around CryptoPunks and the rising prominence of the Bored Ape Yacht Club is reflected in recent prices, with the BAYC flipping punks in terms of floor price (23 Dec 2021). Whether that’s due to the discontent, time will tell.
Creators can be forgiven for believing they value their works better than anyone else, and to having a special connection with their works that enables only them to understand it in a way that no one else ever can. And that may extend to thinking they’re best positioned to drive the ongoing mainline narrative and therefore control copyright for their NFT project. But there are no guarantees that such creations will be embraced in an NFT market where the value of central control and censorship is resisted, and where the widespread that is that NFT owners should be the owners of the content despite what the legal fine print states.
When collectors buy NFTs, they buy clout and they’re generally after a ROI, so they have a vested interested in the narrative, maybe in ways that many creators traditionally find uncomfortable. In this new era of fiction and storytelling, maybe the decentralised, collaborative approach to loosening copyright control and co-creating narratives will be both delightful and liberating for creators to adopt.
What’s just as, if not more important, is the creator’s attitude and approach to decision-making and crowd-sourcing, and incorporating, community input. Great NFT projects are projects where decisions are made with the community in mind.
Code 3: Enhance value through scarcity
Scarcity is central to elusiveness and desirability, regardless of whether the asset is naturally scarce (oil, gas etc.) or artificially scarce (Birkin bag, tickets to major events etc.). The scarcity principle - that rare or limited resources are more desirable - is relevant across economics, social psychology and behavioural economics. People want what others can’t have. As Robert Cialdini states in The Psychology of Persuasion:
“The scarcity principle trades on our weakness for shortcuts”.
Historically scarcity has been difficult to configure into digital content due to its ubiquitous and abundant nature. Anyone can screenshot, copy, download or share content. There are some exceptions, with games such as Runescape having created virtual economies for in-game assets, skins etc. through the material configuration of scarcity, elusiveness, community and secondary markets. But such environments depend on a central and trusted authority, operating within a walled garden with no interoperability or use case for the assets beyond the games.
Blockchain has enabled a paradigm shift for collectibles, allowing online assets to have verifiable scarcity and ownership that can’t be manipulated, bringing elements that endow real world, valued collectibles and assets into the digital world.
The NFT creator gets to determine the scarcity of their asset. And there are several different tactics to deploy to get people clamouring for more than what’s available:
- Quantity-based scarcity (limited quantity available): options include the creation of single edition (1 of 1) NFTs for the one true fan; limited edition NFT drops that can help create more of a community since multiple collectors can get involved; and fractionalised NFTs where one NFT can be owned by multiple collectors through the purchasing of fungible tokens that represent the NFT.
- Time-based scarcity (limited time releases favouring active and committed collectors): creating limited time releases that require commitment and skill from collectors if they wish to obtain the NFT (or the simple luck of being in the right place at the right time). Be there on launch date, or integrate time or labor-intensive tasks to obtain the NFT.
- Skill-based scarcity (obtaining the NFT is subject to attaining a level of skill, knowledge or effort): Another aspect of the Runescape game for creators to leverage is the rewarding of players for their time and commitment in obtaining particular achievements. For instance, if you maxed out (level 99) several skills then you would receive a non-tradable skill cape. You couldn’t just buy your way to success. First person shooter games are also known for requiring gamers to achieve a certain skill level before they can unlock desirable items (e.g. top weapons) for acquisition.
- Location-based scarcity (requires collectors to be at a particular location to obtain the NFT): Again, using the Pokemon Go example, where limited locational availability created greater challenges in acquiring the digital assets.
NFTs are still in early days, and to date most NFTs require capital to acquire them, but the exploration of the above could introduce merit, accessibility and sow the seeds for a well-incentivised community.
With a plethora of “scarce” NFT projects already in existence, and many more in the pipeline, collectors are spoilt for choice.
As Cobie neatly articulates in Tokens in the attention economy, attention is scarce and in high demand in crypto. Just as it was from people in Web2 and Web1, during the advent of social media and online news where eyeballs became everything in the race for clicks. NFTs projects today are competing with dozens of new coins, tokens etc. releasing daily, all hoping to get the attention of buyers to add to their community.
Collectors will chase projects that are good and popular. As a creator, it is critical to not over-simplify scarcity to decisions on how many NFTs to release and over how many release waves. Use it to enhance your NFTs value, and not detract from the importance of fundamentals like your narrative and community.
Your first true fan
Kevin Kelly (@kevin2kelly) in his classic 2008 essay 1000 True Fans predicted that the internet would enable people to get paid from their creations by establishing a modest community of 1000 “true fans” willing to spend $100 each on your creation (to create $100k income per year):
To be a successful creator you don’t need millions. You don’t need millions of dollars or millions of customers, millions of clients or millions of fans. To make a living as a craftsperson, photographer, musician, designer, author, animator, app maker, entrepreneur, or inventor you need only thousands of true fans.
A true fan is defined as a fan that will buy anything you produce. These diehard fans will drive 200 miles to see you sing; they will buy the hardback and paperback and audible versions of your book; they will purchase your next figurine sight unseen; they will pay for the “best-of” DVD version of your free YouTube channel; they will come to your chef’s table once a month.
Investor Li Lin (@ljin18) argues that 100 fans may be a better target for the more recent digital and information age to reflect the increasing global adoption of social platform tools (Reddit, Discord, Telegra, Clubhouse, Twitter, Facebook, Instagram), mainstreaming of influencer marketing, and ever-increasing availability and accessibility of information and tools.
And for NFTs, that number may be even smaller - Lin argues that one serious fan may be enough, the one cult fan that’s prepared to take an early punt, buy multiples and/or want to own the “original” drop. The ability to find that first true fan may be a breakthrough opportunity.
NFTs are a burgeoning market with clear signs the old guard are beginning to embrace the lucrative opportunity that presents them.
Creators have a choice: sit back and do nothing, or chart their own path and create value as they usually do. Whether that trade is usually as a corporate, musician, chef, a comedian, artist, NFTs present an opportunity to create and transact content and value in ways that empower everyone to own a piece of its success. The content itself is merely the bridge between the old way and new way.
Check out these helpful resources (A-Z) to understand NFTs further and keep up with developments.
- A Beginner’s Guide to NFTs by Linda Xie
- A Mode of Growth: NFTs, Ownership, Copyrights, Blockchains by Maarten Walraven-Freeling
- CryptoPunks and Copyrights: What’s All The Fuss About? by Eric Paul Rhodes
- Game Economics, Part 2: Digital Collectibles and NFTs by Jon Radoff
- Infinite but Rare: Valuation and Pricing in Marketplaces for Blockchain-Based Virtual Items by Pavel Kireyev
- NFTs: A Legal Guide for Creators and Collectors by Amy Luo
- NFTs and a Thousand True Fans by Chris Dixon
- NFTs Make the Internet Ownable by Jesse Walden
- Quick Overview of the NFT Ecosystem by Andrew Steinwold
- Social Tokens Year in Review by Cooper Turley
- The Music Industry is Built on Artists, but Shuns Creators by Dave Edwards
- The Non-Fungible Token Bible by Devin Finzer
- Tips for Creators Getting Into Crypto by Patrick Rivera
Thanks to Burak Cankurtaran (@thisthatBC) and Abhinav Sangem for input and steer.
If I’ve missed out on any good concepts, or you’d like to get in touch to discuss cool NFT ideas or projects, just reach out to me via Twitter @armota.