What are NFTs?

Non-fungible tokens (NFTs) are a technology that helps establish proof of ownership of a digital artifact. This means that at any point in time, there can only be one owner of a piece of media.
This introduces the concept of scarcity from the physical world to the digital world.

What are NFTs similar to in the real world?

NFTs currently find utility as collectibles that are tradeable 24x7. Collectibles improve the status of the owner. Hey, I’m so cool, that I own this pair of rare Air Jordans from 1995.
Think of real world objects that fit these criteria. Art is one of them. Wealthy people store some of their wealth in art.
Similarly, younger people buy Pokemon cards and rare sneakers to signal status and be part of a collective.
Objects like Gucci bags also form conspicuous consumption, which aims to signal that I’m so rich that I can waste a lot of money on these branded objects that serve no marginal utility over another bag.
Diamonds are also a good example. Value of diamonds is created by artificial supply scarcity, monopolies, and large marketing campaigns. Diamonds are forever, and the concept of a man buying a diamond ring for their wives is a man-made, advertising and socially driven concept.
NFTs bring this world of physical scarcity into the digital world.
People find a hard time wrapping their head around this concept. At the first level of skepticism is why can’t I right click+save. People don’t understand that you can do with existing art too. I could take a photo of the Mona Lisa, does it have the same value as the real Mona Lisa?
This whole thing boils down to ownership.

Different Types of NFTs

There are a few different types of NFTs and it is helpful to know the difference between them.
  • 1/1 Art
  • PFPs
  • Others - Music, Writing, etc

1/1 Art

This is digital art created by real digital artists or photographers.
The same concept applies while valuing physical art. Who is the artist + how good is the art? How many other people want the same art? For example, people buy a Picasso painting because of his name as much as the art he has drawn. Because his other work has been notable and everyone believes this.
The art is usually sold in an auction-style with reserve prices and bidding.
The utility from such purchases is that you can status signal that you bought this artist’s painting and now platforms like give a virtual musuem tour look to the digital art that you verifiably own.
As more of our lives go digital, more people will visit your digital home vs your physical home. And in that way give you the opportunity of showcasing your possessions.
Risks: The art could’ve been stolen and placed by an impostor, the original could’ve been a physical painting that was recreated digitally, the art can have zero value.

Profile pictures (PFPs)

This is the second major type of NFT project. It is usually algorithmically generated art that comes in collections of 10,000 or 6,900 or 8,888 images.
These aren’t hand drawn, but generated from a base layer with additional layers on top of it.
The value in these projects is less about the actual art and more about the creators and community.
It functions more like a club that breeds exclusivity, if the project does well.
PFPs are an interesting concept in a digital world. It is essentially your logo. And everytime you tweet or post on Instagram, people would see your profile picture.
A previous way of signalling status or wealth was to use a vacation pic to signal that you have had this experience. Or use a professional headshot in a suit with a textured gray background to show that you could afford, take the time to do this.
In a digital sense it can be a crypto punk, bored ape, or chain runner.
The club aspect is the future and not present of NFT projects. Like how Soho house is exclusive and only accessed by members, NFTs can unlock real world experiences. Or even before that — it's an online community with aligned incentives - wagmi. There's a financial incentive to help others in the community. One person does better the community does better and as a result you do better.
Tangible example, if by sharing some one's post I increase their distribution. Their increased distribution is then used to increase the value of our NFT project.

What does getting into NFT projects signal?

  • Either you're in the know and you're early
  • or you have disposable ETH to buy into a project that you feel will be

Vibe check for new NFT projects

Vibe check for new NFT projects:
  • Who are the creators? Have they had successful NFT projects before?
  • Who is following their account on Twitter?
  • How many people are in Discord/how engaged they are?
  • How active are prominent people in the Discord?
  • How many blue-chip holders are getting into this project?
  • Is it on-chain and CC0?
  • How is the art?
  • How many people on Twitter have changed their PFP to this project?

Wide ranging applications

  • TBD

Further Reading

NFT Terminology:
Status Monkeys
Example of owning a Chain Runner PFP
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