To understand the NFT ecosystem better, I recently bought my first NFT (image above). An NFT is basically an image backed by a unique digital key or a property title, visible transparently to everyone since it’s on the blockchain.
Featured Image: The Goblin Laboratory NFT I bought for 3 SOL
I bought one from Goblin Laboratory — which has 26k highly engaged members on its Discord channel, 29k followers on Twitter, and came recommended by a friend clued into the NFT ecosystem. The NFT-drop sold out in 6 minutes. I liked the artist, the art itself seemed like something I would be proud to own and show off in the online and offline world. So by all accounts, a good first project to start with.
As an NFT-owner, I’ve been thinking about what the upside scenarios look like for me, the value this NFT brings to me, and also if I would buy another one. I heard the Tim Ferriss podcast episode with Chris Dixon and Naval Ravikant to help me think through these topics.
Here’s my take below, weaved in with a few snippets from the show:
Scenario 1: Art for the Sake of Art, the Price of the NFT Appreciates
The easiest upside scenario to contemplate here is an appreciation of the value of the NFT — someone values the art I bought more than I do and is willing to pay more than I was. I get to sell my NFT at a profit and because of the way the smart contract is structured, the creator of the NFT gets a portion of the sale proceeds as well. This happens automatically, without anyone’s intervention.
This distinct feature, where a creator gets rewarded for further sales of NFTs, is clearly a feature upgrade that makes NFTs a lot more valuable to creators.
Summarising from the Tim Ferriss podcast:
“It’s not because of the initial sales price. The model for authors, musicians, has some royalty component but you get paid upfront and then you have a pittance that you make going forward. With a smart contract, instead of a ton of middlemen, who are taking a lion’s share of the profits, you can set in advance certain things that happen automatically e.g., if your work is resold, you can make money on secondary sales and it’s all done automatically. They don’t have to trust an agent, a rep, or a curator. They don’t have to trust some accountant because it’s all on the blockchain.”
Skeptics will argue that they can right-click and save this image and therefore also “own” it. But, as in the offline world, anyone can buy copies of the Mona Lisa. If one can appreciate provenance and authenticity in the offline world, it should translate to the online world. Provenance in the art world is documentation that confirms its authenticity mainly through ownership history. This is exactly what the blockchain provides.
As it happens though, the Goblin Laboratory project has not appreciated in value. Since I bought it, the price has dropped by about 50% on solanart.io. I don’t intend on selling it right now, but what are the ways in which appreciation or value creation happens next?
Scenario 2: Happiness in the Metaverse with Access to the Artist’s Future Creations and a Stake in the Goblin Community
The NFT acts as an automatic verification check if the artist or the project is planning to limit access to future assets/ events in some way. Say, for example, access to future NFT drops, or to voting rights on the direction in which the Laboratory should head, etc.
In this case, the artist has granted all Goblin NFT holders a free NFT of their next creation, the Sentinels. The Sentinels NFT (featured below) looks absolutely gorgeous.
If I value the NFTs I get as a member of this community and other benefits that may accrue from time to time (like merchandise etc.), I would probably feel like I got a reasonable return for the money I paid up-front for the Goblin NFT.
Caption: The Sentinels NFT that got dropped to my wallet
One can certainly imagine a sports team or band-limiting access to its merchandise/ media to holders of their NFTs to extract the maximum value. Devoted fans would likely be willing to pay for such exclusivity.
Chris Dixon also talks about using NFTs as a device for patronage.
“I buy NFTs — I bought some from a graphic designer. He now DMs me, we’re friends. It’s fun for me to be able to talk to an artist and at the same time support him in a non-transactional way.”
Eventually, these digital assets could become the de jure status markers in the world; the equivalent of a Birkin bag or an iPhone. At that point, perhaps all of these NFTs that I’ve collected help me build a Metaverse identity that I’m proud of.
Scenario 3: The Project Accumulates Value by Becoming Part of a Game, Movie, Music Album etc.
This is how Naval summarises the ownership of NFTs and what can be built on top.
“Digital private keys enable digital private properties. So we finally have private property on the internet and we don’t need people like Spotify or even the studios and labels to determine who owns what private property and hold it with their database entries and their lawyers. We can each do it ourselves.”
“Today if I want to build something on top of the Star Wars platform, I have to go cut a deal with Disney. But in the NFT world, artists are basically giving away the concept and people will be building games, cultural artefacts, new memes, new music on top of NFTs and more value will accrue to the NFT because now it’s becoming more popular. It kind of blows away the idea of copyright and intellectual property and instead it creates the most powerful media in the world — music, movies, books.”
Chris continued:
“The next stage, which people are playing around with now, is to have the community create narratives — imagine the next Harry Potter is owned by the NFT holders and they get to write all sorts of interesting fiction.”
This makes a lot of sense theoretically. It is absolutely possible that a video game, a cinematic or comic book universe is built on top of the Goblins lore and imagery. In fact, some of this is already happening in the Goblin community. People are writing lore and creating narratives.
Can someone just take all of this and create a coherent movie/book with it? Who stands to gain when this happens? A few questions in this context:
> Does the person building on top of this universe need to pay for the underlying NFTs and the storylines?
> Does the person who shared a storyline on a discord channel really “own” that narrative?
> Does this become a copyright issue that a centralised authority — i.e., a legislative body/court of law — will need to settle? If that’s the case, does the decentralised, smart contracts-governed NFT universe start to lose some of its value?
> If the artist gets included in the new project and stands to gain from the sale of the game, movie or book, will it be incumbent upon him to share that with the rest of the Goblins community?
> Is the value that comes to me as an NFT holder just the price appreciation from the fact that Goblins is now becoming part of mainstream culture?
The podcast talks about the BoredApeYachtClub project and the fact that they sold the commercial rights along with the NFT. The New Yorker writes: “each member is allowed to brand his own projects or products and sell them independently. In the three months since the club launched, Bored Ape owners have put the cartoon primates on lines of craft beer and created animated YouTube series
made painted replicas,
and designed skateboard decks.”
If the creator makes money from every sale of a bottle of beer, technically a smart contract cannot govern that. We’re back in the real world, with lawyers and contracts and centralised brokers. How is it different from Starbucks buying the rights to use the Starbucks mermaid from its creator?
The minute the use-cases step out into the non-digital world, the smart contract execution chain breaks and the rules of contract and intellectual property that govern all media assets take over. Naval also alludes to this:
“you can link NFTs to the real world through social contracts.”
The fact that the Bored Apes launched as NFTs, probably granted it status and virality that the creator might not have been able to generate otherwise. It will surely be interesting to see what happens when NFT drops become commonplace and lose the exclusivity they come with right now.
So, would I buy an NFT again?
Yes, if I like the art and the artist. The time to flip and make a quick buck has probably passed.
I would now buy NFTs I like to continue to learn about the asset class, the communities built around them and probably hold on to witness the ways in which they might evolve in the future. The secondary sale and verification use cases certainly seem to be promising in terms of what gets built on top.
Chris and Naval seem to agree:
“even though some of these art projects will turn into larger franchises that will launch movies and games and books, many won’t. If you want to buy NFTs, buy the stuff you like, because at the end of the day what you’re probably going to end up with is a cool Jpeg.”
About the author: I am a Partner at Saison Capital. Prior to this, I was an early employee at 2 unicorns: Grofers in India and Lazada in South East Asia. I’m @vheesaa on Twitter and this is my profile on Linkedin.
Disclaimer: As mentioned in the title, I own NFTs by Goblin Laboratory