MSS Post Series: NFTs

Disclaimer: The hereunder is provided for information purposes only and does not constitute advice. NFTs are highly volatile assets, your capital is at risk of losing its full value.

Topics that will be covered

  • ✅ Success stories
  • 🎩 Status, Signalling, Utility & Entertainment
  • ⚠️ Risks, fraud, scams
  • 🤟🏽 NFT lingo
  • ⛽️ Costs & Gas Fees
  • 🤖 Digital native identity & expression

I believe this topic needs to be discussed to allow more people to be open to exploring new technologies as they emerge, and not demonise them out of fear of the unknown.

Make no mistakes, the risk of scams and failures is very high! Only spend what you can afford to lose! 🙅🏻

NFT Series (1/6): success stories

The newly crypto-rich did what rich people do: bought art 🎨 and toys 🧸

  • Digital artist Beeple, sold a collaged image file for $69 million plus 10% royalty off consequent resale 🖼
  • Top Shot a marketplace for NBA highlight reels, has generated over $230 million in sales 🏀
  • Jack Dorsey, Twitter’s CEO, sold an NFT version of his first tweet for a whopping $2.9 million
  • The musician (and mother of Elon Musk’s youngest son) Grimes sold her NFT collection of digital artworks for $6 million in less than 20 seconds ⏳
  • $24 million Sotheby’s auction of Bored Ape Yacht Club tokens 🙊
  • The average selling price of CryptoPunks has gone from under $200 to over $200K, a 1000X return in a span of a few months
  • SoftBank’s Vision Fund led a $680 million Series B round, which values the company Sorare at $4.3 billion — a fantasy football platform based on NFTs ⚽️,

Those figures require anyone in the tech space to at least, pay attention and try make sense of what is going on. This series tries to explore why this phenomenon is taking place and is it here to stay?🤷🏼‍♀️

NFT Series (2/6): Status, Signalling, Utility & Entertainment

People seek out the most efficient path to maximizing social capital

- analysing NFTs based mainly on utility is missing the point completely

If everyone who signed up for Twitter 🐦 got one million followers just for signing up, there wouldn’t be any social capital in having one million followers. Social status requires proof-of-work

Social capital dynamics can help to explain all sorts of online behaviour that would otherwise seem irrational. There are three axes for analyses: Social signalling, Utility, and Entertainment (see image).

https://www.notboring.co/p/status-monkeys?fbclid=IwAR0XMzGAyAbAhXjWgsZJEUFmyTjg_fIvtYjacilGqFVJ8zMxIURalEUEnto

It’s “Investment-as-a- Status”, built upon scarcity. There are only 10,000 CryptoPunks and Apes 🦧, and within that limited set, there are some that are particularly valuable, and therefore makes for a great Twitter profile pic to signal status.

NFTs are entertaining 🎭 as well: it’s fun to watch the sales, and some people are already building personas and online characters starring their Apes or Punks. Also, collecting is fun, ask anybody with a precious collection.

Social capital turns into Financial capital, and vice versa. NFTs will give owners exclusive access and unique experiences as they evolve to a wider audience. These have a high re-sale value.

NFT Series (3/6): Risks, fraud, scams

The basis for fraud emerges because artworks & collectible toys DO NOT have a standard pricing basis

The following are examples of why things go wrong for unknowledgeable and uneducated investors in such a new and volatile segment of the market. ☢️☣️⚠️

FOMO

99% is about being in the right circle, having the right information at the right time

In the NFT space, you live with this constant frustration that you have missed a chance to make $1 billion.” 😱😱😱

One of the most prevalent NFT investing outcomes : Getting stuck with something nobody else wants, “the bag” 💰. That’s not good, clearly!

Insider Dealing

The advantages of being in-the-know was laid bare when OpenSea acknowledged an employee had used confidential information to snap up items before they appeared on the front page.

Wash Trading 📈

where a speculator inflates volumes by buying and selling against themselves. From May 2020 to February 2021, such fake transactions allegedly made up 28% of the dollar volume at an unnamed art marketplace, with another 10% flagged as suspicious.

Fake Capital Costs

Buy and selling to inter-group owned companies to engineer a tax loss

Pump and Dump 🎈

Using online communities (Twitter, Reddit, Discord etc..) to inflate FOMO around an NFT collection, organiser then sells off, leaving last to join with an over-priced value-less asset. Any Faze Clan fans here? 👿

Money Laundering

The exchange of NFTs between users could constitute money laundering in the form of layering or integration. NFTs don’t need to be stored in a physical location. And most of the biggest NFT platforms operate with little or no KYC requirements.

With NFTs inherently operating on the blockchain, their origin and destination traceability is easier 👍🏽, providing a certain level of transparency for all transactions, however marketplaces do not identify users at the point of purchase or withdrawal (at least for now!) 👩🏼‍✈️

In short: BE CAREFUL WHEN DEALING IN NFTs !!!

NFT Series (4/6): NFT lingo

One sign of a communal movement is that a new language emerges. Here are some key terms you need to know…

Fungible

A painting is unique, so an NFT is simply a registration of uniqueness. An NFT can be applied to various collectables ranging from the ownership and authenticity of an original masterwork or collectables in the digital world.

Minting

When an NFT is minted by a creator, this information is immutably registered 📟 on the blockchain and becomes a sort of digital passport for the work.” Minting an NFT on Ethereum is a way for artists and creators to secure their work to guarantee to buyers that they’re getting the real deal.

Is it the same as cryptocurrency?

While NFTs are built and recorded using the same technology that powers cryptocurrencies, they’re different in important ways. Cryptocurrencies are, by design, fungible, meaning that they can be traded or exchanged for one another: one bitcoin is always equal in value to another bitcoin. 🪙

NFTs are non-fungible meaning that each one is unique (like a Picasso painting)

Smart contracts are code that is stored on a blockchain, which contain in the case of an NFT, the unique token ID of the piece of digital art and the conditions under which it can be transferred/transacted 🧾

Staking

Locking up your tokens in order to participate in community activities like voting or loaning tokens in order to receive a yield (more tokens) in return

Whale 🐋

A wealthy user or fund that owns a lot of crypto, their trades and actions can move the market. May not actively participate in the community, thus inflating prices

APEing

taking on a large position relative to one’s own portfolio size OR investing based on FOMO with inadequate research

McDonalds

NFT traders backup career plan in case the “to the moon” scenario fails

Cozomo de’ Medici = crypto Snoop D.O.G.G. 🐶 (allegedly!)

NFT Series (5/6): Costs

Transactions on the Ethereum blockchain are incredibly energy inefficient; one transaction uses more power than the average US household does

Many popular NFT wallets are going to let you mint completely free of charge, then take a 3% cut on sales , some are going to charge a basic fee of between $70 and $120 to help you hit the ground running.

However, during peak times, costs have risen upwards of $200–300…

In addition, Gas fees 🛢 are payments made to compensate for the computing energy required to validate transactions on the blockchain

1) the price of gas fluctuates, meaning one cannot really plan ahead

2) the more money you pay for gas, the higher the chance the transaction will be included in the next block as this is what incentivizes miners

Estimating gas fees is what has put the brakes on many NFT based products. Innovative “layer 2” solutions and alternative blockchains are emerging to solve the scalability crises of these new innovations. Watch this space! 👀

Artist chase the dream

Besides the cost of minting, distributing and marketing a collection, is perhaps the biggest cost item. The most actively traded 3% of collections accounted for 97% of all dollar volume

As with most internet platforms, NFTs seem to follow the same old power laws 📊 The winners get bigger, the others are just irrelevant.

Disclaimer: Obtaining clear information on costs was hard to come by, without focussing on particular platforms.

NFT Series (6/6): Digital Native Identity & Expression

Bitcoin’s value is rooted not in the Bitcoin blockchain, but rather in the collective belief of millions that it is in fact valuable; NFTs, to the extent they capture and retain value, will require the same sort of collective belief ✊🏽.

The financial returns logic is quite simple: anything which is scarce and rare has value, and anything where demand increases as supply stays the same tends to go up in price. But NFTs are a reflection of more than financial speculation, imo of course…

One of the most popular forms of signalling or “flex” is NFTs as profile pictures on Twitter

In the digital era, the way the world primarily knows you is not through your face or your clothes — it’s through your digital avatar. This is key to understanding the paradigm shift

Second, NFTs’ leverage unique digital ability to be used in apps. For example, in Zed Run, a horse racing game, horses are NFTs and breedable, yielding new horses which can then be raced (known as “Play-to-Earn”) 🕹💵.

NFTs also serve as a way to participate in a community and find belonging . Today this typically takes the form of virtual communities where ownership equals access to locked Discord channels or membership into an “exclusive club”.

Early crypto owners started the NFT wave and are still a big part of it today — digital art collecting for a digital native audience 🤖.

One can suggest that the motivation around NFTs is linked to: A collectable, supporting artists and creators, status signalling or speculation on pricing

Critically: its representing identity & belonging to community in a digital native experience 👥👥👥

Social media has negatively impacted people’s mental health. Don’t let it negatively impact your financial wealth too. Do the homework, be disciplined and go in with your eyes open 🤓.

This series of posts appeared on Malta Startup Space a Facebook group I manage that inspires startup culture in my native country of Malta 🇲🇹

For more articles on similar topics: https://www.clutchplayadvisors.com/blog

www.clutchplayadvisors.com Early stage company advisory and startup fund raising. Human connections that build relationships, add value and move the needle