"We see more people going online and naturally the new generation are more tech-savy - that's why we are seeing more young people using this technology and browsing NFTs because they are more natural to these kinds of tools."
Kate Vass: DISRUPTED: HOW NFTS ARE CHANGING MODELS AND MARKETS
We are in a digital renaissance funded by the rise of cryptocurrencies and built upon the blockchain - and creators are flourishing as a consequence.
In this Paper I will explore why NFTs can be so valuable to creators and businesses by looking at how:
creators have new revenue streams available to them (in both primary and secondary markets);
the rise of cryptocurrencies has made capital more accessible to creators;
NFTs can help build strong communities
NFTs grant autonomy
NFTs do not discriminate
This Paper 1, Part 2: NFTs and their Creators should be read in conjunction with Paper 1, Part 1: NFTs and their Collectors (which includes some of the essentials on NFTs and the blockchain) from last week.
(i) New revenue stream - primary sales
Blockchain technology provides the answer in an open and trustless manner⦠digital goods are now a provably "ownable" asset. This creates a new asset class around which a market can be built.
BCheque, Paper 1, Part 1: NFTs and their Collectors
As the world becomes more natively digital, digital assets become more valuable.
Once digital assets become more valuable, they provide creators with a brand new revenue stream which never existed before.
For creators who make natively digital art (that which has a digital element and which cannot be fully experienced without a screen), NFTs provide the creator with a method to monetise their craft.
4th Perspective: an artist who creates eerily beautiful digital art.
Even more βtraditionalβ creators (painters or photographers, for example) might prefer the NFT route to market.
Importance of provenance: Guido Disalle, a prominent photographer in the NFT space, prefers the model of selling NFTs to IRL prints.
And it isn't just individual creators who consider an NFT offering important.
Huge brands and companies are recognising the value of the market which has been created by NFTs and blockchain technology.
VeVe launch licensed digital collectibles and comics on their platform on a weekly basis from many of the world's most recognisable brands - and almost every launch is sold out in seconds / minutes.
Veve Partnerships: VeVe has confirmed partnerships with Disney, Warner Bros., Marvel and DC Comics. There are many more partnerships in place and to be announced. Source One37pm
Consider the iconic first Marvel Spiderman drop.
Spiderman: the first time a digital collectible version of Spiderman has ever been produced and sold by Marvel.
Spiderman Season 1 was produced with the following quantities, rarities, and prices:
(i) COMMON β Spider-Man β The Amazing Spider-Man - Price: $40.00 - Quantity: 32,000
(ii) UNCOMMON β Spider-Man β Hangin' Out - Price: $50.00 - Quantity: 16,000
(iii) RARE β Spider-Man β Jump Into Action - Price: $100.00 - Quantity: 9,000
(iv) ULTRA-RARE β Spider-Man β Animated - Price: $250.00 - Quantity: 2,500
(v) SECRET-RARE β Spider-Man β Ultimate Animated - Price: $400.00 - Quantity: 1,000
When released on 7 August 2021, this brought in:
(40 x 32,000 = $1,344,000) + (50 x 16,000 = $800,000) + (100 x 9,000 = $900,000) + (250 x 2,500 = $625,000) + (400 x 1,000 = $400,000) = $4,069,000
(VeVe and Marvel are also making a royalty on every secondary market sale - more on that in a moment.)
This primary revenue stream never existed for 4th Perspective, Guido, or Marvel before NFTs and the blockchain. It most certainly does exist now.
(ii) New revenue stream - secondary sales
"I saw that it was legit; I saw that artists were getting royalties; I saw that it was a revolution."
Fewocious interview with Gary Vee
Before NFTs it was very difficult for creators or businesses to continue making money from their products after a primary sale (without some sort of subscription).
If you bought a painting, a table, a book, or a game, it was considered that you did not owe anything to the creator if you wished to re-sell that product. In practical terms, it was simply too difficult to enforce any sort of royalty in any event. (Imagine selling a book 10 years after you bought it at a garage sale in a small village...)
With NFTs, however, the smart contract technology allows creators to build in a royalty on every secondary sale of a product in perpetuity.
Secondary sales: artists can now set their royalty rate for every NFT they produce. (Royalties have been typically set between 5 and 10% in my experience.)
This is a game changer for creators: it means that they can earn a percentage of every sale of their creation(s) for as long as their creations are in demand and traded.
(iii) Building community builds community
NFTs give creators incredible power to build and reward their community.
Though they do not to have to, NFTs can really represent/include anything:
an entry into a raffle
a ticket to an event
one component of a set which needs to be completed
a governance vote
a key to enter an exclusive Discord chat
a qualifier for an airdrop or mintpass
IP/Commercial rights
By making an NFT have additional utility beyond its mere existence as a token, the NFT becomes more valuable for a collector. This is also more profitable for the creator, as the price of the NFT rises with better utility, so it gets sold at a higher price, so the creator receives higher royalties.
It also has the effect of making the community more grateful, loyal, and likely to (often vociferously) spread the word positively on Twitter: organic marketing.
Speaking on how community can be created with a collection or series of NFTs, WAGMI United, who are seeking to buy an English football club, had this to say in The Washington Post:
If the WAGMI groupβs initial NFT collection includes 10,000 offerings, Smith said, thatβs β10,000 pretty rabid brand ambassadors right off the bat."
βItβs kind of like community storytelling,β Smith said. Unlike established sports brands such as the Yankees or Manchester United, he said, his group would be βstarting from scratch,β allowing it to be βriskier in what you allow your brand to become. Then you can work with your community to figure out what it is together.β
The distribution of meaningful digital ownership in the form of NFTs creates a connection between creator and collector that is alive. Historical transactions between creator and collector are stale in comparison.
(iv) Autonomy and flexibility
NFTs provide creators the ability to determine their own business.
Guido has spoken about the "control" that NFTs have given him in respect of his decision making:
"For some artists it gives them the flexibility to create their own business model in a way that can evolve and adapt quickly. No galleries to please. No βrulesβ in the traditional sense. Full creative license to express and execute in a manner they see fitting."
I wrote about this in the first Paper with respect to creator's supply.
"In the NFT world, artists and projects define their own scarcity.
For art, this could mean deciding between an edition size of 1, 10, 25, or any defined or undefined number higher. (Open Editions create scarcity by limiting the number of pieces to those bought within a defined window of time.)"
BCheque, Paper 1, Part 1: NFTs and their Collectors
One of the main principles of NFTs and Web 3.0, at least in theory, is that it is supposed to cut out the middleman: no gatekeeping; more revenue to creators, more power to creators; more royalties to creators. (In practice, creators might like some help with some areas of the business if they arenβt as proficient in certain aspects as others.)
(v) The rise of cryptocurrencies
"I received guidance saying these 100 dollar bids will look like a lot, but I learned about crypto and I learned about what whales are..."
Fewocious interview with Gary Vee
These are the charts for Bitcoin, Ethereum, and Binance Coin (the 3 largest cryptocurrencies by marketcap on Thursday 16 December 2021) for the last 3-6 years.
What these charts tell you is that certain cryptocurrencies are up. And they are up big.
Rapid and substantial wealth creation creates patrons. There is only so much money that needs to be spent on essential things (house, car, mortgage, student loans, parents, kids) after which wealthy people turn to other pleasures and pursuits.
Sandro Botticelli,Β Adoration of the Magi,Β c. 1475-1476, tempera on panel, Uffizi, Florence: the wealthy Medici Family of Florence were known for patronising the arts (which they used for the benefit of their own self-aggrandisement)
Given the increasingly digital nature of our existence, it is natural for this new wealth to flow to NFTs for two reasons:
(i) Patrons want to demonstrate their magnificence. GMoney, a prominent NFT investor, thoughtfully explores the human psychology which drives (digital) luxury consumption in this thread.
(ii) To convert cryptocurrency profits into IRL money is cumbersome and costly. Not only does it require withdrawing your money and getting it back into your IRL bank (who have typically been difficult with these transfers of funds), but it could also incur trading fees and have expensive tax implications.
For these two reasons, it seems to me quite reasonable that a not-insignificant proportion of gains made from cryptocurrencies stays within the crypto-ecosystem.
(vi) No discrimination
There are three points to be made on how NFTs are egalitarian.
(i) NFTs are part of the cryptocurrency ecosystem (in that they exist on the same blockchains on which cryptocurrencies exist) and so this means that the movement of funds is not hindered by national borders/regulations/payment mechanics. It is very easy to send 1 ETH from the UK to the USA, India, Australia, or anywhere else. In this way, a creator can access capital quickly from anywhere in the world.
(ii) The cryptocurrency ecosystem has embraced pseudonymity. If you do not wish to disclose certain personal details, noone really cares. If you do wish to disclose certain information, that is also fine. You decide what information you disclose, because your information is yours. This is a core belief in the Web 3.0 space. (It also in part explains why so many of us are parading around as apes, cats, and penguins.) Anyone can make, buy, sell - noone cares.
(iii) NFTs have broadened the investor base and democratised access
"Exclusivity was core to the identity of the traditional art world for decades and a lot of younger folks who wanted to have a more inclusive approach initially went down the path of βis there a way we can make art more approachable for both artists and collectors?β
Artnome: DISRUPTED: HOW NFTS ARE CHANGING MODELS AND MARKETS
Whilst many people might feel uncomfortable or unwelcome in the traditional art gallery scene, vibing with friends on the internet and buying JPEGs has proven a far more relaxed and enjoyable way for many to digest art. (Whether it stays that way with all of the money coming in remains to be seen.)
This means there are all sorts of new entrants into the 'art world', which is beneficial to creators who have a more diverse set of customers to whom they can sell.
As such, it appears to me that (more or less) you can be who you are, or whoever you want to be, and achieve success in this space.
A final reflection
NFTs can be as powerful as a creator wants them to be. (To be clear, they really need not be βpowered upβ with utility if the creator does not wish so - not every creation is designed that way.)
The distribution of meaningful digital ownership in the form of NFTs creates a connection between creator and collector that is alive. Historical transactions between creator and collector are stale in comparison.
NFTs have allowed to give value to so many different art, some artists are not the strongest [technically], but they create with their hearts, their emotions, they interact with the community and it allows to give value to what they do. I find that so beautiful.
That's why some people outside the community are reluctant. They say that some pieces sell for a lot of money when they are not especially beautiful. They just don't get it, they're created by people who make art with their lives, their emotions and their feelings and that's what gives value.
Elliot, French artist and designer
Disclaimer: The content covered in this newsletter isΒ notΒ to be considered as investment advice. It is for informational and educational purposes only.