Paper 25: Web 3 Opportunities
Seven key thoughts on the generational opportunity in Web 3
Hello team,
I’ve been delivering some talks recently on the “generational opportunity in Web 3”.
(I also speak about everything going on in our NFT World podcast every Mondays - here’s a clip from our latest episode where we speak about the huge opportunity / use case with ENS domains!)
I thought I’d synthesise those talks and present some of the key ideas here.
If anyone would be interested in having me deliver a talk like this or similar to your friends, colleagues, or other interested parties let me know! I’m enjoying doing a bit more speaking at the moment.
Have a great day.
B
1 - Ownership creates a market; you cannot sell what you do not own
In a Web 2.0 world, it was difficult to verify ownership of a "piece of the internet". The internet facilitates the production and reproduction of content more quickly than any other technology in history, which means that content such as memes, digital art, and other digitally created content were difficult to verifiably "own".
What does "ownership" even mean in a Web 2.0 world? Do you own a digital good if you created it? Do you own it if you have the original on your computer? Do you own it if you have a copy of the original on your computer after you have right-clicked and saved?
right-click sleep: sartoshi regularly satirises the 'right-click save' attitude of those who are sceptical about NFTs (a must follow on Twitter who cracks me up)
Blockchain technology provides the answer in an open and trustless manner. The blockchain acts as a ledger of record which guarantees (amongst other things) who is in possession of an NFT at any given time.
This means that digital goods are now a provably "ownable" asset. This creates a new asset class around which a market can be built.
In addition, if you cannot sell the digital goods which you own then you do not own them.
Over the last few years many gamers have used real-life money to purchase digital goods. They "own" the digital goods, but if they don't like the game anymore and want to stop playing, or if a rival edition of the game proves to be better, there is no way for gamers to move their digital goods out of the game to either use elsewhere or sell for monetary value. In this respect, it is impossible to say that these gamers "own" their digital goods if their rights with respect to them are so restricted.
This is the equivalent of buying a basketball jersey at a basketball stadium and one of the conditions of sale being that you cannot wear (or sell) the jersey outside of the stadium - a clearly nonsensical term of sale.
2 - Provenance
Provenance is everything. The difference in valuation between a "real" or a "fake" is extraordinary in any asset class (art/fashion/wine/collectibles/cars).
Leonardo da Vinci's painting Salvator Mundi was sold for $450 million in 2017 after one of the most rigorous and intense studies of authenticity the world has seen. There were many similar paintings produced in the 16th century, but one by the hand of the master himself is naturally considered of incomparable value. The price achieved at auction was an absolute consequence of it being verified that Salvatore Mundi was by Leonardo Da Vinci himself.
Leonardo Da Vinci's Salvator Mundi: sold at Christie's in 2017 for $450m.
Ben Lewis wrote about this piece in his book, "The Last Leonardo", which is described as "an adventure story about the search for a lost treasure and a quest for the truth."
A quest for the truth.
The truth of the painting's origins and creation was more important than the painting itself.
This is where the blockchain comes in.
If blockchain technology and NFTs help guarantee "proof of ownership", then it must also guarantee "proof of creation".
How?
The blockchain reliably records "proof of ownership" by recording who bought what from whom and for how much (amongst other things). If an NFT changes hands 100 times, the blockchain will record the details of every transaction. This means that no matter how many times an NFT changes hands it will always be traceable back to the original creator account. As a consequence, transactions can take place more readily because buyers can be more certain about the provenance of goods.
3 - NFTs are just things; the more beautiful the better
People collect all sorts of things. Think about all the things in your living room, kitchen, bedroom etc. Do you need all of it? Or did you just want it?
Human beings are collectors - it doesn’t matter what the ‘thing’ is. One person’s trash can be another person’s treasure.
What can happen is that the more ‘beautiful’ the thing, the more desirable the thing (art, scenery, fashion, furniture). As such, the more beautiful the better - and there is no reason why this would not also apply to NFTs.
Fidenza #131 "Ensamble" by Tyler Hobbs - owned by @0xBEW.
NFTs can only really be stupid to the extent that humans are stupid for being collectors and desiring material things (Ie. Either: humans are stupid for collecting anything; or humans are not stupid for collecting real-life things, nor are they stupid for collecting digital things).
4- Digital Identity matters
People care about (i) having an avatar that represents them online; and (ii) having that avatar be part of a collection who they like to be associated with.
We have seen countless “profile picture projects” join the market to try to establish these types of communities.
Whilst I do not think they will all be successful, I do think the concept of digital identity will be here to say: people will seek to express their own individuality more and more online, whilst also signalling their status/beliefs/outlook by being part of certain online groups.
5 - So many types of distribution
There are so many different ways to sell in Web 3, and the best way for your project might depend on your project itself.
Here are some examples:
Open edition - no limit on supply; fixed price
Limited open edition - supply limited to the amount sold in a certain timeframe, fixed price
Fixed supply and price - a limited supply of a product to be sold at a fixed price
Auction - a traditional auction where the price rises with higher bids
Dutch auction - a price which decreases over set time periods and allows people to buy when they feel comfortable to secure a product which has a limited supply
Group auction - everyone submits the highest price they would like to pay; only a certain number of people win, but everyone who does win pays the lowest bid price
Ranked auction - a leaderboard of bids is updated with bids as people bid for a limited number of items. As another bid comes in, another few minutes is added to the countdown timer to give a chance to the person who has just got kicked out of the leaderboard.
A lot of options, and a lot to digest!
6 - Utility
NFTs can represent a hell of a lot more than just the product itself.
Here’s an example:
One Punks Comic NFT minted in May 2021:
STAKING AND FRACTIONAL OWNERSHIP - allowed you to stake for $PUNKS tokens which represent fractional ownership of 16 CryptoPunks
A MINTPASS FOR FUTURE PRODUCTS - allowed you to mint MetaHeroes at 0.08 ETH (which were immediately worth significantly more and which allowed you to claim free Planet DAO tokens)
GAME THEORY TO BURN ONE PRODUCT FOR ANOTHER PRODUCT - could be burned for a Pixel Vault Founder's DAO token - which represents proportional ownership of the Founder's DAO vault (approx. 600 ETH of value at the time of minting), and early access to future drops.
7 - Club/Status
With the increased digitalisation of the world two things have become obvious:
(i) people are becoming digitally native and value digital assets;
(ii) the most natural way for people to demonstrate their wealth and status will be to own more digitally native goods - which can be exhibited in online wallets, profiles, and galleries - as opposed to physical objects which reside in their house which hardly anyone can see.
There have always existed exclusive clubs, whose memberships have been desired by many. In some cases, NFTs have come to represent memberships to particular clubs, which the market has come to respect as sought-after and valuable.
Hope that’s a helpful synthesis of these longer talks - would be interested to hear where you see the greatest opportunity in this space at the moment.
All the best!
B
Please do leave me any questions or thoughts here - I respond to every one!
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Our long-form podcast discussions can be found on YouTube and Spotify.
Disclaimer: The content covered in this newsletter is not to be considered as investment advice. It is for informational and educational purposes only.
I hold some of the NFTs mentioned in these newsletters.