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| Exploring the transformation of value in the digital age By Michael J. Casey, Chief Content Officer Sept. 3, 2021 If you were forwarded this newsletter and would like to receive it, sign up here. Sponsored by
As our social media feeds fill up with garish images of mutant apes, pixelated punks and rotund penguins, questions are being asked. Specifically, “what the @&$#!! is going on?”
Today’s Money Reimagined column tries to answer that by looking at the burgeoning “NFT communities” phenomenon with an anthropology perspective. We explore how these new JPEG art-defined online “clubs” draw upon the role that art has always played in satisfying humanity’s need for belonging and in the process generate a powerful money-making machine.
Meanwhile, a much more pedestrian but no less important issue is the topic of this week’s podcast episode. We discuss the outlook for crypto regulation in Washington now that the industry seems to have barged into lobbyist rooms in the capital.
Have a listen after reading the newsletter.
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NFTs: The Image of Community Melody Wang/CoinDesk The spending frenzy for Bored Apes, Cryptopunks, Pudgy Penguins and other “NFT communities” has sparked a parallel frenzy in futurism.
Commentators like Kevin Roose at the New York Times are pondering whether owning a unique avatar drawn from these digital art “drops” could manifest into a new, monetizable expression of a person’s online digital status – combining the social value of a Twitter check mark, perhaps, with the speculative value of a diamond ring. Others talk about how these new identities will build hierarchies in the metaverse, that online world to which we’re all supposedly migrating.
To understand why this phenomenon inspires such futuristic visions, it’s also important to see what it takes from humanity’s past. We need to acknowledge that it taps into the deeply ingrained connection that art and iconography – from the Christian cross to Nike’s swoosh – have always had with the human need to belong.
I think this merging of the antique with the novel – applying that deep-seated connection between art and community to the new world of online markets in unique digital assets – is what gives this trend far greater prospects for economic disruption than initial coin offerings ever had. Add decentralized autonomous organizations (DAOs) into the mix, and that potential is amplified even more.
The semiotics of belonging
In my first book, “Che’s Afterlife: The Legacy of an Image,” I explored the global expansion of the iconic image of the communist revolutionary Ernesto “Che” Guevara, one of the great pre-digital memes of the 20th century, and the cult-like communities that formed around it.
This was not an ideological book: I was less interested in Che Guevara the historical figure than in the romanticized idea of “Che” embraced by devotees around the world in the half-century since his death in 1967. That idea is most often encapsulated in a unique image of the Cuban-Argentine guerilla captured by Havana-based photographer Alberto Korda. It appears on T-shirts, on college dorm-room posters, in tattoos, sometimes in the original black-and-white photographic form but mostly as a two-tone screenprint. Derivative versions place it in different contexts that alter its meaning and turn a left-wing radical into an ironic or sometimes non-ironic commentary on culture and capitalism – Che as Christ, as Colonel Sanders, as a brand of beer, as a motif on a bikini worn by Gisele Bundchen.
What I learned was how images can become shorthand for a statement of membership and belonging. These can be attached to giant rules-based communities, as with the iconography of religions or the flags of nation-states, but it also applies to more transient forms of belonging, such as the logos of popular clothing brands or the symbols of sports teams. Since the dawn of history, groups have been using art to signal both membership of the “tribe” and their differentiation from other tribes.
The boom in non-fungible token (NFT) communities is an extension of this millennia-old social behavior. Both the issuers and buyers of “Pengus” and “Apes” are collectively striving to build a powerful feedback loop between the appeal of their respective NFT imagery and the formation of an ever-stronger community bond.
Those that succeed will not only boost the value of the underlying NFT collection but also forge a sense of affiliation, as well as a desire among outsiders to cross the “velvet rope” and enter the club. Thanks to the magic of digital assets, success translates directly into financial payoff.
It’s a powerful combination. As anyone who has studied cryptocurrency trends understands, organic promotion by a self-motivated fandom is the best way to generate price appreciation for a token. In NFT communities this FOMO (fear of missing out) game is amplified even more, because membership gives you both the satisfaction of belonging to the club and the capacity to flex your own, individual status through a unique avatar.
In this environment, price becomes a very clear measure of the success of a community. Prices of the NFT collections that are generating the most buzz and membership FOMO are the ones that are soaring. The question is: Does that reflect market demand for the art or is the strength of the community the key force driving the price?
I’m not sure we can answer that question. You can’t disentangle those forces from each other. The value of both the art and membership are intrinsically linked.
Continue reading this column here.
–Michael J. Casey
Off the Charts The Burning Question Behind EIP 1559 Ethereum Improvement Proposal (EIP) 1559, part of the recent “London” hard fork, is an attempt to stabilize the transaction fee market and combat the instability of the network. But Ethereum advocates believe the upgrade has helped align major network stakeholders and turned into the important economic update in crypto’s short history.
In less than a month, 169,000 ether, over $545 million at today’s prices, have been burnt from existence.
While investors may have been impressed with the technology being built on top of Ethereum, it was historically difficult to predict whether value would accrue to the ether token itself. Miners received transaction fees and were free to sell their ether right back into the open market.
Post-EIP 1559, ether is solidified as the only way for developers and users to employ the network and they must burn the asset as a “gas fee.” The upgrade has taken away a significant portion of miner sell pressure and better aligns the asset with the scarcity narrative that has long since been an ethos of crypto. According to one EIP 1559 dashboard, the upgrade is on pace to burn 2 million ether in a calendar year, reducing new issuance by 27.4%.
Matt Hougan, chief investment officer of Bitwise, claimed in an interview that the newly added burn mechanism helped solidify ether’s place as an investment. Gas fees on the network are now comparable with the fuel you burn to drive a vehicle and value can better accrue to the asset that powers the network.
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The Conversation The Flippening Illustration: Rachel Sun/CoinDesk Bitcoin is the first, largest and most recognizable cryptocurrency. But that may not always be the case. As decentralized finance (DeFi) and NFTs continue to become more popular, some investors are betting on Ethereum (or another smart contract platform) overtaking “the king’s” primary position.
Chris Burniske, a partner at venture capital firm Placeholder, reignited the interminable debate: At heart, this is a question over Bitcoin’s utility: Satoshi called it peer-to-peer digital cash, but bitcoin is more often used as a speculative asset to buy and hold – like gold – meaning the majority of coins rarely move. But that’s not necessarily a bad thing. Paul Dylan-Ennis took a swipe at so-called maximalists for minimizing the role of other crypto projects. On the other hand, Ethereum faces its own problems. Ryan Selkis noted Bitcoin’s simplicity works to its benefit in the long run. Indeed, this entire exercise is speculative. Only time will tell how things shake out. One thing is for sure, on Twitter, try to remember that people often have their own financial incentives when making predictions.
–Daniel Kuhn
Relevant Reads Bored Apes Speaking of NFTs … the most recent "JPEG" project to go absolutely haywire is also one of the simplest. “Loot: (for Adventurers)” is a set of text-based NFTs that function as the building blocks for a choose-your-own-adventure game (think Dungeons and Dragons). Only, the game hasn’t actually been built … yet. Apart from managing to garner some $50 million in sales within a week, Loot has also attracted the attention of some of Web 3.0’s finest developers to construct the missing pieces. This is crypto at it’s best: bootstrapping a universe out of a few lines of code. Though CoinDesk’s Andrew Thurman raises a fair point: is this a Big Bang moment for other text-based NFTs or a flash in the pan?
Meanwhile, even though the NFT asset class shows signs of maturation – it still seems to be all about fun. One the oldest NFT projects, CryptoPunks, signed with Hollywood fixture United Talent Agency together with its Larva Labs’ contemporaries Meetbits and Autoglyphs. That is as candidate for Minnesota Gov. Scott Jensen released two county-fair themed campaign NFTs. I like the one where he’s holding a corndog. Finally, Playboy is again hopping into the scene with a call-to-action to make NFTs celebrating the “art of gender and sexuality” for the legendary men’s magazine.
–D.K.
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