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I Don’t Funge With Tokens
I’m not too interested in buying NFTs. Maybe someday: once we have Web3-native software that transforms the meaning of a digital artwork’s “birth moment.”
So you’ve heard about NFT’s by now, as a form of digital art or even as a collectible. Perhaps what you’re not aware of is what an “NFT” actually is or what it represents as a standard for a very specific type of token that ultimately has nothing and everything to do with “digital art”. But before I tear these ideas apart or discuss “Next-gen NFT’s,” let’s do a quick refresher on what non-fungible tokens REALLY are.
An NFT is a “non-fungible token.” (The Verge has a good if slightly vague explainer from about a year ago.) It almost doesn’t matter what it stands for though. The basic idea is that the clever innovations of Satoshi, Vitalik, and others –– of blockchain technology –– have enabled a real form of digital uniqueness.
An “NFT” is actually a “Token Standard” for a very specific type of token, one that is “non-fungible” by design. The original “NFT Standard” was coined by Dieter Shirley (CTO of Dapper Labs and one of the co-founders of FLOW Network). Roham Gharegozlou, the CEO of Dapper Labs and co-founder of FLOW Network created the first most widely adopted NFT –– “Crypto Kitties” –– which was the predecessor to the even more widely and recently popular NBA Top Shot, which has made clear that NFT’s are a viable mechanism for digital collectibles and ultimately digital art. In 2021 alone, something like $10B in revenue was generated around these digital collectibles.
Though digital art and collectibles are actually just one use case of NFTs, I’m going to focus on that in this post, since it’s where so much of the money and hype has been lately.
Let’s take a moment to think about how art gets its value. Leonardo Da Vinci painted the Mona Lisa once, and when we stand in the presence of the original, we feel its aura. Of course, every reproduction of the Mona Lisa that came in later centuries simply lacks that magic “aura” we feel at the Louvre around the original.
Crucially, we also believe that the Mona Lisa at the Louvre is the real one that Da Vinci painted, because we’ve built entire institutions and businesses around proving the provenance of things. Christie’s, one of a handful of auction houses, has built an entire business (since 1766) in proving provenance around art for purposes of facilitating a marketplace in/around the buying and selling of art. And yet art isn’t the only example where the validity of a record “proving” something about a thing brings value; it’s been said that nearly 30% of the resale value of an airplane is entirely based on the validity and accuracy of maintenance records –– because as a society we have decided that this form of records management was important for people who fly or ride on airplanes.
But let’s get back to digital art, since it’s a useful example.
As it happens, blockchain technology (Via NFT’s) enables a digital artist to do something that helps capture some of that aura of originality, of uniqueness. Essentially, it allows the digital artist to say: “Well, here is a .JPG, and here is a digital certificate encoded in the Ethereum blockchain that says that you, Tom Serres, own the original of this beautiful .JPG I made. Everyone who believes in the value of the Ethereum blockchain agrees that you ‘own’ the original of this .JPG masterpiece –– something that anyone can verify in the immutable record of the blockchain.
Pretty cool, right?
Well, sort of.
Now I’m going to say why I think this first generation of NFTs are going to become worthless over time, as a new generation of “better” NFTs overtakes them.
“Better” how? Well, it comes down to the fact that I think what people currently think of as the “birth moment” for a work of digital art is going to, eventually, be supplanted by an even better “birth moment,” as blockchain ecosystems evolve.
The majority of what I’ve come to call Gen-1 NFTs are ERC-721 contracts on the Ethereum blockchain. They are nothing more than .JPG files inside of a “smart contract” software application. But the problem is that, crucially, there’s no real way to prove the provenance of the .JPG file itself –– just rather that a .JPG was bundled with the digital contract and sealed on the Ethereum blockchain.
This so-called “wrapping moment” is currently treated as the provenance-endowing “birth moment” of the NFT.
But hang on. Think about this for a second. Is this really the moment the work of art was born?
If so, that would be akin to saying the moment the Mona Lisa was “born” was when Leonardo… later delivered the painting and also signed a boring contract for his client that said, “I made this painting.” That moment is important, to be sure. But it’s not the most important or coolest moment associated with the creation of the Mona Lisa.
What gives the Mona Lisa its aura? The fact that Da Vinci signed some bland contract saying he made it… or the fact that he actually made it? If I could be a magical fly on the wall of history, I know which moment I’d choose to observe: the moment Da Vinci actually painted that mysterious smile.
It’s no different in digital art, right? The exciting moment isn’t when the artist says, “OK, this .JPG file I made a week or month or year ago, let’s now say that this instance of the .JPG is the original, and let’s now attach a contract to it certifying it as such.” Nope. The most exciting moment was back when the artist actually made the .JPG!
So: I think the true “birth moment” of an NFT should be when the pixels actually went on the digital canvas, in the actual production of the digital art. The moment when the brush hit the canvas, when the artist’s neurons fired and the mouse clicked and the work was made.
So then the question becomes: “How can collectors buy themselves a connection to that moment?” In the real world, we buy the actual physical canvas and paint that Da Vinci himself used; the aura (and its related monetary value) comes from the fact that when we are in the presence of the real Mona Lisa, we are in the presence of the selfsame atoms that Da Vinci himself manipulated hundreds of years ago.
But how can we buy the “digital atoms,” if you will, the specific bytes involved in the creation of the digital work?
Is that even possible?
So, yes. In the era of blockchain technology, it’s possible.
But first, three things need to happen:
1. We need web3-native design platforms
As my recent interview with Dom Williams made clear, so much of what people claim is Web3 is really just seemingly Web3, but running on Web2’s cloud or pre-existing infrastructure. The artist makes something on Adobe (a Web2 app), and then bundles it into Ethereum, and supposedly now it’s Web3.
But for it to be truly Web3, through and through, what we need are programs like the design programs we know –– Figma, Adobe, and so on –– but to have these be open-source software applications that are governed through utility tokens that run on blockchains (like Dfinity’s, but other good candidates are Ethereum, Polkadot, and NEAR). These future web3 design platforms will look and feel no different than the current ones –– they need to be just as user friendly as Adobe products –– but they’ll be web3-native.
2. We need to capture design process meta-data
Once we have web3 native design platforms, we can cut out the middleman in terms of garnering “proof” that a given artist was behind the creation of a given file, at a precise “birth moment” for that file. It’s like we have a video camera trained on Da Vinci as he’s painting Mona Lisa!
On web3-native design software, we can authenticate users via login/logout, crucially without the intervention/aid of large companies like Adobe. One web3-native software, we could utilize public key / private key pairs (a cryptographic concept you can learn more about here) to solve authenticated login credentials so you can verify and validate "Tom Serres logged in.”
(We can't really do this today without "trusting" companies like Adobe to tell people "Yes, Tom logged in" because log-in registers are maintained and controlled in centralized databases which are controlled by the companies that built the software. Autonomous software with crypto-based login methods eliminates this problem.)
What we're really looking for (in terms of provenance) is "proof" that our Neo-Leonardo (Neonardo?) designed this digital thing. Because I can prove Neo logged in, I can then prove he put down the first pixel. I can document every line he drew, every save, every delete, every variant created, etc. Essentially you capture all the meta-data associated with the actual creation process programmatically. As a result, I can now follow the entire history of the design process and authenticate back to the original creator. And this ability proves Neo created this thing, and here is how he created it.
3. We need protocol-level minting
OK, and if you’ve read this far, I assume you’re pretty interested, and I’m going to indulge myself and get just a bit technical.
Once we can authenticate a user, capture immutable design meta-data, and imbue the design itself with this same data –– we can then mint the new design at the protocol level.
What does this actually mean?
It means, when I use this future web3 design software, make my design, and click on "save" to render and publish my design, I can actually imbue the actual design with a token that holds and contains all the meta-data associated with the creation process, and authenticate the provenance of the creator by showcasing via an immutable ledger of activities: Neo created this file, and here is the history of how he created it.
Then you can hit "save," which then "mints" the design –– and the creation metadata –– at the protocol level. This is very different from the Gen-1 approach, which again, is just taking some random .JPG (it might be the first one the artist saved, but it might well be a copy, who knows) and inserting it into a piece of smart contract software.
The net result of my suggested approach? Neo can now prove he made it, when he made it, how he made it, who owns it, when –– and can show the entire immutable history of the design back to the very first pixel ever placed. We have not only the Mona Lisa, and a contract saying “I made this,” but we also have an original and certified record of all the brush strokes made to make it.
And, in true Web3 fashion, all this is done without relying on a database maintained by a Google or an Adobe or any other private company that could implode or go under or change its terms suddenly; it’s collectively maintained on a decentralized blockchain.
None of today's NFTs actually work this way. But Gen-2 NFT companies are already working towards this, and it's one of the main areas Warburg-Serres invests in. (Back again to our infrastructure-forward investment thesis.)
The upshot of all this? When the above three steps happen, then I’ll start stocking up on NFTs.
But for now, when it comes to Gen-1 NFT’s –– well, color Tom Serres a bored ape.