Stories, Scarcity and Mimetic Desire
NFTs have recently exploded into the mainstream consciousness in a way that nothing else has in the history of our industry. Google trends data shows interest in NFTs recently surpassed interest in cryptocurrency.
I’ve got a theory for why it’s happening now based on years of context and am sharing for those who don’t have the context. This is probably nothing new for people who have been closely following the industry for a while.
Bitcoin: Digital Gold + 21M
Satoshi Nakamoto pseudonymously created Bitcoin in 2009 and for 11+ years, cryptocurrency has appealed to people who primarily care about money and finance. People own bitcoin because of the story (digital gold that anyone can use and no one controls) and the scarcity (21M will be created by 2140 and the protocol verifies and enforces that scarcity).
A story and scarcity has created a cryptocurrency that today has a market cap of $1.1T, which is greater than the currency of all but 13 countries in the world
Tens of millions of people globally now own bitcoin and believe it has massive value despite countless claims that it’s worthless from conventional wisdom in the media and on Wall Street. The success of bitcoin is a testament to the authenticity of the creation (it was the first protocol to achieve trust-minimized digital scarcity) and the conviction of the community. The community did not care what the institutional narrative was, it just believed the story. More and more people have come to believe the story over time, which validates the belief of the early supporters and increases the value.
For all the success that bitcoin has had to date, there are billions of people in the world who still don’t care. Maybe they don’t care about money and finance. Maybe the digital gold story just isn’t interesting or relatable. Odds are you were once in that camp if you’re not still. Bitcoin was my first love, but I’ll be the first to admit it is not for everyone (yet).
NFTs turn millions of stories into scarce assets
Stories and scarcity are now driving interest in NFTs just like they have for Bitcoin. But the mainstream interest is more intense now for two reasons:
NFTs appeal to people interested in art, music, sports and culture
We’re now seeing new stories attract new people to the cryptocurrency space who don’t care much about money and finance. It turns out there are more people in the world who primarily care about art, music, sports and culture. And stories about art, music, sports and culture tend to be more fun and relatable:
Beeple has been grinding for 13+ years creating digital art that people love. Last year he started tokenizing his culturally aware artwork on Ethereum and that artwork is now worth over $100M. His EVERYDAYS: THE FIRST 5000 DAYS piece recently sold for $69M at a Christie’s auction. More people are believing Beeple’s story.
Robbie Barrat is an early pioneer in utilizing Generative Adversarial Networks (GANs) to create digital artworks. His open-source code was famously copied and used by a group who sold it at a traditional art auction for $432K. But the authentic implementation of his code is AI Generated Nude Portrait #1 on SuperRare. Robbie is a true artist who has largely stayed away from the recent NFT hype, but has a compelling story to those deeply interested in art.
Cryptopunks is known as the OG NFT project. Matt Hall and John Watkinson launched it based on 8-bit vintage design back in June 2017 well before NFTs were cool. They minted 10,000 punks with various traits and gave them away for free. Cryptopunk 7804 recently sold for 4200 ETH and the cheapest you can buy a punk for today is ~21 ETH (~$38K). More people are believing the Cryptopunks story over time.
3LAU is an independent electronic music artist who has built a 10 year+ career in music doing shows and putting out music on the internet. Here’s an interview we did in October 2020. Since then, he dropped an NFT-based album that sold for over $11M. His authentic approach to connecting with fans combined with his great music is making more and more people believe his story.
NBA Top Shots allows basketball fans to collect the on-court video highlights (“moments”) of their favorite professional basketball players. Basketball is a passion for millions of people, and NFTs give fans a deeper connection to the action. I’m personally most excited about authentic NFTs created directly by creators (like the ones mentioned above)) but Top Shots has proven there’s a market for IP-based NFTs too. The belief in these stories appears to be growing as well.
There are countless other stories based on scarcity that have attracted new people to the cryptocurrency space in the past several months thanks to NFTs and it’s beautiful to see.
NFTs offer a sustainable way for anyone to turn stories into scarce assets
Ethereum-based NFTs allow anyone to easily create value from stories and scarcity. You may remember the Initial Coin Offering (ICO) boom that first attracted the mainstream to Ethereum in 2017. The permissionless nature of Ethereum and an open-standard for launching fungible tokens (ERC-20) allowed engineers and opportunistic business people to raise millions of dollars based on stories and scarcity.
There were some problems with the 2017 ICO wave though. ICOs were public sales based on promises about the future rather than direct sales of concrete products. This means most were clearly unlicensed securities and the regulators responded quickly to stop them. This wasn’t a sustainable way for people to create value from stories and scarcity within the U.S. regulatory framework. ICOs also were not easy to create for the masses— you needed to know how to code (or have access to coders) to make it happen.
NFTs address both these problems. An NFT is a concrete product (a digital good), not a promise about the future. This fact alone makes the NFT boom more sustainable than the ICO boom. Additionally it’s much easier to create an NFT than it is to launch an ICO. You don’t need to code — anyone can use OpenSea’s create tool and mint an NFT for free. Millions of scarce assets based on stories can now bloom on Ethereum as long as people want them. You now may be wondering what makes people want them? If millions of NFTs can bloom why would any NFT hold significant value over time?
Mimetic desire can give stories + scarcity massive value
René Girard’s theory of mimetic desire suggests that humans are imitative creatures and all human desire is based on the desire of others. Thinking about cryptocurrency and NFTs in this context nails home why stories based on scarcity can have massive value. We want to own what others want to own.
Think about the last large purchase you made. My guess is that you didn’t really need to buy it. More likely than not, it was a decision based on the desire of others. You can tell yourself that you bought your new watch or sneakers because of their quality, but the main reason you think they are quality is because other people do — that’s just how humans are wired.
When bitcoin first launched in 2009, few wanted to own it. It’s effectively the same product now that it was then, the difference is more people desire it now. As more people desire an authentic scarce asset, the value of the asset tends to increase, which makes more people desire it. Bitcoin has benefitted from mimetic desire more so than any asset in history because it is globally accessible and the world is more connected than ever before. Mimetic desire gets more intense the more connected we are.
So how should one think of the long-term value of NFTs in the context of mimetic desire?
You should first realize booms and busts in crypto are unlike anything ever seen before and it’s highly likely we’re currently in an NFT bubble of some sort. A lot of the NFTs that people are creating in this bubble are unlikely to hold long-term value.
We should be especially skeptical of most of the aggressively marketed stories that are capturing the headlines now, particularly the high prices on NFTs that can be easily faked. Unlike Bitcoin, most of these NFTs only have a few buyers (even a high profile project like Cryptopunks has less than 100 buyers daily). So price doesn’t mean as much and mimetic behavior can quickly flip the other way when there is a low number of people that believe in a story.
But I think it’s also reasonable to believe that some NFTs will have massive value in the future. The winners will be the NFTs created by authentic creators which more and more people desire over time because of their story and because of their scarcity. Authentic stories will win. And just like it has for Bitcoin, the mimetic desire will intensify for ownership of those stories.
Learn more about NFTs
- Devin Finzer: The Non-Fungible Token Bible: Everything You Need to Know about NFTs
- SuperRare: Weekly Updates
- John Crain and Robbie Barrat: Cryptoart (1confirmation LP Day)
- Chris Dixon: NFTs and a Thousand True Fans
- Pak (Interview): Who is Pak?
- 3LAU (Interview): The Music Industry is Waking up to Ethereum
- Richard Chen: Cryptoart Data
Disclosure: This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice.
