The (real) bull case for NFTs
Fundamentally, I view NFTs and the technology underpinning them as being far more than speculative assets; while the short-term view of these goods is as art, gaming, and utility tokens, this, to me, is the crudest test case for a paradigm-shifting tech layer.
I do not believe that NFTs will eventually become a new asset class altogether, with characteristics different from any other form of property we have seen before; that's the easy position to take. It sounds believable, bullish, and in our current market confers authority to the speaker. But it's wrong.
NFTs are not a new asset class; they are best understood as an extension of every existing asset class into the realm of digital scarcity.
NFTs do not change the nature of owning an asset; instead, they provide a new way to hold it in a new dimension of human experience, where scarcity is uncharted territory.
NFTs will not entirely replace traditional forms of assets; instead, they will offer every single consumer a new way to store value and participate in the digital economy.
To take this to a bull extreme - in a world built on consumption, where our finite resources will eventually become exhausted, the foundational technology and philosophy that we are making today will pave the way for a fully sustainable digital-only retail, fashion, experience, and entertainment sector that can run indefinitely.
Big new things sneak by incumbents because the next big thing always starts out being dismissed as a "toy." This is one of the central insights of Clay Christensen's "disruptive technology" theory. This theory starts with the observation that technologies tend to get better at a faster rate than users' needs increase. From this simple insight follows all kinds of interesting conclusions about how markets and products change over time.
NFTs are a perfect example of a new technology initially dismissed as a toy by incumbents but has the potential to become much more than that. I think there are two reasons for this.
First, NFTs are still in their early days and most people don't yet understand them. Their perception is that NFTs are simply monkey pictures, which shows a shallow understanding of the technology. NFTs are much more than that. They are a new way of encoding information in a way that is tamper-proof, scarce, and programmable. A shift in the DNA of digital production has all kinds of implications for how we store value, interact with digital assets, and even define ownership itself.
Second, the early use cases for NFTs will look nothing like the use cases that emerge as the infrastructure becomes embedded in products that reach mainstream adoption. The early use cases are always going to be hobbyist and niche. It's only when the technology gets good enough and is integrated into products that reach a mass market that barely acknowledges or is aware of its existence that its full potential is realized. Microchips. Cloud computing.
The critical question is not what NFTs are worth today but how will they interact with existing asset classes? How will they be used? What needs to change for them to achieve greater adoption and utility?
This is the conversation we should be having. This is the focus we should have.