The Equilibrium of Physical and Digital Value
December 12th, 2021

As we look into a brave new chapter of society and the web, there seems to be this strange parsing of value. A bridging from what was once valuable to what is now becoming mainstream and garnering all (of most) of our attention.

NFTs in their current state are mainstream. With celebrities joining the fun and large publications covering the sale and ownership of assets like Bored Apes and Crypto Punks, more and more individuals are entering the space and acquiring their first Non-Fungible item each day. There is still a long way to go. NFT technology and use-case is very much in its infancy. Yet as we move into this next phase of what is possible when it comes to owning a piece of the digital landscape and participate in this growing economy of digital collectors, we may find that our mindset and priorities towards what we attribute value towards will start to shift in a new direction.

The Transition to Digital Value Attribution

Imagine a world where you attribute more value to your digital life than anything in your physical life. You meet your lowest base needs for health and survival in your physical space and the remaining value your acquire and obtain in the digital world. It is in this digital world where you have everything and anything you could have ever dreamed of. Your digital social life, booming. Your virtual hobbies, vast. Your digital home, incredible. Your digital collectibles, priceless.

The concept of a lifestyle where our digital lives in a virtual world are more important than our actual physical bodies is something that has been portrayed in movies many times over to the point where the concept of a Metaverse conjures up fear and disdain. The classic notion of a digital space capturing our total physical and mental attention brings about fear from anyone that has not yet considered what it truly means to have a functioning Metaverse at our disposal.

Not Digital-First, but Digital-Shared

While this idea a person would value their digital life more than their physical life could very well become true for some people, I stand by the argument that this will be and edge scenario. When we think about the evolving intersection of our digital lives and physical lives, I believe that the masses of humanity will drift towards an equilibrium. A balance of the two spaces of life where we attribute the same (or very similar) value to our physical life and digital life.

But What Does This Have to Do with NFTs and the Changing of Intrinsic Value???

While we could spend a long time arguing about the Metaverse and the implications of spending more time in a digital world, we will take a closer look at something that will be integral to us using a digital landscape with equal dedication to our physical/traditional lives.

Ah, NFTs.

You beautiful, beautiful technology. You will continue to change the world.

NFTs will continue to be our key to indisputable ownership in a digital world. As we continue to use NFTs and find new and exciting use-cases for them, we may also start to notice a subtle shift in the intrinsic value we place towards them.

The more we use and collect something, the more value and resources we commit to a certain or concept, the more important and valuable it becomes in our minds. This is, for the most part, what is known as the Endowment Effect. When an individual attributes more value to something they own versus something they can acquire.

Often the value attributed to an owned item is much higher than the actual value of that good. It is this very reason we see NFTs listed on secondary marketplaces for well above their actual worth and why we see individuals not sell their digital goods when they are offered an astronomical figure. The intrinsic value they hold towards that owned item is still much higher than what the market demands.

Taking a macro perspective to this. As we continue to use and exchange digital items represented as NFTs on the blockchain, we will begin to attribute more and more value to the idea of an NFT. NFTs will become more important to us along with the value they hold.

The Battle Between Physical and Digital

I believe that humans are wired to value and admire things.

As prehistoric beings we valued tribal connection and communication via drawings and inscriptions as they were the key to survival.

After a few thousand years, an industrial revolution, and the creation of a financial system, we could now acquire wealth and physical good to portray our success to other beings around us. Status games were born because we no longer had to make a concerted effort to meet our base survival needs.

Skipping ahead a century or two, we would continue the pattern of showing our worth through the houses we owned, the cars we drove, the art we had on our walls, and other things we could acquire.

Then the dawn of the internet age opened the doors of the world. We no longer could only see what our neighbours and local community owned and possessed but we could see what the whole world possessed. Web2 brought the latest version of this to light with social media and free to use services. Humanity now had a way to demonstrate their owned value of physical items to the globe with channels to easily distribute the content.

Unfortunately the cost to use these services was much larger than we had anticipated. We sacrificed our identity and personal information so these companies could push corporate advertising and cleverly convince us to acquire even more goods. Pushing us into a never-ending cycle of consumerism. That is an entirely different can of worms. Potentially for another day.

The Dawn of a New Chapter

Behind the scenes of the web2 revolution, there was an even greater technology at play. The emergence of the concept of the blockchain was one with altruistic intentions. A global decentralized system where we own out information and our virtual identity is one of our choosing.

While a lot has happened since this original inception and the first models of the technology, we have received what I believe to be the biggest iteration in value attribution since the creation of a deed of ownership. The Non-Fungible Token.

As NFTs continue to move along the adoption curve of society (at an ever quickening pace), I believe that we will continue to see individuals place more and more value towards the digital items they own on the blockchain in comparison to the physical goods they own in their “real world” lives.

A Primer and Personal Revelation to This Theory

The theory that humans will eventually hold mostly-equal value to their physical and digital lives and the good they possess in them came to me when I was considering the future landscape of the automobile industry.

If you haven’t been living under a rock (or spending far too much time in the Metaverse) then you are probably aware of humanities ongoing shift to EV based vehicles as the future of transportation. While we do have Mr. Musk to thank for bringing this more sustainable technology to the mainstream, we may also see an unintended consequence of the mass adoption to electric cars, and it plays a significant role in our concept of value attribution.

Technology Driving Indifference

When we consider the future landscape of electric vehicles, a pattern emerges. A pattern of vehicles that can all more-or-less perform in almost identical ways.

Combustion engine vehicles were hierarchy based because the craftsmanship and quality of the engine parts and build meant that the car could perform better or more reliably. With electric motors this difference will narrow significantly as there will be much less difference between a premium cars electric motor and an economy vehicles electric motor. Sure there will be some quality differences, but this chasm will be more of a ditch when it comes to making purchase decisions for electric cars.

And for the argument with range per charge, this will eventually be moot as all cars will eventually have more than enough range for consumer needs.

With performance and reliability playing a weaker part in our purchasing decision for an EV, it all comes down to aesthetics, use-case features, and quality of body materials. These are very much a personal preference and areas where many individuals would be willing to make sacrifices for a more affordable option.

Just look at Tesla as an example. While they are currently priced more premium than their current competition, one could argue that their build and material quality is a far reach for the asking sticker price.

How This Shift Impacts Intrinsic Value

As the technology of certain physical goods industries evolve, so will the potential indifference to the market options of the buyers. Typically when we are more indifferent, we choose the option that holds the lesser strain on our resources.

If we spend less on EVs because we see no difference between a cheaper EV to a more expensive one, we will value it less due to the Endowment Effect. This is just one example in one specific industry. There are countless industries going through this prominent shift as the underlying technology that powers their value evolves beyond what anyone could have anticipated.

With greater indifference to physical items and less value attributed to these goods, our desire to hold value and admiration to something has to shift to a new direction. To new things.

This is where NFTs come in to save the day.

The Next Phase of Value

NFTs were created from a desire to attribute more value to the digital goods we own. The token is a tool to show scarcity and indisputable proof of ownership in a space where this has been historically difficult to accomplish.

Now that we have the ability to have proof over ownership of digital things, the value for this proof will inevitably follow. What we are about to witness is the continued mass merge of value and importance of our physical and digital lives. Like I mentioned before, I see this continuing until they sit near equilibrium.

Eventually the NFTs we hold will be valued as much as the house we live in, the cars we drive, the places we visit. We are already seeing the beginning of people valuing their digital art and collectibles more than their traditional assets because they are truly scarce and rare. Sure you can own a Ferrari, but I can’t recall there ever being a 1/1 Ferrari that everyone knows you own.

Provable scarcity increases not only the market value, but the intrinsic value the owner holds to that item. This will only further enforce the value of NFT ownership, thus, increasing its conceptual value to the individual. This cycle will continue to varying degrees per person but again, it will end up on average in equilibrium.

Further to this, an NFT will eventually become more than a representation of owning a digital item. It will represent the ownership of all our most important assets. Eventually all our most important possessions will be mintable as NFTs and publicly owned on the blockchain.

What Does This Mean for us Now?

We are very much in the birthing of this new era. NFTs are limited in their use-case but their utility expands every day. It is truly amazing to see what creative minds are releasing to the world via the use of scarce digital assets on the blockchain.

If I were someone just beginning to enter this space I would take my time to understand the landscape. Find mentors that provide valuable advice and information, and be very cautious when the feeling of FOMO hits you when you are looking for something cool to add to your collection.

Many of the collectibles an assets you find on open marketplaces today will not retain their current tokenized value. Most will go to zero. Some will stay the course over a long period of time. Even fewer will prove to be even more valuable. If you are in this current game for profit, you will likely lose.

The profit chasing NFT trading game that is currently at play will die out eventually. Much like the Gold Rush, it will come to an end. What we will be left with is nothing more than some JPEGs. So collect and acquire the digital good that actually mean something to you. Not something you are hoping to flip for profit in a few months time.

The purpose of NFTs and web3 as a whole is to find the communities and ideals you align with and partake in those spaces. Becoming a valued and contributing member of the digital domain that you align with while owning and controlling your identity online is what this new chapter of the digital world is about.

Enjoy the ride and don’t be too surprised if you find yourself caring more for your PFP or latest digital avatar than for the car that sits in your driveway.

-CTJ <3

Subscribe to Justin (CTJ)
Receive the latest updates directly to your inbox.
Verification
This entry has been permanently stored onchain and signed by its creator.
More from Justin (CTJ)

Skeleton

Skeleton

Skeleton