Dear beloved friend,

Today you asked me many good questions expressing your doubt about NFTs. After an hour-long discussion, my answer is far from sufficient to convince you, but I decided to gather my thoughts more thoroughly and hand you a written record to laugh at me 10 years later, or I hope by that time you already embraced this new space and we can laugh together :D

First, you raised a very key question, what exactly is NFT? You heard on the news that it involves copyrights and identity authentication, but is there anything more than that? This is a hard question even for early adopters in the space, as this is such a young industry that some of the best usages of NFTs have not been invented yet. I can only summarize from my limited experience that NFTs currently have the following 3 usages:

• Intellectual Property. Think of Disney movies or songs on Spotify. IPs are valuable as the room for imagination is boundaryless, thus the monetary value should also reflect that, right? Unfortunately, it’s not the case in real life. Creators struggle to defend their own IPs, some don’t even get the chance to turn their work into IPs. NFTs solve the creator economy problem by taking away the middleman, bridging creators and their audience directly, and creating a steady income stream through royalty fees. NFT can also form connections with physical properties, as we already have real estate properties listed on Opensea as an NFT.
• Access Pass. Examples include conference admission or club membership. Human beings are social animals and we are constantly in search of interest groups. You asked why we still need another proof system while we already have QR codes and physical membership cards? My answer to that is it’s all about efficiency and scalability. Access pass in the form of NFTs can aggregate those groups in a single wallet and unlock future benefits in the form of airdrops. Instead of going to a hundred websites with different usernames and passwords, and submitting your credit card information separately, you could do it all with two clicks in your wallet.
• Crowd-funding for Startups. The prior two are from users’ standpoints. You asked me if I would start my own NFT collection, what would I tell my investors what it is about? And as a stereotypical consultant, I am going to give you the never-can-go-wrong answer: it depends. Every NFT has a builder team behind it, and they are not much different from startups. The only difference is that instead of begging traditional Venture Capital firms, the founding team can now engage directly with retail investors.

From a technical security standpoint, is it too risky to use NFT? What if there is something wrong with the blockchain? You hit the nail on the head, my friend. The whole point of inventing blockchain, this massive distributed database system, is to reduce the single vendor reliance problem. Think of all the human tragedies in history, dictatorship, Chornobyl disaster, Enron scandal, Facebook data leakage. What do they have in common? Single point of control and lack of transparency. Blockchain solves those two problems at once with a trustless system, as long as there is one miner in the world to verify the transactions, the blockchain will continue to exist and the data are on chain, publicly accessible to anyone. There are certainly vulnerabilities in the code, but whiteheads will continue to have incentives to fix bugs, and this living system will evolve at a much faster pace than any single company/government entity on earth, as the code is open sourced.

After getting some basic understanding of what NFTs can do, why it has to live on the blockchain, you went on and raised your concern. Bored Apes worth the same price as a house makes you nervous, how could such a profitable return sustain itself? With all of the public sentiment, overdue government regulation, and memory from the internet bubble, isn’t NFT just another make-rich quick scheme? And even if there is some room for play here, the old/big/smart money must already have their skin in the game, how can normal people with a day job like you and me compete with those institutions?

Those are all valid concerns. And the lazy answer to address them all is this: we are still early. The whole NFT market cap is roughly $800M as of March 2022 based on Opensea trading volume. For comparison, a single luxury goods brand like LVMH is worth $325B, 400 times bigger, and it’s highly likely by the time the next generation of kids grew up, they will view NFTs as the new luxury brands. Those kids were born into an era where their parents are preparing generation wealth in crypto form for them, their peers are well-exposed to the latest NFT trends on Tiktok, and they are just one purchase away from being in the same NFT group with their favorite stars such as Justin Bieber. By the time they have consumer power, NFTs will likely be the most popular presents among youngsters. The road is not always straight and we might experience multiple bubble burst moments, schemes, and bear markets, but by the time we come out, the market will gain exponential growth compared to where we are today.

We retail investors may not have the same level of leverage and capital, but we are more agile than those too-big-to-fail institutions. A public company like Tesla needs to go through many legal hassles and politics to include Bitcoin in its financial statement. The innovator’s dilemma will trap those traditional financial institutions until they have to react to market change. We don’t have to wait. Needless to say in a blue ocean market, it is not a zero-sum game, the pie is literally so big that you have to invite people to come and eat it, and that’s exactly why I wrote this article. There will be more government regulations, but it’s not a bad thing as regulation is necessary for mass adoption. Don’t fight the waves, join the tides and ride with them together.

I will see you down the rabbit hole, on the other side.

Love,

Cocoa