2021 was about NFTs, here’s what we got wrong and why I think the real potential of NFTs hasn’t been exposed yet.

NFTs that we saw in 2021 was all about signaling. You could flaunt your wealth in the offline world by driving a low clearance sports car on a bumpy road. But how do you flaunt wealth in the digital world?

Consider this profile :

There’s a famous NFT collection called CryptoPunks. There are exactly 10,000 crypto punk NFTs in the world. One of them numbered 6529 is owned by this user. All that we know about this twitter profile is that the person running it owns the crypto punk 6529. The profile picture is a visual representation of that NFT. The user has proven cryptographically and undeniably that he/she is the owner of this NFT. We don’t know the name of the person, where they’re from or any real world identity. This is a digital native identity - exists only in the digital realm.

The thing to note over here is that this profile was created in May 2021. But by end of 2021 had 200K+ followers. Why did that happen when we don’t know this person? We don’t know the person, but we know 2 things about the person behind this profile.

1. That they are crypto native. They bought the punk for about $400K. Many punks now are trading at north of $10M. So this person was a believer in the concept of crypto.
2. That they are crypto wealthy. This person has to be wealthy to “throw away” $400K. They likely made their wealth in crypto to be able to make such a large transaction in crypto.

So, what I’m getting to is even without saying it, the user has said many things about themself just by being the owner of an NFT.

I think that is the future. NFT not as collectibles. NFT not as trading objects. But, NFT as identities.

Unwarranted prediction : stagnant or plummeting NFT trading volumes in 2022, but explosion in number of NFTs & NFT owners.

Digital Native Identities

In the next wave of NFTs, I expect people to build digital native identites using NFTs.

I can create an identity without revealing my name just by owning some NFTs. These NFTs could include - making contributions to github, a soccer match live stream that i attended, online courses I’ve completed etc.

People don’t need to trust me using the KYC of my physical documents. All they need to do is verify the NFTs that are a part of my "identity”.

NFTs are inherently verifiable. If Stanford issues a certificate, it can be verified only if Stanford exposes an API. But, when an online course issues an NFT, it is immediately verifiable - because all the data by definition is

1. Open to all
2. Adhering to a specific format

Because of these capabilities, the identities can be verified by a computer, a program without any human intervention.

One could create a discord server to only allow people who have completed one of the top 5 courses in the field.

One could give a discount on merchandise to anyone who had attended the soccer match live stream.

Many such usecases will get unlocked because the identities are

1. Proofs of ownership (You can prove that you are the owner of the NFT)
2. Programmable (Proof can be consumed by a computer software)

NFTs are Programmable Proofs of Ownership.

More interesting things that will happen with NFT based identities :

Pseudonyms

People can now create identities without having to expose their real life identity. You can now have a different identity for your gaming, different identity for your work.

Fungible Identities

Now I as a backend engineer can create an identity with my friend who is a frontend engineer and we can pool together our NFTs to create a new shared identity. We can even create rules on how to split money when someone makes a payment to this identity.

To the world, we’d be masquerading as a single fullstack engineer.

Temporal Identities

You can now destroy identities by just burning the NFTs once the work or project is completed.

Or if the identity was created by multiple people, the identity can be dismantled and the NFTs can be returned to the respective owners back.

Famously, bitcoin creator Satoshi Nakamoto effectively destroyed their identity after the initial years of bitcoin launch. Now they’re never to be seen publicly.

For this to happen, we need to accept NFTs as a primarily non-tradable asset. It doesn’t make sense for me to buy your “completed a course” NFT. This should be a trivial modification that will become mainstream in the near future. I’d like to call this iteration of NFTs as programmable proofs of ownership. PPOs.

Happy 2022