NFTs, Useless Art? Or an Introduction to Web 3.0?
My personal experience buying an NFT (Non-Fungible Token)
Hey Everyone, Dez here from All Things Venture. Today’s article is going to be about NFTs (Non-Fungible Tokens), and their importance in driving wider adoption in the Web 3.0/crypto ecosystem. The exciting thing about NFTs are that they are unique one of a kind files. An NFT is a digital file that can contain anything. It can contain a photo, a video, an animation, a GIF, a property deed, architectural blueprints, your will - whatever you want. As long as there can be a digital copy of it, it can be an NFT. Once you’ve created your NFT, that file (your NFT) can’t be recreated. It can’t be copied. You can’t make another one of it. Poof, it’s completely unique, truly one of a kind, and truly scarce. When I think about buying an NFT right now, I think back to the scene in Wolf of Wall Street where Matthew McConnaguhey is talking to Leonardo Dicaprio about how the stock market moves,
“Number one rule of Wall Street. Nobody - and I don't care if you're Warren Buffet or if you're Jimmy Buffet - nobody knows if a stock is going to go up, down, sideways or in circles.”
That’s kind of, actually no - scratch that. That’s exactly how it feels to buy an NFT today, and coincidentally that’s exactly how it feels like when you’re first diving into Web 3.0. Web 3.0 is disorienting, contradictory, and prone to snake oil salesmen. It is also fascinating, introduces new forms of online collaboration, and creates tangible economic value in the real world. Before I share my experience on how to buy an NFT, I think that it’s important to provide context on what Web 3 is, why people are excited about it, and how it ties back to the euphoria/mania around NFTs today.
What is Web 3, and Why is it Important?
In 1964 there was a landmark supreme court decision in the court case Jacobellis v. Ohio, 378 U.S. 187 (1964). The TL;DR on the case is that Nico Jacobellis, a local theater manager in Ohio, showed a French film with some suggestive, for 1964, themes of sexuality. The court case is important because it set a precedent on how the US judiciary defines pornography, and upheld aspects of the first ammendement. It also gave us a memorable quote from Justice Potter Stewart. When explaining aspects of his reasoning on why the film Jacobellis was showing did not count as hardcore pornography Stewart quipped,
“I know it when I see it”
Legend.
That same thought process of, “I know it when I see it” applies to Web 3. You can’t really operate in the Web 3 world without seeing profile pictures of highly stylized apes (Bored Ape Yacht Club), people using weird acronyms like “ngmi”, or seeing tweets like this.
I can’t tell you why the culture of Web 3.0 is the way it is, but it is absolutely unique and it is absolutely differentiated from the majority of the internet today, which is largely categorized as Web 2.0. There aren’t a ton of definitions out there that neatly explain the differences between these evolutions of the internet, so I’ll offer my own perspective.
Web 1.0 = It’s the first stage of the internet/world wide web. It is the “read only” stage of the internet/web where highly technical users could create websites that could be accessed by anyone in the world, provided they have an internet connection.
Web 2.0 = It’s the majority of the internet today. It is the “read and write” stage of the internet where users (i.e all of us) can interact with webpages in a dynamic way. 95% of what exists on the internet today, I would argue, is Web 2.0. Web 2.0 is everything from Facebook to your friend’s Shopify website. Web 2.0 is effectively just an extension of Web 1.0, that allowed non-technical users to create, modify, and interact with the internet in a deeper way. A main characteristic of Web 2.0 is that data is stored in a centralized manner.
Web 3.0 = Is where tiny pockets of the internet are moving to today. Web 3.0 involves the same “read and write” characteristics of Web 2.0, but it takes those characteristics a step further by layering on technology that enables decentralized data storage, trustless economic exchange, and new modes of aligning groups of people around incentives. A great example of Web 3.0 is the publishing platform Mirror, or the NFT marketplace OpenSea. If you want to veer further down the Web 3.0 rabbit hole, check out FWB.
Web 3.0 is a constantly evolving place, but I’ve noticed five trends. Web 3.0 projects consistently involve:
An option to participate in the economics of the project
A critical mass of decentralized users/participants
Users/participants that prefer to remain anonymous/operate with pseudonyms
A media/gaming focused element that inolves storytelling
An ability to trade/lend digital assets in a peer to peer manner
NFTs nail all of the above trends, but I think that NFTs and Web 3.0 more broadly are important because they empower any individual to participate in the economic upside of projects they believe in, while simulatenously creating incentive systems that foster collaboration between total strangers. For example, in Web 2.0 if I want to buy a t-shirt from a hot direct to consumer brand, I’ll go on their Shopify website, add a shirt to my cart, check out, and 5-7 business days later the shirt is on my doorstep. To get to that point, that consumer brand will have likely had to engage in some form of paid marketing to acquire me as a customer, nuture me through their funnel, and ultimately present me with the opportunity to pay them money. In Web 3.0, I can buy that same t-shirt, but I can also own a piece of the brand itself. Depending on how the project is structured, I can also participate and influence the direction of the brand, provided that the brand was created with the intent to be owned by the brand’s community. I can help run the finances for the brand, I can participate in developing the marketing strategy for the brand, I can submit content as a creator for the brand. In Web 3.0 I can directly invest in or join any organization I believe in, and I can be financially rewarded from the economic system, not just contribute to it.
Now let’s zoom out a bit. Why is all of this important on macro scale? In my opinion, it’s pretty straightforward. Not enough people are achieving the proverbial American dream (i.e wealth and asset ownership) and too much of the current system accumulates wealth and power to a minority of individuals/organizations. To illustrate my point, here’s a handy statistic. In Q1 2021 the top 1% of Americans, by wealth distribution, collectively owned $41.52 TRILLION dollars. That means that, on average, there’s about 3 million people who each control $13M. On top of that, the top 10% of Americans by wealth distribution have increased their share of wealth to ~70% in Q1 of 2021, an 8% point increase from ~62% in 2001. In that same period, the remaining 90% of Americans decreased their share of wealth by 8% points from ~38% to ~30%. I mean I knew income inequality here in the states was bad, but damn.
In the tech world you’ll hear a lot of things like “lowering friction”, “reducing barriers”, and “democratizing access to [insert product/service here].” While a lot of Web 2.0 companies have done this extremely well, they’ve done it in an extremely extractive way, all at the expense of their users; Web 3.0 companies have the opportunity to reframe those axioms in a way that is extremely accrettive to their users. Which brings us back to NFTs.
Are NFTs Useless Art?
If you spend enought time in crypto/Web 3.0 you’ll inevitably hear a story about how someone made a literal lifetime’s worth of money, selling a jpeg file. Case in point, below.
Tbh, I had no idea these sales numbers were so high when I first pulled them up. Like seriously, I spent a solid 60 seconds just staring at this cryptopunks website, which tracks all of the sales of the popular NFT project. In any event, people are making REAL money selling DIGITAL art. But to return to our question. Is it useless? You can make arguements for both yes and no. Personally, I believe that +90% of NFTs are absolutely trash. Over time a lot of projects are going to go to zero simply because there won’t be a sustained level of demand to support the prices that are currently being set. The only thing supporting the value of NFTs is the latest price that has been set. On the flip side though, I think NFTs are extremely important because they’ve developed a viable commercial use case of Web 3.0 that has been able to cut through the noise and attract consumer attention. On top of that, NFTs have created a user friendly experience that serves as an introduction to Web 3.0. To return to my earlier point, Web 3.0 is about economic participation and collaboration between strangers. A key component of Web 3.0 is creating an Ethereum wallet. An Ethereum wallet is your gateway to Web 3.0 because it is the application layer that lets you interact with your Ethereum account. What is Ethereum you ask? Great question. Without diving too deep, Ethereum is a layer 1 blockchain with it’s own cryptocurrency ether (ETH) that is the second largest cryptocurrency by market cap. Ethereum has gained popularity as the blockchain ushering in the era of Web 3.0 because of it’s ability for developers to build dApps (decntralized applications). Note: If you want to learn more, and there is a lot more to learn lol, start here. The Ethereum organization (i.e the team building the infrastructure of Ethereum) encourages peole to think of your wallet, “like an internet banking account - without the bank. Your wallet lets you read your balance, send transactions and connect to applications.” Going further, your Ethereum wallet serves as:
An app for managing your funds
Your Ethereum Account
Your login for Ethereum apps
It’s almost like if you combined your bank account, email address, and instagram/facebook login all into one. It is part of the infrastructure that allows you to take part in the new economic system of Web 3.0, and to collaborate with strangers with aligned incentives. Because of the immense amount of interest in NFTs, millions of new users had to create an Ethereum wallet to begin their Web 3.0 journey. I think of it this way. If Web 3.0 is a doorway to the next generation of technology companies, then your Ethereum wallet is your key. No one knows with absolute certainty what is going to be behind the door, but now, a hell of a lot more people can get in.
My Experience Buying an NFT
Okay, so now that you’ve got the key to Web 3.0. What do I do next? Well pretty simple, you can either purchase an NFT on a marketplace like OpenSea OR you can mint an NFT on etherscan. I minted my first (and only) NFT on etherscan, and it is a bit more involved but I’ll do my best to recount the process w/o the complexity of etherscan:
Step One - Create an Ethereum wallet. I use Metamask, but other options are Rainbow and Coinbase Wallet
Step Two - Buy some Ethereum (ETH). You can’t buy an NFT, if you don’t have the moola! Get out there and scoop up ~$100 worth of Ethereum or whatever denomination you think is appropriate. I bought my ETH on Coinbase, but there are other exchanges you can use
Step Three - Transfer your ETH to your wallet. When you set up an Ethereum wallet, you’ll get a unique string of letters and numbers. That’s your wallet address. Copy that wallet address into however your exchange enables transfers, on coinbase it looks like this
Step Four - Go find an NFT you like. Head on over to Opensea and start searching around. Look for art you genuinely enjoy. It doesn’t matter what other people think, or the hype, or lack thereof. If you enjoy it, and you’re willing to pay for it, it’s a good purchase.
Step Five - Connect your wallet to your NFT marketplace. This part is fairly intuitive. Find the buttom/prompt to connect your wallet and go from there.
Step Six - Lose all your money. JK JK, but seriously and you’ll hear this advice a lot, don’t purchase anything with funds you can’t afford to lose, and you’ll more likely enjoy your purchase if it’s something you actually like.
Step Six - Purchase your NFT. Once you’ve got your wallet connected, the purchasing process is pretty similar to any other e-commerce platform. You’ll likely have to pay “gas fees” which are Ethereum’s equivalent of transaction fees, and there can be a delay between when you purchase and when your NFT appears in your wallet, but besides that it’s more or less the same. Click a button, sit back, and boom you’ve bought an NFT.
Wrapping it All Together
We live in a society where the majority of our needs, are solved. If you live in America or an equivalent developed economy. Odds are, you will wake up and have enough water, enough food, and adequate shelter. You will have a way to entertain yourself, a way to get from point A to point B, and a way to communicate with the people you love. The things we need are solved. The things we want are a different story. In a world of abundance, where everything we need is accessible via technology and other industrial platforms, what we want becomes more, and more important and more and more valuable. I need to buy groceries every week. I want to binge watch Ted Lasso every weekend. A core aspect of Web 3.0, is that it gives people an additional medium and additional opportunties to access what they want. Some people want to make more money, some people want to be at the leading edge of cultural and technological change, some people want to have more autonomy, direction, and control over their work and careers. In any event, because we are living in a society of wants, and not needs, people are attracted to the promise of Web 3.0. Personally, I think the people who will benefit the most from Web 3.0 are the people who best understand how to organize communities, the people who best understand how to create cultural identities online, and the people who historically have had more limited access to capital. It’s going to be an interesting few months and years as the space continues to develop. The future is absolutely uncertain, and there’s going to be some crazy highs, and some depressing lows. New use cases for Web 3.0 are going to emerge fast out of the gate and fizzle in the long run, and other use cases are going to be a slow burn that from the outside looking in, are an overnight success. It’s going to be a wild ride for sure, and no one really knows where this is all headed, but that’s all part of the fun.
That’s it for this week! Let me know what you think in the comments. As always feel free to drop me a note at dez@firstmarkcap.com. Have a great week everyone!