NFTs first crossed my radar in 2017 with the launch of CryptoKitties. I felt it was an interesting concept for gaming, like “Neopets for adults”, but in the end I didn’t give it much attention. Fast forward to late 2020, and NFTs are front and center with digital artists like Beeple and 10K projects such as CryptoPunks storming the cultural lexicon.
This prompted me to look closer at NFTs, specifically around the value accrual mechanisms of cultural artifacts and fine art in general. I eventually concluded that more value would accrue to the top-tier artist-sourced NFTs than the algorithmically generated (10K) ones. I was wrong.
Why my original considerations were wrong
I will be using Beeple and CryptoPunks and the primary examples throughout this essay but note that you could replace Beeple with any of the successful NFT artists (Pak being another good example). Additionally, Punks can similarly be replaced with other 10K projects like Bored Apes or Moonbirds.
My mistaken assumption was derived from two components: clout and aesthetics.
Beeple was a famous virtual artist well before he started making NFTs. Contrast this to Larva Labs (the company behind CryptoPunks), which no one had heard of. When looking at these two entities issuing NFTs it seemed clear that having the clout of a legitimate artist was going to be paramount to NFT value. Conversely, not having a legitimate artist would make a project like Punks a flash in the pan.
I was obviously mistaken about this, and I am annoyed because I know this is not how the world works. I also understand Bitcoin: it matters not that Bitcoin was created by an anonymous creator, in fact it makes it better. There is no reason this is any different when it comes to NFTs.
The other reason I assumed artist generated NFTs would dwarf the size of popular 10K projects was aesthetics. For example, take Beeple’s The Passion of the Elon.
It’s funny, ironic, metaphorical, and most importantly you don’t look at it and think “I could do that”. If you’re more of a trippy visuals person, below is one of Pak’s NFTs.
With those in mind, take a look at a stereotypical CryptoPunk (#1586).
But he has glasses and crazy hair!
However, this was another stupid thing for me to get wrong. I knew this already: no one buys expensive art because of the way that it looks. In the end it’s all status signaling, and if anything, spending millions on something that looks like shit accentuates your fuck you money.
What I failed to consider
A big thing that I missed was scarcity. When it comes to an artist generated NFT, you are completely at the whim of the artist to manage the supply of NFTs. Now of course the artist also wants to keep the value high, but artists are also weird, and I could totally see Beeple issuing 100,000,000 NFTs and diluting everyone.
Alternatively, 10K collections like BAYC and Punks have scarcity baked in. If you couldn’t tell by the name, there are only 10 thousand of them. The only way an artist generated NFT gets that level of assured scarcity is if they cannot produce art any more, which is a very well known phenomenon called “The Death Effect”. (Maybe morbid for an NFT article, but here we are).
Trustlessness & Community
This one I don’t think I would have predicted given I tend to stay on the outskirts of “online communities”, however, it’s clearly one of the biggest factors. When an artist issues an NFT the community is inherently second to the artist. The artist must lead the community, to a degree that makes it hard for the community to lead itself.
Like the monarchy vs. democracy debate, this can sometimes be a good thing if the artist happens to be a world-class community builder. But most of the time they won’t be, so you end up with a community that stalls.
On the flip side, BAYC and Punk are entirely community driven, and you could say it is the basis for their continued success.
Uniqueness & Specific Features
Most artist derived NFTs have edition prints, like #5 out of a total of 200, all of the same image. This is not any different than the traditional art world. Below you can see Warhol’s Marilyn Monroe with the edition on the bottom left showing 2238 / 2400.
Now in meatspace, this is great, the artist gets a bigger haul, and more people can own and enjoy a specific piece (also read as: “invest in”). But having 2400 of the same image is not ideal if that image becomes your online persona.
Remember that the biggest use case for high valued 10K projects like BAYC and Punks right now is to signal that the owner is rich. A great way to do this online is to make your twitter profile picture the Punk or Ape that you own. So now we must ask the question: would you want your profile picture to be an image that 200 other people also have as their profile pictures? Absolutely not, what do I look like to you, poor?
To hit this point home, a popular pseudonymous crypto influencer’s entire persona is “Punk 6529”. This wouldn’t work if there were 200 other punks that looked just like his.
Lastly, there is another phenomenon with the 10K collections that I don’t really know how to describe fully, so I’ll just leave it here: “My punk has 3D glasses and yours doesn’t”. What about collectibles make people so obsessed over interchangeable attributes? I grew up collecting Mighty Beans, so trust me I get it, but I also don’t really get it.
This is not to say that artist issued NFTs will have no value — the highest sales of unique NFTs have gone to Beeple and Pak, and I think that will continue for non-collection pieces.
But I was wrong about how much value and attention 10K projects would garner. I will re-predict that the top-5 10K projects in aggregate will maintain a higher marketcap than the top-5 NFT artists.
And now I’ll leave you with this…
I know Snoop Dogg is a sellout… but still.