A recently filed lawsuit between a ‘Pepe The Frog’ NFT buyer and its creator underscores the fragility of contemporary NFT culture. The NFT buyer filed the US$500,000 lawsuit after the creator’s release of free identical NFTs, having believed that his version would be unique. While these types of cases illustrate the importance of transparency and clarity around rights and expectation, it also begs the question: what gives NFTs value?
We ascribe many things to NFTs. Set the artwork from an NFT as your profile picture and you might get asked: what NFT is that? That question is unlikely to be answered with a smart contract address and a TokenID. Instead, people tell the story of the collection, the creator, the art, and might link to an OpenSea entry where all of this is visible. Yet, in its most basic form, the NFT is simply the receipt. It’s proof of a smart contract interaction and subsequent transactions that may have occurred. There’s another way of looking at them, too.
NFTs are decentralized social media objects. A public blockchain as a database we can all write to, where transactions signify interactions between people, can be considered social media. A database operated by its network of participations adds an aspect of decentralization to guarantee security; an immutable source of truth. The receipts, NFTs, that sit in these databases are objects that are held by whoever controls the wallets they’re assigned to. The value the NFTs hold is based on whatever the social network ascribes to it.
Anyone can create an NFT and point its image metadata to the same URL as that of a famous NFT. It’s not right-click + save, but copy + paste + mint. The reason why the original NFT will hold more meaning and value is because of the social relation, the perceived authenticity. The problem is: most people won’t care about looking stuff up into databases to verify that relation. Tech organizations - like Twitter with its NFT profile pictures - are figuring out ways to bring this verification of authenticity to the foreground. Yet there is a way in which this authenticity can already be brought into a meaningful context immediately.
If the 2010s were the decade of mega-platforms, the 2020s are the decade of communities: a social layer of smaller context, shared purpose, and shared identity empowered by web3’s decentralized social media and the value protocols like cryptocurrencies that underpin it. Rooting NFTs in these communities doesn’t just signal authenticity or ‘being early’ (which is what has driven the value of CryptoPunks), it also lets NFT holders participate in the shared purpose of the community. NFTs’ sales & resales can kickback a percentage to a community treasury, which is governed by verified members of that community, verification being the result of whether they hold a certain token or NFT.
That community can be centered around an artist, a (sub-)genre, a specific scene, a collective - the list goes on. What’s important is that there is a sense of shared identity and shared purpose, as those are binding factors for communities (these creative communities should also consider exploring the ‘6 elements of a metalabel’). NFTs emerging from communities carry that shared purpose in their DNA, which means that there is a meaningful context for any revenue generated by an NFT through a split towards community members or the community treasury. The receipt is proof of your contribution to the community, be it a DAO or something going by a different label, and it will give you a certain social standing in that community as a patron, fellow investor, or simply a member.
To wrap up, let’s look at an example situation that’s already possible and will become more common over the next year.
A producer wraps up her work on a banging new track. “This is going to turn dancefloors upside down,” she thinks – no, she knows. Now consider two routes she could take: there’s the traditional route of minting the track as an NFT and putting it up for sale. This allows the music to be valued in ways similar to art in galleries. That’s fantastic. But then there’s the community route: instead, she brings it to her community and they release it together.
Her community is a collective of ravers who were disillusioned with their city’s nightlife, so they created their own successful party series. Their dream is to take it beyond their city. They’ve formed a treasury to do so, plus a digital community space where dedicated party-goers who have attended at least 5 of their events can join, plan for the future, and creatively contribute to upcoming events. The (international) artists who they book to perform also get added to this community, thus giving the network reach far beyond its regular venues. The party currently mostly breaks even and all revenue is used to fund future events. So to move towards their shared purpose, they need one more aspect to their community: people willing to fund the future. She mints the track as an NFT, adding the community treasury into the split as a recipient, and puts it up for sale. The auction winner doesn’t just get the music NFT, but also a place in the community and access to future events.
While both methods of minting the NFT will have value, the former derives its value and meaning only from the connection to the creator and the associated art (which could get Pepe’d, like in the opening paragraph of this piece). In the latter situation, there is a much stronger social context to the NFT, thus unlocking clear and transparent value and meaning for the holder. Community can be an amplifier for meaning and value. Consider building together.
About The Author
Bas Grasmayer is a strategist based in Berlin and the founder of the MUSIC x newsletter about music, tech, and strategy. He's currently Community Platform Lead for COLORS and participant in several cultural DAOs including Songcamp, Friends With Benefits and Water & Music. PFP: Skeletongue #2919.