The Narratives of NFTs

Crypto has narratives: stories that drive beliefs. So what is the narrative of NFTs? Why are these “over priced JPGs” worth so much?

Turns out, there are a few narratives driving the NFT phenomenon.

NFT As Status Symbol

The use of NFTs as avatars for Twitter, Discord, Telegram, etc. has emerged as an increasingly common practice. Basically, this is fashion: buying into a brand to signify wealth, coolness, status. There’s more to unpack here, but we’ll save that for a later post.

NFT As Game Item

The use of NFTs in games. Axie Infinity is the main example here; Avagotchi also. Again, there is a lot to unpack here, which we will save for another post.

NFT As Thrill Of The Deal

People love to make a deal, make some money, make a “profitable” trade. There are deep seated psychological underpinnings to this narrative, the drive of salesmen and traders everywhere. The satisfaction of flipping an NFT, whether the flip is for $1 or $10 or $10,000, is deep and addictive. Again, lots to unpack here.

NFT As Store Of Value

This is the narrative we are interested in: the “collectible” narrative or the “art” narrative, or what we are going to call the “store of value” narrative. It is NFTs as an investment. Ultimately, it is related to the above narratives, but needs to be discussed on its own, and really it is the uber-narrative, as the other narratives fall apart if the NFT in question doesn’t have value. (I can’t make a deal with a worthless NFT; I can’t level up and sell my game NFT if it doesn’t have value; I can’t flaunt my status is my NFT avatar isn’t valued by whoever I’m trying to impress.)

So, why buy an NFT? Because it has value and that value may increase. NFTs are a place to put your money and make more money. The store of value narrative is now the story driving Bitcoin and most fungible tokens (again, lots to unpack there, for another post), although it certainly wasn’t its original narrative – wasn’t Bitcoin supposed to be used as a “medium of exchange?” But who wants to use their Bitcoin for that purpose anymore? And, increasingly, Ethereum, which once was being driven by the use as gas, is also so valuable (and so congested) that it too is an investment.

Back to NFTs. Many people look at the current prices for certain NFTs and are aghast at how they can be worth so much. But, the same phenomenon can be said for any collectible, whether it is high art or baseball cards. I might not think it is reasonable to pay $1,000,000 for a piece of cardboard with a picture of Babe Ruth on it, but enough other people are willing, so therefore it is worth $1,000,000.

Thus, the value of (some) NFTs is a fact. And the reason is that enough people believe in them to give them value, and that value persists and can increase. Which leads to the next question: which NFTs will have value? The long tail of worthless NFTs is vast. What makes an NFT fit into that rare circle of NFTs that does in fact fulfill the promise of a store of value?

Shared Belief

Ultimately, it is about shared belief. Note that we are not referring to community here, but rather shared belief. The community term is invoked by so-called NFT experts all the time. It goes something like this: “I look for an active community around the NFT in order to gauge its value.” Now, the term community is one of the most hackneyed words in the modern era and certain alarm bells should start going off anytime one hears it. The word is one of those floating signifiers that often gets bandied about to bolster someone’s agenda.

In this case, let’s break down community for what it really means: shared belief. An NFT only starts to gain value if enough people believe it has value. So, yes, an NFT project needs community, but only for the purpose of creating shared belief in that NFT. Do Picasso paintings or baseball cards have communities? No. Is there shared belief? Yes. How does shared belief come about? By enough people believing. Is a group of people a community? Not necessarily.

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