Since I’ve been doing stuff in web3 over the past few months, I can answer questions from skeptical folks about all this NFT stuff, or whatever other questions you have.
First up, some common questions:
First up, some common questions:
Q: Are NFTs a scam?
A: Some yes, some no, depending on your definition.
There is a time investment required to learn common indicators/to identify scam-like behavior.
Threat actors (criminals) exist in every financial ecosystem, NFTs no exception.
A: Some yes, some no, depending on your definition.
There is a time investment required to learn common indicators/to identify scam-like behavior.
Threat actors (criminals) exist in every financial ecosystem, NFTs no exception.
The space is unregulated, the technologies are new/currently in development, and few cybersecurity folks have made time investments into web3.
This will change, and so will the behavior of threat actors as they seek to adapt to environments which enable them to win.
This will change, and so will the behavior of threat actors as they seek to adapt to environments which enable them to win.
Q: Are NFTs harming the environment?
A: Yes. The majority of NFTs today are currently traded on the Ethereum blockchain, which runs on a "consensus mechanism" (a way to verify transactions) which is called Proof of Work.
A: Yes. The majority of NFTs today are currently traded on the Ethereum blockchain, which runs on a "consensus mechanism" (a way to verify transactions) which is called Proof of Work.
Blockchains using PoW harm the environment because they require participating systems to expend energy to solve computational puzzles. The idea is deterring manipulation of the blockchain by ensuring the "cost" (energy expenditure) is sufficiently high.
en.wikipedia.org/wiki/Proof_of_…
en.wikipedia.org/wiki/Proof_of_…
Many people have been waiting a long time for Ethereum to make planned system changes which would make it more environmentally friendly.
Many people are also tired of holding their breath.
tomsguide.com/news/ethereum-…
Many people are also tired of holding their breath.
tomsguide.com/news/ethereum-…
Q: Do other, newer blockchains try to solve this problem?
A: Yes.
I have not yet found a comprehensive environmental impact analysis of the popular blockchains against each other, but many people are flocking to Solana, which runs on "Proof of History".
medium.com/@novaraptur/pr…
A: Yes.
I have not yet found a comprehensive environmental impact analysis of the popular blockchains against each other, but many people are flocking to Solana, which runs on "Proof of History".
medium.com/@novaraptur/pr…
Although the promise of blockchain is to enable participants to interact directly, mediated by the blockchain (no middlemen/bankers), another reason people are flocking to newer blockchains like Solana are the massive transaction fees that folks incur on the Ethereum network.
This issue relates directly to the way the system is architected. These gas fees mean many newcomers to the world of cryptocurrency are gatekept from being able to do much.
Who can afford 100s or 1000s of $$ to perform the equivalent of a wire transfer?
markets.businessinsider.com/news/currencie…
Who can afford 100s or 1000s of $$ to perform the equivalent of a wire transfer?
markets.businessinsider.com/news/currencie…
What folks don't realize is Ethereum is the second most popular/valuable blockchain due to 1st mover advantage as the 1st post-Bitcoin system to implement a smart contract layer, which allows computation (app deployment) on the blockchain.
That's what "dApps" are.
That's what "dApps" are.
The combination of blockchain and dApps is the real revolution, because it allows for people to interact with each other in a decentralized way.
Right now people know about cryptocurrency as the fundamental 'use case' for blockchain, but it's only one of the ways it can be used.
Right now people know about cryptocurrency as the fundamental 'use case' for blockchain, but it's only one of the ways it can be used.
In some ways, economics theory and blockchain are somewhat inseparable, as most have been architected and developed for the purpose of enabling financial transactions. But new uses for the components of the system are emerging.
One of those is the concept of non-fungible tokens.
One of those is the concept of non-fungible tokens.
Q: What the hell is an NFT?
A: At its core, an NFT is a "unique" thing which is described on a blockchain using a specific standard.
ERC-721 was the first standard, which kickstarted what we see now. There is also an updated standard on Ethereum, called ERC-1155.
A: At its core, an NFT is a "unique" thing which is described on a blockchain using a specific standard.
ERC-721 was the first standard, which kickstarted what we see now. There is also an updated standard on Ethereum, called ERC-1155.
Blockchains with smart contract layers are all implementing their own standards, in a race to become the most useful & relevant system in which developers can choose to deploy dApps.
But what the heck is an NFT?
But what the heck is an NFT?
It's a unique thing we can own in our personal blockchain "wallets". One person can own many NFTs and many wallets.
In reality, it might not actually be so unique, in the sense that the actual item can be copied from somewhere and placed on a blockchain.
In reality, it might not actually be so unique, in the sense that the actual item can be copied from somewhere and placed on a blockchain.
"Tokenizing" some piece of data only means someone created a unique record of it on a blockchain.
Tokenization doesn't imply anything about whether the person who created the record actually owns it in the "real world", where intellectual property rights apply.
Tokenization doesn't imply anything about whether the person who created the record actually owns it in the "real world", where intellectual property rights apply.
Q: So then those jokes about "right-click, save as..." hold some water?
A: Yes. If you tokenize a copy of the Mona Lisa, it still doesn't mean you own it, and if someone buys it, they may not be able to do anything legal with it other than open their wallet and look at the copy.
A: Yes. If you tokenize a copy of the Mona Lisa, it still doesn't mean you own it, and if someone buys it, they may not be able to do anything legal with it other than open their wallet and look at the copy.
Thing is, tokenization is starting to apply to "digital goods" (digital STUFF) - that never actually had a real life elsewhere.
For example: An artist creates a 3d model, then immediately tokenizes it as a way to publish, where it begins its public life on the blockchain.
For example: An artist creates a 3d model, then immediately tokenizes it as a way to publish, where it begins its public life on the blockchain.
It's important to understand that some things will begin life on a blockchain somewhere, then propagate themselves elsewhere.
For example, physical merchandise created using artwork which only exists "on chain". Or gaming DLCs created by an artist for use in video games.
For example, physical merchandise created using artwork which only exists "on chain". Or gaming DLCs created by an artist for use in video games.
Q: Why put them on the blockchain in the first place?
A: Well, in the case of artists creating new artworks which can exist in a digital-only form, the creation of the token can enable them to encode their desired royalties in perpetuity.
A: Well, in the case of artists creating new artworks which can exist in a digital-only form, the creation of the token can enable them to encode their desired royalties in perpetuity.
This means every time the NFT changes hands, the original creator will receive a cut of the proceeds, which they defined as a percentage when they created the token.
This is a complete and total revolution in the art world. Previously, artists died broke & unrecognized.
This is a complete and total revolution in the art world. Previously, artists died broke & unrecognized.
Once an artwork changed hands from the artist to the first buyer, that was it. They would not receive any further proceeds. Or in the case of say, the music industry, so many middlemen are involved in the distribution of the music, that the artist often receives next to nothing.
For an artist, tokenizing means:
1. Royalties in perpetuity
2. Tracking of which wallet owns an artwork/asset
3. Provenance as the artwork changes hands from wallet to wallet, listed on marketplaces, & shown in art VR galleries
4. No middlemen between their artworks & collectors
1. Royalties in perpetuity
2. Tracking of which wallet owns an artwork/asset
3. Provenance as the artwork changes hands from wallet to wallet, listed on marketplaces, & shown in art VR galleries
4. No middlemen between their artworks & collectors
This newfound power will incentivize an entirely new generation of digital artists to produce art for what I call the Nouveau Digital Art Scene.
It's already happening. Most of it isn't really good. But some of it is GREAT. Quality will improve as more artists are able to get in
It's already happening. Most of it isn't really good. But some of it is GREAT. Quality will improve as more artists are able to get in
Wealthy people have always collected artworks as a store of value
As more of our valuable productions as humans start life in digital form - for example, e-books, we will start to see more private collectors start to hoard. That's also already happening.
en.wikipedia.org/wiki/Private_c…
As more of our valuable productions as humans start life in digital form - for example, e-books, we will start to see more private collectors start to hoard. That's also already happening.
en.wikipedia.org/wiki/Private_c…
Great question! Read on for answers:
https://twitter.com/koen_hufkens/status/1457387854313803782?s=20
Pausing to eat lunch :)
One kid got up from her nap, & another is now awake.
Resuming shortly!
Resuming shortly!
Many people understand that the best way to learn is by doing.
When the collective I run with, @metaversable (group of other infosec pros), wanted to improve trust and reduce scams in the space, we decided to jump in headfirst.
The way forward is through.
When the collective I run with, @metaversable (group of other infosec pros), wanted to improve trust and reduce scams in the space, we decided to jump in headfirst.
The way forward is through.
So we decided to start by deploying a collection of @marcusjcarey’s artwork under the name Unicorn Social Club @UnicornSolClub. He’s been making art since he was a kid, yet, like the vast majority of artistic people, has not had a financially viable venue to enable him to do that
So beyond giving our artist a platform & the ability to distribute his art and creative concept widely, we’ve put together a team of a dozen people+ who believe enough in the learning process to be as engaged as possible while still holding down day jobs & life responsibilities.
Proceeding through the process of deploying a collection of NFTs requires a multi-pillar set of intertwining processes. I’ll describe these in some further detail, because they’re all quite relevant to the story of an NFT’s value.
Things that are important:
- The art/creative concept/story
- Marketing
- Utility/Roadmap
- Engineering
- Community
- The art/creative concept/story
- Marketing
- Utility/Roadmap
- Engineering
- Community
First, there are two types of NFT projects, generally speaking.
1. Pieces created by an artist to be unique, with or without the help of a computer, which are then sold as part of a collection, or sold individually under the artist’s name — typically stylized as “1/ 1” or “1:1”
1. Pieces created by an artist to be unique, with or without the help of a computer, which are then sold as part of a collection, or sold individually under the artist’s name — typically stylized as “1/ 1” or “1:1”
Artworks can be created in real life, as in the case of a painting, or sculpture, or music recording, then “tokenized” using some representation of it, such as an image, 3D scan, or audio file.
This is much less common than NFT artworks created using the help of a computer.
This is much less common than NFT artworks created using the help of a computer.
Most people don’t see the need to tokenize a real world object today, but many intriguing use cases exist.
Ex. Tokenizing wine bottles as NFTs. The combo of an open ledger & real world objects opens the door to new (transparent & secure) tracking methods
winemag.com/2021/05/20/blo…
Ex. Tokenizing wine bottles as NFTs. The combo of an open ledger & real world objects opens the door to new (transparent & secure) tracking methods
winemag.com/2021/05/20/blo…
While organizations can decide to deploy private blockchains, as they might for tracking wine bottles, there is something quite powerful about the public or customers being able to interact with & verify records on a public ledger which pertain to their lives.
Alexei Navalny taught me that transparency is a powerful hedge against corruption.
The powerful, wealthy, and corrupt rely on secrecy as a fundamental source of their power.
theguardian.com/politics/2021/…
The powerful, wealthy, and corrupt rely on secrecy as a fundamental source of their power.
theguardian.com/politics/2021/…
When we can all see and verify the truth, and can have reasonable certainty as to the truth due to cryptographic protocols, we can further strengthen our individual & collective positions. We can become more democratic. We can shine the light in hidden places.
That’s a lot of woowoo idealism, but I think there’s something there.
This is partly the reason why some folks go starry-eyed (& become annoying) when they figure out blockchain.
Crypto bros only ever care about money, but this stuff can be bigger than that. Anyway, I digress
This is partly the reason why some folks go starry-eyed (& become annoying) when they figure out blockchain.
Crypto bros only ever care about money, but this stuff can be bigger than that. Anyway, I digress
2. The second common type of NFT project is the “pfp”, or profile pic project.
This is the reason you may have seen so many Twitter accounts change their avatars to represent their purchase of an NFT with which they identify enough to post as their avatar.
Here’s one of mine.
This is the reason you may have seen so many Twitter accounts change their avatars to represent their purchase of an NFT with which they identify enough to post as their avatar.
Here’s one of mine.
Some of these projects have gotten really, really big. These profile pictures can sell for millions.
The reason why: these NFT communities are simply a new form of the AMEX Black card: a way to signal membership in an exclusive club & derive benefits.
rollingstone.com/culture/cultur…
The reason why: these NFT communities are simply a new form of the AMEX Black card: a way to signal membership in an exclusive club & derive benefits.
rollingstone.com/culture/cultur…
There is a certain egalitarianism that comes in with participating in these projects from their start, because the public is given the opportunity to purchase one of these NFTs at its lowest price: when they are each first transferred from creator to their first collector.
The process of getting them onto the blockchain, which is performed by the creator, is called “minting”.
When the pieces our offered up for sale, that is referred to as the “public mint”.
This is typically done on a website which is custom-made by the creator team.
When the pieces our offered up for sale, that is referred to as the “public mint”.
This is typically done on a website which is custom-made by the creator team.
That website is typically made to be as descriptive as possible of the project and its intentions.
It typically covers the Roadmap, the utility of the NFTs, and any information about its creators and the creative concept.
Like this: unicornsocialclub.com
It typically covers the Roadmap, the utility of the NFTs, and any information about its creators and the creative concept.
Like this: unicornsocialclub.com
Unfortunately, most project creators remain anonymous. This enables scams, also referred to as “rugs” or “rug pulls”.
This can happen if the purpose of the project is simply to generate money, and the creators have zero long-term intention of developing the community.
This can happen if the purpose of the project is simply to generate money, and the creators have zero long-term intention of developing the community.
Although some creators have good reasons for remaining anonymous, most don’t, and I remain suspicious of projects where the founders are not “self-doxxed” (upfront about their identities).
Some folks are identity maximalists, and philosophically believe that a “trustless” system should not require identities from its users. There are various reasons for this, including the fact that central stores of identity go against the spirit of the 2009 Bitcoin whitepaper.
In the real world, while we do want to enable people to transact directly, as opposed to relying on bankers to mediate, we then run up against problems which are your commonly handled by trad finance, such as fraud, transactions with terrorists, other sanctioned parties.
However, do not believe that traditional finance handles all those problems perfectly.
On the contrary, criminals and the corrupt/oligarchies rely on traditional finance systems much more than crypto.
Financial fraud is booming.
On the contrary, criminals and the corrupt/oligarchies rely on traditional finance systems much more than crypto.
Financial fraud is booming.
While fraud & transactions with nasty individuals and organizations is rife in traditional banking, here’s some light reading on the subject of how the US Treasury Dept wants crypto companies to handle these issues… I digress again 🙃
home.treasury.gov/system/files/1… [PDF]
home.treasury.gov/system/files/1… [PDF]
In order to ensure that we are not transacting with people on the sanctions list, crypto companies have to do a certain amount of due diligence matching some of what is done by the traditional banking industry. This is why companies like Coinbase institute a “KYC” process…
…which requires you to upload your ID info.
“KYC” means Know Your Customer. “AML” stands for “Anti-Money Laundering”. The standards have not yet been widely implemented in crypto. With a global patchwork of highly uneven regulatory requirements.
“KYC” means Know Your Customer. “AML” stands for “Anti-Money Laundering”. The standards have not yet been widely implemented in crypto. With a global patchwork of highly uneven regulatory requirements.
Identity services, including compliance with some of the basic standards, will allow us to create “onramps” to the blockchain, allowing more money to join the ecosystem & participate legally, with greater trust.
No one wants to unwittingly fund the Taliban. This requires us to have a greater understanding of the wallets, smart contracts, and ultimately, people that we are interacting with.
This is a problem set we’re investigating @Metaversable.
This is a problem set we’re investigating @Metaversable.
Treasury recently blacklisted a Russia-based cryptocurrency exchange for allegedly laundering 10’s of millions for ransomware operators, scammers and darknet markets. It is the first such designation for a virtual currency exchange. More to come.
home.treasury.gov/news/press-rel…
home.treasury.gov/news/press-rel…
I was quoted in this week’s Bloomberg BusinessWeek regarding ransomware, Russian cryptocurrency companies, and money laundering.
It’s a very good piece which describes the cash-out process, for those of you curious about the mechanics.
tl;dr No KYC = open door for bad guys.
It’s a very good piece which describes the cash-out process, for those of you curious about the mechanics.
tl;dr No KYC = open door for bad guys.
https://twitter.com/kartikaym/status/1455770355805536261
Pausing for dinner. Then we can talk about those pillars of a project and how they drive the value of an NFT.
How could some silly jpeg of an ape be worth millions of dollars? That’s money laundering, right?
Not quite!
How could some silly jpeg of an ape be worth millions of dollars? That’s money laundering, right?
Not quite!
The creative concept should be compelling. Why does this artwork exist? Who is the artist? Are the attributes of each piece interesting?
The artist creates base layers, then adds many "traits", which are combined by a computer to produce thousands of variations.
The artist creates base layers, then adds many "traits", which are combined by a computer to produce thousands of variations.
Here is the "rarity chart" for that Piggy. Its most rare trait (calculated from the distribution of traits across the entire set of 10,000 Piggies) is the Pocket Watch, coming in at 2.93%
This means only 293 Piggies were made with this trait. Looks rare!
moonrank.app/collection/pig…
This means only 293 Piggies were made with this trait. Looks rare!
moonrank.app/collection/pig…
The next thing we need, after interesting art, is Marketing. Who's going to know or care about the NFT project if you don't tell people about it?
Check out all the ads on the #NFTDrop #NFTGiveaway hashtags.
Check out all the ads on the #NFTDrop #NFTGiveaway hashtags.
Next up, Utility & Roadmap; critical things.
Utility = what services or products holders of the NFT can expect to receive as a token holder & member of the community. What is the purpose of the NFT sale?
Roadmap = A high-level description of the planned path towards Utility.
Utility = what services or products holders of the NFT can expect to receive as a token holder & member of the community. What is the purpose of the NFT sale?
Roadmap = A high-level description of the planned path towards Utility.
Engineering: Few apps exist to allow creators to deploy artworks, and the ones that exist often have limitations.
The ecosystem is still immature, & a specialized web3 developer who knows how to speak directly to the blockchain is often necessary & in increasingly high demand.
The ecosystem is still immature, & a specialized web3 developer who knows how to speak directly to the blockchain is often necessary & in increasingly high demand.
Few can afford to make a mistake, as smart contracts are typically immutable for safety reasons. While Ethereum development is primarily done in Solidity (designed to use ECMAScript syntax; looks like Javascript), other blockchains use other languages.
en.wikipedia.org/wiki/Solidity
en.wikipedia.org/wiki/Solidity
The Solana blockchain uses Rust, which helps eliminate entire classes of bugs. Learn how to build a basic Program on Solana @_buildspace:
buildspace.so
buildspace.so
The final thing we need for a pfp NFT project is Community.
Can't do anything without it. Community is the ultimate source of an NFT project's power. The network effects from people congregating on a Discord to share their excitement are massive.
Ex. discord.gg/metaversable
Can't do anything without it. Community is the ultimate source of an NFT project's power. The network effects from people congregating on a Discord to share their excitement are massive.
Ex. discord.gg/metaversable
The reason projects congregate on Discord is because the platform provides the tools needed to be granular about permissioning, roles, & the provisioning/display of status. Bots and custom emoji/art can be easily integrated, & rooms can be configured to provide the desired vibe.
Frankly, after spending the last year on Discord, Slack and every other real-time chat platform feels old-timey and boring.
Many of the top servers (which are not specific to a certain project) have tens of thousands of active members.
Be careful with those; often poor SnR.
Many of the top servers (which are not specific to a certain project) have tens of thousands of active members.
Be careful with those; often poor SnR.
So anyway, the reasons why NFTs are selling for high prices are the combination of all-of-the-above is attractive for a buyer.
The ideal state for an NFT project is for its members to hold at least one of their tokens indefinitely, while actively engaging in marketplace trading.
The ideal state for an NFT project is for its members to hold at least one of their tokens indefinitely, while actively engaging in marketplace trading.
Here are a few marketplaces for you to look at:
- @opensea (Ethereum)
- @MagicEden_NFT (Solana)
- @DigitalEyesNFT (Solana)
- @opensea (Ethereum)
- @MagicEden_NFT (Solana)
- @DigitalEyesNFT (Solana)
Check out @0xBanana's works as an example of a 1:1 artist.
- Originally sold at auction through @holaplex: 0xbanana.holaplex.com/#/
- Now resold by collectors on several marketplaces, including @DigitalEyesNFT: digitaleyes.market/collections/0x…
- Originally sold at auction through @holaplex: 0xbanana.holaplex.com/#/
- Now resold by collectors on several marketplaces, including @DigitalEyesNFT: digitaleyes.market/collections/0x…
To get a high-level view of the NFT projects going across the Solana ecosystem and their economics, try @solanalysis.
You'll notice the top pfp project, @SolanaMBS, currently has a market cap (total invested value) of $271m.
solanalysis.com
You'll notice the top pfp project, @SolanaMBS, currently has a market cap (total invested value) of $271m.
solanalysis.com
The "floor price", meaning the lowest price any single Solana Monkey Business NFT is available for sale on any of their indexed marketplaces as of this writing, is 166.3 SOL. This is equivalent to $40,410 USD at $243 per Solana.
The average price is 223.5 SOL, which is $54,310.
The average price is 223.5 SOL, which is $54,310.
What's the utility? In the case of this pfp, status. Access to the other people who have been able to buy into the community. The way many of those people got there is by flipping NFTs until they had enough to get in.
Note the simplicity of their website: solanambs.com
Note the simplicity of their website: solanambs.com
Many projects donate a large chunk of proceeds to charity. Example: @UnicornSolClub plans to donate $100K to @TheGoodrCo via @JasmineCrowe to fund two after-school stores (places for children to pick up a meal, snacks, and other necessities) to fight child hunger/food insecurity.
These folks @TrippyBunnyNFT donated their entire proceeds to the American Foundation for Suicide Prevention via @TheGivingBlock! Amazing.
cointelegraph.com/news/trippy-bu…
cointelegraph.com/news/trippy-bu…
I've been doing a lot of thinking about nonprofit funding models, but that's a whole 'nother thread.
Suffice to say, you can make money & do good by choosing the NFT projects which provide the Utility you are looking for. You can align your own values to your chosen communities.
Suffice to say, you can make money & do good by choosing the NFT projects which provide the Utility you are looking for. You can align your own values to your chosen communities.
With that said, people absolutely love being a part of a club, and having an NFT to represent you is simply a way of displaying membership in that club. Rare traits or certain looks can raise your NFT's value, as well as your own status. Some clubs do very well, while others flop
Combining these communities, and the feeling of being in a special club, at a certain "tier level" with the real world starts to become interesting. You can then get access to whatever is on the Roadmap.
Like:
- Exclusive access to digital or real-world events
- Merch w/ the artwork, maybe even rights to produce such merch and sell it yourself
- "Airdrops" (free art deposited directly into wallets of collectors)
- If it has value, it can be added to the token's Utility/Roadmap.
- Exclusive access to digital or real-world events
- Merch w/ the artwork, maybe even rights to produce such merch and sell it yourself
- "Airdrops" (free art deposited directly into wallets of collectors)
- If it has value, it can be added to the token's Utility/Roadmap.
The final thing I want to talk about (we'll have to leave the massive topic of DAO's for another thread), just generally speaking within context of cryptocurrencies, is about the democratization of access to financial systems which have been formally gatekept for a long time.
The SEC somewhat lowered hurdles to becoming an "Accredited Investor" last year, but you still need a bunch of financial certifications which mostly only people on Wall St. have
This historic gatekeeping of those without $1m in assets has kept many away.
sec.gov/news/press-rel…
This historic gatekeeping of those without $1m in assets has kept many away.
sec.gov/news/press-rel…
Furthermore, the returns in the traditional markets are extremely low, and the business of trading is risky, because access to the data and knowledge necessary to do it well is also gatekept & expensive. Hedge Funds and other investment firms win. The little guy hardly ever does.
So it's no wonder that economically disadvantaged people are rushing to access the world of cryptocurrency. Our team @metaversable is extremely diverse for a tech team (white folk are the minority), and the team composition clearly reflects the trends:
forbes.com/sites/korihale…
forbes.com/sites/korihale…
The Economics, Justice, and Society department at NORC @UniversityChicago recently released a poll showing the average crypto trader as:
✊🏾 Mean age: 38
✊🏾 No college degree: 55%
✊🏾 Not white: 44%
✊🏾 Female: 41%
✊🏾 Household incomes <$60K: 35%
norc.org/NewsEventsPubl…
✊🏾 Mean age: 38
✊🏾 No college degree: 55%
✊🏾 Not white: 44%
✊🏾 Female: 41%
✊🏾 Household incomes <$60K: 35%
norc.org/NewsEventsPubl…
Thanks for reading! 😃
I hope all of this has been informative, and I look forward to seeing about any questions you might have about how these things come together.
I hope all of this has been informative, and I look forward to seeing about any questions you might have about how these things come together.
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