community and culture collide with crypto

2021.06.22 | first passes series

but why are people paying all this money for NFTs…

If you can tell me why someone pays 650 USD for a t-shirt that says “Givenchy” on it, then I can tell you why people are paying 2500 USD for a piece of digital-only art that “does nothing”.

One of the more subtle but interesting ideas that came to mind as I read around this space: a collision is occurring between two paradigms being applied to NFTs.

One is commercial. It says, “There’s an NFT bubble. And what is this Topshots thing?”

Another is cultural. It says, “OMFG. NFTs are everythiiinnnggg.”

Prior to the commencement of the NFT circus that’s been playing out lately and especially due to the explosion of DeFi, the crypto narrative among newer crypto folks like me has been primarily commercial (e.g. s&p is rigged, stock-flow ratios) or philosophical (e.g. separation of money and state, sovereignty, etc.). So it’s natural that the middle-adopters are falling back on one of these narratives to try to make sense of the fact that a digital-only image of a unicorn flying through space was just purchased for 1400 USD.

This strikes me as yet another signal that crypto has entered the mainstream. And it also tells me that throwing the “This is just a speculative bubble” narrative at the NFT space is insufficient.

If the behavior of the NFT space doesn’t bind well to commercial narratives (i.e. stock-flow ratios don’t really describe why digital unicorns go for 1400 USD; guess it must be a bubble) and does bind well to sometimes irrational-seeming cultural ones (“NFTs let folks express their frustration with the US healthcare system and the price of an image of some guys medical records reflects this frustration”), then there’s a good chance that some corner of “mainstream” culture is affecting the NFT space. Said differently, what seems like commercially irrational behavior in NFT markets could actually just be culturally “rational” behavior (buying unicorns for 1400 USD).

Once I started looking at the NFT world through this lens, scrolling through Showtime’s freshly launched newsfeed and thinking about all the money that is changing hands over purely digital art made a lot more sense and made me a lot more excited.

web3 community will be more quantified, fluid and nuanced

Jarrod Dicker and Raoul Pal ¹ do an excellent job of teasing this out on a high level. Here, I tried to add some more specifics…

Below, when I refer to “web3”, I am specifically thinking of the following

truly public, permissionless blockchains
the ability to generate tokens on top of those blockchains
low-friction value transfer via coins or tokens
low-friction association e.g. the ease and confidence with which an address can be used for authentication and authorization
trustless decision making via DAO-like functionality

When trustless decision-making, low-friction association and low-friction value transfer occur on the same platform it becomes relatively easy for community builders to link belonging and contribution with a variety of forms of compensation. It also becomes easy to use markets to price entry into the community and thereby place a quantifiable value on that community. That value can be used to derive the value of many things related to the community - contribution of content, promotion of the community or its content, the value of the ability to participate in a decision, etc.

What’s more: in web3, all of this functionality is transparent and decentralized. Less trust is required on the part of the community members to know that they will indeed be compensated for their belonging and contributions. While the absence of transparency / decentralization has not precluded similar dynamics from occurring in web2, the presence of transparency / decentralization in web3 allows communities to form and dissolve faster. This means faster evolution and “progress”.

Another change with web3 communities comes in scale. In web2, the scale of these arrangements is limited to the walled gardens of fbook etc. Yes, acquisitions could be made or api’s could be built and agreements reached to allow some expansion of communities and belonging across these boundaries (and it certainly has been done) but practically, that would be orders of magnitude more difficult and limited than what is possible with public, permissionless chains where it’s so easy “riff” off of an existing community, link it other communities and continue the experiment.

Here’s a thought exercise to put this into practice: Let’s say that a community and content “platform” has been built based on the ideas of this site, which aims to make sense of what’s happening in crypto, blah blah blah. Let’s also say the community has created a ERC-20 $DIGSOV token. Initially, $DIGSOV is worthless. Early members join based on their perception of the caliber of the other early members, the abilities and vision of the founders, plain old FOMO, perhaps some small financial incentives created through the use of VC seed money distributed to early contributors, or more probably because I’ve successfully begged them to join. Hopefully, early members begin contributing content and ideas, maybe they’re getting paid for what they contribute with some ETH or BTC that was “seeded” by early investors in the platform (also in exchange for tokens), and we start making decisions collectively about what to write next.

If this happens for a sufficiently long time, some useful content and insights might be generated. A few articles might be shared on the right twitter accounts, some awareness and curiosity about the community might be created. Some folks might begin to consider belonging to this community valuable. And voila, with a desire for access, we’ve got a decent indicator that “value” now exists.

But what is that value? In web2 the answer is, “Nothing! It’s free! It will only cost you lots of personal information we harvest from you without your knowledge!” In web3, it’s different. By linking access to a community with the possession of community tokens, a proxy for the value of the community can be easily determined in an open market. And as mentioned above, once we can price the value of the overall community, all sorts of derivative prices are possible. They’re imperfect of course. But they’re better than the hand-waving we have in web2.

To take this a step further, the fluidity with which one can come to belong or not belong to the group can simply be a function of the liquidity of that community token in the market. Buy 10 tokens and in a few minutes I can be weighing in on the editorial path of the $DIGSOV community. Sell my tokens and I leave the group and lose my privileges. Maybe the content I create is preserved or maybe I take it with me (e.g. I execute a few transactions that trigger logic in smart contracts to run and “remove” permissions for the community addresses). To me, this fluidity is one of the most interesting aspects of how culture and cooperation will evolve in web3. What will this mean for professionally oriented communities (aka “companies”), geopolitical communities (aka “countries”), etc.?

This is worth teasing out a bit more: “Maybe the content I create is preserved or maybe I take it with me." That statement assumes quite a bit of technical work. But the key thing is that on a public blockchain, this arrangement can be agreed upon in advance and entrusted to smart contracts memorialized on the blockchain that will execute automatically when certain events take place (I sell my *$DIGSOV *tokens…). Some standards around content primitives on the blockchain, allowing creators to easily port their content across many communities with minimal friction, are also an important presupposition here. These things still require a lot of work. But the key with web3 is that they are so much easier to pull off than with web2.

Now, let’s talk about how many different versions of belonging there could be and what this means. Community and belonging can be far more nuanced in web3. I can sort of belong, if I hold one token. I can be super belong if I hold 10 tokens. The degree to which I belong can determine how much I can consume or how much I can contribute or how much I can decide. And again, I can change this very fluidly. Or perhaps it will change automatically based on my behavior or other conditions. A wider array of variations to belonging are relatively easy to implement in web3.

The more abstract outcome that nuanced belonging / contributing / deciding and fluid entry / exit lead to is higher satisfaction, higher efficiency economic transactions. You are paid more precisely for your contributions. You pay more precisely for your belonging. If a party is dissatisfied, she may leave immediately, not at the end of the month when her subscription expires. Capital in these spaces is generating a higher degree of value and more capital is available for the generation of value.

ownership will displace employment

Consider the new tools at the disposal of creatives: fluid group formation, low friction value-transfer, easy administration of fractional ownership, pre-funded content models, content standards across an entire blockchain…these things also seem to point to a blurring of the line between employee and investor / owner and a higher share of income for creative workers coming from ownership rather than more traditional employment arrangements.

Combine this with the fact that, in the last few decades, the means for many types of production have become relatively cheap and it becomes clear that many of the tools media titans used to consolidate power are no longer available: namely, the control of the means to production and the control of attention and content delivery / distribution / marketing platforms.

For some creative output, like movies, it’s pretty easy to see how all of this could work. However, where web3 arrangements will shine brightly is in the more nebulous types of creative contributions. e.g. How do you compensate a curator for sharing your article? A dj for including your song in his set? How does a dj compensate a producer for including that producer’s song in his set? While that isn’t content creation, it’s still “culture creation” in the sense that content is not really that meaningful and not really culture until it’s been consumed and given context (if a tree falls but no one hears it…). With the web3 tools described above, there are better ways to answer these questions.

For more interesting ideas about this, check out The Great Online Game ² .

our personal data might be overvalued

As someone who cares a great deal about privacy, I didn’t initially see the logic when Jarrod Dicker ¹ mentioned this idea. But, upon further explanation it made a lot of sense. Soon users could be able to, relatively easily, choose between shelling out some tokens or sharing some personal data to gain access to content, for example. Thanks to trustless smart contracts, they would have much greater confidence in and control over how that data will be used, should they choose to share it. Once this reality exists, it may be that the emergent “price” for personal data is lower than we currently perceive it to be. People might be more willing to part with data if they can trust that its use will be more limited and that they can control it.

beware the whales

Last but not least, the origin story of PartyDao ⁴ is a pretty wild, happening-right-now example of much of the aforementioned in action: low-friction value transfer, trustless decision making and low-friction association all co-located can lead to amazing things.

It also underscores a bigger point: whales can play a big role in the success or failure of new projects. They can throw their coins around in a way that warps incentives and outcomes for the early-adopting little guys. Don’t ignore this possibility when evaluating an app or protocol.

digital sovereign