The One About Digital Kitties (NFTs)

Story Time (Pre ERC-721)

To really understand my perspective on NFTs, we need to go back to 2013. At the time Bitcoin was exploding and spin-offs were plentiful. Bitcoin mining was being commercialized and ASIC mining technology was getting much better. Hobbyists like myself no longer saw GPU or milk crate mining as profitable and began switching up which coins we would mine.

Certain coins were better for GPU mining and others were better with a CPU or something else. We would switch what we were mining based on what was trading the highest and convert it into bitcoin. This gave us much better returns than mining strictly bitcoin. It also contributed to a craze of pump and dump schemes and fly-by-night cryptos. You would have a good portion of market makers switch to mining a specific coin and then pump up the price and dump it on different exchanges. I remember watching all of this and seeing people lose money over and over again.

The exchanges were also super shady. The newer the crypto, the worse security there would be to trade for it. I personally remember being affected by hacks at Mt.Gox, Vircurex, Poloniex, MintPal, Bitstamp, and Bitfinex. Some of these I lost random coins and some they only got my information. It has also sentenced me to a lifetime of crypto-related phishing emails to the exposed addresses. Ethereum was still not launched and decentralized exchanges were more of a concept than an actual thing. Coinbase was really the only US exchange following the letter of the law and wasn't yet trading altcoins the way it does today. Various other exchanges were being shut down for violating money transmitter laws or operating without a license. It was a regular thing.

In 2014 I remember conversations about smart contracts and blockchain utilities really started to pick up. Prior to the explosion of other cryptos, most decentralized ideas were designed on the Bitcoin blockchain. Bitcoin doesn’t really have a good way to do layer two applications and faces tons of scaling issues. There were lots of different proposals to try and fix this, but nothing happened that gave it enough utility to do what we are used to today with Ethereum or newer blockchains like Solana.

Most of the conversations were around multi-signature wallets. You could design a wallet where 2/3 people had to sign off on a transaction for it to go through. Theoretically, this could scale up and say 99/100 people (really wallet holders) had to sign off, or 151M/300M American Citizens. This naturally progressed to “let's replace voting with multi-sig” or “all corporations in the future will be governed with multi-sig.”

I remember sitting around a table in 2014 at a Bitcoin conference in Washington DC brainstorming different ways multi-sig and DAO would replace everything in existence. At the time, Ethereum was not yet live.

Crypto in 2015

In 2015 Bitcoin had fallen from a height of over $1,000 to the $200-$300 range. The best economists were saying it was dead, constantly citing “Tulip Mania.” It’s worth a google if you don’t know what Tulip Mania is. I honestly think someone has written an article comparing the two every day since 2012. It has kind of turned into an inside joke at this point.

Ethereum was launching and a close friend of mine told me they were all in. I thought it was cool and bought a little bit (with the little money I had) and rode the hype. I sold after making a small profit off my small investment. (I think like 50x or 10x returns or something like that, netting less than $1,000) He invested 50% of his paycheck for all of 2015 and 2016 into Eth. I invested all my money into buying my first house. One of us owns a nice investment property in New Jersey and the other is retired.

With Eth came real utility. NFTs were now possible at scale and a lot of the big problems were worked out. It had its problems though. In 2016 a DAO was created as a decentralized VC fund and subsequently hacked. The DAO was a real-life example of what we used to sit around and brainstorm a few years earlier. Eth was subsequently forked to “roll back” the blockchain to before the hack and the security problems were fixed. It was an amazing thing that most didn’t think was possible.

It's also important to note that with Eth came layer 2 tokens. USD pegged tokens and exchange-specific cryptos would soon begin to pop up (real utility), as well as meme-tokens like shiba-inu. A lot of the layer 2 hype is similar to what I experienced back in 2013 and 2014 with the alt-coin explosion. The pump and dumps are still there and real utility is still there. Differentiating between the two still takes skill and a little luck.

2017 and CryptoKitties

The first popular example of NFTs that I was involved in was CryptoKitties. They are still around today. CryptoKitties is a game where you collect, breed, and even sell virtual cats for real money. It is a dApp and used some cool math to “breed” cats. I thought it was fun and the price of Kitties was exploding.

I bought a bunch of CryptoKitties and had no idea what I was doing. I saw the price going wild and had some Eth that I found in an old wallet. I would calculate my value and see how much they were all worth. It was crazy and I thought the tech behind it was so cool.

I thought to myself, well it's pegged to Eth, so it probably won't lose value. I will be 100% honest and say that I had no idea what I was doing or what I was buying. I was trying to figure out how to breed the best cats and I’m still not sure if I did the right thing or not.

Mere days later the price of CryptoKitties crashed. Time would show that the value was not pegged to Eth. I still have a bunch of them years later and I don’t think they are worth anything. If I had kept the Eth and not spent it on the digital cats, I would have a lot more money. Some are worth a lot today, but not the ones that I own.

NFTs Today

I see a lot of that same stuff happening with NFTs today. I actually think the average person doesn’t understand that an NFT isn’t a funky image, but actually a note on Ethereum (or another blockchain like Solana) that someone owns the object, which happens to be an image.

There are so many cool NFT projects that will sustain real value over time. There are also a ton of NFT projects that will not sustain any value over time. If you look back at my experience with CryptoKitties, I’m sure the same thing will happen with a lot of NFTs.

I like to think of NFTs as a deed to something. If you buy an NFT image, you own the image and can sell it using all the different cool features and use cases crypto offers. There are NFT projects that entitle you to other things. For example, Gary Vaynerchuck is doing an amazing job with his “Vee Friends” project. He adds real utility to the NFTs. They act as both art and access tokens to digital and IRL experiences, like entrance to his conferences or a meeting with him.

In the near future, I see NFTs becoming the monetization method of choice for creators. More specifically, internet creators and social influencers. Right now, a lot of people who create content for a living make money off of selling swag or getting tips. An NFT that entitles them to a meet and greet or a feature is much more scalable and better for both parties. We will rapidly see this expand past images, into audio and video NFTs. There is a sweet spot in the convergence of "Creator Economy" and crypto which will make some big winners in the next few years.

I actually think NFTs might need a re-brand. I’m not convinced that the public will be able to associate things that aren’t images with NFTs. ?Enthusiasts will scoff at this because they understand the technology and the utility. Non-fungible token is sound from technical perspective, but okay at best from a mass marketing lens.

In the long term, I see NFTs replacing a lot of the standards we use today for things like equity ownership and deeds to houses and cars. There are tons of use cases for insurance, DRM, and physical goods. (think solving bicycle theft in NYC or tracking shipping containers across the world) These will all be dependent on safe private key management and identity verification as well as public perception.

Until then, have fun and don’t buy anything you can’t afford to lose. I don't want to give anyone financial advice here and should probably include some disclaimer that this isn't financial advice (this isn't financial advice).

Who knows, maybe going through the process of buying an NFT and learning how it works will end up paying bigger dividends in knowledge, even if your NFT loses all value.