Viewpoint: Stories and scarcity drive the NFT craze

This article is from Crypto Valley Live, original title: "Opinion | Do Stories & Scarcity Drive the Popularity of NFTs?", Author: Nick Tomaino, Translator: Jeremy.

NFTs have recently exploded into mainstream consciousness in a way that has never happened in the history of our industry. Google Trends data shows that recent interest in NFTs has surpassed interest in cryptocurrencies.

I have a theory based on years of experience about why this situation has arisen, and I share it with those who have not experienced it. For those who have been closely following this industry for a while, this may not be news.

Bitcoin: Digital Gold - 21 Million

Satoshi Nakamoto anonymously created Bitcoin in 2009, and for more than 11 years, cryptocurrency has attracted those primarily concerned with money and finance. People own Bitcoin because of the story (a digital gold that anyone can use and no one controls) and scarcity (21 million will be created by 2140, with the protocol verifying and enforcing this scarcity).

A story and scarcity have created a cryptocurrency that today has a market cap of $1.1 trillion, which is larger than the currency market cap of all but 13 countries in the world.

Now, tens of millions of people globally own Bitcoin and believe it has immense value, despite the media and Wall Street's conventional wisdom declaring it worthless countless times. Bitcoin's success proves the authenticity of its creation (it is the first protocol to achieve trust-minimized digital scarcity) and the belief of the community. The community does not care what institutions say; it simply believes in the story. Over time, more and more people began to believe in this story, validating the beliefs of early supporters and increasing value.

Despite Bitcoin's tremendous success so far, billions of people around the world still do not care. Perhaps they are not interested in money and finance. Perhaps the story of digital gold is not interesting or relatable. If you didn't stick around, you probably were once part of this camp. Bitcoin is my first love, but I will be the first to admit it is not (still not) for everyone.

NFTs Turn Countless Stories into Scarce Resources

Stories and scarcity are now driving interest in NFTs, just like with Bitcoin. But now mainstream interest is even stronger for two reasons:

NFTs Attract Those Interested in Art, Music, Sports, and Culture

We are now seeing new stories attracting new people into the cryptocurrency space who do not care much about money and finance. It turns out that more people in the world primarily care about art, music, sports, and culture. And stories about art, music, sports, and culture are often more interesting and relatable:

Beeple has honed his craft for over 13 years, creating digital art that people love. Last year, he began tokenizing his culturally conscious artworks on Ethereum, and now that artwork is worth over $100 million. His piece "EVERYDAYS: THE FIRST 5000 DAYS" recently sold for $69 million at a Christie's auction. More and more people believe in Beeple's story.

Robbie Barrat is an early pioneer of creating digital art using Generative Adversarial Networks (GANs). His open-source code was replicated and used by a well-known group, selling at a traditional art auction for $432,000. But the true realization of his code is AI Generated Nude Portrait #1 on SuperRare. Robbie is a true artist who has largely stayed away from the recent NFT hype, but for those deeply interested in art, he has a compelling story.

Cryptopunks are known as the OG NFT project. Matt Hall and John Watkinson launched it back in June 2017 based on 8-bit retro designs, at a time when NFTs were not yet popular. They minted 10,000 small characters with various traits and gave them away for free. Cryptopunk 7804 recently sold for 4200 ETH, while the cheapest punk you can buy today is about 21 ETH (approximately $38,000). Over time, more and more people have believed in the story of Cryptopunks.

3LAU is an independent electronic music artist who has built a career in music for over a decade, performing and releasing music online. This is an interview we did in October 2020. Since then, he has released an NFT-based album and sold it for over $11 million. His authentic way of communicating with fans, combined with his good music, has led more and more people to believe in his story.

NBA Top Shots allows basketball fans to collect highlight clips ("moments") of their favorite professional basketball players. Basketball is a passion for millions, and NFTs have given fans a deeper connection to the game. Personally, I am most excited about real NFTs created directly by creators (like those mentioned above), but Top Shots has proven that IP-based NFTs also have a market. The belief in these stories seems to be growing as well.

In recent months, countless scarcity-based stories have attracted new people into the cryptocurrency space due to NFTs, which is beautiful.

NFTs Provide Anyone with a Sustainable Way to Turn Stories into Scarce Assets

Ethereum-based NFTs make it easy for anyone to create value from stories and scarcity. You might remember the initial coin offering (ICO) craze in 2017 that first attracted mainstream attention to Ethereum. The permissionless nature of Ethereum and the open standard for launching fungible tokens (ERC-20) allowed engineers and opportunistic entrepreneurs to raise millions based on stories and scarcity.

However, the ICO boom of 2017 also had its issues. ICOs were public sales based on promises of the future rather than direct sales of specific products. This meant that most were clearly unlicensed securities, and regulators quickly responded to shut them down. Within the regulatory framework in the U.S., this was not a sustainable way for people to create value through stories and scarcity. ICOs were also not easy for the masses to create—you needed to know how to code (or have access to coders) to make it happen.

NFTs solve both of these problems. NFTs are a concrete product (digital goods) rather than promises about the future. Just this fact makes the NFT boom more sustainable than the ICO boom. Additionally, creating an NFT is much easier than launching an ICO. You don’t need to code—anyone can use OpenSea's creation tools to mint an NFT for free. As long as people want them, millions of story-based scarce assets can now bloom on Ethereum. You might be wondering what makes people want them? If millions of NFTs can bloom, why would any NFT have immense value over time?

Mimetic Desire Can Endow Stories + Scarcity with Immense Value

René Girard's theory of mimetic desire posits that humans are mimetic animals, and all human desires are based on the desires of others. Thinking about cryptocurrencies and NFTs in this context can pinpoint why stories based on scarcity can have immense value. We want to own what others want to own.

Think about your last significant purchase. I would guess you didn’t really need to buy it. More likely, it was a decision based on the desires of others. You might tell yourself you bought a new watch or sneakers because of their quality, but the main reason you think they are high quality is that others do—that's how human thinking works.

When Bitcoin first launched in 2009, few wanted to own it. Now it is essentially the same product as it was then, except more people desire it. When more people desire a real scarce asset, the value of that asset tends to increase, which in turn makes more people desire it. Bitcoin benefits from mimetic desire more than any asset in history because it is globally accepted, and the world is more interconnected than ever. The closer our connections, the stronger the mimetic desire.

So, in the context of mimetic desire, how should we view the long-term value of NFTs?

You should first realize that the boom and bust cycles in the crypto space are unlike any before, and we are currently very likely in some sort of NFT bubble. Many NFTs created in this bubble are unlikely to have long-term value.

We should be particularly skeptical of most of the positively marketed stories dominating the headlines now, especially the high prices of NFTs that can easily be faked. Unlike Bitcoin, most of these NFTs have only a handful of buyers (even high-profile projects like Cryptopunks have fewer than 100 buyers a day). So the price doesn’t mean much when there are few believers in a story; mimetic behavior can quickly reverse.

But I think it is also reasonable to believe that some NFTs will have immense value in the future. Winners will be NFTs created by genuine creators, with more and more people desiring them over time due to their stories and scarcity. Authentic stories will win. Just like with Bitcoin, mimetic desire will intensify the desire for ownership of these stories.