On NFT's
Few people have the imagination for reality. - Goethe
Whatever your thoughts on non-fungible tokens or NFT’s might be, you are probably wrong. Whether you are bullish on overall adoption or price appreciation or bearish on the idea of someone wanting to owning a JPEG they can display online.
The fact is, that this new form of tracking and displaying ownership has already changed the way we value things in both the digital world and the physical world. It goes both ways, one might ask how one can take a digital art piece and display it in a art gallery, while another person asks how they can take their physical art and tokenize it on a blockchain.
Damien Hirst has managed to do both with his The Currency collection. Owners of the 10,000 unique dip n dots esque pieces will eventually have to choose between taking physical possession of the artwork or keeping the tokenized version. The game theory employed in crypto would bring a tear to John Von Neumann’s eye.
I remember coming across BTC in 2013 and immediately being intrigued by the idea of a money that was native to the internet. Who likes paying more for things because sellers must pay transaction fees?
It was not until November of 2013 in my apartment in SLC when I engaged, read the white paper, downloaded a node, bought sone BTC and traded on an online exchange. Back then all these things felt like the new frontier of finance. One couldn’t simply login to Robinhood and swing trade Dogecoin.
It was an instant teleport to the future. But a very broad expansive future. Solving the Byzantine General's problem allowing for decentralized consensus is not a discovery that leads only to permissionless wire transfers or even digital gold or even un-censorable payments
All those things are vitally important and the Bitcoin decentralization maximalists with their full nodes and paper wallets are providing an invaluable public service, keeping a global independent payment rail open and running. These folks have earned the right to be draconian about how they operate in the world.
They are watchmen on our societal frontiers, but that is not the end of it. That is the beginning of it. Modern society runs on databases that are run by TTPs (Trusted Third Parties). Where are these TTPs? They are everywhere.
Citibank. Google. Facebook. New York City. Hilton. Delta. The Olive Garden. Time Warner Cable. Uber. Amazon. The Social Security Administration. Your employer. Your pension fund administrator. The IRS. The NSA.
For modern society to function at current scale and for *you* to function in it - to travel, to earn money, to vote, to get a cab, to eat, to not be jailed, requires thousands of databases to track you. The convenience is nice, but at what cost?
It is not evil, it is a function of "this is the only way we could do it". In that context, the TTP is who/what decides, in practice, your rights, from trivial to important. From if your hotel reservation is cancelled to whether you can wire more than $100,000 to your brokerage in a day to whether you are allowed to vote in the Presidential election
We take it for granted, because it has faded in the background of our lives, but databases run by TTPs rule everything around us. We are the fish swimming in an database ocean… Memes are the apex object of society, but the architecture and machinery of society in 2021 is an Oracle or Amazon database
So, what is the big deal with TTPs? There is a micro and macro problem with modern TTPs. The micro problem is that they trend to being anti-competitive. Computers lead to economics of scale in data and infrastructure, so firms tend to grow and as they grow, they build a huge installed base of data and data infrastructure that is the main competitive barrier to entry in any modern business.
This is why the antitrust regulators know there is something problematic with FAANG but can't find it. The answer isn't to force them to lower prices (anyway a lot of their products are free) or to try and tell them which products they are allowed to build or not. These are 19th century solutions to a 21st century problem.
If I was ever going to be a regulator and had to solve things in the traditional way, there is a simple solution to these issues. Force companies and governmental agencies to provide first class access to the underlying data. The market will solve the rest.
The macro problem with TTPs and the increasingly centralization they provide is that are increasingly creating easy chokeholds to hijack the whole of society. People have a hard time thinking about this in abstract terms, so here is an example.
Imagine taxis 10 years ago. A fully decentralized industry that effectively knew nothing about their customers. Uber was a revolution and convenient, but its convenience opens the door to a future dictator that can trivially ban someone from Uber/Lfyt/etc, but it would have been nearly impossible stopping them from getting a taxi. So, maybe you hail the taxi next time rather than logging into Uber and waiting for Jason to pick you up…
The same thing applies to Facebook, Apple, Amazon, and Microsoft. They are amazing businesses and I use their products daily. They have brought tens of trillions of dollars of utility into our lives. But they can be easily hijacked by people with centralized power. Centralized power has always led to oppression. When one has power, one NEVER wants to relinquish it.
Most people worry too much about day-to-day trivial risks and do not think enough about abstract consequential existential risks. Day-to-day risks: crime, drugs, money laundering, tax evasion, stepping off the curb.
Existential risks: dictators & tyranny
I'm sure there was crime and tax evasion in pre-Hitler Germany and in pre-Stalin Russia and in pre-Mao China and none of these things caused 1% of the deaths, economics and cultural destruction that was caused by hijacking the machinery of the state. But who will set the price of bread if the state does not have control?
Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety. - Benjamin Franklin
Is one of the most important things ever written on these matters, Benjamin Franklin was a thinker and a doer. All the American framers were. What happened?
It is of course important to try to reduce day to day societal ills. I am not in favor of crime, but these efforts are double-edged swords when they open the door for the edge risk of someone having the ability to hijack the whole system.
I worry that the world is sleepwalking into highly centralized systems with literally nobody pushing the other side of the equation. China is already over the skylight and sadly, the USA and EU are heading in the same direction. Once the chasm is crossed it will be very difficult to return.
Recap:
a) BTC solved decentralized consensus
b) Centralized consensus is everywhere
c) TTPs cause micro problems (anti-competitive) and macro problems (present existential risks)
What does any of this have to do with NFT’s?
I have been telling everyone I can that "we can now build decentralized social systems”. Yet, every year since then, I have been quite disappointed at what decentralized systems we have built. Sure, a crypto exchange is fun or the new token for video games, but those things do not fulfill the original vision of crypto and the liberty it will bring once fully manifested.
The reason has been that crypto has been highly financialized, incentives matter!
a) the infrastructure has become centralized (exchanges, etc)
b) good ideas are securities violations in the USA, including many ideas I would have done
So, what do our NFT’s have to do with this?
a) They are decentralized
b) They are constitutionally protected free speech
c) They can represent the nuance of the world, which is non-fungible, not fungible
d) They can be used to build decentralized social organizations
The addressable market for NFTs is not "a subset of the art market", but, in the first phase, all societal intangibles. These represent tens of trillions of dollars and are the coordinating mechanism of society. It is obvious that NFTs are the "internet moment" for art.
The art establishment is going to get turned upside down because it is behaving exactly as conventionally as any other incumbent. It is amusing to see in this "creative" and "counter-cultural" field, but one massive mistake people make, including some of the people I know in crypto, including those who have been around the space for nearly a decade. The scope of NFT’s is not just art it is the world.
Art is just a subset of societal intangibles. The cutting-edge subset, but a subset. So, that will be the next phase, NFTs will be used by companies and decentralized organizations to organize their communities. Unlike customer databases, they are public, they are composable, they are un-censorable.
They solve both the micro and the macro problem with TTPs. If I want to go provide some service to the Crypto Punks, I do not have to ask permission of Larva Labs. I can just airdrop to the holders or use a platform to mint a piece.
This solves the micro problem with TTPs, no antitrust regulators needed. On the macro side, if I were a potential dictator, the same problem exists.
I cannot easily freeze the movement of Crypto Punks because they run on Ethereum, not in the customer database of Larva Labs. It is a vastly more difficult and impractical problem to chase down everyone individually.
We are currently in the intermediate stage. In time our metaverse of persistent digital objects will become more and more real until it becomes our default reality. This will also run on NFTs and will be our default reality. It is critical to be decentralized
Then comes the things that are less interesting conceptually. This will we bring concert tickets, vacation rentals, hotel reservations, home sales and so on to NFT platforms. This of course will increase market efficiencies and remove many barriers.
But all off-chain assets will require a trusted third-party linkage to come on-chain. So, bringing your Las Vegas rental on-chain will solve economic efficiency problems in the normal way but not any fundamental problems of liberty and societal organization.
All this points to where the next angle of system attack will be on crypto and that is non-custodial wallets. Both the USA and the EU are floating different attacks on non-custodial wallets. This is a regulatory battle we MUST win as individuals. We can concede everything else and still win.
Whether DeFi governance token Y is a security? Who cares? We simply need to maintain right to hold crypto directly, not in a TTP, and transact reasonably (without insane recordkeeping requirements).
If we can preserve this (which is not a 'won' fight, it is a fight that has just begun EVERYTHING at this specific topic), then NFT’s can take us the rest of the way to Valhalla.
We can absolutely organize decentralized orgs with NFT’s without violating any securities laws and if we can do it, then the magic of the network, of the collective intelligence of humanity will take us the rest of the way
This what I am here for. I enjoy art and I like engaging with friends and I like taking in beautiful art and I like it when the ETH value of my holdings rises, but I like those things in a simple way, like the way I enjoy going to a nice dinner. It is not enough.
The reason that I am laser-focused right now is that there is a narrow window, where we can bend the arc of history, where we can change the path of world history. Now is the time to act, be a Main Character not just an NPC.