“It’s just an image. Why is it so expensive?”, my mother asked as I tried to show her my sweet NFT collection.
“Mom because it’s the blockchain, you know? Some things are on the blockchain, some things aren’t. These bad boys… are. That’s all you need to know,” I replied as she stopped listening halfway through.
This might be a familiar conversation to some people.
It might even be a fair criticism to those that perceive value in a traditional way. NFTs are simply lines of code that can be represented by different digital or multimedia assets. And fundamentally, people tend to value digital assets reflexively lower especially when they feel the particular asset doesn’t do much or provide them with any utility.
But here’s another fact: because of factors like social signaling (flexing), scarcity, and buyer psychology, the market fundamentally sets the value of all assets, digital or physical. So how do we, as suppliers of NFTs, convince the market that whatever asset we are distributing is valuable?
Let’s jump in.
Social signaling or as the kids call it: flexing
I want to start by saying there are some people who genuinely love NFT art and the technology behind it. These folks buy and collect NFTs because they are NFTs. The following might or might not apply to them. But NFTs are starting to become more mainstream and this trend will likely continue. That also means more and more people will start buying NFTs because of the experiences they enable, not because they are NFTs. (Who knows, maybe we’ll even stop calling every digital product built on non-fungible tokens an NFT and focus on what it actually does?!) So when writing this post, I didn’t have an innovator-type persona in mind but rather the early adopter to the early majority crowd.
I have a few questions:
Why do people buy Lamborghinis?
Why do people buy name-brand clothing?
Why do people care so much about what others think?
Some might say quality products last longer. Others might say they want to fit in with a higher class. Here is a definition straight from the resource that got me through University – Wikipedia:
The sociologist Thorstein Veblen coined the term conspicuous consumption to explain the spending of money on and the acquiring of luxury commodities (goods and services) specifically as a public display of economic power — the income and the accumulated wealth of the buyer. To the conspicuous consumer, the public display of discretionary income is an economic means of either attaining or of maintaining a given social status.
Culturally, we have packaged this long and arduous definition into a simple term: “Flexing.” Which in pop culture means, to purposely brag, or show off something you have. People have a desire to show off what they’ve been able to achieve. And it sometimes comes in the form of proving they can afford luxury goods.
As the world turns more digital, those who were socialized in the digital world also have a natural desire to “flex” in the digital world.
When you hear that Beeple sold a collage of his digital art as an NFT for $69 million, it becomes clear we might have found the best digital asset to effectively flex in the digital realm. NFTs bring scarcity to the digital realm. And thanks to the underlying blockchain technology, they are digital items or assets whose legitimacy is easily verifiable based on transactional history. They are also easy to display and show off once you own them.
To sum it up:
- People spend more time online
- People still want to flex digitally
- NFTs are a way to show you can afford something expensive
If that’s the case, one question remains: how does a mere non-fungible token turn into a digital lifestyle good that people crave?
Quality + Affiliation + Originality = Positive Sentiment
In meme culture, people follow sentiment over fundamentals
In the world of collectibles, social signals, engagement, influencer affiliation, and hype are important drivers of collectors’ buying decisions. Case in point: the rise of meme culture influences shoppers’ behavior from fashion to stocks in ways that can astonish older (wiser?) people. NFTs fit right in.
In my opinion, these are 4 factors that greatly affect the sentiment of collectors:
- The quality of the media, experience, perks, or art the NFT “contains” (Beeple makes fantastic and original abstract digital art)
- Originality: Is this project original or one of the first like CryptoPunks, Bored Apes, etc.?
- The affiliation of the project: what public figures and influencers are involved in the project?
- Scarcity and speculation: are the assets scarce/limited and can people speculate on the increasing value?
But let’s break down each factor a little more.
Quality content, access to exciting digital or physical experiences, attractive perks, or great, zeitgeist-y art, are essential if you want to convince people to spend on an NFT. But it’s only the first step. After all, there are tons of great creators out there offering interesting NFTs yet lack awareness.
Originality is whether your project or application brings something new to the table. This is the area where we think there is the most potential for new creators trying to wrap their heads around NFTs. Especially considering everyone is simply copying each other with single-layer NFT launches.
In one of my other posts titled: 4 Unique Ways Creators Can Use NFTs, I break down a couple of plainly-stated ways to be creative with NFTs that can help you separate yourself from the pack. Check out that post for inspiration.
When we look at historical data, affiliation seems to be a key driver of awareness. NBA TopShot, Gary Vaynerchuk’s VeeFriends, and Bored Apes are all testament to that when you look at the raw volume of transactions. They each either leaned on their own intrinsic clout and name or, in the case of Bored Ape Yacht Club, they activated partnerships and created strong affiliations with celebrities and brands.
And when we think about scarcity and speculation, the two factors go hand-in-hand. Sebastian Calderon said it well in his post about what makes NFTs valuable, “Future value is primarily based on supply and demand.” If you can establish the notion that your NFTs will e sought after down the line, people will be willing to speculate on them. Simple enough yeah?
There are of course other factors associated with the technology which will attract blockchain advocates but these are my favorite factors to focus on.
Wrap-up time for the people who skip to the conclusion.
NFTs are increasingly used to realize digital lifestyles and luxury goods. Today, the NFT space is still dominated by the early in-crowd. But adoption is picking up. That means a new type of NFT buyer is entering the market: a person that’s not buying NFTs because they are NFTs but because they are original, quality digital items and affiliated with people or brands whose attractiveness rubs off on them.
This means NFTs are the natural status symbol for the growing number of people brought up and living a large part of their life in the digital world. That’s why they are valuable.
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