NFTs and Community

NFTs and Community: 2021’s Digital Goldrush

Source: Bored Ape Yacht Club

Written By

Alexandre Taylor After a two year slumber, Bitcoin (BTC) raced to $60,000 in March 2021 from a low of $6,000 the year before. Even over the past six months, the world’s first cryptocurrency has experienced incredible volatility before stabilizing at $55,000 in November 2021. Alongside Bitcoin’s recent runup began a new wave of investment and speculation in crypto assets, from currencies to digital artwork and beyond. However, unlike 2018’s crypto boom, which was fueled by Bitcoin’s recent notoriety, crypto’s recent boom is largely due to a growth in alternative crypto assets. Whereas Bitcoin dominance (or, the percentage of the crypto investment dedicated to BTC compared to the rest of the market) was at 65%, today Bitcoin dominance in the crypto market is only 42%. The other major player in today’s crypto market is Ethereum, which has reached dominance of 20%, up from 11% the year before. However, for Ethereum, dominance doesn’t tell the whole story. Ethereum is effectively a network for building decentralized applications as well as smart contracts, which are programs that automatically

execute under certain conditions. Smart contracts can also hold unique, non-fungible assets such as artwork. These assets are called tokens, hence the naming convention for digital artwork: Non-Fungible Tokens (NFT). In the past year, NFTs have gained significant traction due to several unique technical aspects as well as creative marketing initiatives. Regarding the technical aspects of NFTs, the tokens play an important role in the broader digital infrastructure of the internet. The current state of the internet, or “Web 2.0,” aggregates data to create value through advertisers, and due to the need to maintain brand standards exerts control over users. For example, a user purchases a digital illustration through an online marketplace. The marketplace, by offering no fees to its customers, aggregates user data and sells it to advertisers. At the same time, to maintain high advertising standards, the marketplace monitors and potentially censors certain buyers and sellers. Most importantly, the marketplace also ensures that all artwork is authentic and that services paid for are rendered. Smart contracts present an opportunity to eliminate market makers and fundamentally change how users interact with other internet stakeholders. The same user can now purchase artwork directly from artists or on any Ethereum-based exchange using the NFT protocol. By removing the middleman, user data is concentrated within mutually beneficial transactions. In addition, because NFTs are digitally unique, artwork can be traded with complete confidence of authenticity. NFTs are also on a public blockchain ledger, so ownership can be verified by independent means. The first major NFT auction was in 2017, when Axiom Zen released a series of catthemed digital trading cards called CryptoKitties. The token, which allows owners to “breed” other CryptoKitties, raised $1.3 million during its initial release. Perhaps the most famous NFT project is Mike Winkelmann’s Everydays: The First 5000 Days, which sold for $66 million in March 2021. Winkelmann’s success, alongside other NFT projects, not only catapulted NFTs into the investment spotlight but also opened the door for entrepreneurs to engage audiences by developing NFT communities, which are networks that propagate NFT concepts and grow organic user bases. During COVID lockdowns, internet users were increasingly eager to connect through more than social media and gaming lobbies. Discord experienced its highest growth in users during lockdowns, nearly doubling in size to 100 million users. Bored Ape Yacht Club (BAYC) launched in April of 2021 and sold out nearly instantly. BAYC not only offered users the opportunity to buy a randomly-generated ape NFT (and therefore “ape in” as investors), but also access to the yacht club, a music streaming and digital hangout space for Bored Ape owners. Bored Ape Yacht Club was an astounding success. To-date, BAYC has generated over $1 billion in trades and was the mostused application on Ethereum’s blockchain, dwarfing Winkelmann’s NFT offerings. A key to BAYC’s success, as for many NFT communities, is the randomness associated with purchasing an NFT. Since NFTs have randomly-generated attributes, and because NFTs are fully owned by users and can be sold on secondary markets, demand for certain attributes often results in vast appreciation of NFT assets. The Fat Ape Club, largely a spin-off of BAYC, introduced tangible benefits to NFT randomness. Fat Ape Club’s tier system, which segmented its NFTs into Fat Apes and Heroic Fat Apes, offered Heroic Fat Ape owners a $10,000 cash bonus. A Lamborghini Heroic Ape, also randomly chosen, would go onto win a Lamborghini Huracán. Other NFT communities offer exclusive events, such as parties in Miami and LA, to entice potential patrons. The explosion of NFT value within communities is a natural next step for high-demand assets. Commodification allows for long-term marketing initiatives that are not possible for one-off pieces of art. Ironically, the NFT communities like Bored Ape Yacht Club are closer to Web 2.0 than the decentralized and user-centric internet promoted through smart contract protocols.

BUSINESS 9