NFTs: The Infrastructure of Digital Interaction and Value
Non-fungible tokens have remained in the background of this bull cycle, as memecoins have replaced them for the speculative purposes they served in 2020–21. Though profile picture collections (PFPs) and their initial value proposition may have run their course, the continual development, both technically and culturally, of blockchain promises to keep NFTs relevant, perhaps more than ever, through innovative utility, infrastructure, and design mechanisms.
NFTs are most well-known for their role in the “mainstreamification” of blockchain during the 2020–21 bull market. In a time when interest rates were at an all-time low and consumers were cooped in their homes with money to spend, NFTs emerged as a novel digital collectible with a high upside. Countless celebrities, including Snoop Dogg, Steph Curry, and Jimmy Fallon, jumped on the bandwagon, creating their own collections or buying Bored Apes and Crypto Punks. These modern-day beanie babies garnered massive attention, culminating in multi-billion dollar valuations for NFT marketplaces like OpenSea and multi-million dollar prices for top collections. The subsequent market decline, spearheaded by FTX and Terra’s collapses, had a similar impact on the NFT market and involved celebrities, once ardent technology promoters, used it as a scapegoat. Purchases were purely based on speculative value rather than ecosystem value.
NFT sentiment is at an all-time low today, with Bored Apes, CryptoPunks, and Pudgy Penguins down 94%, 80%, and 60%, respectively. Memecoins have largely replaced them as a tool for speculation and community-building, as they offer the benefits of greater functionality, fungibility, and liquidity. Anyone can buy a memecoin and join a community for as little as a penny instead of being constrained to buy in $10,000 increments in an asset that cannot be sold without a counterparty. Though the number of traders has remained relatively unchanged over the past three years, the overall value transfer in the market has declined substantially.
The era of the NFT PFP as we know it is dead, but non-fungible tokens as a concept have never been more alive.
PFPs captured attention for the same reason modern art attracts attention: high valuations and media coverage. These factors, coupled with flashy new technology, a grassroots culture, and relative accessibility, made them a popular choice for retail investors looking to make money. This was never meant to be the purpose of NFTs, and their real value goes far beyond speculation, which memecoins proved inefficient.
Non-fungibility in its most basic form means that individuals can own unique assets in a trustless, decentralized manner. The use cases in regulated environments are nearly infinite: property deeds, personal identities, and certifications could be NFT-based and reap the benefits of greater efficiency and modularity. Beyond economic transactions, NFTs can potentially strengthen communities and social bonds. They can represent membership and governance tokens in decentralized autonomous organizations (DAOs), giving users a voice in the project’s direction. Community-specific NFTs can also provide exclusive access to events, content, or perks, fostering users’ sense of belonging and engagement.
Blackbird is one such project where restaurant loyalty cards are stored as NFTs in a user’s account, and people are rewarded in its native FLY token for going to participating restaurants. Over time, a user builds up a reputation via the NFT and can redeem FLY for food, drinks, and exclusive opportunities. The data from these interactions is also extremely valuable, allowing restaurants to understand consumer trends and interests better. Restaurant NFTs may not have an economic value or trade on a marketplace, but they have a value to each individual consumer that accrues to the restaurant through continued patronage and to the consumer for recognition of their loyalty through free food.
The true value of NFTs does not lie in the NFT itself; rather, it resides in the businesses and users who interact with and around the NFT. The token is merely a vehicle for participant interactions to be recorded and rewarded. Unlike fungible tokens, all NFTs tell a story. For NFTs traded on marketplaces, their ownership history may provide unique value and the economic worth of deals, like toy licensing for Pudgy Penguins sold at Walmart. For personal NFTs like Blackbird, value comes from a user’s repeated interaction and activity with whatever entity recognizes the NFT and elects to acknowledge it by introducing something that changes a consumer’s behavior.
Though much attention is put on NFT infrastructure, the reality is that NFTs are infrastructure. Just as Lionel Messi has become an integral part of Miami FC, driving both on-field performance and off-field fan engagement, NFTs serve as the foundational infrastructure for various activities, communities, and interactions. Messi, a non-fungible entity in the world of soccer, brings immense value to Miami FC not just through his exceptional playing skills but also through his ability to attract fans, media attention, and sponsorships. His presence creates a vibrant ecosystem where the team, the fans, the city, and the MLS all benefit. Any entity acknowledging his value in some sense becomes part of the network effect and captures that value. Similarly, NFTs provide the infrastructure for various digital and physical interactions, creating value for businesses and consumers. Tokens may or may not hold intrinsic value, but the ecosystem they support — loyalty programs, digital identities, or property rights — creates a network of value that benefits all participants.
The future of NFTs is bright, with endless possibilities for innovation. From enhancing digital identity verification to integrating with the Internet of Things (IoT), NFTs are set to revolutionize how we interact with the digital world. As technology advances, we can envision a future where NFTs facilitate seamless interactions and value exchange across various applications, solidifying their place as a cornerstone of the digital economy.
While the speculative bubble of PFP NFTs may have burst, the underlying technology holds immense potential. The true value of NFTs does not lie in their market price, but in the ecosystems they enable and the interactions they facilitate. As we move forward, focusing on the utility and infrastructure that NFTs provide is crucial, paving the way for a more interconnected and efficient digital future.
By Lincoln Murr
