Tech for future: Why NFTs will drive the digital economy

My friend from Calicut recently asked me why NFTs (non fungible tokens) have any value at all and why do I consider NFTs a great investment. According to him NFTs are just a digital file and beyond using them as profile pictures, there isn’t any Utility.

Since he invests a lot in properties and stocks, I wanted to discuss the value of NFTs in the same framework. Thinking of value only in terms of utility is not considering the full picture. A house in Calicut gives the same utility (of protecting me from weather, giving me safety and comfortable dwelling place) as one in Gurugram or Mumbai, then why is property most expensive in Mumbai from these three cities.

Property value is much more than the utility. It highly depends on the economic value that can be gained out of it. A property can be used for commercial purposes, residential property with high demand from tenants etc, which in turn depends on the network effect of the city where the property is located. Network effect is the additional value gained as more and more people get involved in the product or service network.

More the economic activity like employment, businesses, startups, events, traffic movement like airports, the more expensive the property. Property value is in fact much more dependent on these network effects than any other utility.

There is value to be derived from owning property as social status also. Marine Drive in Mumbai, Golf Course Road in Gurugram, Golf Links in Delhi are all examples of property much more expensive than their immediate neighbouring areas as they bestow social status to the owners and hence in greater demand.

Stocks have historically been valued by discounting future cash flow, but stocks too are deviating from those measures thanks to the Central Banks pumping money into the economy. Stocks like GameStop, Tesla definitely have a value premium of belonging to a mission rather than just the net present value of future cash flows. A good idea would be to enable investors to showcase their investment in certain stocks as profile pictures on social media. This shows what they stand for and other users can feel a connection with them on shared beliefs.

Investing in startups particularly tech startups is more or less a bet on the network effect the startup can capitalize on. The best tech companies like Google, Apple and Facebook, create their own network so that they can derive the most value from them.

So it’s clear that property and stocks derive value from network effects, social status, belonging to mission much more than utility. NFTs too fit into the same picture. Currently NFTs are where crypto currencies were in 2015. It’s the initial stage of mass adoption. Most popular NFT projects like CryptoPunks and Bored Ape Yacht Club are PFP (Profile Pictures) based NFT. The community invests into these projects for common shared belief. Some projects are fun, have social causes (Red Panda Squad donates to protect endangered Red Pandas), have unique themes and most are like clubs you want to be part of for all of the above reasons.

PFP NFTs become part of the owner’s digital identity. It showcases a lot about the user. Many prefer these profile pictures over real pictures, as real pictures are a draw from the genetic lottery and don’t give any insights into the personality of the owner. Whereas this identity gives insights into the beliefs and views of the owners. This enables us to form easier connections with people based on shared beliefs and value systems.

Rarity systems in the NFTs offer users a social status and greater economic value. The randomness provided in allocating the rare NFTs to all the users who chose to participate is a great equalizer but giving truly equal chances for everyone to become more important and gain wealth. The more you work towards selecting the best projects and getting involved in the communities, the higher your chances to pick projects that you are going to be value additive for you.

NFTs can be used to convert to 3D characters used in gaming worlds. NFTs can also be used to provide access to exclusive events, access to better investments etc. NFTs are a technological conduit to wrap together all the valuable information that any system wants to provide to the community in an aesthetically pleasing way. NFTs are the gateway, currency, identity, investments for Web3 all wrapped into one.

Web3 is the future of the Internet and its mass adoption has just begun. We are going to be spending more and more time digitally. The digital economy will surpass IRL (in real life) economy and eventually become multi fold the IRL economy as Web3 is boundless.

The writer is Founder, Totality Corp.

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