Artificial scarcity isnā€™t bad and itā€™s not just a jpeg (on NFTs)

This piece addresses two common questions and critiques about NFTs:

  • ā€œItā€™s just a jpeg everyone can see, so anyone paying for it is [delusional / getting scammed / etc].ā€
  • ā€œThe internetā€™s supposed to be about abundance – why are we creating unnecessary artificial scarcity and financializing everything?ā€

Given musicā€™s history with ubiquity, including the economic effects of the sudden shift from paid to free post-piracy, I think these are two excellent critiques to explore the value of NFTs in general and for music specifically.

Participation

One of my own, biggest critiques of what happened to music in the 20th century is that musicā€™s default shifted from communal to individual, from participative to consumerist, from folk to personalized. This happened through the proliferation of the recording and record players to every house, then every room of the house and eventually everyoneā€™s pocket until even the music played from streaming services would be atomized to personalized playlists that fit an individualā€™s taste exactly.

This had great economic consequences for the recording industry, which eventually dwarfed other parts of the music industry like publishers. It also created a framework through which corporations own and govern the majority of contemporary culture. If you think about folk songs as songs that an entire population knows, or just subsets thereof, then pop music has essentially replaced folk. Folk music was communally owned and iterative. Pop music is, typically, corporate-owned and there will be 1 official version: everything else is ā€˜derivativeā€™, less authentic, less ā€˜realā€™, than the ā€˜originalā€™. In that sense, Seven Nation Army could be considered a folk song, especially in countries where itā€™s a common chant in football (ā€˜soccerā€™ šŸ‡ŗšŸ‡ø) stadiums.

Donā€™t get me wrong: I think many of these aspects brought great attributes to music too, but itā€™s important to consider which other attributes, like the ones mentioned above, got deemphasised and moved into the background of our default music experience.

Back to artificial scarcity and abundance.

The time we live in is amazing. We have so much of humanityā€™s knowledge and cultural expression at our fingertips. We have simple, digital tools at our disposal that allow us to express ourselves through any modern type of media: image, sound, video, augmented reality (think TikTok, Snapchat, and Instagram when itā€™s not down). After being locked out of participative culture because of decades of a creator / consumer divide, we may soon seeĀ a billion music creators. So why be so excited about something that introduces scarcity?

Open scarcity

The exciting thing about NFTs is that you can let everyone access the media, yet assign the ownership of the NFT that represents the media to one person. This is not that dissimilar from video games: your friend may have unlocked a certain skin that is purely cosmetic and does not affect gameplay. You can enjoy this skin while you play with your friend: even if theyā€™re the ones who paid for it.

NFTs can be used in similar dynamics. Sometimes theyā€™re used as vehicles for crowdfunding. They can bring media (or culture) into existence that wouldnā€™t exist otherwise. One patron, one NFT. And a jpeg or mp3 for millions to enjoy.

MP3s, for a long time, held a real price of $0. Most people would download them and wouldnā€™t pay for it. Streaming, unfortunately for many artists, hasnā€™t helped them to attain a significant income. This may be due to a number of factors, but the fact is that for a long time music has been a game with just one mode to play it. If you donā€™t fit that mode well, itā€™s going to be hard and the factors are often outside of musiciansā€™ control. The major exception I can think of is the period before recorded music revenues bounced back to pre-piracy days, which kind of forced people to get creative. Besides contemporary streaming giants, two of the more popular crowdfunding platforms were born in this period:Ā KickstarterĀ (2009) andĀ PatreonĀ (2013).

Graph: IFPI Global Music Report 2021

If we use the phrase ā€˜NFTā€™ to mean works of art (music, visual, both) then NFTs create an amazing situation where content no longer needs to be locked behind a paywall on a platform like Patreon. Instead, the proliferation of the media associated with the NFT, for example a song, will increase the value of the NFT. This also impacts the perceived value of future NFT drops.

Ownership is exclusive, but the media is abundant. Itā€™s open scarcity.

But why pay if itā€™s free anyway?

There are many motivations why people pay for NFTs. Some people are purely speculating, but I donā€™t think thatā€™s the important part of the story. Some are collectors. A web2 example I can think of is Bandcamp: for some releases you can get the free download, but if you pay $0.50 it also shows up in your collection. I love building my collection on Bandcamp, so Iā€™ll pay for the free jpeg and mp3 to be there.

Most importantly, NFTs are decentralized social media. They are objects that exist in a social context. This social context is powered by the blockchain on which the NFTs sit, plus any social media an NFT holder might use. In this context, possessing an NFT holds meaning to the owner, because it can signify social value, taste, distinction, membership, or identity, just like peopleā€™s clothing or virtual skins in video games. All of that is portable to any social context they move to.

Itā€™s that social aspect that gives these objects value and in many cases the social value would be greatly diminished it the object was not freely accessible for all to see.

Financializing all the thingsā€¦

Finally, a conclusion Iā€™ve drawn for myself. I sympathise a lot with the critique that the web3 is financializing everything. Should all these things have a price tag or should the price tag be secondary? Certainly, in this wave of the web3, the price tag has often been the story, but I donā€™t think itā€™s the whole story (although to some writers it is).

The real story is that value can be tracked and it can be made transparent. People who create value can participate in it. All these interactions we have with each other online, all this culture weā€™re accessing: itā€™s already financialized. The companies that host our conversations, our art, our expression, they have shareholders, they sell ads. The difference with the web3 is that 1) we donā€™t know what interactions are worth, and 2) we donā€™t participate in the value they create.

Thatā€™s different now.

From here we have options. We can choose to express things in tokens or cryptocurrency. We can choose not to. We can choose to distribute equally to all participants or reward those who contribute more. We can choose governance models where itā€™s one person, one vote, or where people can vote based on their stake (e.g. number of tokens held). We can choose the game we play – this has not happened since that 2009 to 2013 period that spawned so many of the current status quo.

These systems are in our hands now. Thereā€™s no one-size fits all platform. Instead weā€™re stringing the tools together to create brand new configurations to design communities the way we see fit. Different subcultures will emerge in the space. They already have. For example, Zora is a radically different NFT marketplace (and more) from Crypto.com. Just compare their positioning: ā€œTHEY THOUGHT THEY COULD OWN USā€ versus ā€œThe World’s Fastest Growing Crypto Appā€.

Auctioned digital cultural objects, as NFTs, have an important role to play in online culture in the next ten years. Music piracy paved the way for streaming. Streaming paved the way for microgenres on SoundCloud to playlist edits on Spotify to the meme-like behaviour of music on TikTok.

Now a web3 layer is going to start providing a new context. Letā€™s add social context to those mp3s and jpegs.

The non-static tipping point: how culture’s going non-linear and generative

Deepfakes, infinite albums, generative NFTs – creative pioneers are rapidly pushing technology-enabled concepts into the center of web culture. Whereas just a few years ago, it was hard to get people to care about non-static media, it’s now grabbing people’s attention and their (crypto) currency.

Problem-solving

The Infinite Album gives video game streamers a way to soundtrack their streams without risk of takedowns. The AI creates soundscapes that react to your gameplay and even lets Twitch viewers use commands in the chat in order to influence the soundtrack. The music industry as a whole has been unable to form a global approach that makes it easy for gamers to understand what music they can play on-stream. This situation has given room for new entrants, some very tech-driven, to solve a clear problem.

Another example I’ve mentioned here before over the years is Endel, which provides ‘personalized soundscapes’ that help the listener focus, relax or sleep. They’ve essentially taken a common use case for music and have built a product that doesn’t neatly fit within the common formats of the music industry: a mental health app with adaptive soundscapes. Their artist collaborations include techno pioneer Plastikman (Richie Hawtin) and Grimes.

World-building

One of the most ambitious projects to recently launch is Holly Herndon‘s ‘Holly+‘. The singer, musician and frequent AI-collaborator has created a deepfake version of herself which people can then collaborate with. Another way of putting it is that Holly, through her collaboration with Never Before Heard Sounds, has created an instrument that is based on herself. She will set up a Decentralised Autonomous Organisation (DAO) to govern her likeness and is creating an NFT auction house using the Zora protocol to sell approved artworks. She describes:

“The Holly+ model creates a virtuous cycle. I release tools to allow for the creative usage of my likeness, the best artworks and license opportunities are approved by DAO members, profit from those works will be shared amongst artists using the tools, DAO members, and a treasury to fund further development of the tools.”

Other recent examples include a new release by Agoria & Ela Minus on Bronze Player, a tool that lets artists create music that recomposes itself infinitely, which in a way makes recorded music feel more like performed music in that you won’t be able to experience it exactly the same way twice. A linear version of the song was also released (embedded below).

One NFT platform I’m keeping a close eye on is Async, which sells art NFTs in layers, allowing the creator to set rules for the manipulation of the art and the buyers to reconfigure the work. After starting with visual arts, it launched Async Music:

“This is music with the ability to change its composition. It may sound different each time you come back to listen. This is achieved by breaking down a song into separate layers called Stems. Each Stem has multiple Variants for its new owner to choose from. In this way, a single Async Music track contains many unique combinations of sounds.”

Water & Music, run by Cherie Hu, estimates that Async has grossed about $650K in revenue from music NFT sales in May & June of this year, taking the third place in terms of music NFT marketplaces by revenue size.

Status-shaping

Possibly the largest non-static art projects, by revenue share, are NFT collectible avatars such as CryptoPunks and Bored Ape Yacht Club. These avatars are generated from variables like hair & skin colour, accessories and other types of character customization, leading to sets of 10,000 unique avatars. These collectibles are then sold as NFTs. Particularly CryptoPunks are highly valued due to them being minted before last year’s NFT explosion and thus being a status symbol in the budding Web3, often selling for tens of thousands of dollars. There are even cases of people paying over a hundred thousand dollars, like Jay-Z for CryptoPunk #6095.

A tipping point?

I believe that music’s future is non-static. It gained a default characteristic of linearity in the age of the recording, meaning: a song will sound the same every time you hear it. That’s a very recent trait for music to have by default. Now with powerful connected devices and a new generation of DAWs, we’re seeing this temporary reality of the recording age unravel and become optional rather than a default.

If you’re an artist, this unraveling means greater freedom in how you approach music as an art; it can be interactive, adaptive, generative, dynamic, augmentative, 3D, etc. If you’re more interested in the business side, you may find that you can take a page or two from the gaming industry’s book and make more money by charging for features rather than the content itself. Sell features, not songs.

Blockchain basics: how to start a DAO

My recent writing has focused on the community dynamics of blockchain-based ‘Decentralized Autonomous Organisations’ (DAOs). I’ve explored:

In this article I will attempt to explain some of the more technical aspects in clear terms for people with little to no experience with these topics. I’ll be diving into the steps outlined in a tweet by Jess Sloss of Seed Club, a DAO that builds and invests in communities.

There’s a comment section below. If anything is unclear or could be worded better: let me know either with a question or by spelling things out more clearly yourself.

How to bootstrap a DAO

People familiar with English-language startup terminology will be familiar with the term bootstrapping: to start something using nothing but your own funds (or in some cases: zero funds). Continue reading to learn how a DAO might do that.

You can’t have a DAO without a great community. I won’t go into that for this piece, but recommend reading How to grow decentralized communities by pet3rpan (before you click out of this website, consider joining the newsletter, so we can reach you in case you get lost in a rabbit hole ;-)).

šŸ“„ Drop an NFT or series (on chain revenue)

I think by now, for many people, non-fungible tokens or NFTs have become synonymous with auctionable digital artworks. This is not incorrect, but it’s a little bit like saying MP3s are music, while actually it’s a technology that has lots of uses in terms of audio encryption. A slightly better way of thinking about NFTs is as collectibles.

Non-fungible tokens allow for tracking ownership, as well as functionality like ‘splits‘ which are commonly used to make sure the original author gets money (in the form of cryptocurrency) every time their NFT is resold. This is done through smart contracts: little computer programs linked to a blockchain database that run whenever certain actions are performed or conditions are met.

Although the most publicised use case is 1 NFT of a unique artwork being sold, there are also countless examples of collectibles where 10 people can buy NFTs that represent identical artworks (e.g. this NFT by musician Sevdaliza). The former case would be described as a 1/1 and the latter as a 10/10 run, like a collectible. A series could be a set of NFTs, like a bunch of 1/1s, multiple 10/10s, or any mix like a 1/1 and a 5/5 drop.

This creates on-chain revenue: value stored on the blockchain that the DAO will use to let the community participate and distribute ownership. That revenue is stored in cryptocurrency.

A recent music-related example of a DAO that funded itself with an NFT sale is Songcamp. With the on-chain revenue, it could afford to cover the fees associated with ‘minting’ (creating) an NFT for the participating artists in its first songwriting batch.

šŸŽ Give NFTs to dope people (on chain community)

On chain community means that you have a way to track, via blockchain, who are the people in your community. Since tokens like NFTs allow people to see who owns them, it’s an easy way to trace ownership back to a DAO (the link between the DAO and the recipient is forever recorded).

  • Step 1: create an address for your DAO on a blockchain by setting up a wallet which allows for transactions and storage.
  • Step 2: create NFTs with that address.
  • Step 3: send the NFTs to addresses of people you want to add to your community.

Now there is a link between your address and theirs, through the NFT. You can see this happening in the above screenshot, but strip away the interface of the auction house and you get something like this.

Here you can see the transfer of a token from one address to another, here indicated as club.eth, which is the same @club from the Zora auction house screenshot and actually also the Seed Club referred to at the start of this post.

A community or service can let you sign in using your wallet (e.g. Metamask) which is a little bit like the type of ‘Single Sign-On’ you’re used to around the web from Google, Facebook, and Twitter. It can then check your wallet for any NFTs or other tokens (I’ll get into this) and grant you special privileges, ranging from simple access to more advanced features.

I was recently lucky enough to get voted into Mirror, a kind of crypto version of Medium, but way more interesting (thanks for the votes!). To participate in the vote, you have to connect your wallet. If you win, Mirror transfers an access token to your wallet. On Twitter that looks like this:

On Etherscan, a tool to read about transactions on the Ethereum blockchain, the above looks like this:

Here you can see 1 address sending 10 tokens to 10 addresses through the execution of 1 smart contract (you can read the code of that contract here). Bonus points if you can figure out which address I hold. šŸ˜‰

Overwhelming? No worries, the user experience is easier than setting up an internet connection or email in the 90s. In the end you just need a browser extension like Metamask’s to log in to Mirror and when it sees you hold the correct token it presents you this simple interface for creating your account:

šŸ›« Launch Snapshot + token gated Discord (gov. infra)

To set up the DAOs ‘governance infrastructure’, you can use a tool like Snapshot to let people submit and vote on proposals, plus you create a community for token holders (I’ve described token gating in the previous paragraphs). The latter is commonly done through Discord.

Here’s an example of a proposal for CabinDAO: a community that is creating a cabin residency program for select creators.

Here the community (or DAO) is voting on a linked proposal. It’s essentially deciding to commit a certain amount of funds (15 ETH) and community tokens to the program.

There’s a list of voters – 15 in total. They’re shown as addresses on the Ethereum blockchain and since Jon Gold has registered his name through ENS, I can recognize him and search for him elsewhere. For example, I can see he used his $WRITE token to join Mirror a few months ago. The votes are ranked by the number of community tokens someone holds (the bottom 13 are cut off). I haven’t looked into exactly how CabinDAO has distributed tokens so far, but usually they’re awarded to early community members and rewarded for participation, contribution, or in exchange for things (or cryptocurrency).

šŸŖ‚ Airdrop ERC-20 tokens (governance to the ppl)

I’ve explained non-fungible tokens already, but haven’t gone into detail about other types of tokens.

ERC-20 is basically the technical standard for token implementation on smart contracts on the Ethereum blockchain. Remember Mirror awarding 10 people with tokens to join their service? It happened in 1 transaction through the execution of a smart contract.

While no two NFTs are alike (and commonly use the ERC-721 standard), ERC-20 tokens are fungible, meaning that they can be interchanged with one another. In simple terms, if I send you 1 $WRITE token mentioned above and you send me 1 $WRITE token, we end up with the same in the end. Trading NFTs would typically leave us with two distinct items.

Through your community’s smart contract, these tokens can give you voting rights or participation rights in a DAO, e.g. access to a Discord server or the ability to vote on proposals on Snapshot or similar.

This is where you might award the buyers of the NFTs with a certain number of tokens created uniquely for your community through aforementioned smart contract, e.g. if it were for my newsletter’s community, I might call them $MUSICX tokens. You’d also give early community members and other supporters some tokens in your community. This incentivises them to get active and start participating in the governance.

This process of distributing tokens among your community is called ‘airdropping’. Now, there’s just one thing remaining:

Use ETH / Tokens to go do cool shit

Like the Friends With Benefits DAO, you could let people buy their way in through exchanging a cryptocurrency (ETH) for tokens ($FWB). This means as a DAO, you have a certain liquidity from token sales. So as a community, you can use tokens to incentivize certain actions (e.g. creating a residence program for artists in a cabin) and you can use ETH to cover certain costs, from renting the cabin, to infrastructure, to perhaps paying a few developers to build your website.

That’s it. All of the above is using the Ethereum blockchain, but there are other blockchains out there that support similar functionality.

Go organise your community and if you’d like to invite me – send me a token at basgras.eth or a tweet @basgras.

Mike Shinoda auction on Zora

NFTs are blockchain’s hottest new use case for music. They should not come as a surprise.

Linkin Park‘s Mike Shinoda just sold a digital piece of art for $30.000 and took to Twitter explaining some of this thoughts in a thread:

“Even if I upload the full version of the contained song to DSPs worldwide (which I can still do), i would never get even close to $10k, after fees by DSPs, label, marketing, etc.”

The ownership of this piece of art is tracked through a non-fungible token on a blockchain. Blockchains are commonly used as distributed ledgers: databases operated by networks of users, like Ethereum. They keep records of any changes to the ledger and can track things like ownership of tokens or cryptocurrency, e.g. Bitcoin.

But so what if a piece of art is recorded into a distributed database? Why the hype?

The current cultural moment is strongly influenced by the pandemic. Artists saw a big drop in income. Streaming revenue isn’t cutting it for most. So the big experimentation began. Artists searched for revenue through things like livestreaming, fan clubs, ticketed virtual meet & greets, online courses, and NFT auctions…

Why are people buying content that can easily be duplicated?

Many a music industry conference panel has bemoaned the fact that people are willing to buy a cup of coffee or bottle of water, but won’t spend that money on a download and instead chose to pirate it (in the days long before Spotify counted 150M paying subscribers). Two decades later and many of the same philosophical debates about the price and value of music continue. Meanwhile, gaming, an industry that faced the same piracy issues as the music industry, pragmatically pioneered ways to get people to pay for completely virtual items.

Gaming gave the ownership of virtual items a valuable context. People who spent many hours a week inside games would find value in virtual real estate or vanity items that translates into real world currency. This is not something recent. In 2013, someone paid $38,000 for an in-game item in Dota2 – an item which doesn’t improve a player’s performance, but just makes them look cooler. In 2010, virtual real estate by the name of Club Neverdie in online game Entropia sold for $635,000.

Now, ten years later, we’re seeing the same dynamic emerge for music. Owning an NFT doesn’t necessarily mean that nobody else can enjoy the work of art associated with the token, much like with physical art that’s exhibited. With the emerging metaverse, some are expecting NFTs to become its property rights.

NFT x Metaverse

The idea of the metaverse essentially boils down to a virtual shared space. One prominent example of this concept is Roblox, which is a gaming platform in which people can build their own experiences that are all interconnected through Roblox’ economy (its currency being Robux). Another is Fortnite, which has some of the ingredients already, but hasn’t yet developed a marketplace with low barriers to entry like Roblox has. Despite that, one of the best primers on the topic of the metaverse is the below interview with Tim Sweeney, CEO of Epic Games, which owns Fortnite.

It’s the convergence of various pandemic-accelerated trends (VR / XR, virtual economies, crypto) and the expectations of people in these domains that is currently driving NFT art’s success stories ($750,000 CryptoPunk sale, Panther Modern‘s $666 sale, virtual critters for $100,000 a piece). If you want to know what the future holds, look at what the smartest people in the room are doing, because they’ll be the ones building that future.

12 years after the initial release of Bitcoin and the world’s introduction to blockchain, crypto is starting to emerge as an anticipated layer of connectivity for transactions occurring in the metaverse. With a market cap higher than Facebook at the time of writing, Bitcoin has made many early adopters very rich (as have other cryptocurrencies). Besides figuring out how to build an infrastructure in which they can effectively use their blockchain-riches, we’re seeing this money flow into other spaces, like art (and soon Tesla).

Simplified: to understand some of NFTs’ success, you should look at the crypto space as a metaverse without an interface that looks like a video game. The participants of that space are still players: they’re building their own world, their own infrastructure. They care about what they look like in that world, just like how people in virtual worlds care enough about their looks that they’re willing to buy in-game currencies like Robux (to the sum of billions of USD in 2020). Owning art is cool – it gives you standing in your micro-community which is part of larger meta-communities (e.g. a gaming clan is a community inside the community of one server of a game, which is a community inside the global player-base of that game).

And sure, there’s altruism too, because it’s cool to support art. However counting on altruism tends to spawn panel discussions to compare bottles of water to digital art. Focus on non-altruistic value.

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