Why NFTS are a Revolutionary Currency of Creative Change

The Currency of Passionware, NFTs will fuel a world where all assets can be digitized, exponentially growing passionware economies and better rewarding creators

May 17, 2021

Creator: BBC/Beeple

We believe NFTs will be a revolutionary currency of change, unleashing a new era of online creativity to fuel and scale passionware economies that better reward its creators as well as their fans and contributors.

With the use of NFTs, creators can become their own digital business with no barriers to entry. NFTs enable them to (i) launch a product or service out of one's own creativity and (ii) deploy and scale the business by cultivating direct commercial relationships with fans and enabling low-cost user acquisition of new customers, setting pricing and future royalties, collecting money and rewarding contributors and even sourcing developers to expand the business. By serving as a "medium of exchange for goods and services", NFTs will help usher in the true potential of the Internet in its Web 3.0 version.

That may seem like a lot packed into three letters! However, it all flows from a basic premise - the Internet has been hijacked from its original promise of directly matchmaking creators and fans. Instead it is dominated by middle-men taking large fees for matching creators to users and/or inserting ads between us — while taking most of the revenue. The Internet has perhaps been the greatest innovation of our lifetime but large swaths of it unfortunately resemble a centrally planned system plagued by power-based mafia economics.

Web 2.0 unleashed a wave of new "economies" that are dominated by rent extracting middle-men, from marketplaces for anything to everything to social networks to app platforms. There is huge value inherent in ordering food or a taxi with two clicks but the rules of these new economies are set by these new Web 2.0 titans, taking a cut for bringing together vendor and user, and requiring developers to play by their rules.
Decentralized communities will help get the Internet closer to its promise through writing their own rules and using blockchain to replicate the trust required today by middlemen.
NFTs represent the currency of the new Web 3.0 passionware economy by enabling the creation of new micro-economies which enjoy all the components of physical economies - production, trade, market-making, development and even investing.
In a Web 3.0 world powered by NFTs, creators, consumers, developers can prosper together - and also provide investment-like rewards for contribution to the community and patronage of its creators.

Lofty words indeed so let's break down those terms at granular level:

What is Passionware?
- A new category of digital tools and platforms enabling anyone to be an entrepreneur, run a business to earn a living and, at the same time, fulfill one’s passions. See here for a blog defining Passionware as a key part of the ownership economy and how content creation by itself can be a business.
Isn’t Content Creation a big business already?
- Its a huge business, just not for the creator because it is fully controlled by middle-men platforms (marketplaces, social networks etc) which hold, own and are free to transfer creative assets. The platforms decide or impact the price, manage the distribution and handle the overall medium of exchange. Once content is provided (a.k.a. sold for free) to a social network, the creator loses control over the asset and who consumes it and even profits from it. As outlined in this great presentation on Crypto fundamentals and NFTs1 "The Internet platforms monetize your content and keep most of the value".
- In the Web 2.0 world, passionware is really a sort of Stockholm syndrome ransomware — creators willingly hand over their content - for free - to tech behemoths who "reward" them with followers, likes and a small cut of revenue (if you are important creator). Fans of those creators then willingly watch ads they dont want to see in order to consume that content. The benefit of the ads goes to the Big Platforms which in turn gets rewarded in cash and mind-boggling valuations which are used to suppress (or in extraordinary cases, buy) upstart companies who dare to try to disrupt the system.
NFTs are about to put the ownership back in content and reward creators, and their passionate fans and developers instead of these rent extractors.

What is an NFT?
- NFT is technically a file that lives on the blockchain and can't be copy-pasted, edited, deleted, or otherwise manipulated (thats the non-fungible part). NFTs are digital tokens that can be bought, sold, traded, and whose ownership and provenance are always immutably tracked by the blockchain. NFTs thus allow creators to keep ownership of their content, without limiting who can consume that content - and with very little barriers to entry.

How do you create an NFT?
- NFTs are created via smart contracts - which effectively enables anyone to create a digital business model and collect future royalties for their content. In their simplest form, NFTs provide for a direct transaction -- upload a digital file and fans buys the digital file and you charge - in whatever currency you like. Smart contracts underlie the power of NFTs as they enable the creator to write the rules of the NFT permanently and unleash unlimited creativity in devising a business model. I actually recommend anyone interested to go to OpenSea or Mintable.app and try it. My 12 year old daughter and I will be minting her first NFT this week, using amazing artwork she creates with Apple Pencil on an iPad.

Why do you call NFT a currency?
A currency serves to lubricate the wheels of commerce by acting as medium of exchange and provides the trust in that the agreed value exchange of the transaction actually happened. In the case of NFTs, the blockchain generates the trust - confirming who has ownership of the digital asset and effectuate payment with no intermediary. As integral part of an NFT, the smart contract provides the operating system to enables a creator to deploy a thriving, sustainable and long-term digital business in 4 basic steps:
1. Define what is content. Creators can create content in any form they choose - as a collectible (art, music), an experience, or any type of service (eg access to a meeting with them), all of which is embodied into a digital token.
2. Productize content. Creators can turn content building blocks into multiple "products" sold as one offer or package. A token undergirded by a smart contract can combine a one-off collectible with access and experiences or anything else that is of potential value to fans.
3. Price the product and/or package, and also create price tiers. There is no need for “one size / fits all” price model but passionate fans can receive and pay for more while others can merely dip a low-cost toe into your creative waters.
4. Generate Royalties. The smart contract will enable the buyers of their products to re-sell (but not alter the product) in secondary markets and immutably set rules on how to split the amounts from all future sales of the NFT among multiple recipients. Royalties on future sales was Mark Cubans’s self-described lightbulb moment (see 2 min video clip below in footnote!2

And other things we can’t even fully imagine! Harnessing creativity is the power of NFTs and the smart contract. Paraphrasing Yuval Noah Hariri from Sapiens3 (#1 book on my gift list), the underlying tenets of the modern economic infrastructure are the product of human creativity and imagination - we have invented currencies, companies, financial instruments - enabling us to organize ourselves and make commerce flourish. We then created real structures around these brilliant imaginations to buy and sell all these non-physical things we created to ensure trust in their "existence" and provenance. A dollar, a corporation, a bond - they all exist because we say they do, and there is trust that the value therein can be traded. But belief does not extend to trust in provenance - for that you need a middle-man.

Bitcoin and its invention of the "Blockchain" were a solution to banks - to create trust in money movements without human involvement. NFTs are the Bitcoin for all creative assets - making it possible to own and trade digital media assets in the same way that you own and trade Bitcoin. NFTs are the currency and operating system for new economies built purely on digital assets!

It is happening now. In February 2021 alone, NFT transactions reached $340 million, more than the entirety of transaction volume in 2020. The current hype around NFTs is completely different from the boom-bust of ICOs in 2018 - it is a natural reaction stemming from years of pent-up demand from creators to own and control their own content.

While this can feel like its happening too rapidly (“its a bubble!”), the reality is this digital infrastructure - the web equivalent of physical land, electric cables, and transportation grids, etc - have been in place first via the Internet itself and over the last 3-5 years, by the advent of blockchain startups. The plumbing of digital economies has been installed with blockchains and their protocols, (a.k.a laws and governance), smart wallets (money flow), decentralized exchanges and stable coins (compensation) and host of developer tools (the highway and grid). It should also be noted that NFTs do not require considerable energy like bitcoin mining.4

Programmable contracts are the lifeblood of this new ecosystem - sophisticated code under the hood allowing the smart contract creator to sets the rules while the blockchain confirms the trust - and then it is permanently set. The protocol of the specific blockchain removes the need for a third party to intermediate that ownership, to collect money from a buyer or to pass it on to you - everything flows through the system, in the currency set by the blockchain or even fiat.

This infrastructure fueled by crypto and NFT combined with human ingenuity and creativity will thus transform the Web 2.0 version of marketplaces, games, social networks and even corporations into decentralized ones, powered by communities sharing a common currency they can collect, use and trade.

Lets get into some examples of NFT-fueled projects. These are some examples where content is being transformed into their own economies through the currency of NFTs:

Digital Collectibles. One of the flagship use case for NFTs is collectibles - art, sports cards, etc. They are the classic example of non-fungible assets that has value for millions of fans as a hobby, for bragging rights and increasingly as a business. And while physical art and trading cards can be damaged (and requires a trusted middle-man to rate them), NFTs can be securely stored on the blockchain, and they will never lose quality. As NFTs can turn any physical collectible into its own economy, this extends the very definition of what IS a collectible and in turn unleashes new forms of content as their value can be tracked, defined and enhanced.
- The most famous digital example is in the world of art as Mike Winkelmann — the digital artist known as Beeple - who until he found NFTs, had never sold a print for more than $100. Christie's offered "Everydays - The First 5000 Days" as first purely digital work of art ever offered by a major auction house and it sold for $69M. Crazy price and symptom of a bubble, or smart investment in the rookie of rookie NFTs? Time will tell.
- NBA Top Shot has become the leading NFT marketplace, already reaching $600M in volume. It combines licensed content with collectibles to create an entire market around digital memorabilia with the exact same goals - own a moment, keep in your wallet or sell it later for a profit. We are not sure this is an economy per se as its tightly controlled by the NBA and is centered on the marketplace aspect and pure growth in value. And now is getting legal scrutiny for just that — accusations that is an investment security only. This is all part of the early days of NFTs and in fact shows the perils of using NFTs only for investment rather than passionware use cases of building community that consumers and developers can contribute too.
Sorare is often called “TopShot for Soccer” (aka. football for most of its 3.5 billion fans around world), but it is much more as they are building a digital economy around combination of digital collectibles plus fantasy sports. Fans can buy NFT based sports cards from 126 licensed soccer teams and become ‘managers’, use their cards to compete each week for rewards and prizes. This is creating an entire economy around licensed IP where fans can both “invest” in players AND also play fantasy sports with their assembled team, and developers can likely build numerous applications around this budding ecosystem. While this use case depends on licensed content, it portends a future where any creator can create their own IP and enlist passionate fans to join and prosper from their economy.

Sorare @SorareHQ

WOW! The Cristiano Ronaldo 2020/21 Unique Card just sold for €84,409.08 (52.885 ETH)! 🚀 Huge congratulations to the proud owner, who also has the previous season's Unique CR7! 🔥🔥 sorare.com/cards/cristian…

sorare.comSorareGlobal Fantasy Football. Collect limited edition digital collectibles, Manage your team and earn prizes!

VeeFriends by Gary Vaynerchuk5. "Gary Vee" has launched a personal NFT program that will turn artwork he has created into digital tokens that includes a package of goods and services, all of which include a three-year admission token to VeeCon, an annual super-conference. As he puts it "the main ambition of this project is to create meaningful intellectual property and create an extraordinary community."
Holding a VeeFriends token include "gifts” (from Gary), "access” (to Gary) and “competition” (with Gary). The NFT thus grants you access to the event (the token is the ticket), access to Gary himself, plus ownership rights to the artworks which Gary intends to brand the BEEP out of - all of which provide for a secondary market of VeeFriends tokens as their underlying value increases. Keep the token, sell the token, it's the owner’s call - and Gary will take 10% of royalties. Gary Vee is basically building an economy around himself including access and the ability to invest in Gary Vee and belief that he will increase the value of the token. He has monetary stake in this economy and reputational stake to deliver on his promises - which include both contractual promises (access) and patronage promises to increase the value of the IP his fans bought. He gets a long-term revenue stream while providing multi-layered value to his fans, through knowledge enhancement, fun and investment profits. This GaryVee economy is wholly made possible by the NFT.

Events. Mark Cuban, owner of the Dallas Mavericks and investor in multiple NFT projects, described a novel use case of NFTs and the re-definition of event tickets as "content" and a new business model. NFTs will help sports franchises redefine a ticket to an event into experience plus permanent content. Traditional tickets provide a one-off access to an event which cannot be divided into two but can be re-sold. So all Mavericks season ticket holders can go to StubHub and sell their tickets to Lakers fans at 10x the value (and a big middle-man fee). The Mavs get none of the upside plus their view of their own product - the event - has been completely diluted as Laker fans corrupt the experience. The Mavs can collect whatever percentage of the re-sell value or even write a smart contract that restricts secondary sales for playoff games to approved Mavs fans! Aside from collect royalties for the re-sale, NFTs enable the Mavs to transform the content into an experience. Instead of just a ticket, fans can get token that combine access with collectibles - mid-game highlight to their phone, a collectible ticket with the box score and highlights, etc. And this content can be tiered - some will just want ticket access, others will want to pay for video content to their phone, others will pay for post-game meeting the players, etc. The event is their content, after all and with NFTs, they can extend that event into an event economy.

The NBA, GaryVee and the Dallas Mavericks can have new revenue streams that are only possible because of digital assets. But those are purposeful examples of content creators and owners that already have revenue and brand. The power of NFTs as currency for passionware ecosystem is the fueling of totally new content-based businesses and driving both the product and the business model. Creators can start and scale a business by turning their content (traditional and re-defined content) into something of value, selling directly to their fans and by collecting royalties whenever their NFTs are resold. Check @nft6 on Instagram for smaller artists monetizing real world and digital assets!

NFTs will engender multi-layered Passion plays so everyone wins (and enjoys). It is a better business model for all: creators, their fans, application developers as all can make money in a marketplace built around digital ownership with clear and immutable rules of the game. In the final section, lets break down the business models for Creators, Consumers, Developers and Investors and how they all overlap and work together for the micro and macro good of the decentralized economy.

Creators make money directly and remove rent-extracting intermediaries. There are and will continue to be NFT platforms and marketplaces ("middle-man”) but they do not have the same power as Web 2.0 marketplaces because blockchain-based ownership gives power to creators as the brand that users come for and find on their own (not the platform).
- Creators also make more money by having a better revenue model incorporating pricing tiers. Chris Dixon of a16z has a great essay called 1,000 True Fans7 (including graphs on this specific point) that details the supply/demand metrics that price tiering can address. With NFTs, a small creator can experience with multiple packages the same way large SAAS platforms do with the basic and pro plans - and can do so faster and more efficiently
- Finally, creators earn more because they turn their fans into owners of their business, thereby encouraging promotion, further investment and organic marketing. As Chris Dixon points out, Bitcoin has scaled to $1 trillion in value with no marketing budget!

For consumers, NFTs combine social benefits of patronage with direct investment and thus possibility of getting a profit. Today, consumers rent access to goods and services, including the creators they follow, or they simply pay in ads. The new currency of NFTs lets them share in the upside and aligns incentives to support a community. As outlined in our post The End of the Workforce Era, The Rise of the Passion Economy and the Birth of “Passionware”, blockchain will change work as we know it - NFTs will enable people to make a living from supporting virtual economies, as contributor, oracle, and even "play-to-earn" mechanism such as game playing, earning NFTs that can be used as purchasing power. Games are already becoming a huge early-adopter frontier for NFTs as evidenced by Sorare and many others.

Developers can make money too with a new avenue to build new experiences. NFTs are basically "media legos" for developers to permissionlessly remix.8 They are not controlled by a centralized entity but are programmable assets that any developer can remix. In the words of Jesse Walden, "blockchain becomes this sort of universal library of media that any developer can build a social feed on top of" The creator retains ownership of their work and has effectively "hired" multiple developers to extend it in new ways that are a function of the respective developers' own creativity. And so on, and so on. Developers build more with less resources, unleashing new innovations because there are clear rules that can never be changed, including all technical and financial parameters. This is the polar opposite of today where product managers and the like at the big titans dictate developers activity and compensation.
Finally, every working economy needs investment to fuel growth. NFTs provide for that by democratizing investment through patronage. Not only can I buy artwork and access to conference from GaryVee as a collectible but I am betting (ahem "investing") that its value is going to increase due to his relentless work - and even more, incentivized to help him grow so value accrues. With NFTs, any small creator can grow big by convincing 100 true fans to buy their work with the added promise of reward. From a more traditional investment view, NFTs can be fractionalized and thus made fungible to serve as a tradable asset. The underlying NFT asset (the "product') cannot be altered but can be sharded into bits for sale value or transformed into a social token (this is a whole blog post itself as social tokens can become actual currency and investment assets).
- For example, Dibbs is a NFT-based sportscard marketplace where the owner of a rookie Michael Jordan card sends in the physical card which is turned into an NFT that is fractionalized into ownership bits. There is still just a single rookie Michael Jordan, but now 100 people can own 1% of it and each profit from its growth and sell their share in the NFT.
- Gary Vee's tokens are non fungible in that the entry to VeeCon or the brunch with Gary cannot be divided. But one of Gary’s fans can create a private channel in Discord and as entry you must show ownership of a VeeFriend, making it a “social token” currency that is fungible (all VeeFriend tokens are as interchangable as a dollar bill is for this use case)

NFTs will truly put the "passion" in passionware on the side of all stakeholders - creators can earn a living from their passion, their fans can enjoy new outlets for their passions (and earn from it as an investor!) and developers can do what they love - develop cool stuff for the masses. None of these passionware players will be dependent on intermediaries to set (and change) the rules or extract rent.

In our November 2020 blog on The End of the Workforce Era, The Rise of the Passion Economy and the Birth of “Passionware”, we laid out the case for investing in blockchain and crypto, we wrote the following
the use of digital branded currencies and incentives will foster more synergies and participation between creators and followers. Blockchain and its digital branded currencies and incentives enable true cooperation and ways to involve and compensate followers. These decentralized micro-economies will not only support the new Passion-based entrepreneurs to make a living, but also have potential to grow into macro-economies whose branches foster scale from contributors to the ecosystem at multiple levels.
The only thing to add to that is that NFTs are the currency underlying this vision.

Lets conclude by going back to the genesis of all this - the passion-fueled creator. We have tried to lay out how NFTs will fuel creators' ability to build and scale a business.

With NFTs, creators can unleash their imagination to create content, expand the very definition of content by packaging various streams into a full product itself divided into price tiers, and then own it - and future royalties - forever.
By making fans part designers of the creative process and part owners of the creative output, they can scale that business to new users.
With the content open to all and permissionlessly remixable, a new legion of developers can come and extend use cases, thereby attracting new use cases, users and ultimately revenue.
Anyone can invest in this economy that has been built, thereby further increasing the value and unleashing more innovation.

In short, the currency of NFTs can turn a moment of inspiration into a mini-economy globally accessible - a truly World Wide Web.

In our next post, we will focus on the investment cases of NFTs and expand upon another three letter acronym that could play a huge role in the Web 3.0 ecosystem — DAOs (decentralized autonomous organizations). DAOs may transplant companies as the organizations powering these decentralized community-owned collectives.

For anyone building passionware businesses or products, services and infrastructure that incorporates NFTs, reach out to us at passionscape@bensonoak.com and we would love to hear more.

Benson Oak Ventures

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