NFTs: Owning The Internet
An Introduction To NFTs · 5 min read
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Hello
This post is a summary of an episode of the a16z Podcast, All About NFTs, posted in March 2021.1
There was a lot of hype surrounding NFTs in 2021. a16z is one of the most popular VC firms with a focus on Web3 and crypto. This episode is meant to be an explainer episode. A starting point to understand NFTs.
The interviewer is the editor of a16z content and the guests are Linda Xie and Jesse Walden, both of whom are founders at prominent crypto-asset funds.2
Hearing this episode in 2021 was a big catalyst for my journey down the Web3 rabbit hole. The potential of NFTs as described by Linda and Jesse was far more exciting than crypto trading. The summary will hopefully do the same for you or encourage you to watch the full episode.
To be clear, this is not a full breakdown of the technical aspects of NFTs. The scope is confined to what is discussed in the podcast. A lot of NFT use cases were thrown around which I have collated at the end of the summary.
But this isn’t just prognostication. Many of these have already been implemented since the episode was published. Which makes the remaining seem more imminent.
As always, plenty of the summary is plagiarized and paraphrased. Even quotes. Some lines are lifted directly from the transcript.
All credit goes to a16z and the guests Linda Xie and Jesse Walden. Links to all source content and more information about the guests can be found at the end.
Read Time: 5 minutes
Time Saved: 51 Minutes
Prerequisites: Tokens, Ethereum (Need a refresher? Start with the basics here)
Owning The Internet….All About NFTs
First, A Foundation
NFT = Non-Fungible Token
“Non-fungible” implies unique.
The opposite of fungible i.e. non-interchangeable. A $1 bill is fungible, as it is replaceable with a different $1 bill. A song is not replaceable with a different song.
NFTs are blockchain-based records, that uniquely represent pieces of media.
Let’s examine a simple analogy from the physical world —
How do you own land? What gives you ownership and the right to sell it?
In all likelihood, your ownership comes from someone putting your name on the city registrar database, next to the entry pointing to the land’s location.
This is NFTs in a nutshell. Instead of land it can be any asset. And instead of the city registrar database, they use blockchains which are public and immutable.
Essentially, NFTs are a way of using blockchains to make a digital file into an ownable digital asset, such that anyone can track its
provenance (history of ownership)
attribution (credit for authorship)
This can be for a really broad set of assets. Anything that is property. Could be digital — like art, game objects, music, blog posts, virtual lands, video, GIFs. Or could even be physical assets like real estate. These can all become an NFT.
A New Paradigm, Enabled By Crypto
NFTs on the blockchain allow anyone to permissionlessly own, issue, trade them.
Ownership and Provenance
The ability to own and track a digital file, without a third-party player intermediary, is the key invention here.
In the physical world, you need a third party to validate ownership — a bank maintains a ledger of your money or the city registrar maintains the ledger of your home ownership.
Bitcoin enabled an alternative for money — a public, decentralized ledger replacing the private ledger at every bank.
NFTs extend this concept to all property. If you buy, send or sell an NFT, the history of that transaction is forever enshrined on the blockchain.
Today, if you screenshot an image you see on Instagram and post it on a different platform like Twitter, its entire provenance disappears. But with NFTs on blockchains, there is a rich history of all the interactions people have with media on the internet.
Along with this information flow, thanks to the unique nature of cryptocurrencies and tokens, we can also have value flow.
"I love to fixate on a future where literally, every piece of media is incepted as an NFT. The “value flow” is baked into the technology itself. And that’s just going to lead to a renaissance in online creativity, where the creators of the work are remunerated more fairly" - Jesse WaldenNFTs Are Programmable
Tokens are like websites, they can be simple or complex3.
An NFT doesn’t need to represent just a static image. All kinds of programmatic layers can be run on top of an NFT, automatically and immutably, through smart contracts.4
Rules around monetizing creativity can now be expressed as code by any developer and any creator on the internet.
For instance, one of the possible arrangements that can exist is such that anytime the NFT changes hands in the future, a portion of the resale value, say 10%, goes back to the original creator.
Contrast that with the art world where artists don't get anything if their artwork appreciates in value after the initial sale. Or with current contracts in the music industry, an opaque system leveraged by middlemen to take cuts.
Creating (Minting) NFTs
Creating an NFT and putting it on the blockchain is called “minting”.
Different NFT marketplaces help with this. Some might do some due diligence on the artist; others that are just like hey, anyone can mint anything.
Does this risk IP infringement? Sometimes. Platforms and the legal system are going to have to address those issues. Just like they did for YouTube. And blockchains actually make this job easier because a lot of the information is publicly accessible.
It’s Just a JPEG? I Can Copy Paste It?
A common pushback for someone who buys an NFT is “Its just a jpeg”.
The implication is that any image online is replicable. Anyone can copy paste digital artwork. Digital reproduction online has zero marginal cost.
But something doesn’t have less value the more its reproduced online, it has MORE value.
The simplest analogy is the Mona Lisa. You can look at the Mona Lisa for free online. Save it, morph it, send it.
But the more the Mona Lisa is shown in modern culture and incorporated in Dan Brown novels, the more the ownership of the original piece at The Louvre is coveted and valuable.
The more times a piece of media gets shared on the internet, the more social value it has, the more valuable the NFT should be.
You’re not owning to try to be the ONLY person who can access a given jpeg or piece of media — rather you want to own the piece of media that everyone else sees.
And with NFTs, it’s not just about the speculative value of the art, or about being ostentatious about being the owner.
Over time, there will be utility use cases, as developers build new spaces for digital property. NFTs encourage “permissionless innovation”.
Why NFTs Matter and Some Potential Futures
Permissionless Innovation
Potential futures with NFTs go well beyond simply buying and selling digital assets.
Thanks to the open protocol and composable nature of blockchains, developers around the world can build new experiences around NFTs freely. Unlike say at, Facebook or Twitter, where only their own employees can experiment and innovate on their platform.
For instance, the project Loot, released varied bags i.e. lists of fantasy game items such as swords and potions. It then encouraged developers to permissionlessly build games around those lists.5
Proof-of-Fandom
Owning a creator’s NFT can reflect the most tangible proof of fandom for their fans (apart from maybe a tattoo). Benefits such as extra content, backstage access, direct engagement, etc can be programmatically conferred. This also becomes a tradable asset so fans get to assign their own value to it.
Collector Economy
Already exists in the physical world, from coins to baseball cards. NFTs finally bring a mechanism to have a collector economy for digital Items.
Eg. Buying a unique digital deck of “Magic: The Gathering” cards that won a big online tournament
Patronage Plus
Patronage + capitalism.
Patronage in Web2 was finally becoming a little easier. Fans could subscribe directly on Twitch, sign up for a paid substack or use a third party subscription service like Patreon. Sometimes this would be a pure donation. Other times it rewarded things like access to additional content or Discord membership.
Patronage in Web3: The plus part is uniquely-enabled by digital ownership. So owning a creator's NFT means the possibility of being able to profit in the future from the resale of that ownership to someone else, maybe as the creator’s profile raises or the demand for their work grows.
This is a very strong incentive to become a patron in the first place. A backer can support a creator and also be on their cap table. They can benefit monetarily from being early in their fandom.
CrowdFunding Plus
The traditional monetization models such as advertising and subscription don't work too well in some areas. For instance long-form journalism. Now, a writer's audience can pool resources in the form of a crowdfund to write an investigative piece that becomes an NFT. They become fractional owners of the NFT.
Mirror is a blogging platform, where anyone can mint their blog posts as an NFT.
Is this another bubble? Like the ICO boom?
The hype around ICOs (Initial Coin Offerings) in 2017 was crazy. A fair amount of them ended up worthless.6
But it led to good infrastructure improvements and scaling solutions in crypto. Some incredible projects survived. People ended up staying post-hype.
The NFT boom might be similar. Some people just want to make money flipping NFTs. But creative people are going to stick around and experiment and build.
Other NFT Use Cases And Projects Mentioned In This Episode
Displaying NFTs digitally: Bring your NFTs into a virtual world (like Cryptovoxels or Decentraland) and showcase them
Displaying NFTs physically: Think digital photo frames
Fractionalizion: Split up NFTs into multiple pieces aka fungible tokens; tradable on decentralized exchanges. This is a benefit compared to the real world, where you can’t really split a physical artwork or its ownership
NFT as collateral: Imagine taking a loan out on valuable items earned in a video game
NBA Top Shot: Very successful official NBA project already. You can essentially buy and own a video moment from an NBA game. For example, a famous dunk or a game winning buzzer beater
Offline to Online Use Cases: NFTs representing tickets or financial assets or real estate — these are just more efficient ways of dealing with assets, without having as much paperwork and middlemen involved
Provenance appreciates value: Art can become more valuable because of who’s owned it in the past, now traceable on the blockchain
CrowdFunding Plus: Kickstarter but with ownership not just deliverables
Pinterest for NFTs: Cataloguing aspirational NFTs
Proof of Support: Like a museum. A digital placard next to the art to say “I supported this creator”
NFT Funds as Galleries: Contributors pool resources to create a fund, which acts as a “gallery” to collect and showcase NFTs. An example - FlamingoDAO. This fund can then be tokenized itself (like buying shares of a mutual fund that itself is buying different stocks)
Marketplace aggregators: Since NFT data is public, apps can aggregate NFTs sold in different marketplaces and display who is buying what like an instagram feed
Social Tokens (technically fungible, not NFTs): Creators can interact with, and reward, their early supporters by distributing their own tokens. eg. Token-gated newsletters — needing to have a certain number of tokens in order to access a newsletter. Token-commissioned permission chats where these tokens are required to enter the chatroom and start talking
Thanks for reading. Don’t forget to subscribe and also check out the Appendix below, which includes sources and readings + my two cents on the topic.
Let’s keep up the journey down the Web 3.0 rabbit hole.
The perfect followup is the summary of Chris Dixon and Naval Ravikant’s appearance on The Tim Ferriss Show covering Web3 and NFTs.
Also, in case you missed it, read about Bitcoin from the perspective of its most high profile early evangelists - the Winklevoss twins. Through the summary of their interview with global macro investor, Raoul Paul.
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Appendix
My Two Cents
//If you are new to the topic of NFTs, thats was probably a lot to take in. I don’t have anything to add. Given the new ownership paradigm NFTs are supposed to be a harbinger of, there is a tendency to be dismissive. I urge you to let the new ideas in this conversation marinate a bit. Do check out the summary of the perfect followup to this conversation on The Tim Ferriss Show as well.
Source
Interviewer - Sonal Chokshi, Editor in Chief, a16z content Guests - 1. Linda Xie, co-founder of Scalar Capital and former PM at Coinbase 2. Jesse Walden, founder at Variant Fund and former co-founder of Mediachain Labs (acquired by Spotify, where he was then an R&D lead)
Additional Sources and Readings
This primer on NFTs by TheTokenDispatch.com This thread by Chris Dixon on how NFTs help users own the internet:
Learn about different types of NFTs in this thread, also by Chris Dixon:
Scraps
Coming Soon
Footnotes
Link to episode. See Source above for additional information
Check out their twitter profiles - Linda Xie and Jesse Walden
Learn more through the summary of Chris Dixon’s mental model: Tokens are the new website
Learn more about smart contracts in Blockchain Basics