2022: The Year of Digital Identity
We’re seeing a lot of year-end blog posts and media articles talking about how 2022 will be the year of the metaverse and cryptocurrencies. We happen to agree with some of those views. The metaverse in many ways is already here, and cryptocurrencies are certainly here to stay.
While others are focused on the technology behind these trends, we prefer to think (as always) about the non-technology side of things. If you’ve read any of our posts, you know we’re obsessed with user experience, which isn’t just about the technology - it’s about what people think about the technology.
As we look ahead to 2022, we see these trends through one common lens - digital identities. Specifically, we’re interested in the role that non-fungible tokens (NFTs) are poised to play in establishing how we live in an increasingly digital world.
CryptoPunks and Bored Apes are the New Picasso
Technically, non-fungible tokens (NFTs) are units of data stored on a blockchain. These tokens represent different underlying digital files - like photos, videos and audio - that can be publicly sold and traded. Each NFT is unique and has its own value based on the underlying asset.
But what really gives an NFT its value? Same thing that drives the value of art - cultural relevance.
CryptoPunks, launched in 2017 by Larva Labs, are largely considered to be one of the first NFTs. These 24x24 pixel art images, inspired by the London punk scene and the cyberpunk movement, are generated by algorithms to look mostly like “punky-looking guys and girls.”
Despite the fact that CryptoPunks are digital, there are only 10,000 of them in the world and no two are exactly alike. Proof of ownership is stored on the Ethereum blockchain so they can be officially owned by a single person.
Because they’re so rare, they’ve become a status symbol and their price continues to rise exponentially. According to Larva Labs, the lowest price available for a CryptoPunk at the time of this posting is 63.99 ETH (Ether) which amounts to nearly $250,000, with the largest single sale reaching $7.5 million.
In September of this year, the auction house Sotheby’s sold a bundle of 101 digital apes for $24.4 million. These apes come from Yuga Labs, which created and launched the Bored Ape Yacht Club last April. The initial collection of 10,000 apes, once again generated as digital art, are depicted in random poses with sailor hats, eye patches, and other accessories.
The key difference with Bored Ape Yacht Club is that there is an actual real-life club attached to it. Bored ape owners, which increasingly include pro athletes and other celebrities, get access to an exclusive Discord server where they hang out, chat and even get access to real-life events and parties.
Buying a CryptoPunk or Bored Ape today (if you have the funds) is essentially the same as buying a Picasso. It’s a rare artifact of a specific period of time which gives it historical significance and, therefore, value.
Communities Will Drive the Value of NFTs
Those of us old enough to remember fax machines and phones before we carried them around with us in our pockets understand the inherent value of networks. There’s no real value to a single fax machine or phone by itself. It’s only when everybody has a fax machine or phone that the real value comes to life. The value is in the connection.
The same is happening with NFTs. If everybody thinks they’re worth something then they’re worth something. Once they’re seen as having value, it becomes relatively easier to increase that value through connections to other perks and benefits within the network.
NFT avatars like Bored Apes and CryptoPunks are being used increasingly as social media avatars and have intrinsic value as a form of digital identity. They’re also gaining more built-in functions that add to that value and drive up their resell price.
But the core value of NFTs is in the sense of community they create. We are social creatures and we care what other people think and feel about us. We want to connect with people who have similar interests and we want to be seen as having status and influence. NFTs are another way to feel connected to something bigger than ourselves.
When you attach unique digital identities and assets to an NFT, you’ve essentially created a metaverse with its own rules of influence and its own values. There are already projects underway to add more utilities to NFT avatars, which will only increase their value and the contexts in which that value can be leveraged.
The NFT Rush Will Not Create Value for Everybody
To understand what the future looks like for NFTs, it also helps to understand what happened with the VHS tape. When video cassette players were introduced, Beta and VHS went head-to-head to compete for influence as the dominant player. Many people invested in Beta tapes and machines because the technology was frankly better than VHS. But we all know who won in the end.
The technology behind NFTs is interesting, and the art in NFT avatars is fun and creative, but the psychology and culture behind them is what really matters. People still collect baseball cards and stamps, not usually because of the quality of the materials or the art but because of the value they and others see in each individual card or stamp.
We will only see an increase in the number of NFTs introduced in 2022 and most will be worth nothing. The few that create value will increase in value. The trick is determining which NFTs will end up going the VHS route and which will end up like Beta.
Part of it is the luck of betting on the right trend, and part of it is controlled through smart marketing and sheer investment.
Most of the general public knew nothing about Crypto.com until a few weeks ago when the Lakers announced the Staples Center will soon be known as Crypto.com Arena. Crypto.com paid more than $700 million for the naming rights for the next 20 years and they’re running a global ad campaign starring Matt Damon.
Crypto.com is essentially buying its way to becoming the dominant player in crypto currency. You can even get a Visa card that offers different tiers of benefits and rewards like Netflix and Spotify subscriptions when you invest at different dollar amounts in their currency. The card pays cash rewards as a percentage of spending also in crypto currency, which in turn helps increase the value of its own currency.
Not every crypto currency or NFT will have this kind of marketing budget or influence. Some will catch on because they get an organic buzz around them. Some will come out of nowhere and surprise everybody. The vast majority will be like a flash of fool’s gold in the pan.
The Value of Digital Identity Will Increase for All
We’re all familiar with the impact that social media has had on how we view ourselves and others. Most people won’t post a photo of themselves online any more without some sort of filter. We obsess over our posts and what to share in them. Even those who don’t post are often unable to resist the urge to scroll through a feed from time to time.
This obsession with our physical real-world appearance will continue to translate increasingly to the digital realm in the new year. With a limited number of the most sought-after NFTs in the world, they will increasingly become status symbols. Our digital identities will become even more valuable than our real-life identities. Some already are.
This is not a new trend, but the continuation and maturation of a trend that was accelerated by the pandemic. In certain parts of the world and at certain social levels people are increasingly searching for ways to express their uniqueness and find the life experience that fits best for them.
They’re working less and taking pay cuts for more work-life balance. They’re leaving their jobs to pursue different passions. Their routines have been shaken up and they’ve taken the opportunity to reboot and think differently about how they show up in the world.
As our physical and digital realities become increasingly blurred, these impulses to create our own unique identity will play out increasingly through things like NFTs. It’s no longer enough to have a perfectly filtered photo on Instagram or a car our neighbors will envy. We want unique digital assets that reflect an identity nobody else in the world can ever own.
The trick will be finding the right BoredApe or CryptoPunk to invest in without losing your real life savings.