Digital Collectibles ~ Perfect Product Market Fit
Breaking down the use case that continues to shine bright in this bear market...
In today’s edition of The Ground Floor we are breaking down the continued success of digital collectibles in 2023…
Perfect Product Market Fit
For many people participating in the online economy we call Web3, the last year marks our first experience in what is commonly called a bear market.
During this period, almost every digital asset has continuously declined in value, in most cases to the sum of 90%, however, during this period, it has become crystal clear that one new use case has found perfect product market fit.
Solutions, In Search Of Problems
From the inception of the first cryptocurrency in 2009, this space has been best described as having solutions, in search of the right problems.
Similar to where NFTs find themselves today, the early days in developing the right applications for blockchains and cryptocurrencies alike were marked by boundless enthusiasm and experimentation to identify the “killer use cases”.
In the 14 years since, absent the ability to purchase crypto with the expectation that the asset will serve as a store of value, the primary utility has predominantly revolved around facilitating cross-border remittance payments.
While this specific use case has the potential to enhance the lives of over 200 million people globally ~ it’s fair to say the scope of this solution is significantly less than what many had initially hoped cryptocurrencies could accomplish.
The Striking Similarities
It’s said history doesn’t repeat itself, however, it does rhyme, and in the case of NFTs ~ the exploration of the best applications for this technology has followed a similar path to the exploration of the best applications for cryptocurrencies.
Rewind the clocks to 2021, and each week, multiple projects would release a new collection with hugely ambitious goals, incredibly akin to 2017 when multiple new coins were created each month accompanied with white papers outlining the projects planned approach for their coin to revolutionize a certain industry.
As was the case with each new cryptocurrency being brought to market, the new NFT collections being brought to market made promises they couldn’t keep, as they sold consumers on stories that sought to maximize excitement, however, absent their ability to execute on such promises, the far majority of the people who participated in these projects were left less than impressed.
Nonetheless, Ethereum, a project that emerged from this initial coin offering phenomenon back in 2014 currently boasts a market cap of $188 billion with the smart contracts Ethereum pioneered serving as the technological backbone of almost all the activity we see in the Web3 world.
The Clear Winner
The clear winner of this latest crypto hype cycle whereby we can say with certainty a problem has been solved is the ability to mint collectibles on chain.
Akin to every prior hype cycle crypto has experienced, the scope of this solution might not sound as expansive as many had initially envisioned, however, NFTs have addressed this specific problem with remarkable success.
Currently, the most compelling illustration of the positive impact of being able to mint collectibles on chain is digital artwork whereby an entirely new ecosystem has developed, and continues to grow amid what many consider the most challenging bull market to date.
Incentives Rules The World
Prior to NFTs, digital artists struggled to capture any value from their creations as they were unable to sell digital assets as anyone could easily save the file, rendering no distinction between the original file stored on the artist's device and the one saved by everyone else ~ thus why would anyone buy these assets?
With a new found ability to mint their creations on chain, digital artists are now in the advantageous position of being able to authenticate the original files they created, carefully selecting the quantity they wish to create.
Better yet, this digital artwork minted on chain is now finding its way into the most prestigious modern art museums in the world.
This subtle shift has not only transformed the digital art landscape, it has also unlocked another “killer use case” for blockchain technology ~ digital collectibles with perfect provenance via minting these assets on chain.
(Refik Anadol ~ Unsupervised, in the MoMA)
Rome wasn’t built in a day, and it’s unlikely we will witness an immediate surge in the demand for digital artwork that’s significant enough to offset the challenges faced by profile picture projects, however, the continuous adoption of blockchains by exceptionally talented artists presents a very positive direction.
Whereas the last crypto hype cycle brought us smart contracts, the technology stack that resulted in mass adoption of blockchains by many brilliant builders, we now have such a compelling use case that consumers are eager to adopt blockchain based products without any need to understand cryptocurrencies.
This marks a fundamental change in the reasons why consumers are adopting blockchains, and with companies like Courtyard working to issue digital tokens for many of consumers favorite physical collectibles ~ the demand for digital collectibles is likely to only increase in demand for the foreseeable future.
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See you next time! — Matt O’Brien 👋
This newsletter is for informational purposes only and does not constitute financial or business advice to any person or entity