November 05, 20212 min read

The Reason NFTs Sell For $500+ Million Comes From A Simple Concept Dating Back To The 1500s

Ship 30

"The hardest thing to decentralize is money. And once you have money decentralized, then you can own private property." - Naval Ravikant

This passing comment from Naval speaking on the Tim Ferriss podcast sent my mind into a spiral, because it's so true.

Think about where your money sits. My guess would be a combination of a bank, retirement funds, or maybe stocks. At a fundamental level there's nothing wrong with this. It is worth noting, however, that all these options are centralized.

It's only until the past decade and a half that a new option has emerged.

Cryptocurrencies enabled decentralized finance. Digital ownership followed.

NFTs prove this to be true.

Prior to blockchain technology, NFTs would have be stored & distributed through a central point, a marketplace. The seller would determine the price based on supply & demand. The issue lies in that the marketplace must hold influence on society in order for these assets to retain value. Otherwise what's stopping Joe Shmoe from opening a marketplace and selling good himself?

Everything changes with blockchain.

The value of blockchain-based assets is determined by a social contract.

"A contract? I didn't sign any dotted lines."

The people within a community can determine the price of goods based primarily off scarcity.

This has been true since the dawn of mankind. The reason gold is a store of value is due to it's scarcity in nature. Who determines that? Society does, implicitly. If you want to acquire an extremely rare and hard to get resource, you need to ante up a large sum of a less valuable resource(s).

This is concept of a social contract.

How does this apply to NFTs?

Community, scarcity, and scale.

Digital assets are available for purchase across a global network. The size of the community which determines the market price is exponentially larger than say your local neighbourhood. NFTs are also scarce in their availability, since projects only mint up to 10k unique tokens.

Decentralized finance is digi-forming our world.