Before we begin today, I want you to pull your driver’s license out of your wallet. (It’s fine to do this metaphorically.)
Got it? OK—good.
We’re going to play a game. You’re going to be the parent, and I am going to play the role of super-inquisitive, tech-savvy kid who has all kinds of questions that challenge your answers.
And just so you know, I am attending a big crypto conference in Singapore today and tomorrow. This driver’s license exercise ties into that to a degree. It’s a way for me to help explain non-fungible tokens, or NFTs, so you have lightbulbs going off like in those “ah-ha” moments when a concept finally clicks.
I’ll be writing to you over the next few days with interesting ideas and concepts that arise during the conference, but for now…back to the driver’s license.
I ask you, “What is a driver’s license?”
You show me yours and announce, “It’s a document that lets you operate a car.”
“But it’s just a piece of plastic with some pictures and words. What does it really do? Why is it valuable?”
“Well, it lets you drive legally, and you can use it to prove your identity and age so that you can travel and, when you’re old enough, get into a bar.”
“I can just use a fake ID for that. I don’t need a driver’s license.”
“No, you can’t. This document is in a government database—your fake ID isn’t. So, a fake ID really isn’t useful or valuable to anyone. Cops would instantly know it’s fake, and so would TSA at the airport, so it’s pointless.”
“Ahhhh, now I understand! It’s just like an NFT.”
You look at me quizzically and grunt, “Huh?”
“Yeah, it’s just like an NFT. The picture and words on the front of the driver’s license are like the JPEG image on an NFT. Together they represent the utility built into the license that you can’t actually see. And that government database where your information is stored…that’s like the blockchain. The database proves your license is real, just like the blockchain proves an NFT is real, meaning it has value while the fake NFTs don’t.”
“Well, ummm, yes. I guess you’re right.”
And that is an NFT explained through a driver’s license analogy: It’s a picture on the blockchain that says you own it, and it offers real utility in your life that you can’t see but that you definitely benefit from.
I offer this analogy because I know from emails and comments I receive that NFTs make no sense to so many people. They look like little more than childish, digital pictures of penguins and donkeys and drugged-out-looking cats, and it would seem they have no purpose but to see who is the next greater fool willing to pay more.
The reality is so much different.
NFT pictures only serve the purpose of identifying which NFT you own—just as the picture and words on a license only serve to identify the owner of the document. The real purpose is the utility behind the image.
In the NFT space, that utility is increasingly broad.
I just bought 10 NFTs for a project called Helio, for example, which is serving as a payment-solutions platform for Web3. The picture on the NFT is meaningless to me. I want the utility.
Likewise, I recently grabbed a Netrunner NFT—with a picture that looks like some dystopian Blade Runner-esque news presenter in an equally dystopian studio. I wanted to own a Netrunner because of that project’s utility tracking every transaction in my crypto wallets to create a profit-and-loss document when tax season rolls around.
Both of those, to me, represent fantastic utility. One is the Stripe of Web3 (an online payment solution), the other is akin to the TurboTax of Web3 to a certain degree. Plus, with both Helio and Netrunner, I will collect a stream of income from their profits—similar to dividends on Wall Street.
When you think about NFTs in these terms—that they’re like a driver’s license in that the picture is simply the ID, while the real utility is unseen—this newly emerging world makes a lot more sense.
You learn to see past the obvious and to look for the unseen utility.
That’s one of the key ways I judge NFTs…what is their utility? Does it make sense? Is it needed? If I can answer those questions in a way that makes me excited about the project, then I really don’t care what the picture is.
In that analogy, it’s like having a bad-hair day when you get your driver’s license picture taken. You’re not happy with the image, but at the end of the day the license still has utility that brings value to your life.
By the way, soon enough your driver’s license will be an NFT. But more on that later…
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