NFTs as a Social Network
Eugene Wei, one of the go-to tech writers we can find online wrote an article on how “Status-as-a-Service” might be a real concept that plays an integral part in justifying the otherwise irrational NFT sales. The pillars on which he based the article are as follows:
1. People are status-seeking monkeys.
2. People seek out the most efficient path to maximizing social capital.
These two points go a long way in explaining the human tendency to spend millions of dollars on very minimal pieces of art, as seen in the case of CryptoPunk. CryptoPunks are 24 into 24 pixel art NFTs, of which there are, and will only ever be 10,000. This is what makes it scare and unique, which accounts for the immense craze for it amongst the crypto fans. It acts as a status symbol, similar to any other luxury product, be it fancy bags or the limited-edition sneakers you always wanted.
A common mistake that people make while analyzing social networks is that they overlook the importance of social capital. The same is the case with expensive “irrational” NFT purchases. Social capital is a sign of power and importance, hence, playing a vital role in how people make financial decisions.
Eugene Wei evaluates the power of social networks on the basis of 3 factors namely-
2. Social Capital
Utility is pretty self-explanatory, if the social network provides you with a solution to a certain problem or allows you to perform a task with ease, it adds utility to your life, therefore adding value.
Social Capital on the contrary is not as easy to explain. It is basically the value it brings to the table by creating a social status. As per point 2 stated above, this seems to be a crucial factor while determining the power of the social network.
Entertainment, an obvious requirement, which contributes to the scale by which social networks are judged.
Wei speaks informatively about the various paths that a social networking platform can take that can shape its growth. The right balance of social capital and utility is likely to create wonders and propel the social network in the right direction. An example of an app that strikes this balance perfectly is WeChat. A Chinese app that provides its users with almost all the utility they need and a moments feed that supplies it with the social capital it requires to make it a big deal. An imbalance in the importance given to these 2 factors could be the reason for the slow growth and eventual stagnation of the social network. However, there are still certain asymptotes that could lead to undesirable results:
Proof of Work- every social network brings a new form of content that makes it unique and attracts traffic towards it. Although it sounds easy to get on a new platform, mastering the art of what works on a particular social network isn’t everyone’s cup of tea. This makes getting social capital a tough task, which is why people chase it.
Too much Social Capital- when the number of active users rises, displaying all the available content to the users becomes a daunting task. This in turn leads to social networks using an algorithmic approach. This fends off certain companies as the likelihood of their content being displayed is lowered.
Collapsing Social capital- as the number of people using a platform increases, people tend to migrate to other platforms with better features and more utility. The proportion of users is on a constant decline due to this and eventually could lead to the collapse of the network itself.
Now that they have spoken about social networks and how they can judge what they bring to the table based on the utility, social capital, and entertainment they offer, let’s take a look at how non-fungible tokens could potentially disrupt this space.
NFT’s check all the boxes that Eugene Wei listed for an efficient and successful social network, they are high on social capital, utility as well as entertainment. How? Let’s see.
Social capital- NFT’s are unique, limited, and very high in demand. In the case of CryptoPunks and Apes, the number of minted characters is capped at 10,000. This makes them scarce in every sense of the word. With scarcity comes a high price tag, which boils down to a reputable social status- social capital. Buying a cool CryptoPunk and bragging about it on social media gives them the “rich” social status similar to the status obtained on buying awfully expensive items like luxury yachts, fancy watches, supercars, and whatnot. NFTs are innately a better way to publicize your wealth and status since they have greater visibility owing to the fact that they are traded online on public platforms.
Utility- NFTs are great investment opportunities. They’re very limited and popularly in-demand so as the number of crypto and NFT enthusiasts rises the demand for these tokens is likely to skyrocket and produce amazing ROIs for the investors. Another method by which they can add utility is by providing the owners with special access to certain features, lounges, and communities as seen in the case of Bored Apes. Buying an ape grants the owner access to the Board Apes Yacht Club. NFT marketplaces and sales can provide employment opportunities to many as well. These features of NFTs make them a high-utility product, thus checking the utility box comfortably.
Entertainment- Who doesn’t like seeing the staggering sales amounts, millions of dollars being spent for art and other collectibles. The NFT world is in no way deprived of drama and constant entertainment. Moreover, NFTs lead to the formation of micro-communities based on common interests which also add to the entertainment factor.
NFTs are not necessarily indicating the rise of a new social network. In fact, NFT owners would prefer to use the mammoth customer base the existing social media platforms have to brag about their purchases and use them to gain social status. The buzz that NFTs create can have a very positive implication on all 3 factors which might make NFTs the next big thing?
This article would be incomplete if we ignored the asymptotes linked with the social network effect:
Proof of work: NFTs being extremely versatile pieces of art have the potential to unlock a million new ways of proof of work. This indeed eliminates this asymptote but there do exist some others that come into existence due to the current method of adoption which are- exorbitant pricing and the complete dependency on the crypto for transactions. Both of these are being worked on by various start-ups in this space and a good solution is likely to enter and take over the market soon.
The problem associated with Social Capital: the problem that arises due to the algorithmic approach is the lack of visibility for certain posts on social networking platforms. At its core, NFTs are decentralized and can be used anywhere the owner decides to use them. This pretty much overcomes the visibility barrier.
All in all, NFTs possess great potential as they provide buyers with the right combination of utility, entertainment, and very importantly social capital. Their future seems uncertain now, but they do check all the right boxes and are very much on track to be the next big thing in the world of finance, social media and God knows what else.