Former a16z partner: NFTs will become the "gateway" for all internet media

This article was published on CryptoC, authored by Jesse Walden, and translated by CryptoC.

Editor’s Note

The author of this article, Jesse Walden, was a partner at a16z's crypto fund and has a decade of experience in the arts and media sector. In May 2020, he left a16z to establish his own venture capital fund, Variant, focusing on investments in the blockchain space and ownership economy.

Jesse has a profound understanding of the NFT space. In this article, he proposes:

"Cryptographic technology is paving a completely different path, which is a broader narrative: the next generation of internet platforms will be built, operated, and owned directly by users. In the media industry, NFTs (non-fungible tokens) allow creators to 'retain' ownership of their content while not restricting its dissemination across the internet. This means that NFTs are likely to disrupt the ownership model of media content, providing services to creators, content audiences, and related developers, which is also a viable monetized alternative driven by platforms.

With NFTs, images on the internet no longer need to be a 'two-dimensional box' with only an 'X-axis' and 'Y-axis'; instead, they can have a 'Z-axis,' allowing third parties to query the entire history and background of a piece, thereby increasing its cultural and financial value."

This article is worth a close read for investors and entrepreneurs looking to delve deeper into the NFT space. Here is the original text:

01 Why Will NFTs Become the "Port of Entry" for All Internet Media?

Before entering the tech industry, I was a music industry artist manager. When I started my company, I was very convinced of an undeniable fact in the music industry: ownership gives power. Typically, record labels own the rights to music, and thus have the "control" over the artist.

Our goal was to leverage technology to connect directly with fans to help artists retain ownership of their work and run their businesses independently. But now, each of us can become an online creator, and ownership continues to play a crucial role. However, the role of ownership on tech platforms is often overlooked.

Every day, we share billions of images, videos, songs, and various media works on social media. Once these files are published, people can obtain copies of the media from the creator's device and paste them onto the platform's servers that distribute the file, such as Facebook, Twitter, YouTube, TikTok, etc.

This seems like a lightweight interaction, but when creators upload files, they are not just making a simple copy—they are also copying and pasting "file ownership" onto the platform itself.

I am not talking about copyright, but rather the "terms of service" set by content platforms. These terms often specify that when creators upload files, the platform will share ownership of the work so that they can profit as they see fit. These "terms" have some advantages: platforms can bring sustainable optimized advertising revenue to creators, as well as economies of scale as the number of fans grows. However, the profit models offered by platforms today do not always align with the best interests of creators, and this situation is no secret—this is, in fact, the real problem: for a long time, platforms have always been able to capture most of the revenue and value from the content provided by creators.

Cryptographic technology is paving a completely different path (which I call the "ownership economy"), which is a broader narrative: the next generation of internet platforms will be built, operated, and owned directly by users.

In the media industry, NFTs (non-fungible tokens) allow creators to "retain" ownership of their content while not restricting its dissemination across the internet. This means that NFTs are likely to disrupt the ownership model of media content, providing services to creators, content audiences, and related developers, which is also a viable monetized alternative driven by platforms.

A simple way to think about NFTs is that storing data on the blockchain means content cannot be copied, pasted, edited, deleted, or otherwise manipulated. The blockchain can provide these guarantees primarily because of its own technical properties (which also make cryptocurrencies valuable): like Bitcoin, NFTs are digital tokens that can be bought, sold, and traded, with their ownership and provenance always tracked immutably by the blockchain. Your assets are your assets, and they can be verified without any third party acting as an "intermediary" for that ownership.

With NFTs, the way of owning digital media assets becomes identical to owning digital financial assets.

For many, NFTs may seem like a brand new high-tech "toy," and of course, some believe NFTs are a bubble about to burst. Indeed, the money spent on digital art and crypto collectibles is rapidly increasing, but the practicality of NFTs allows creators to profit more without being "exploited" by platforms.

Therefore, I believe we are working to make NFTs the "port of entry" for all media on the internet, including 2D audio/video and text-based web works, as well as emerging 3D works, and even future games and virtual worlds.

I think that if we want to realize such a world as soon as possible, choosing NFT-supported business models is a better choice for every stakeholder involved. Whether creators, content audiences, or related developers, they can gain greater benefits in a market that realizes true digital ownership.

To further illustrate this point, I will respond to some common questions about NFTs in the following text. Many of the answers below are based on my "Tweetstorm" written over the past few years.

02 How Do NFTs Work?

In reality, NFTs are just unique tokens that represent the uniqueness of digital files, each with a standardized identifier, a unique ID, and metadata linked to that ID (for example, who created that ID, what its name or price history is). When a creator creates an NFT, this information is immutably registered on the blockchain, becoming a "digital passport" for that work. Looking further, as long as the media work is distributed to another platform, that platform can "check its passport" and view its entire transaction history.

This means that any instance of a creative idea can ultimately be registered on the blockchain, and its original, immutable historical record can be queried. Images on the internet no longer need to be a "two-dimensional box" with only an "X-axis" and "Y-axis"; instead, they can have a "Z-axis," allowing third parties to query the entire history and background of a piece, thereby increasing its cultural and financial value.

03 Do Digital Artworks Have Value?

There is indeed a widespread criticism in the market today that digital art and digital collectibles can be copied, and therefore they do not hold much value. However, NFTs introduce a whole new possibility: true ownership can exist even as artworks continue to circulate freely online.

For a file, the more times it is shared and viewed online, the more valuable its content becomes. For example, we can see many posters and T-shirts printed with Andy Warhol's images being mass-produced. (Note: Andy Warhol is regarded as one of the most famous figures in 20th-century art, a proponent and leader of pop art, and the artist who had the most significant influence on pop art. He boldly experimented with various reproduction techniques, including lithography, rubber or woodblock printing, gold leaf techniques, and photo projection.)

As society increasingly values issues like copyright, plagiarism and piracy can make you notorious, so the concept of owning standardized works becomes even more exciting and can also become a status symbol. If you own the rights to a work after purchase, it can also increase the resale value of the work. NFTs allow collectors to enjoy most of the benefits of owning artwork, and their collections can also be freely shared across the internet without restrictions, thus gaining greater benefits, as the wider the distribution of the work, the more value it will acquire.

In fact, NFTs can provide support not only in the art field. More and more crypto collectibles, game assets, digital fashion, skins, and more are blurring the lines between artworks and programmatic utilities. Let’s continue to analyze this further.

04 Why Collect NFTs?

There are many reasons why people collect NFTs, such as:

• You may have discovered a very promising new artist or artwork and feel very excited;
• You may have found a piece with great cultural value potential and appeal;
• You may have discovered a way to possess a unique and classic "social status";
• You may have found an opportunity to profit by reselling the work.

Currently, in the NFT (and other crypto markets), many people are collecting works with speculative value. Like other crypto markets, the NFT market is also "reflexive." Just like cryptocurrencies and traditional art, the more people believe that NFT assets may have value (even for subjective reasons), the higher the actual value that can typically be obtained in the market.

For example, the reflexivity of the Bitcoin market began when Bitcoin became increasingly "popular"; initially, Bitcoin was just a memecoin that could be used to buy pizza, but now it has become the most important reserve asset globally, and this momentum is only growing. Similarly, NFTs may initially seem like a form of entertainment or a game for crypto whales, but as more funds flow into these markets—and more content creators mint tokens and participate—outsiders will see the value circulation situation improving, and the perceived value in the market will also rise. This reflexivity creates a positive feedback loop, which in many cases helps to drive market activity upward over time.

05 What is the Long-Term Direction for NFT Development?

Returning to the issue of practicality: like many technology development cycles, speculative value will ultimately give way to functional value. Since these NFT assets are programmable and open, any developer can build what they need on top of NFTs. Moreover, since NFTs are easily portable, these programmable assets can take on new leadership roles throughout our digital world.

Tokens and smart contracts are referred to as "money Legos" because they allow programmers to write and remix DeFi applications. Similarly, NFTs will become "media Legos" for developers and creators to remix and build new experiences, even without permission. Therefore, users can expect richer experiences and increased utility around the items they own.
06 Is the Adoption of NFTs Inevitable?

I believe NFTs will become the "port of entry" for all internet media because everyone involved in this field can earn more money from the markets they support:

• For creators

By selling directly to fans and earning royalties on each resale of the NFT, they can make more money. This is a new revenue stream that is only possible when you gain true digital ownership of the work—that is, embedding "loyalty logic" into the media itself.

• For consumers

NFTs are a better model because they combine two resources well:

Social and practical advantages

Compound utility and profit conversion possibilities

Today, consumers rent many goods and services online, including some content creators. The new ownership economy platform has a main principle: "integrating skins into the game" creates incentives. If you want to support creators, there is now a new model—I call it "Patronage+"—where the "+" represents the possibility of gaining value alongside the creators you support. Of course, this is a strong, yet undeveloped incentive mechanism, but I believe this mechanism could drive demand for creative works in the market, attracting more people to participate and give back.

• For developers

They can make money by building entirely new NFT markets. Traditional platforms have many issues, such as:

Hindering developers' access to APIs

Restricting developers from working freely in the marketplace

In the NFT market, even building on an unlicensed infrastructure, developers have the opportunity to gradually enter the growing ownership market economy, and in many ways, this ownership economy functions similarly to the functions in the physical world.

07 Where Are We in the NFT Adoption Cycle?

In 2021, the cryptocurrency market (along with many other markets) began to enter a bull market, coupled with the internet awakening and a collective investment movement (WallStreetBets)—under this backdrop, the conditions were ripe for the NFT market to enter a frenzy stage, and this emerging market began to attract mainstream attention and significant funding.

At this stage, most NFTs are still primarily occurring in the digital art field, but some emerging niche markets are also beginning to explore NFTs, including game world assets (e.g., Axie Infinity), other crypto collectibles (e.g., Hashmasks and CryptoPunks), or generative artworks created on-chain through programming.

We are also seeing many new NFT trading platforms springing up, where creators can create NFTs and connect with collectors. Foundation, in its first week of launch, had sales exceeding $150,000, including the first-ever Vine video created, which sold for $14,000. Venture capitalists are also starting to purchase AI-generated artworks for their portfolios (including myself). Notably, I recently raised funds for a paper on the decentralized blogging platform Mirror and received over $13,000 in crowdfunding, after which I auctioned my work as an NFT, allowing those donors to receive considerable returns.

However, it is important to note that interacting with NFTs on Ethereum is still quite clunky and expensive, but this is the case with every emerging thing; everything is difficult at the beginning. Currently, minting an NFT costs about $100 in ETH, and buying and trading NFTs also incurs high transaction fees.

But for the cryptocurrency industry, 2021 will be a year of significant technological upgrades—transaction costs will continue to decrease, and network throughput will become higher, all of which will help developers push NFTs into a larger social realm. For example, Zora is moving in this direction, having launched a Tumblr-like interface where each "post" can appear as an NFT. Due to these social experiences, we are seeing an increasingly large NFT market being created, and users can earn money alongside the creators they support, thus generating strong participation incentives for everyone.

Remember, NFTs are not just items for collectors; they are programmable assets that any developer can mix and match. As developers create new environments for the survival of NFTs, the demand for digital creators will continue to grow, and as long as their works are included in NFTs, they will gain indisputable ownership.

08 Conclusion

In 2014, I founded a company called MediachainLabs, and at that time we were developing an open protocol called Mediachain. Our goal was to establish a "universal media library" to handle digital media assets, just as Bitcoin handles digital financial assets.

Now, six years later, in a world where most people own digital currency (over 10% of Americans own digital assets), the infrastructure and market for digital currency have become ubiquitous.

I am very grateful to continue to be part of the team and community working to build a universal media library through NFTs, and if you are one of them, I would love to learn about what you are building.