BitMEX founder: The essence of NFTs lies in the display of social status

Author: Arthur Hayes, Founder of BitMEX
Compiled by: Chain Catcher
Art is a rich expression of human civilization. From the perspective of net energy, it is completely worthless. But when viewed as the purest expression of humanity, transcending our basic functions of consuming calories, reproducing, and dying, it is priceless. We "work" to enjoy leisure, which is a personal pursuit that often involves some form of art, including music, film, painting, sculpture, sports, and more. All these activities are a convergence of energy, yet they bring endless joy to participants and audiences.
The emergence of superintelligent networked thinking machines will herald an era where the vast majority of human labor is economically worthless. Freed from the physical constraints of work, humanity will turn to their new digital world, fully showcasing the creativity and vitality of civilization. The metaverse is the future.
So, what is the concept of "art" in pure digital constructs? How can money, merely an abstract form of energy, be "wasted" on the pursuit of digital art? Is NFT-based art similar to all other "traditional" art forms, worthless yet priceless?
From the perspective of energy, NFT art is completely worthless, but it will represent the ultimate way to display social status in a pure digital world. While this may seem foolish to those who believe that classic gatherings like Art Basel and the Venice Biennale are where like-minded individuals should participate, trading infinitely replicable JPEGs on the blockchain is no more foolish than curves on a canvas.
You are worthless
Compared to self-learning intelligent machines, the vast majority of human labor is not worth the energy input required to sustain it. No matter how "smart" or "creative" you think you are, machines will outperform you in the coming decades.
What to do now? Once we grow tired of COVID lockdowns, "older people" (I mean millennials and older) will engage in sports, lounge on the beach, and visit physical nightclubs. Young people will play video games and create entirely new worlds in various digital metaverses.
The impact of COVID has only accelerated these trends. Now, a large portion of the world's population is locked in their homes; their only means of interaction is through connected machines. Whether you like it or not, your online avatar will become increasingly important. The metaverse is here, and you are participating in its creation.
The metaverse will be anything the human mind can imagine, unbound by the traditional physical laws we take for granted in the universe. New economies and professions that we cannot yet imagine will emerge in these worlds. Hopefully, these jobs will create the same sense of self-fulfillment as traditional work, allowing people to feel satisfied with their lives. The alternative is billions of restless individuals who will vehemently attack perceived and real inequalities, especially as capital becomes further concentrated in the hands of our tech overlords.
The most powerful person in the world—defined by the number of users they can influence—is Mark Zuckerberg. He bets that the true future of the Facebook community lies in the metaverse. In this, AR and VR devices that allow humans to create communities in digital spaces represent what Facebook sees as the next iteration of digital community.
China is building a mobile-first internet society. All data and interactions are networked, monitored, and managed by the state. The Chinese metaverse has a complete social credit scoring system that encompasses your entire online and offline life. Given its spending on AI and 5G research and development, it can be said that China sees the future as a digitally connected generation.
Regardless of your political leanings, both Western and Eastern capital believe in the metaverse.
Player Unity
According to Statista, 2.55 billion people played video games in 2020. On average, gamers spend 54 minutes a day or 6.33 hours a week playing their games.
With 2.55 billion gamers, this is the largest community group. They transcend traditional ethnicities and religions. An interesting data analysis point is whether gamers feel a stronger sense of belonging to gaming communities compared to their country of birth/religious beliefs. I bet that as gamers spend more time in their virtual worlds, their affinity for a nation-state or religion will diminish in favor of gaming communities.
Gaming is not just about shooting; I believe it is essentially social activities in virtual worlds. The "building" content that extends from this will be any activity in virtual worlds. If we consider the time humans now spend on Zoom and Microsoft Teams (which are just virtual workspaces), it can be expected that people will spend even more time on social/work activities.
People love these new worlds. Different generations and income levels have begun to diverge in their preferences for working from home (WFH) versus working in office buildings. Baby boomer bosses want to see their young and poor employees sitting in the office where they can be monitored. Meanwhile, workers themselves would prefer to sit in their comfortable home leisure areas if they can complete tasks online, enjoying extra leisure time without the need for commuting. As we develop social connections in fully virtual environments, the concept of closing deals through face-to-face meetings will become outdated.
How to "Display" Social Status
As social beings, many activities and consumptions exist solely to publicly display how much energy you can waste. The nightclub economy is the extreme option of this concept. A person walks into a dark room, listens to loud music (art), dances (wasting energy, similar to courtship), and pays exorbitant prices for drinks. Everyone is dressed in very nice clothes, which serve no purpose other than to indicate to other club members present that they have spent a lot of money to showcase their social status.
If you think nightclubs are too tacky, what about global art exhibitions? Wealthy and famous art enthusiasts, creators, and curators waste energy traveling to a location. They gather to "collect" useless paintings, sculptures, and other installations. There is a clear social hierarchy based on the gallery you represent and/or the quantity of useless items you hoard. Food and drinks are provided to socialize with other like-minded enlightened art enthusiasts, and afterward, everyone packs up and wastes more energy returning home.
Socialization and communication are what make humans unique among other life forms. This is how we build monuments for our gods and rulers. This is how we sent humans to the moon. This is how we created the internet and integrated circuits. Displaying is both a 100% waste of energy and a necessary condition for establishing social bonds that promote the advancement of civilization.
When we imagine what the metaverse will look like, how will its residents showcase their social status? Returning to gaming, the economy surrounding the skins worn by your online avatar has already flourished, pointing to a digital future built on worthless digital art objects that represent "massive value."
DMarket estimates the skin market to be around $40 billion.
Newzoo also released a report on American gamers' attitudes toward skin trading, which is quite insightful.
The report highlights:

• "Among American core gamers who understand skins, 81% want to earn real-world money through their skins, thus showing interest in skin trading. More than two-thirds are unaware of any major skin trading platforms in the U.S. (including Steam's community market, DMarket, OpenSea, and Bitskins)."
• "Crucially, 75% of players interested in skin trading indicated that they would spend more on skins if they had monetary value outside of the game."
• Demographically, young males are most likely to engage with gaming cosmetics, but the "whales" who make big trades are usually older.

Our online avatars need to be showcased. The value of digital items associated with our unique online selves will see explosive growth. Ask yourself, would a stubborn gamer be willing to spend $1,000 on a rare skin or $1,000 on a Louis Vuitton bag (you might ask, "What LV bag costs only $1,000?")? Both serve the same purpose. They showcase the extent to which you can waste resources due to wealth. They are also scarce items.
Goods for Display (A Flex Good)
The goods you display should have some of the following characteristics:

• The goods must be essentially worthless, or if they have utility like clothing, there should be cheaper alternatives that serve the same function.

------ If you have doubts about this, check if this item has been mentioned in the lyrics of a popular singer; if the answer is yes, then it may be a good for display and is essentially "bankrupt."

• Ownership of the item should converge into an exclusive community and grant membership to the owner.
• The item should be limited in quantity; in other words, it should be scarce.

Have you ever wondered what it feels like to wear knitted sneakers? Well, to obtain this privilege, Balenciaga will sell you a pair of shoes for nearly $1,000.
Is this a good for display? Let's look at the checklist:
Attribute 1:
You can spend less money on a pair of sneakers to protect your feet while engaging in the biomechanical activity known as walking. Yes, a rapper named Cardi B has the following opinion on the aforementioned sneakers:
"I love those Balenciagas, the ones that look like socks."
Attribute 2:
If you buy these shoes, it indicates that you are part of a small community that appreciates high fashion and can afford the Balenciaga brand.
Attribute 3:
These shoes are semi-scarce. Balenciaga produces enough shoes that anyone with $1,000 can buy a pair. However, they are scarce in monetary terms because most people cannot afford to waste $1,000 on knitted sneakers.
The Display from Crypto -- NFT Art
NFTs, or non-fungible tokens, are currently just records of ownership. NFTs tell us which cryptographic public key is the true owner of a specific data segment. In the current market, the art associated with NFTs is easily replicable, but the original ownership is uniquely encrypted.
Since today's NFT art mostly takes the form of digital images and videos, opponents are baffled as to why anyone would pay money (energy) for data that can be copied for free: the art linked to NFTs can be enjoyed without any purchase and can be transferred for free. However, what these people do not understand is that art itself is related to "display." It is about owning the unique certificate of encryption… the NFT.
The value of physical artworks comes from the fact that the artwork itself cannot be in two places at once. There is only one "Mona Lisa" in the Louvre. A pixelated rock's JPEG can appear everywhere at once. So why do both have values greater than zero?
In the Metaverse, merely "wearing" or "displaying" your digital items is not enough. You must also be able to prove their scarcity. This can be accomplished by owning the NFT in an encrypted manner.
Your crypto display has two aspects. First, you have a pair of ugly virtual sneakers, a cute penguin, a pixelated face, or a JPEG rock that you can showcase on various social platforms or as your avatar. Look at how many crypto individuals indicate their value and membership in elite communities by associating their avatars with images linked to NFTs. Finally, and most importantly, after you set a crypto punk worth over 1,000 ETH as your Twitter avatar, you can actually prove that you own it on the Ethereum blockchain in an encrypted manner. Now everyone knows how much you paid for it—you don't have to shout, "Hey world, I'm f***ing rich." *We humans prefer to abstractly display wealth in goods rather than directly showing our bank balances or on-chain holdings.*
Ether Rocks is an interesting NFT project that needs to be evaluated against the checklist:
Attribute 1:
EtherRock is essentially a set of rock PNG images. I wouldn't say they embody much human creativity. They are essentially worthless.
Attribute 2:
If you own an EtherRock, you are part of an exclusive community of no more than 100 people. If you wish, you can purchase multiple EtherRocks, but there will always only be 100.
Attribute 3:
EtherRocks are extremely scarce, as only 100 were minted.
This is an interesting project because PNG files are clearly worthless and lack creativity, leading many to question why anyone would waste a significant amount of Ether to purchase them. In fact, nearly 2,000 ETH worth of rocks were traded just in August. But the more worthless and expensive NFTs appear, the greater their display effect. Like all things, their value may fluctuate. Imagine owning a rock that once was worth a lot of ETH but is now worthless. Value fluctuations also enhance "display," as they imply that the owner does not mind seeing their rock valued at 0 in the next Ethereum block's propagation.
Trading NFTs
Like traditional art, a healthy speculative ecosystem will and has already been attracted to NFTs. In the art world, they call them dealers or collectors, but they are essentially betting on which worthless items will be "valued" by humanity in the future. Over time, doing this well and profiting is very difficult. How do people choose which contemporary artists to support so that their portfolios continue to appreciate over time?
It is equally challenging in the NFT space. How do you know which project's artwork will become popular? Should the number of minted items be very scarce? Should it be an "old" project? By "age," do we mean how close it is to the genesis block of the token? Should it be aesthetically pleasing to a specific wealthy demographic? Should it be directly related to popular video games? There are many questions here, and there are no right or wrong answers. But at the same time, there will be a group of traders proficient in narrative construction and meme propagation. They will be able to collect the most sought-after NFTs and earn substantial returns in the process.
Trading Data
I do not have complete data on the daily trading volume of NFT art, but I will use CryptoPunks and OpenSea projects as effective illustrations.
The following data comes from Dune Analytics.


It is clear that 2021 was a breakthrough year for the project. I believe Punks represent the energy and activity of the entire field. People are striving to purchase essentially worthless pixelated avatars.
OpenSea is one of the most popular NFT markets. It is essentially the crypto version of Christie's and Sotheby's.
The following data comes from Dune Analytics.

This market is exploding. Imagine if there were a transparent market where all artworks in this space were traded. The volume would be enormous. This is the opportunity that NFTs currently create. If you still think they are a pile of cow dung, that's fine, because the most sought-after projects are attracting real liquidity.
The art world employs thousands of people whose purpose is to verify and authenticate the provenance and authenticity of works for sale. Given that this is done by fallible people who sometimes have conflicts of interest, counterfeits are rampant in the art world. For NFTs traded on public blockchains, this is impossible. When you purchase something on OpenSea, you know 100% that you are buying a specific project's number.
Using blockchain to authenticate goods for display has advantages because it cannot be forged. Imagine a project that creates a symbol meaning that if you display a digital item on your avatar, you actually own its original file. This is somewhat similar to the "blue check" on Twitter.
One of my employees, who during the day sells emerging market forex and bonds for a large hedge fund but secretly wants to be a K-pop star or an NBA athlete, has delved deeply into NFTs. Among colleagues, he always wears trendy, expensive clothes from brands we have never heard of. During a chat about NFTs, he commented:
"It's like wearable art online, but it's online."
"You can showcase it to more people."
Ignore them at your own risk
Display is an indispensable part of the human experience. We do not question the value of physical space items used to display social status. We understand and value fashion, painting, jewelry, and more. We all wear clothing that indicates which professional community we belong to at work. What is an investment banker without an Hermès tie or a pair of red-soled Louboutin shoes? Clothing is part of self-worth.
Just because robots take on all our work in the physical world does not mean that humans cease to be human in the metaverse. Social signals will take on new forms—blockchain-supported, NFT-based "worthless" objects. Those who recognize these similarities and create new markets for digital display goods early will reap astronomical rewards. Those who scoff at these new worthless social signals can continue to walk the streets, walk into stores, and buy a $500 white t-shirt from some well-marketed fashion store. Choose your suitable "Flex-Good."
Scalable "display" is a dream for technologists. The ability to appear wealthy and cool is not limited to the physical realm but encompasses the entire traceable market of your online avatar.
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