Title: "Your Emotions Are Valuable in This Era"

Author: Arthur Hayes, Founder of BitMEX
Translation by: Rhythm Research Institute

Belonging, participation, happiness, achievement, and so on—these emotional values have long been considered a "mystical" concept shrouded in mystery, as they are difficult to quantify and vary from person to person. Humans are emotional beings, unable to escape the daily ups and downs of life; everything people do serves the perception of emotions. You can directly satisfy your material desires to stimulate your nerves and gain a sense of fulfillment; you can also achieve a sense of belonging and accomplishment by striving, spending money, or entering a certain social circle. These perceptions come from emotional outputs derived from some resource inputs, so they actually contain value support, but are hard to quantify.

The author of this article, Arthur Hayes, co-founder and former CEO of BitMEX, analyzes NFT crypto art from the perspective of emotional value, and NFT Labs under the Rhythm Research Institute has translated the original text:

Digital art NFTs on public chains (hereinafter referred to as NFTs) have prompted people to ponder "what is art and what is garbage." When some less affluent individuals see others spending huge sums of money on images made up of simple lines or pixels, they feel it is a waste of money. When a group of traditional wealthy individuals witnesses new rich people paying for a new unconventional art form to showcase their financial status, they think these "new money" individuals lack taste. Their definition of "taste" is that these "new money" people should continue to praise the artworks owned by traditional wealthy individuals, allowing those artworks to appreciate further.

A few days ago, I bragged to my son about an NFT of "Sad Frog" that I found very appealing. The reason I chose "Sad Frog" is that there are rumors that some rare "Sad Frogs" will be auctioned at Sotheby's. He replied that I should buy a piece from a famous artist, even if I know nothing about that artist. My response was, "I won't buy what those old folks like." Because I want to maintain my digital community, and it is the support of the community that allows me to continue purchasing these images with cryptocurrency. That conversation with my son, along with my experience watching the US Open tennis tournament and attending a dinner party, further convinced me that the art form of NFTs will be a significant transformation in art history.

For some, "speculating" on images is currently profitable. But even if speculation is the only way, at some point, these speculators will have a positive impact on the entire industry. How can we get the wealthy in the crypto world to spend their money on NFTs instead of works by famous artists like Monet? Will those holding cryptocurrencies use their earnings to buy what "old folks" like, or will they stick to collecting the new generation of artworks?

Cities Support Art

As someone who has been crazy about tennis since childhood, I thoroughly enjoyed a recent visit to the US Open. When you start to think deeply about tennis or any other professional sports event, you quickly feel that this field has endless potential.

Arthur Ashe Stadium can hold up to 24,000 people. How do these people get to the stadium? Most of them choose to drive or ride motorcycles, which consume resources. The benefit of driving is that you can enjoy the beautiful scenery of Queens along the way; of course, some people choose to take the subway, but that also consumes resources.

The stadium is built of sharp-edged reinforced concrete, and people are hitting green tennis balls back and forth with rackets. From the perspective of resource consumption, the experience of watching a tennis match is completely disproportionate to the resources consumed in building the venue. However, tennis and other sports provide people with a sense of community identity. For example, if we were farmers or slaves forced to work in factories from a small village, we would not feel this "identity."

Baseball is a very traditional sport in the United States, with the Major League Baseball established as early as 1871. Imagine what would happen if England had no football? I firmly believe that your imagination entirely depends on your view of the sport. You might think that England would be better off without football or that nothing would change, especially after many England fans were disappointed with the team following the penalty shootout in the 2021 European Championship. But what you should know is that the English Premier League was born in 1888, making it the first of all leagues at the same level.

In 1900, the proportion of citizens living in cities with a population of 5,000 or more was 35.9% in the United States, 67.4% in the United Kingdom, and 30.4% across Europe. As Western Europe and the United States adopted and rapidly improved the inventions of the First Industrial Revolution until today, more than 80% of people in most developed countries live in cities of various sizes.

To fully utilize the new inventions of mechanization, we need material inputs, labor, and machines to be centralized. This means that the initial women and non-skilled laborers no longer need to farm but work in assembly line factories. To get these laborers to abandon their familiar agricultural lifestyles, they paid a heavy price.

This clearly caused social conflict between the politically powerful landlord class and the emerging merchant class. The merchants supporting economic progress ultimately won, but the road to victory was not smooth. No powerful group wants to see its labor force defect due to better options (money, freedom). Do you know what happened in 1865?

Henry Ford was one of the founders of this factory. He completely rethought how to work and how to improve work efficiency. He opened the era of mass production in his first factory on Mack Avenue in Detroit.

In the cities, the wages of workers engaged in mass production of goods steadily increased. Although the working environment might be harsh, moving to the city still offered better pay. This also led to a rapid increase in the population living in concrete jungles around the world.

Urbanization completely changed the way humans form communities. When you move from a farm to a crowded rental in an industrial city, it means you have severed ties with the people and things that once gave you a sense of self-worth. So now, in this cold and ruthless city, how should you connect with those around you?

High-paying factory jobs create a lot of leisure time that was absent in agricultural life. If you think about disposable income, time, and the lack of social interactions due to the nature of personal work, you will understand why most professional sports leagues and teams were established around the turn of the 20th century.

This team becomes your identity, a common language among the people in your city. You can form strong connections with strangers and treat them like your old neighbors back in the village because you all love the Yankees. From the perspective of social control, professional sports help solidify relationships between people, thus forming a unique identity for the city. Those who feel a sense of belonging will not challenge the underlying power structure.

Therefore, although it may seem worthless from an energy perspective, professional sports provide an extremely important social control mechanism. This is why cities spend billions of dollars to build new stadiums for their teams. Yes, stadiums generate tax revenue and provide jobs for locals, but on a deeper level, they create a strong attachment to the city—just as if the city had nurtured you.

The development of the professional sports industry drives economic growth, and these stadiums are like large factories built in the city center. When we think about the meaning of work in the digital economy of the internet, it is not surprising that e-sports have become the most mainstream recreational competitive activity globally. According to data from Newzoo, Comscore, and IFPI, the lottery industry generated $145.7 billion in revenue in 2019, while the combined box office revenue and music revenue for that year was only $72.7 billion. The desire to join digital communities has created the foundational conditions for the rapid growth of the global gaming population.

The rapid development of cities has also been accompanied by an excess of money, which has sparked interest in art. City governments are very willing to spend money to build the best museums to make the city vibrant and culturally rich, which makes the entire city appear more elegant and prestigious. Coastal cities like Dubai, Abu Dhabi, and Doha were insignificant before they tapped into oil and gas resources, but now they shine brightly. However, these glamorous metropolises lack the cultural accumulation of hundreds of years, and they are aware of this, which is why they are willing to spend heavily to host sports events and build art galleries.

If a city's only remaining attraction comes from low taxes, then its residents are unfaithful and lack a sense of belonging. In contrast, cities like New York, London, Paris, and Tokyo, despite their frighteningly high taxes, see both the rich and the poor willingly pay, precisely because of their cultural accumulation. Sports, theater, live music, and exquisite dining experiences can all be found in these cities, and residents are more than willing to pay high taxes to immerse themselves in these experiences.

They can also choose other similar ways to spend their leisure time. For example, in our metaverse economic city, people can appreciate NFT artworks in digital art galleries. The attachment people have to communities and various virtual cities revolves entirely around NFTs. Communities will provide real value to NFT art forms on a macro level, allowing an artist's work to earn substantial income in cryptocurrency.

The business model of manufacturing has driven the growth of urban populations. As community bonds have faded, a new community has emerged around activities that can only be profitable in densely populated urban environments. Professional sports are one such example. As a psychological model, it is evident that the metaverse will create underlying support for NFTs as an art form, leading to explosive growth in their value because it can create a community.

NFT Salon

I recently attended a small dinner at a delicious Filipino restaurant. My companions were cryptocurrency enthusiasts and venture capitalists. Of course, we talked about the NFT space, and one particularly optimistic investor spoke at length about his book.

Before learning about Bitcoin and Ethereum, he was an art dealer and had worked as an art specialist at a mainstream auction house for a time. He is very optimistic about NFTs and has bought quite a few. In his view, the biggest challenge is how to turn the endless bubble of NFTs into something valuable.

His core argument is that a small circle of digital artists will create the highest quality NFT works because they are the first to participate in practice and are skilled enough. After that, NFT promoters can persuade traditional auction houses and trendy museums to auction and collect these works. Although I do not agree with the view that NFTs need recognition from the traditional art world, his perspective is still very persuasive, which is the power of salons.

When someone with a relevant background who "looks" smart argues that a piece can be called "art," people will accept it as an "artwork." Because those who have already spent a lot of money on this "artwork" do not want others to think they were fooled like fools.

This process is inherently reflexive. Human psychology suggests that when you own an asset with ambiguous value, you will experience "confirmation bias." Why would you buy an expensive JPEG image just to show off to your peers? It is certainly because you can proudly declare that your 0x address holds works by future digital art masters. As more and more people begin to become insiders, the shared goodwill towards NFTs as an art form will give rise to the Rosenthal effect, or self-fulfilling prophecy. This is why a jury composed of like-minded individuals can elevate something to the heights of reverence or let it fall into the abyss.

As dialogues continue online and offline across the country, a group of arrogant holders of zero-value works has emerged. This, in turn, has fostered a HODL culture among some star NFT artists. Just like in the real world, communities in the digital realm also need someone to distinguish between high art and low art. But now, I can confidently say that all NFT artworks will find space to survive because too many people are unwilling to believe that the JPEG works they bought at high prices are actually just digital trash. Given that most of these individuals are highly respected, their participation in the NFT ecosystem itself provides enough credibility for the continued development of NFTs.

Outdated Art

Real art has existed for thousands of years, and no matter how the metaverse develops in the future, it will not affect people's pursuit of real artworks. However, some artworks are expensive simply because a certain age group has exchanged their excess fiat currency for what they believe to be widely accepted, aesthetically pleasing, and delightful items.

Baby boomers are starting to deal with their assets, either passing them on to their descendants or selling them directly to enjoy their retirement, and many nearly perfect artworks have ended up as trendy T-shirts. This is the art of the baby boomer generation. A well-dressed gallery owner may be charmingly deceiving them into thinking they are buying "art" that will retain its value. However, the younger generation of the internet has built communities online, and their understanding of community does not allow them to spend their money (BTC and ETH) on physical items that have no connection to the metaverse.

It can be acknowledged that the art form of NFTs is beautiful, but there will always be individuals who use it to create ugly, vulgar, and hollow works. Sharing and experiencing the beauty of NFT art is our original intention for building a sense of community belonging; we cannot let the works of these individuals destroy it. This construction of belonging will also make us rethink whether the sense of recognition and empathy we express while cheering at a tennis match is truly meaningless.