Reconstructing NFTs: The Philosophical Thinking of Tokenized Business

Original Title: "Not Boring"

Original Authors: Packy McCormick, Alex Danco

This article comes from the WeChat public account: Old Yuppie

The content is derived from the整理 of the "Not Boring" interview column.

The dialogue comes from hosts Packy McCormick and Alex Danco. Alex works at Shopify as a Systems & Crypto person.

I hope it brings you new perspectives and inspiration.

Host: We both work for Canadians—you're at Social Capital, I'm at Breather—then we both started writing newsletters. Since then, we've gone in different directions—I'm doing a newsletter and a fund, while you've slowed down your newsletter updates and become a full-time operator at Shopify.

I remember when you took that job, I was thinking, a) That's so cool! b) What exactly will you be doing at Shopify? c) Where will Shopify go? For those who haven't used Shopify, can you define what Shopify is today and what you think it will become in the next ten years?

Alex: Let me describe Shopify simply: it enables everyone to do business better, specifically, we do this through software: we are building an e-commerce platform. Our job is to build that platform in a unique way, serving merchants—and many others, like app developers, agencies, and now buyers—we provide the best internet software services.

Host: Alex Danco, what do you do at Shopify? Of course, aside from being Shopify wallet-aware. Let's dive straight into Web3. When you first tweeted "gm" a few months ago, I thought you were being sarcastic. Then you changed your profile picture. Now you're running a blockchain team—your title on LinkedIn is "Systems & Crypto person." Have you been involved with cryptocurrency for a while? What interests you about it?

Alex: Ha, this is really interesting because I didn't even think it would catch anyone's attention. I've been involved with cryptocurrency for a while; I've been writing about it in my newsletter for years.

As for "What interests me about it?" I don't know. It should be that I'm interested in everything. Here are some examples of what I love to think and write about, but I think the most important thing is that the crypto world is searching for its purpose, which should be what you want to know. Generally, people can spend time in three places:

• Those without purpose
• Those with established goals
• Those who are discovering their purpose.

You tell me which sounds the most interesting.

Host: I'll start using it instead of "we came too early!" For many, "discovering its purpose" means finding "real use cases." From the perspective of the crypto world, Shopify is one of the more interesting places in trade tech—crypto and commerce are closely related, and your CEO Tobi seems genuinely interested in it, especially since over a million businesses run on Shopify. Given its scale and scope, it feels like Shopify can lend its legitimacy as a use case; if Shopify supports something, it’s a real use case because Shopify supports it.

With rights come significant responsibilities. How did you start considering whether to get involved and what to do in this field?

Alex: I joined Shopify two years ago and discovered an interesting phenomenon that

1) Many people very familiar with cryptocurrency are scattered throughout the company, but they also

2) Lack a "driving force" of alignment; everyone is unsure what else can be done besides trading cryptocurrency.

For years, Shopify merchants have been able to accept crypto payments thanks to payment channels built by third-party app developers (and we just built the overall business platform!).

But last year, when NFTs took off, we really ignited the search for the answer to this question: Is this part of the "best internet version" that our platform must provide for merchants? The answer is obviously yes, although it took us a minute to figure out why.

Host: Indeed. I think the first crypto news the company released was the Chicago Bulls NFT store. When I think about Shopify's role starting from there, I think your big push in this space will be along these lines—NFT minting, drops, sales. You help businesses sell things—both physical and digital—so that includes helping them sell high-margin NFTs. That's not the path you're taking. Why?

Alex: Well, Packy, that's what I want to talk to you about regarding money. Back to our topic, rather than giving you a simple answer ("because we realize more than anyone else that tokenizing commerce will be a 100x opportunity compared to existing business models, and it's more interesting to us than anything else").

Host: A few weeks ago, there was a line in Jonathan Haidt's big article that immediately made me think of cryptocurrency: "History has a direction, and it is moving toward larger-scale cooperation." The crypto world is a bet on larger-scale cooperation without having to pay companies that think they coordinate everything. What do you think?

Alex: I particularly love the "coordination" part of this answer; to be clear, I think there is certainly no one right answer—there are many different communities and schools of thought about what blockchain and cryptocurrency do for us here. That's a good thing. But I'll tell you mine, I think it covers a lot of important things.

When we focus on the changes "happening" in the crypto world, we focus on two things:

Wallets are changing how people behave, and:

Over time, this behavior will win.

Host: I love this answer because it integrates social and technology, as well as the interaction between computers and people. "First we shape our interfaces, then our interfaces shape us."

Alex: I think it answers the question well, don't you? It offers something for everyone. Those who have Sound Money have something (our wallets and crypto keys have changed how we save and spend, and over time, this behavior will win over old behaviors), dapp builders have something (wallets have changed how people create and consume software), and communities have something (wallets have changed how people collect and display their identities).

I love this starting point because it brings us together on what we have consensus about. Crypto is fundamentally a behavior as much as it is a technical attribute, if not more.

This behavior has many aspects, but it starts with cryptography; it starts with our wallets when we sign something. It starts with a moment when our wallets open a door to a new world and step into it.

We are exploring some cool things in that world. We call it tokenized commerce.

Tokenized commerce starts with an observation: there is a new type of internet user in the world, called a wallet holder.

Host: I love this framework: wallet holders. Descriptions of what crypto allows people to do are common, but I haven't seen any descriptions of what crypto allows people to become.

Alex: Exactly. Forget for a moment what you can do; let's talk about what you can become.

I'll tell you the answer: you will be a wallet holder.

Let's talk about these wallet holders. Who are they? They are owners. Maybe they own some NFTs that represent community membership, an ENS name, an ETH or USDC balance, or maybe a smart contract associated with them. They can sign on the internet.

The way these people behave is interesting: they really want to connect their wallets to things. They are always connecting their wallets to dapps or connecting their wallets to NFT marketplaces.

Why is that? Because what we own through our wallets means who we are. When we show up with a wallet, we show up with our identity. When we connect our wallets and feel that magical moment when the world suddenly changes—it sees us, it opens up—that's an amazing feeling. The feeling is like this:

What happened in this photo? This was at the Doodles event held at SXSW last March, a pop-up world created by the Web3 community Doodles.

The event was open to everyone, but if you were a Doodle holder, various experiences in this world—from the entrance all the way to the Shopify-supported gift shop—were "opened" to you in delightful ways. Lights flashing, bubbles blowing, special passes in hand; the Doodle you own appeared on a giant screen, announcing to the world: "I am Doodle NFT holder #3125!" One after another, guests' faces beamed with joy; everyone successfully entered this new world.

This moment is the entire meaning of tokenized commerce. You realize, "Ah. I finally understand the relationship between NFTs and commerce." NFTs are not the output of commerce; they are the input of commerce. NFTs are not a product. They are a symbol of the buyer's identity.

Host: I love the two things you mentioned,

1. Experiences can be open to anyone, but they are more special for NFT holders. I think music NFTs are really representative: anyone can listen, but a select few can become prominent supporters and access special tracks and meet-and-greets, etc…

2. I'm back to it again. Crypto allows people to become something.

Alex: Being an irreplaceable buyer is a good thing. You arrive at a storefront, connect your wallet, and suddenly the storefront changes based on the NFTs you hold. Maybe a special product is unlocked, or you can get early access to a drop. Maybe you connected your wallet to unlock a high-quality art print or 3D model corresponding to your NFT. Maybe you can access a special collaboration: for this limited edition drop, your NFT opens a new door for another community. The more you explore, the more doors you find.

Specifically, NFTs have proven to be the perfect catalyst for this behavior. Do you know why? Think about what the most successful NFT brands look like. It looks like a theme and variation: this is how you fit in, this is how you stand out.

They are symbols of that sense of achievement: I'm in Doodle, I have this Doodle. I'm in Adam Bomb Squad, I have this Adam Bomb. I'm in Stapleverse, I have this pigeon with a bandana. NFTs are the new meaning of "fit in and stand out" on the internet.

Host: I think this is one of the collaborative points at scale. In local communities, we are naturally irreplaceable buyers. You go to your favorite local shops and restaurants, where people know you and know what you want to order before you even say it. You are part of the local community (you've "fit in"), but you are also you, with your own preferences and distinct style, etc. (you "stand out").

Alex: Yes. It turns out that the behavior of "fitting in and then standing out" is one of the most important raw materials for so many beautiful things in the world—culture, community, commerce. Now we have wallets with NFT lists that represent this precise atomic unit of behavior: fit in, then stand out.

Of course, this feeling of "fitting in and then standing out" is not unique to cryptocurrency. It's a universal feeling that gets better when you reciprocate it.

My colleague Nicole has an anecdote about walking around the mall with a big Sephora bag (not a small one, the big one you get when you buy too much to fit in a small bag) and realizing that others have big bags too. They both immediately thought of the same two things: 1, how cool that you have the same bag; 2, what's in your bag? When one of the engineers on our team sees others wearing engineer badge rings, she has a similar feeling. I used to tour with a band, and now whenever I see someone wearing a concert T-shirt on the street, I feel that way.

This recognition is contagious because you both feel good. It's a feeling of mutual inclusion: I let you in, you let me in. This is the challenge we do together: we both fit in and stand out. You can see it in every community: athletes, collectors, people who love bands and live music, and comic book fans. Wherever you see this feeling, commerce is just around the corner.

Great brands understand this concept very well. When you shop at their flagship stores, it's clear how much thought and craft has gone into creating this environment of mutual recognition and achievement: not just in decor and aesthetics, but more importantly, in your interactions with the merchant. It can be as simple as the merchant seeing your T-shirt, nodding, and saying, "Nice."

Especially because this recognition earns you some extra discount eligibility, "What’s that hoodie? Spring collection '18? Great. Hey, we have something prepared for you in the back that I think you'll like."

Bobby Hundreds (from the Los Angeles streetwear brand The Hundreds, and of course, Adam Bomb Squad) wrote a book called "This is Not a T-Shirt," which I highly recommend as it really emphasizes this point.

Host: Yes! So I guess this is the second layer of meaning—people in your real-life community might recognize you as you. One layer up, wherever you go in the physical world, others who like what you do might recognize you as a kindred spirit. But it's hard to do that online.

Alex: Yes. Before wallets appeared, it was hard to create that magical moment of being seen online. Online storefronts struggle to do atmosphere checks on buyers and respond to buyers in ways that recognize and celebrate social contracts. Customer accounts and loyalty programs don’t cut it; they are not you, and they are different from your wallet. Customer accounts are essentially part of the store, not part of the buyer. In contrast, "connect your wallet, get recognized" is a special feeling. It's different.

Host: Okay, that makes sense, but there's still a big unresolved question for me. When I read about "tokengated commerce" or "x-gated commerce," my first thought is, "Why would you want to limit your commercial activities? If you're selling something, why not reach the widest audience possible? Why not just one-click checkout?"

I was about to ask you, you've talked a lot before about the importance of maintaining some barriers to build trust in what you classify as "high-trust commerce." Tokenized commerce feels like a way to intentionally introduce a bit of friction for certain products. Is that right?

Alex: 100%, I think the way to solve this problem is to replace the word "friction" with "challenge": Tokenization is about adding challenges for certain products.

The default state of the world is not "everyone wants your product." Creating demand is an art: you create a story and a challenge, and then you wrap that challenge in an adventure that the buyer and merchant undertake together. Think about flash sales or limited releases; these experiences are fun, and they are all wrapped in a story. You become someone who successfully gets the drop, and that's half the fun.

However, this is actually a good time to revisit your thoughts on crypto and "collaboration," because one of the things I'm most excited about in tokenized commerce is collaboration.

Collaboration is the lifeblood of creative work; ask anyone in music, streetwear, or any scene. But online, how do you organize a collaborative product specifically for a group of people: my fans and your fans? There’s no traditional way to do this that is both exclusive and not clunky. But tokenized commerce makes this so simple. Connect your wallet, use any of these NFTs to access the drop. I let you in, you let me in. It's that simple.

I'm particularly interested in how tokenized commerce helps brands recognize each other. I think "endorsement" is a special subset of collaboration, where a mature artist hosts or co-develops a brand with an emerging artist. (The music industry does this particularly well.)

We should ask: how does one community support another emerging community online? Through token collaboration: when two brands come together, exclusivity transforms into reciprocal inclusivity.

What is token collaboration? When The Hundreds collaborates with Deadfellaz, you can use any NFT from their collections to unlock limited edition products; that’s token collaboration. When Superplastic collaborates with Gucci, that collaboration is limited to holders of the secret SUPERGUCCI NFT; that’s token collaboration.

This is where the magic starts to happen: I belong to my community, you belong to your community, but when we collaborate together, I can invite you in; you can invite me in. Tokenized collaboration transforms exclusivity into reciprocal inclusivity. A century-old brand like Gucci can endorse a very hot brand like Superplastic, and their fans are inviting each other into this shared experience, along with the shared community they now have.

Host: So there's an obvious question: why does tokenization make commerce better, and how is this different from brand loyalty programs or promotional codes?

Alex: So, I can give you an evasive answer that emphasizes the idea that "challenges feel good"—when you spend more ETH on a precious NFT, unlocking tokenized products feels like an achievement. However, to truly unlock the potential of tokenized commerce, we need the next generation of cheaper tokens (ultimately, cheap enough to be negligible), many of which will be more practical and "challenges" will be a reward in themselves, you know? So, in the long run, we need a better answer to explain how tokenization will succeed.

Loyalty programs, promotional codes, or any other type of "account-based" threshold system can be used for reciprocal inclusivity mechanisms—of course they can—but here’s the problem. That’s because your threshold rules will exist as dependencies referencing back to accounts and permissions, and if you try to introduce any kind of interesting multiplayer mechanics, they quickly become complicated.

Imagine opening a pop-up store for fans of four different brands, with multi-tiered access that lets you get early access to product drops. Where do you "log in," and as what identity? What if you are a member of multiple communities—do I need a code from each community? How do you prevent promotional codes from being abused? The more variables you introduce, the more complex it becomes. I mean, you can do it, but social threshold rules built on dependencies will quickly collapse under complexity, and when the fourth wall is broken and the "exclusive community vibe" is disrupted by faulty software, it’s simply not a good community experience.

In contrast, tokens are an anonymous tool—they're more like a document, or a physical ticket you hold in your hand. (This document analogy will be important later.) NFTs do not "link back" to anything; they are not references to account entries on one or more merchant databases; they are the ticket itself.

In what we call "single-player mode" (a merchant controlling a single customer list's threshold), it’s hard to see the advantages of tokenization. But once you enter multiplayer mode—multiple merchants connecting with multiple groups of fans through a set of social rules—tickets are an anonymous tool that does not link back to anything, so there are no dependencies—but can still be trusted by "the door," even if it doesn't link back to anything (this will be elaborated on later, in the "why we need blockchain" section) is a fundamentally simplified mechanism. Because now, token threshold control rules can become super complex, but they won’t collapse under the weight of dependencies because there’s nothing to collapse.

Host: Speaking of which, I had a little moment of inspiration. Some killer use cases for cryptocurrency might be big, wild, and hard to imagine, but part of it is just, "Making the same things so easy that more of them will happen now." Stablecoin tracks fall into this camp.

Alex: I feel like this actually preempts a feature I want to highlight later, so I'll leave it here. But for now—when we look back at 2022 ten years from now and ask, "What was the truly obvious answer right in front of us during that time?" I think one answer is that collaborative token threshold control mechanisms will greatly simplify the ways brands collaborate and recognize each other, and this simplification will mean that community commerce will have more multiplayer opportunities.

Additionally, for anything involving remixing communities can recognize, collaborative token threshold control mechanisms are essentially a superior form: in our threshold control collaborative tokenization example, we are not trying to gate a specific group of people, but rather gate a specific set of achievements—holders, which is a more flexible and remixable form.

I want to double down on this idea by emphasizing that NFTs are your achievement list. NFTs represent you.

Today, we see Web3 brands and traditional brands that have already tokenized their online stores fitting very well into this path, bringing these storefronts to life through tokenized application partners. The depth of collaboration with these application partners is incredible, and we are working with them to build—more on that later. In the meantime, we just released a demo for a new mobile app for tokenized commerce: Gated Merch Shop (abbreviated as "gm shop"), you should check it out. Over the past few months, we have really loved creating incredible, mobile-first, single-use, tokenized commerce experiences. I’m proud of the team that built this; it’s going to rule everything!

But all of this is just a crack in the door of possibility. What’s happening in the backyard is even more interesting.

Now that we’ve set the footnotes for all the questions by introducing tokenized commerce, and the importance of this idea of fitting in and standing out for commerce, we can now talk about the importance of why all of this must happen on Web3 wallets and public blockchains.

One phrase to remember is: "We will make Shopify wallet-aware."

To truly understand Shopify, you first need to realize that we are not just an online store service for merchants; we are also a developer platform.

Every storefront is unique; if you go to any good merchant's storefront, it’s not just out-of-the-box Shopify—they might be running a dozen or more applications built by different developers (or themselves), all of which together create the exact business experience (that the merchant wants to represent their business). When you subscribe to a product, or browse cool content in a storefront, or connect your wallet to unlock closed products, all of this is powered by agents and app developers—just like most of what you do on your iPhone is built by developers, not Apple.

Well, we want wallets to be a new input method for developers building on the Shopify platform. The NFTs in your wallet are far more than "owning or not owning an NFT." NFTs are information; they are a smart contract, which is important.

That’s what we mean by "making Shopify wallet-aware."

When buyers show up at the storefront, if they show up with a wallet, their wallet can annotate everything, including all the public, social meanings that the buyer wants to present, should be available to the buyer.

These developers can access all relevant states and build various applications and mechanisms that can use that state as input. In the future, there will be a very successful suite of Shopify-based applications empowering storefronts, and today we already have four amazing tokenized applications (PERC): Engage, Manifold, Shopthru, and Lit Protocol—supporting merchants in tokenized commerce.

The best Web3 brands won’t wait. They are creating intricate intimate experiences for token holders—new ways to drop products, new ways for brands and their buyers to collaborate in multiplayer mode. The beauty of having an application ecosystem is that developers can reuse, iterate, improve, and ultimately share these mechanisms with many merchants and brands.

Host: That’s the best part of the new primitives: the crowd will think of all sorts of uses that even the creators of the primitives didn’t think of.

Alex: To give you a sense of what’s possible, I want to return to the idea of NFTs as tokens representing social achievements and social contracts on the internet. NFTs are a more significant achievement than you might think because we have successfully packaged this atomic unit of culture and community—fit in and stand out—and captured it almost like a file format that both people and computers can interpret and understand.

This is a big idea, so let’s break it down. What are the four things that NFTs in your wallet have to say?

• What you fit into [smart contract; a community; the context of social understanding],
• How you stand out [which NFT you signed in that collection],
• Who you are [the wallet address you signed with],

And then there’s one more thing, so simple yet so important, a genius addition:

• A human-readable image, making it immediately recognizable.

I, alexdanco.eth, fit into Adam Bomb Squad, and I stand out as the owner of Bomb #6233, a clean blue Disney-style trap design.

I know this sounds a bit absurd, but this is actually an impressive achievement; it’s like we have a recognized file format standard that can create an atmosphere on computers, not only faithfully preserving and promoting that atmosphere but more importantly, allowing for other things that can be done now that computers can access.

All of this may seem a bit silly, but something very powerful is happening here. We now have a way for computers to recognize and understand these units of social achievement; that’s the meaning of these little pieces, it’s almost like files (they are like files! That’s what I said before!) storing social meaning in this human and computer-readable, persistent little format. Through a small miracle of social coordination, it’s being widely accepted.

NFTs (and other smart contracts on the blockchain) are a mediating format—between the environment that establishes this social meaning and another environment that deploys this social meaning (wherever you connect your wallet)—this fact is important. It’s almost a step back from web2, back to a world where an application directly talks to another application through an API, back to a time when we got deeper correctness; what we rediscovered is called composability.

The fundamental idea here is that if you want one application to successfully communicate with another application, it’s easy; you just tell them how to do it. If you want one application to successfully talk to 100 applications, you can write a good API that says, "Hey, one hundred applications, here’s how to talk to me."

But what if 100 applications want to talk to 100 applications? You need to maintain a lot of connections. So we can use something else: files. If I want to pass information from one application to another, I can pass it as a CSV file that everyone can understand; there’s no dependency created between the creator of the file and the user of the file.

So one important principle to understand here is: strictly speaking, for any task or any work to be done, having App 1 talk directly to App 99 will be "better" than going through an intermediary file. But over time, the power of files will reveal itself through the power of standards. Because they have a common format, they agree on how to read and write to each other, and this content exists in a common place; on disk, or on the network, or in an accessible and persistent location.

Host: So why not pass it as a text CSV file? I feel like as someone excited about Web3 but understanding some people's skepticism about many use cases, I always have a responsibility to ask: why do we need blockchain? What does Web3 allow that you can't do?

Alex: Aha! Yes! So we finally get to the question of why you need a "barrier"!

That’s because we need to address the problems that blockchain was actually meant to solve, namely provable scarcity and the double-spending problem. These "files" need to exist somewhere in a public state, in a code environment that can make commitments, so that their social meaning really matters. "Web3" is such an environment—made possible by the publicly agreed-upon state of the blockchain—providing enough collective confidence in these "intermediary files" to achieve social meaning.

So if we go back to now and ask, "What is Web3?" for me, the most practical way to think about it is that "Web3" is just an environment built around a new set of standards: everything is a smart contract address, everything is a tokenID, everything is a wallet address.

The re-emergence of these blockchain artifacts as intermediary "files" means that interoperable, composable social mechanisms are now truly competitive—and I think, starting to surpass—closed, "Web2" social network mechanisms, where everything happens in one application, or as cross-dependencies between different applications.

I think this will be very crazy for commerce. Especially for the most special and meaningful community commerce, we are constantly creating and remixing new ways to express our identities: how we fit in and stand out. The best part is that this idea is so open and scalable that no single company or application can independently "solve" this problem. It’s impossible. Culture is too interesting; we need many applications, many developers, many attempts to capture these community expressions—from tokenization and then expanding to "tokenization can actually mean many things."

So that’s why I enjoy working at Shopify so much—because we are not playing this game alone, we are a platform, and tokenized commerce truly showcases the best reasons we choose to build: Shopify as a platform that everyone can join.

Host: So this reminds me of great online games, partly because we are playing this infinite game, not necessarily having winners and losers. I can see what this means for people, but Shopify is a company. In a corporate environment, what does winning and losing mean? How do Web3 and "real-world companies" mix?

Alex: I want to return to our initial thought; wallets are changing how people behave, and over time, this behavior will win. I want to focus on one word here: "win." What does this behavior "winning" mean?

It doesn’t mean we win and everyone else loses. Winning means we can keep playing. We play so that others can play too.

Our Shopify slogan has always been "Make commerce better for everyone," which is great, that’s what we’re here to do; but over the past year, another purposeful slogan that I really like has started to emerge: "Win and help win."

I think the game we are playing has no boundaries; it has a pattern: as you walk toward the horizon and explore it, you can never fully explore it. The horizon walks with you. I hope everyone in this world thinks like this: there is no Web2 and Web3, only "bringing the best version of the internet to the most people." That’s the big-picture thinking. When you help others win, you win too.

Host: Do you have any advice for our listeners?

Alex: Well, here are some suggestions:

First time exploring this world? Bring a wallet and go on an adventure.