Artificial scarcity isn't bad and it's not just a jpeg (on NFTs)
0xe612
October 4th, 2021

This piece addresses two common questions and critiques about NFTs:

  • “It’s just a jpeg everyone can see, so anyone paying for it is [delusional / getting scammed / etc].”
  • “The internet’s supposed to be about abundance - why are we creating unnecessary artificial scarcity and financializing everything?”

Given music’s history with ubiquity, including the economic effects of the sudden shift from paid to free post-piracy, I think these are two excellent critiques to explore the value of NFTs in general and for music specifically.

Participation

One of my own, biggest critiques of what happened to music in the 20th century is that music’s default shifted from communal to individual, from participative to consumerist, from folk to personalized. This happened through the proliferation of the recording and record players to every house, then every room of the house and eventually everyone’s pocket until even the music played from streaming services would be atomized to personalized playlists that fit an individual’s taste exactly.

This had great economic consequences for the recording industry, which eventually dwarfed other parts of the music industry like publishers. It also created a framework through which corporations own and govern the majority of contemporary culture. If you think about folk songs as songs that an entire population knows, or just subsets thereof, then pop music has essentially replaced folk. Folk music was communally owned and iterative. Pop music is, typically, corporate-owned and there will be 1 official version: everything else is ‘derivative’, less authentic, less ‘real’, than the ‘original’. In that sense, Seven Nation Army could be considered a folk song, especially in countries where it’s a common chant in football (‘soccer’ 🇺🇸) stadiums.

Don’t get me wrong: I think many of these aspects brought great attributes to music too, but it’s important to consider which other attributes, like the ones mentioned above, got deemphasised and moved into the background of our default music experience.

Back to artificial scarcity and abundance.

The time we live in is amazing. We have so much of humanity’s knowledge and cultural expression at our fingertips. We have simple, digital tools at our disposal that allow us to express ourselves through any modern type of media: image, sound, video, augmented reality (think TikTok, Snapchat, and Instagram when it’s not down). After being locked out of participative culture because of decades of a creator / consumer divide, we may soon see a billion music creators. So why be so excited about something that introduces scarcity?

Open scarcity

The exciting thing about NFTs is that you can let everyone access the media, yet assign the ownership of the NFT that represents the media to one person. This is not that dissimilar from video games: your friend may have unlocked a certain skin that is purely cosmetic and does not affect gameplay. You can enjoy this skin while you play with your friend: even if they’re the ones who paid for it.

NFTs can be used in similar dynamics. Sometimes they’re used as vehicles for crowdfunding. They can bring media (or culture) into existence that wouldn’t exist otherwise. One patron, one NFT. And a jpeg or mp3 for millions to enjoy.

MP3s, for a long time, held a real price of $0. Most people would download them and wouldn’t pay for it. Streaming, unfortunately for many artists, hasn’t helped them to attain a significant income. This may be due to a number of factors, but the fact is that for a long time music has been a game with just one mode to play it. If you don’t fit that mode well, it’s going to be hard and the factors are often outside of musicians’ control. The major exception I can think of is the period before recorded music revenues bounced back to pre-piracy days, which kind of forced people to get creative. Besides contemporary streaming giants, two of the more popular crowdfunding platforms were born in this period: Kickstarter (2009) and Patreon (2013).

Graph: IFPI Global Music Report 2021
Graph: IFPI Global Music Report 2021

If we use the phrase ‘NFT’ to mean works of art (music, visual, both) then NFTs create an amazing situation where content no longer needs to be locked behind a paywall on a platform like Patreon. Instead, the proliferation of the media associated with the NFT, for example a song, will increase the value of the NFT. This also impacts the perceived value of future NFT drops.

Ownership is exclusive, but the media is abundant. It’s open scarcity.

But why pay if it’s free anyway?

There are many motivations why people pay for NFTs. Some people are purely speculating, but I don’t think that’s the important part of the story. Some are collectors. A web2 example I can think of is Bandcamp: for some releases you can get the free download, but if you pay $0.50 it also shows up in your collection. I love building my collection on Bandcamp, so I’ll pay for the free jpeg and mp3 to be there.

Most importantly, NFTs are decentralized social media. They are objects that exist in a social context. This social context is powered by the blockchain on which the NFTs sit, plus any social media an NFT holder might use. In this context, possessing an NFT holds meaning to the owner, because it can signify social value, taste, distinction, membership, or identity, just like people’s clothing or virtual skins in video games. All of that is portable to any social context they move to.

It’s that social aspect that gives these objects value and in many cases the social value would be greatly diminished it the object was not freely accessible for all to see.

Financializing all the things…

Finally, a conclusion I’ve drawn for myself. I sympathise a lot with the critique that the web3 is financializing everything. Should all these things have a price tag or should the price tag be secondary? Certainly, in this wave of the web3, the price tag has often been the story, but I don’t think it’s the whole story (although to some writers it is).

The real story is that value can be tracked and it can be made transparent. People who create value can participate in it. All these interactions we have with each other online, all this culture we’re accessing: it’s already financialized. The companies that host our conversations, our art, our expression, they have shareholders, they sell ads. The difference with the web3 is that 1) we don’t know what interactions are worth, and 2) we don’t participate in the value they create.

That’s different now.

From here we have options. We can choose to express things in tokens or cryptocurrency. We can choose not to. We can choose to distribute equally to all participants or reward those who contribute more. We can choose governance models where it’s one person, one vote, or where people can vote based on their stake (e.g. number of tokens held). We can choose the game we play - this has not happened since that 2009 to 2013 period that spawned so many of the current status quo.

These systems are in our hands now. There’s no one-size fits all platform. Instead we’re stringing the tools together to create brand new configurations to design communities the way we see fit. Different subcultures will emerge in the space. They already have. For example, Zora is a radically different NFT marketplace (and more) from Crypto.com. Just compare their positioning: “THEY THOUGHT THEY COULD OWN US” versus “The World's Fastest Growing Crypto App”.

Auctioned digital cultural objects, as NFTs, have an important role to play in online culture in the next ten years. Music piracy paved the way for streaming. Streaming paved the way for microgenres on SoundCloud to playlist edits on Spotify to the meme-like behaviour of music on TikTok.

Now a web3 layer is going to start providing a new context. Let’s add social context to those mp3s and jpegs.

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