I want to talk today about the future of NFTs, non-fungible tokens. Lots of hype about NFTs, ever since Ethereum came out with its ERC-721 standard which really was a major innovation - being able to make every token unique, in some particular way, opened the door for things like dApp video gaming.
I said there has been a lot of hype about NFTs. And hype usually means that what people are expecting to happen - in the near term - is a little less grand than what is really going to happen. And this happens ALL THE TIME in venture capital and the start-up culture. And there’s a very specific reason for that. It’s because we can SEE the tremendous potential of a new technology or (even better) a new business model. But what we can CAN’T see are all these little problems that are going to pop up once we start actually working with the new technology. This is just how capitalism, start up life, entrepreneurship works.
And it’s exactly what I experienced in my early days at the idealab incubator - idealab was the first consumer internet incubator in the 1990’s. And at idealab, we thought e-commerce was amazing. What an improvement over mail order catalogs or trying to find that ONE BOOK at your neighborhood book store. So we built a bunch of ecommerce sites: Etoys, Cooking.com, Tickets.com, Music.com. This was the early days of consumer internet. You could literally try to own a whole consumer category. But what happened was once we built all these ecommerce businesses we were like “Ok where is everybody?” Then we realized “Oh we need internet marketing.” Whatever that is, because of course, no one has ever done it. SO...how do you do that? So we figured out how to do internet marketing. And companies like Double Click got invented and made billions of dollars helping businesses do online advertising, and then of course got acquired by Google.
So we figured out internet advertising, and we got people to show up to our e-commerce sites using these new advertising inventions and then we encountered another problem. “How come people aren’t buying much?” Well, that’s when we found out about the payments problem. Payments was a huge problem. Which is what led my partners and me to be the first institutional investors in PayPal. We needed an innovation like PayPal to make online shopping work, work for consumers, who demand convenience. And by the way, at the time, credit card companies wanted NOTHING to do with these questionable internet companies. In fact, even if you could get a merchant credit card account for your e-commerce company, you got charged 10%, 12%, 14% of the transaction in credit card fees.
My point here is that as good as a new technology appears to be like e-commerce, there is always some hidden friction in bringing that technology to its full potential.
So about NFTs, these non-fungible tokens. As I look out here at the beginning of 2020 at the hype around NFTs, there are things people believe are right around the corner that I think are going to take longer.
So let me run through a few of what I think those are:
The CONSENSUS view out there is that big video game companies are going to start rushing in to incorporate NFTs into their hit video games. That is not going to happen for a few years. You want to know why? Because those big video game companies learned a lot of the lessons back when they were small companies about adopting new technology and all the friction that comes with it. So they’re cautious. They’re going to move slow. As I’ve mentioned before, small, indie game developers will be the first ones to experiment with, and even succeed with, NFTS.
Another consensus view right now about NFTs, is that people are just going to start trading them like crazy. Nope, not going to happen. At least not yet. Now, as a lot of you know, my partners and I spent the past 20 years, running video game virtual item marketplaces. We know this business. We also understand WHY people trade virtual items. At a minimum, the trading PROCESS has to be simple. The single biggest contribution to making that happen, is what we recently did with the WAX Cloud Wallet. We’ve made it very simple to set up a blockchain account and trade NFTs. There are now almost 500,000 customer accounts on the WAX Blockchain in the past maybe three months because of the WAX Cloud Wallet. But until large numbers of people move away from wallets like Scatter and MetaMask, NFT trading will be limited. It’s just an emergent behavior. You can’t just design some nice looking NFTs and expect people are going to magically start trading them. People need a reason to do things. And your job, if you’re a video game dApp designer, is to figure out what will cause people to start trading. And that is still a work in progress. Which is why I think massive trading right now is not going to happen.
Let me mention one final consensus view about NFTs that’s wrong. That’s leasing them. Yep. Leasing your NFTs. This has recently been getting a lot of hype. But it’s not going to happen, in any material way, probably ever. Why do I have such a strong opinion about this? Because its been tried. Many times. For decades. Generally by people who don’t understand video gamers. There is no evidence that video gamers want to lease skins or NFTs. Just one possible problem that I see with the NFT leasing market, is the fact that people own video game skins to show off. It’s a way to say “Hey look at this expensive skin that I own, aren’t I impressive?” But if anyone can inspect the blockchain and see that you don’t own it, that you’re just a poser renting it, then you destroy the whole reason you wanted the skin in the first place. This is just one issue that I see, by the way. There’s many others.
Here is my advice on this one, this leasing NFT concept. If you can’t come up with a super compelling reason why someone would want to rent or lease a skin, then don’t waste time on it.
Let me finish here by saying that I have a few non-consensus views about the future of NFTs. And in another upcoming video, I’m going to share those with you. That’s it for now. If you liked what you heard on this video, please hit subscribe, make a comment, and I’ll talk to you next time.