From Physical Media to Digital Assets Evolution of Value Storage Carriers
Evolution of Value Storage Carriers From Physical Media to Digital Assets
Written by: Translation Guild xunyang
Part 1: Attention Networks
In the age of information explosion, most value can be traced back to some kind of attention-grabbing event.
The top three companies in the world are all producers of consumer goods, which are followed by hundreds of millions of end users every day.
Three out of the top four most valuable sports teams in the United States are located in states with leading network centers (tourism, media, and technology), and they have a market:
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Mr. Beast, 24 years old, has 125 million subscribers on Youtube. He recently turned down a $1 billion offer for his channel and related assets, and later completed a round of financing with a valuation of $1.5 billion.
For brands, companies, or individuals, it is easy to see how to use focused attention to identify the right opportunities and convert them into value without much consideration.
However, these similar attention flywheels can drive the development of a unique object’s value, and this viewpoint has not been fully recognized. What does this look like in practice? One common way is that an object becomes valuable based on its characteristics. From historical experience, this happens when an object reaches a new threshold in creativity, culture, or technology.
Take the Honus Wagner T206 baseball card minted in 1909 as an example. It is known as the Mona Lisa of sports cards. Due to damage to the printing plates during production, only 60 cards are known to exist. In 2022, one of them sold for $7.25 million in a private auction.
The second common way is that creators, celebrities, or brands associated with an object can easily gain attention, which can be converted into value related to that object.
Take Salvator Mundi as an example, which is the most expensive artwork ever sold ($450 million). It is a restored painting believed to be a genuine work by Leonardo da Vinci (controversial), and many consider da Vinci to be the most famous artist in history. This alone (perhaps wrongly) shows that da Vinci brought attention and value to the painting.
The third common way is when an economy forms around an object with clear rules that participants can fully understand.
For example, in the popular online video game “Counter-Strike,” some of the rarest in-game items are valued at $1.5 million each. These items offer aesthetic utility (identity, prestige, wealth) within the game, and despite their limited utility outside of “Counter-Strike,” they have attracted great attention from people.
For most of history, the attention flywheel of an object took decades to form and often involved a large number of intermediary entities or print publications that communities could gather around, such as trade shows, conferences, auctions, and print magazines.
For most of history, the attention flywheel of an object took decades to form when an economy formed around an object with clear rules that participants could fully understand. And it usually involved some intermediaries, such as exhibitions, conferences, auctions, and print magazines, to allow communities to gather.
With the rise of online networks, many of the previous limitations that generated attention have now been eliminated. Nowadays, digital-native communities, celebrities, and influencers on social platforms can often gain thousands of followers in a matter of seconds. This creates a net effect where the attention flywheel operates in minutes and hours within the space of today’s community gathering, rather than years and decades.
In the past 36 months, the attention flywheel has included not only unique physical objects but also purely digital objects.
Therefore, an efficient object attention machine has been created:
- Online communities;
- Generating attention;
- In real-time;
- For unique digital objects;
And the spark begins to ignite.
These recent phenomena can be partially explained by the unique design of digitally native objects rooted in blockchain technology, which unlock many new functionalities that have almost no precedents in purely physical objects:
Frictionless transactions. Unique digital objects can be traded frictionlessly through peer-to-peer networks and self-hosted wallets, avoiding the expensive and time-consuming costs associated with transportation, settlement, storage, and legal contracts.
Source of truth. Unique digital objects benefit from a global, public, and immutable database that can be queried openly at any time, which helps prevent forgery and claims of infringement and provides a way to quickly identify fraudulent behavior by contracting parties. The transparency of information makes auditing and tracking specific objects, issuers, market participants, and trends simple.
Global transactions. The identification and content/media of unique digital objects are permanently stored in a 7*24 globally accessible database, allowing for deeper market and more efficient price discovery mechanisms compared to physical counterparts.
Network consciousness. Network consciousness. The vast majority of high-end physical objects are only stored in warehouses. According to some observers, museums only display 5% of their collections at any given time, which is determined by the physical space required for exhibition. Although ownership can only be held by one wallet, the public can view, listen to, or appreciate unique digital objects at any time. Due to this unlocked feature set, these objects may receive more attention than ever before.
Digital attention, digital objects
Similar to physical objects, there are several common ways to drive attention to unique digital objects. First, many digital collections have already been selected individually, reaching the thresholds of creative value, cultural value, and technological value.
For example, CryptoPunks, Autoglyphs, and Chromie Squiggles are three important blockchain-based generative art projects. Each series has adopted new standards, inspiring the formation of media, art, and on-demand communities, opening up new avenues for creative works.
The second common way is that a creator or brand can easily gain attention, which can be transformed into related digital objects.
Mike Winkelmann, commonly known as Beeple, an artist who, before selling his first digital artwork in 2021, posted free digital artworks on Instagram every day for 13 years.
XCOPY, an anonymous digital artist, also posted free digital artworks on Tumblr every month for 10 years before selling his first digital artwork in 2017. Each artist has carved out a unique art style over the years, which has been loved by their audience.
The third common way is when an economy is formed around an object with clear rules that participants can fully understand, people have a demand to own a digital object because it provides a unique experience within that economy.
Otherdeeds are digital objects of virtual land that will be used in the immersive environment Otherside, which will soon be launched by Yuga Lab. Each parcel has a unique combination of environment, resources, artifacts, and creatures, providing unique advantages in the game economy.
Similarly, PROOF membership cards are digital objects from the PROOF team, which provide a unique entry point for new art, community gatherings, live media production, and other benefits in the digital economy.
In addition, in the past 24 months, I have discovered some unique attention-generating factors specific to digital objects:
Online networks. Some of the most interesting spaces that attract attention often exist outside of the blockchain. Creators and projects that build digital objects in public places, actively participate in communities, and transparently discuss their processes can quickly become highly sought-after artists. Examples include Grant Yun, Gmoney, 0xdgb, Punk 6529, Claire Silver, Justin Aversano, Jen Stark, and Jack Butcher, among others.
In addition, online products that highlight the uniqueness of an object can also help garner attention without the concern of diluting its value with more supply. One example is the generative art project QQL led by Tyler Hobbs. Hobbs’ QQL allows anyone to create their own generative artwork using algorithmic parameters, even if they haven’t reached the economic threshold to own a digital collectible. This resulted in the project pre-generating over 10 million unique versions in the weeks leading up to its release, and on the first day of its series launch, the project’s digital object sales reached $16 million.
More digital objects, more attention. Allowing multiple owners to have unique digital objects within the same collection brings more opportunities for holders to gain attention.
The continued success of top generative media projects like CryptoPunks and Chromie Squiggles demonstrates that a single, unified collection of iterative works can generate network effects that far surpass the scarcity of individual objects.
Therefore, collections with a large number of unique versions can also garner significant attention even with outputs of 10,000, 15,000, or 20,000. This trend, which started with unique generative objects, has now spread extensively to non-unique digital collectibles, indicating that network effects can be achieved with a large volume of digital collectibles as well.
I predict that in the coming years, there will be highly valuable single collection series, including millions of unique digital collectibles. These projects will challenge our conventional beliefs about scarcity and value accumulation in a highly networked world, where attention is a scarce resource.
“Free” or “low-priced” objects. Some of the most well-known digital objects were initially launched for free or at a low price (e.g., XCOPY’s 1/1s, CryptoPunks, Chromie Squiggles). By eliminating economic friction during the release of a digital series, they can stand out and attract attention early on in the project’s lifecycle. Take Friendship Brackets, a project recently launched on Art Blocks with 38,000 iterative versions, as an example. Although these digital bracelets were initially given away for free, they now trade among over 13,000 holders at prices starting from $600 per piece.
No copyright reserved. No copyright reserved, or CCO, is a tool where authors waive all their rights and dedicate them to the public domain. Because blockchain technology acts as a database that records every digital object, I believe that strict copyrights can weaken the network effects of digital object collections in a time when value and information flow faster than ever before.
By relaxing copyright enforcement friction, both digital object owners and non-owners can commercialize, recombine, imitate, productize, or build on the basis of CC0 collections, bringing attention to projects or digital objects at the speed of the Internet, no longer subject to legal or copyright enforcement restrictions.
There is a second-order effect of opening the floodgates of attention for digital objects.
Economic games. Participants in Damien Hirst’s 10,000 piece digital art project (July 2021) had a year to decide whether to keep their unique digital object or destroy it in exchange for a physical one. This dilemma forced participants to decide which form of object had greater personal value – digital or physical. Over the course of the 12-month project, hundreds of articles, reports, blogs, and discussions debated what the final statistics would be. After the one-year deadline, about half of the collectors chose to preserve the digital object and destroyed the corresponding physical artwork from the total supply.
Economic games surrounding the supply of digital projects, such as Currency or Jack Butcher’s Checks (VV edition), help generate tremendous attention throughout the lifecycle of a project because participants can watch the economic game in real time.
Specific category markets. If a unique object is listed or sold on a primary market made up of known buyers and sellers in that specific category, it is generally more likely to be discovered.
These specific types of vertical category markets provide natural meeting points for buyers and sellers.
Establishing a “town square” for vertically categorized objects provides market participants with a space to discuss new and existing works, as well as the sales status of these digitally categorized objects, increasing their visibility and forming a stronger social layer around the works themselves.
Curation. Just as we rely on experts – engineers, scientists, political leaders – to direct our limited attention in the right direction, unique digital object markets also seek similar curation signals from experts.
As curators of digital object experiences, curators actively seek out and assign economic, symbolic, and cultural value to new and existing items. These curators can publish thought articles, give talks on podcasts, or post on social networks like Twitter.
In the world of Web3, many leading curators are decentralized crowds. This includes on-chain collectives like Flamingo DAO (art), NEON DAO (metaverse), RED DAO (fashion), and Noise DAO (music).
While many owners of digital objects still seek traditional media channels for these curation signals, more and more curation is happening in the Web3 native space. Many digital object curators now publicly track their on-chain collecting behavior on Web3 native platforms like Gallery, Deca, Floor, SOHO, and other data aggregation tools.
Part Two: Storage of Products vs. Value Assets
While new models of attention and networks are driving the value of certain digital objects, not all digital objects are created equal. Some appreciate in value, while many do not, and these differences depend on the type of digital object being discussed.
My view is that in the future, blockchain-based digital objects will package every category of unique information. These categories will include representations of real-world assets, financial instruments, employment contracts, property deeds, digital representations of products, services, and commodities, as well as other categories that hold unique value in the physical world we live in today.
I find that a useful framework for explaining this concept is to see the blockchain as an upgrade to a simple record format for all real-world assets.
On the surface, this idea may seem overly ambitious, but it highlights the inevitable intersection of two growing trends: (a) the digitization of all information, and (b) the recording of digital information on a public, neutral, tamper-proof blockchain database.
For me, the question is not whether this end state will happen, but when it will happen.
However, given the nascent nature of this technology, there are currently only two categories of valuable and unique digital objects based on blockchain databases:
- Value storage.
I will provide a brief background on these two categories of digital objects and their future applications in the digital world.
In the real world, products or services are created to meet specific market demands. This can include consumer goods such as clothing, game skins, or sports equipment, as well as industrial equipment such as heavy machinery or manufacturing devices. It can also include services such as gaming or streaming subscriptions, live music events, or ride-sharing.
Overall, the monetary value of global products and services represents a significant portion of the GDP, amounting to trillions of dollars annually – a crucial part of the world’s trade value. Although the value of these products and services is immense as a whole, their individual value is relatively limited in relation to the market outcome of the product/service. For many products/services, the outcome may be either a minimal impact or a substantial value, or a natural depreciation as the product/service is consumed in the market.
Storage of Value
Alternatively, value storage objects are things that are stored or held as a means of preserving purchasing power. These objects typically enjoy large attention networks, are demonstrably scarce, highly durable, and have little external reliance to maintain value over the long term.
Value storage objects represent some of the largest markets in the world, independent of income goals and project deliverables. Over time, the demand for these items has exceeded the supply, resulting in an increase in their value. The most common three types of value storage objects are gold, real estate, and artwork.
For thousands of years, gold has been used to store wealth, relying on its inherent scarcity, durability, divisibility, and market network that transcends geographical boundaries. Real estate is another traditional value asset. It is a verifiable scarce, durable asset that can be passed down or divided into separate boundaries through the laws of jurisdictional areas. Art is one of the oldest forms of value storage objects, with sales reaching $65 billion this year. Influential artists such as Mark Rothko, Jackson Pollock, and Willem de Kooning have earned tens of millions of dollars from their works on the secondary market.
Digital Object Applications
Blockchain is the first time in human history to give any digital object the properties of verifiable scarcity, durability, divisibility, and a globally networked market. Therefore, these network-optimized objects now have the same or greater potential to become globally interconnected
- products/services; or
- properties that showcase the value storage assets in a public, tamper-proof, and trusted database.
The impact of these two categories is enormous. However, given their digital native packaging, it is difficult for market participants to differentiate these distinct categories well. In my opinion, determining whether a unique digital object has the characteristics of a product/service or a value storage requires examining its external dependencies. In software, external dependencies refer to the external software components or libraries required for the project to run, but not included in the project itself.
For digital objects with many external dependencies, they rely on external factors to maintain their value. This can include ongoing product expansions, continuous messaging/location, and development that brings continuous value to the object. Due to the dependence on creators or third-party participants, the value of these digital objects should resemble products and services more.
Alternatively, objects with few external dependencies are usually non-intermediary, durable, and require little or no support to maintain or increase their value. These digital objects, which do not require the direct dependence of creators or third parties, have a stronger approach to assessing them as value storage objects.
In my opinion, the three most important “external dependency” indicators for evaluating whether a unique digital object fits into the product/service or potential value storage category are
- Asset sovereignty
- Content permanence
- Intrinsic value
- Digital Sovereignty. Today, when a buyer purchases a Fortnite game skin, what they are actually buying is a record in a private database. The ownership of the skin or digital object can be intervened at any time by the database owner (Epic Games). Alternatively, projects like Chromie Squiggle and Othered are two collections, one for art and the other for games, that issue ownership tokens that can be stored in a self-hosted wallet on the Ethereum blockchain. A large network of participants verifies and protects every transaction on Ethereum, making it impossible for any unwanted party to interfere with this ownership.
- Content Persistence. The strongest guarantee for the persistence of object storage is that the owner of the object ideally wants to directly record both the ownership token and the content related to the object on the blockchain. However, recording paired ownership tokens and content on the blockchain can be very expensive. Therefore, many ownership tokens are merely pointers to media storage resources off the chain.
In our example, the art files associated with Fortnite skins and Otherdeed land are not persistently stored. The art files for these two objects are stored in separate private databases that can be modified by Epic Games and Yuga Labs, respectively.
In contrast, most of the content for each Chromie Squiggle is stored on the Ethereum blockchain. The hash value of each on-chain transaction of the token serves as a permanent seed (unique variable filled according to the project’s on-chain algorithm). If, for any reason, the Art Blocks platform is unable to serve Chromie Squiggle art in the future, its owners can still reconstruct their Chromie Squiggle at any resolution using a browser, a simple HTML template, on-chain tokens, and on-chain code.
Intrinsic Value. This refers to the ability to store wealth within an object without the need for the creator of the object to create new value. To sustain value creation, Fortnite skins and Otherdeed land require continuous efforts from the project creators to build and deliver utilities that connect the game, assets, and economy. If the creators of an object do not continuously create value, then these objects may have no value. In contrast, the purpose of creating Chromie Squiggle is as an independent creative project – an art project that showcases on-chain, algorithmically generated artworks with infinite variability. It does not require ongoing support from the creator.
Many external dependencies: a characteristic
By evaluating the above three indicators, Fortnite skins and Otherdeed land have many external dependencies, making these objects resemble more like digital products/services.
On the other hand, Chromie Squiggle – as well as the previously mentioned CryptoPunks and Autoglyphs projects – have almost no external dependencies in all three dimensions. Based on a reasonable attention network, these objects could be assessed as future digital value stores. They are no different from gold, real estate, and other high-value artworks.
However, it is worth noting that external dependencies can sometimes bring benefits to digital objects. For example, if the creator or team can consistently provide functionality, usefulness, and better performance, the demand for holding the object to leverage the product/service may increase. From the perspective of value creation, this design space is the most exciting. In this framework, decisions on external dependencies, such as storing content/media off-chain (rather than on-chain), may seem unfavorable for preserving value wealth, but it is often the best decision for unlocking the value of new products/services.
Due to this growing usage, many decentralized content storage solutions are gradually being used for digital objects in products/services, but with the condition of tolerating some variability to drive their new value. In addition, the use of these decentralized content tools generally reduces external dependencies, allowing some value storage digital objects to have content fragments in dynamic off-chain environments in the future.
In the near future, we will see many large communities on the Internet gather around these blockchain-based products/services. It has already happened. Just last year, 80% of the first transactions in all blockchain wallets were related to unique digital objects. Amazon, Meta, Starbucks, and many other large publicly listed companies in almost every vertical sector have announced some schemes utilizing digital objects and blockchain.
In the next few years, you will see almost all major consumer/service use cases using native digital objects. In the medium to short term, I believe they will be natively integrated with business models related to social applications, games, music, TV, live entertainment, and many other large consumer sectors in the world.
Ultimately, these use cases will span across global media and entertainment, entering areas such as regulated assets, financial instruments, property contracts, employment contracts, and all other forms of unique value.
At the same time, we will also start to see more and more unique digital objects playing an important role in minimizing trust for wealth protection – acting as digital value storage. For these use cases, time is of guiding significance. The Lindy effect (“Lindy’s Law”) theoretically states that the expected future lifespan of non-perishable objects is proportional to their age, and is commonly applied to value storage objects. If an object has been proven to be a reliable value storage for a long time, it is likely to continue to exist in the future.
Jack Butcher (Visualize Value)
Throughout human history, the objects used to store value have undergone significant changes over time. Gold, land, artwork, and collectibles have all played this role in history. With the development of new technologies and economic systems, the concept of storing value will gradually evolve to adapt to the new reality.
In this regard, the last area to focus on is the intersection of digital finance and value storage objects. Traditionally, there are many complex financial instruments surrounding the storage of value objects. These financial instruments allow owners to leverage, hedge downside risks, and utilize these assets for other financial planning strategies.
Similarly, digital object lending platforms like NFTfi have started to emerge. On these platforms, the current loan rates for CryptoPunks, Autoglyphs, and Chromie Squiggle are comparable to mortgage rates (<10%), and more and more lenders are willing to provide longer-term loans for these three objects, further reinforcing the view that unique digital value storage will continue to exist.
NFTfi Dashboard – Richard Chen
Although the digital asset ecosystem has only been developing for a decade, I believe we are in the midst of a fundamental shift from physical value storage to digital value storage in human history. More and more unique digital objects may begin to play this important role, serving as trust-minimized wealth preservation for the global 24/7 internet economy.
Disclosure/Disclaimer: At the time of publication, Collab+Currency or its members may have exposure to some of the assets described in this article. The author of the article and Collab+Currency do not endorse or recommend ownership of any projects or collectibles described in this article.
Thanks to the Collab+Currency team, including my excellent business partner Steve and our super brain investors Amanda, Greg, Arad, Karen, and Ronan.
Special thanks to our C+C Chief of Staff, Zach Rosenblatt (and part-time graphic designer).
Special thanks to the individuals who participated in the conversations during the creation of this work, including FlamingoDAO, Aaron Wright, Priyanka Desai, JDH, Quickrider, Ben Roy, and Gmoney.