Evolution from Physical Medium to Digital Assets as a Value Storage Carrier
Evolution to Digital Assets as Value Storage Carrier
Author: Translation Guild xunyang, SeeDAO
Part One: Attention Network
In the age of information explosion, most of the value can be traced back to events that attract attention.
The top three companies in the world are all in the production of consumer goods, which are daily followed by hundreds of millions of end users.
Three of the four most valuable sports teams in the United States are located in states with leading network centers (tourism, media, and technology) :
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Mr. Beast, 24, has 125 million subscribers on YouTube. He recently rejected a $1 billion offer for his channel and related assets, and then completed a round of financing with a valuation of $1.5 billion.
Whether it is 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.
However, these similar attention flywheels can drive the development of a unique object’s value, and this view has not been fully recognized. What does this mean in practice? One common way is for an object to become valuable based on its characteristics. From historical experience, this happens when an object reaches new thresholds 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 plate during production, only 60 cards are currently known to exist. In 2022, one of them was sold for $7.25 million in a private auction.
The second common way is for creators, celebrities, or brands associated with an object to easily gain attention, which can be converted into value for the related objects.
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. Based on this, it can be argued (perhaps wrongly) 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 provide aesthetic utility (identity, prestige, wealth) within the game, and despite their limited utility outside of “Counter Strike,” they have garnered significant attention.
In most of history, the attention flywheel of an object took decades to form and often involved numerous intermediary entities or printed publications that communities could gather around, such as trade shows, conferences, auction houses, and print magazines.
In most of history, the attention flywheel of an object took decades to form when an economy coalesced around an object with clear rules that participants could fully understand. This often involved numerous intermediaries or printed publications, such as exhibitions, conferences, auction houses, and print magazines, in order to gather communities.
With the rise of online networks, many of the previous limitations on attention generation have been eliminated. Today, digital-native communities, celebrities, and influencers on social platforms can often amass thousands of followers in seconds. This creates a net effect where attention flywheels operate in the space of minutes and hours within present-day 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.
Thus, an efficient object attention machine has been created:
For unique digital objects;
And the spark begins to ignite.
Part of these recent phenomena can be explained by the unique design of digitally native objects rooted in blockchain technology, which unlock many new functions that have few precedents in purely physical objects:
Near-frictionless transactions. Unique digital objects can be traded frictionlessly through peer-to-peer networks and self-custody wallets, avoiding the costly and time-consuming expenses associated with transportation, settlement, storage, and legal contracts.
Source of truth. Unique digital objects benefit from a global, public, immutable database that can be queried openly at any time, which helps prevent forgery and claims of infringement, and provides a fast way to 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 24/7 globally accessible database, enabling it to have a deeper market and more efficient price discovery mechanism compared to similar counterparts in physical form.
Networked awareness. Networked awareness. The majority of high-end physical objects are only stored in warehouses, and according to some observers, museums only display 5% of their collections at any given time, as determined by the physical space required for exhibitions. While ownership can only be held by one wallet, the public can view, hear, or appreciate unique digital objects at any time. With this unlocked characteristic set, these objects have the potential to receive more attention than ever before.
Digital Attention, Digital Objects
Similar to physical entities, there are several common ways to drive the attention flywheel of unique digital objects. Firstly, many digital collectibles have been selected individually, reaching the threshold 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 territories for creative works.
The second common way is that a creator or brand can easily acquire attention, which can be translated into digital objects associated with them.
Mike Winkelmann, commonly known as Beeple, an artist who sold his first digital artwork in 2021, had been posting free digital artworks on Instagram every day for 13 years prior to that.
XCOPY, an anonymous digital artist, had been posting 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 artistic style over the years, deeply loved by their audience.
The third common way is that when an economy forms around an object with clear rules and participants can fully understand, people have a demand to own a digital object due to the unique experience it provides within that economy.
Otherdeeds is a digital object of virtual land that will be used in Otherside, an immersive environment to be launched by Yuga Lab. Each plot has a unique combination of environment, resources, artifacts, and creatures, providing unique advantages in the game economy.
Similarly, the PROOF membership card is a digital object from the PROOF team, which provides a unique gateway to 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 the chain. Creators and projects that build digital objects in public places, actively engage in communities, and transparently discuss their processes can quickly become attention-worthy artists. Examples include Grant Yun, Gmoney, 0xdgb, Punk 6529, Claire Silver, Justin Aversano, Jen Stark, and Jack Butcher, among others.
Furthermore, online products that highlight the uniqueness of an object can also help it gain attention without worrying about diluting its value with more supply in the series. An 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 of owning a digital collectible. This resulted in over 10 million unique versions being pre-generated in the weeks leading up to the project’s release, and on the first day of the series’ release, the project’s digital object sales reached $16 million.
More digital objects, more attention. Allowing multiple owners to have only unique digital objects in the same collection brings more opportunities for more holders to receive more attention.
The continued success of top-tier generative media projects such as CryptoPunks and Chromie Squiggles demonstrates that a single, unified collection of iterative works can generate network effects that far exceed the scarcity of individual objects.
Therefore, a collection with a large number of unique versions can also attract great attention with output volumes of 10,000, 15,000, and 20,000. This trend, starting with unique generative objects, has now spread widely to non-unique digital collections, demonstrating that a large number of digital collections can also achieve network effects.
I predict that in the coming years, there will be single collections of immense value, including millions of unique digital collectibles. These projects will challenge our stereotypes about scarcity and value accumulation. In a highly-networked world, attention is a scarce resource.
“Free” or “low-cost” objects. Some of the most well-known digital objects were initially released for free or at low cost (e.g., XCOPY’s 1/1s, CryptoPunks, Chromie Squiggles). Eliminating economic friction at the time of digital collection releases can allow them to stand out and attract attention early in the project lifecycle. Take Friendship Brackets, recently launched by Art Blocks, as an example. This project has 38,000 iterative versions. Although these digital bracelets were initially given away for free, they are now traded among over 13,000 holders, with each piece priced at least $600.
No copyright reserved. No copyright reserved, or CCO, is a tool that allows authors to waive all their rights and dedicate them to the public domain. Because blockchain technology serves as a database recording every digital object, I believe that strict copyright can weaken the network effects of digital object collections at a time when value and information flow faster than ever before.
By relaxing the inherent friction of copyright enforcement, both digital object owners and non-owners can commercialize, recombine, imitate, productize, or build on CC0 collections to bring attention to projects or digital objects at internet speed, no longer restricted by legal or copyright enforcement.
This has a second-order effect, opening the floodgates of attention for digital objects.
Economic games. Participants in Damien Hirst’s 10,000-piece digital currency art project (July 2021) had one 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 conversations discussed what the final statistics would be. After one year, about half of the collectors chose to keep the digital objects and destroyed the corresponding physical artworks from the total supply.
Economic games centered around digital project supply, such as Currency or Jack Butcher’s Checks (VV Edition), contribute to significant attention throughout the entire lifecycle of the project, as participants can observe the economic games in real time.
Specific categories of markets. If a unique object is listed or sold on the main market composed of known buyers and sellers in that specific category, it is generally more likely to be discovered.
These specific types of vertical markets provide a natural meeting point for buyers and sellers.
Establishing a “town square” for vertical object classification provides a space for market participants to discuss new and existing works, as well as the sales situation of these digitally classified objects, thereby 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.
Due to their association with digital object branding, curators actively seek and attribute economic, symbolic, and cultural value to new and old items. These curators can publish thought articles, give speeches on podcasts, or post on social networks like Twitter.
In the world of Web3, many top curators are decentralized communities. This includes on-chain collectives such as Flamingo DAO (art field), NEON DAO (metaverse), RED DAO (fashion field), and Noise DAO (music field).
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 are now publicly tracking their on-chain collection behavior on Web3 native platforms like Gallery, Deca, Floor, SOHO, and other data collection tools.
Part 2: Storage of Products vs. Value Assets
Although new patterns of attention and networks are driving the value of certain digital objects, not all digital objects are equal. Some will appreciate in value, but many will 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 digital representations of real-world assets, financial instruments, employment contracts, property contracts, products, services, commodities, and other categories of unique value in the physical world we live in today.
I find that the framework for explaining this concept is to view the blockchain as an upgrade to a simple record format for all real-world assets.
At first glance, this idea may seem overly ambitious, but it illustrates 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 early stage of this technology, there are currently only two types of valuable unique digital objects based on blockchain databases:
Store of value
I will provide a brief background on these two types 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 accounts for trillions of dollars in GDP each year – a significant part of the world’s trade value. Although the value of these products and services is enormous as a whole, their individual value is relatively limited in relation to the market outcomes of the products/services. For many products/services, the outcome may be either a small impact or great value, or the value may naturally depreciate as the products/services are consumed in the market.
Store of Value
Alternatively, a store of value object is something that is stored or preserved as a means of maintaining purchasing power. These objects often have extensive attention networks and can be proven to be scarce, highly durable, and have little external dependency to maintain value over the long term.
Store of value objects represent some of the largest markets in the world, unrelated to income goals and project deliverables. Over time, the demand for these items to be owned surpasses the supply, and the value of the items increases. The three most common types of store of value objects are gold, real estate, and art.
Gold has been used for thousands of years as a store of wealth, relying on its inherent scarcity, durability, divisibility, and global market network that transcends geographical boundaries. Real estate is another traditional store of value asset. It is a verifiable scarce asset that is enduring and can be passed down or divided into individual boundaries through the laws of jurisdictions. Art is one of the oldest forms of store of value objects, with sales reaching as high as $65 billion this year. Influential artists on the secondary market, such as Mark Rothko, Jackson Pollock, and Willem de Kooning, have earned tens of millions of dollars for their works.
Applications of Digital Objects
Blockchain is the first time in human history that any digital object has been endowed with verified scarcity, durability, divisibility, and a global networked market. Therefore, these network-optimized objects now have the same or even greater potential to become part of a global interconnected
Showcasing value storage assets in a public, tamper-proof, and trusted database.
Both categories have a significant impact. However, due to their digital nature, it is difficult for market participants to differentiate between these two distinct categories. In my opinion, determining whether a unique digital object has the characteristics of a product/service or 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.
Digital objects with many external dependencies rely on external factors to maintain their value. This can include ongoing product expansions, continuous messaging/positioning, 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 be more like products and services.
On the other hand, objects with few external dependencies are usually non-intermediary, persistent, 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 stronger criteria for evaluating them as value storage objects.
In my opinion, the three most important “external dependency” indicators to evaluate whether a unique digital object fits into the product/service or potential value storage category are:
Digital sovereignty. Today, when a buyer buys a Fortnite game skin, what they are actually purchasing 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). On the other hand, projects like Chromie Squiggle and Othered are two collections, art and games respectively, that issue ownership tokens that can be stored in self-hosted wallets on the Ethereum blockchain. A massive 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 object persistence 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 outside the blockchain.
In our examples, the art files associated with Fortnite skins and Otherdeed land are not persistently stored. The art files for both objects are stored in a private database that can be modified by Epic Games and Yuga Labs, respectively.
On the contrary, most of the content for each Chromie Squiggle is stored on the Ethereum blockchain. The hash value of the on-chain transaction for each token serves as a permanent seed (a 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 whether the wealth stored in an object can be preserved without the need for the creator of the object to create new value. In order to continuously create value, Fortnite skins and Otherdeed lands require the project creator to continuously build and deliver utility programs that connect the game, assets, and economy. If the creator of the object does not continue to create value, then these objects may have no value. On the contrary, the purpose of creating Chromie Squiggle is as an independent creative project – an artwork project that showcases infinite variability generated on-chain on-demand by algorithms. This does not require continuous support from creators.
Many external dependencies: one characteristic
By assessing the above three indicators, Fortnite skins and Otherdeed lands have many external dependencies, making these objects look more like digital products/services.
Alternatively, Chromie Squiggle – as well as the previously mentioned CryptoPunks and Autoglyphs projects – have almost no external dependencies on all three dimensions. Based on a reasonable attention network, these objects may be evaluated as future digital value stores. 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 continuously provide functionality, utility, 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. Under this framework, decisions on external dependencies, such as storing content/media off-chain (rather than on-chain), often appear to be unfavorable for preserving value wealth but may be the best decision for unleashing new product/service value.
Due to this growing usage, many decentralized content storage solutions are gradually being used for product/service digital objects, but on the premise of tolerating some variability to drive their new value. In addition, the use of these decentralized content tools overall 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 traded companies in almost every vertical have announced some schemes that utilize 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 term, I believe they will be natively integrated with business models related to social applications, games, music, television, live entertainment, and many other large consumer verticals in the world.
Ultimately, these use cases will span across global media and entertainment, entering into 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 begin to see more and more unique digital objects playing a significant role in minimizing trust for wealth preservation – serving as digital value stores. Time is of guiding significance for these use cases. The Lindy effect (“Lindy’s Law”) theoretically states that the future expected lifespan of a non-perishable object is proportional to its age, and is commonly applied to value storage objects. If an object has proven to be a reliable value store over a long period of time, it is likely to continue to exist as such in the future.
Jack Butcher (Visualizing Value)
Throughout human history, the items used to store value have undergone tremendous changes over time. Gold, land, artwork, and collectibles have all played this role in history. As society develops new technologies and economic systems, the concept of storing value will also gradually evolve to adapt to new realities.
In this regard, the last area to focus on is the intersection of digital finance and value storage objects. Traditionally, there will be 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 already begun to emerge. On these platforms, the current lending rates for CryptoPunks, Autoglyphs, and Chromie Squiggles 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 around 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 outstanding business partners Steve and our super brain investors Amanda, Greg, Alad, Karen, and Ronan.
Thank you very much to our C+C Chief of Staff Zack Rosenblatt (and part-time graphic designer).
A special thanks to the people who participated in the dialogue during the creation of this work, including FlamingoDAO, Aaron Wright, Priyanka Desai, JDH, Quickrider, Ben Roy, and Gmoney.