WHAT IS THE CONCEPT BEHIND CRYPTO PUNKS? – PART 1
Let’s talk about one of the earliest NFTs, CryptoPunks. You may have heard about CryptoPunks in the news. There are 10,000 randomly generated pixelated photos of supposed punks, but it’s hard to tell apart. If you look at one of these paintings, they’re not the perfect, stunning masterpieces of art.
Then you hear that it was sold for $7.5 million. Dylan Field, the founder of a billion-dollar company, Figma is best known for selling punk 7804 for $7.5 million this year when he had just bought it for $15,000 three years ago. Today’s lowest selling punk is $400,000 and there’s been over $3 billion in trading volume across this entire 10,000-pixel punk collection on the internet. These things didn’t even exist 5 years ago. They were just created in 2017 by two random people that no one had ever known before on the Internet and now they’re worth billions of dollars. How can it be more than just a bubble or a fad?
WHAT IS THE CONCEPT BEHIND CRYPTO PUNKS? – PART 2
Let’s dive into the history of CryptoPunks and maybe this will help us understand some of the value-driving things behind NFTs in general. As for history, CryptoPunks is probably best known as the first NFT ever created on Ethereum. To be clear, this is not technically correct. There are several NFTs that have been created on different blockchains before, like bitcoin, etc., but they never really gained traction and CryptoPunks was the first NFT to gain traction and gain a sharing culture. As we know from things like the history of the Mona Lisa, is how something became famous and powerful in the world today. On June 23, 2017, nobody cared about CryptoPunks. In the first week, even only 20-30 units were sold. No one understands what this is. This is the first time someone has tried to sell things called NFTs on the Internet that people have heard of. No one understands what this concept is. They are sent for free at first. They are not even for the money. But nobody wanted to, because no one even saw that this thing could have any value. No one understands it. Just a few weeks after Mashable published a very scientific paper, saying that this Ethereum-based project could change the way we think about digital art, there was a bit of frenzy and then all 10,000 pieces were quickly sold within hours.
Well, not even for sale. They were only told how they had minted it for free within hours of the article. And then the market stagnates for a couple of years, as do cryptocurrencies in general. So cryptocurrencies run in cycles. There was a big bull market in 2017. Then from 2018 to 2020, there was a bit of a drop, a big price drop, such as Ethereum from $1,400 to $100 from 2017 to 2019. But the same goes for CryptoPunks. But the same goes for CryptoPunks. Didn’t care much for a while. All of these CryptoPunks were purchased in 2017, but in 2018, 2019, and 2020, there was little interest from a small group of people who slowly came to believe that CryptoPunks were real digital art, but the rest of the world does not. Since this type of crypto market fell into a bear market with Ethereum falling from $1,400 in 2017 to just $100 in 2019, so did the NFT market. For a long time, the whole mainstream forgot about CryptoPunks in the same way that no one understood the Mona Lisa except the intelligentsia. So there’s only a small group of people who believe in punks, while the bear market of crypto was going on and then 2018 to 2020. And it wasn’t until 2021 that CryptoPunks start to work largely because that was the first year NFT started to develop.
Thanks to MetaKovan, who you may know from another NAS Academy course. MetaKovan covered the news and helped NFTs take off by purchasing the most expensive NFT artwork ever made, Everydays – The First 5000 Days at Christie’s.
When that happened, people began to believe in the NFT for the first time. They look back and realize. CryptoPunks is one of the original software NFTs going back to 2017, which in the history of the world seems like a pretty short period, but the history of the NFT is ancient. That was the first year the NFT took off, and four years later in the first bull market for the NFT, if you’re looking for the original NFTs, those are the only NFTs you’ll find.
WHAT IS THE CONCEPT BEHIND CRYPTO PUNKS? – PART 3
That’s when CryptoPunks started to explode. When all the other NFTs started blowing up and people started to realize. Hey, these are the first NFTs.
Imagine you have the world’s first paintings. How much would those things be worth as cultural artifacts, not even just works of art? Every CryptoPunk buyer has now become an avid CryptoPunk evangelist and advertiser. For example. Today we have Jay Z owning CryptoPunk, Snoop Dogg owning CryptoPunk, and Serena Williams owning CryptoPunk. These people don’t even just own CryptoPunks, they have replaced their profile picture on Twitter with their picture of CryptoPunks. How much would you have to pay for that kind of advertisement for someone to do? You can’t even pay Jay Z to replace his picture with a bottle of Coke, or something like that. No other brand can have such power. This is a CryptoPunks brand, don’t even have to pay for these people to do this.
These people have paid hundreds of thousands of dollars for the privilege of promoting CryptoPunks to the world. We can see this trend becoming an effect that every person interested in this brand becomes an advertiser for the brand. More influencers are joining the CryptoPunks elite membership club. More people want to join because now you’re friends with Jay Z, you’re friends with Snoop Dogg and all CryptoPunks have a channel for people to hang out together. Now we can start to see how this brand is starting to get low on value but to understand why someone would want to pay hundreds of thousands of dollars or even millions of dollars for a CryptoPunk.
Talk to someone who has done it, and has someone who truly believed in CryptoPunks from day one and sold one for $7.5 million. The person I’m talking about is Dylan Field. I have been honored to have known Dylan Field for over a decade. Now as friends, we are both Thiel’s fellows. When we went through a program run by billionaire Peter Thiel, the co-founder of PayPal, giving $100,000 to 20 promising under-20s to see what they would do in the world. And Dylan Field did better than most. He was a prodigy from day one, one of the smartest people I’ve ever known in my life.
Here’s a little story about when he was just a 19-year-old intern at Flipboard. Flipboard CEO. Mike McCue still can’t believe how excited people were when he hired a brown college student for an internship. At a barbecue to celebrate the second anniversary of the mobile newsreader, McCue told a story about how John Doerr, principal partner at legendary venture capital firm Kleiner Perkins Caufield & Byers, called him about Dylan Field, an intern McCue was recruiting.
“Do you need any help with Dylan?” Doerr asked him, as McCue recalled.
“I think I’ve got this,” McCue replied.
At the time, Fiel was 19. He just turned 20 in March
But it’s not like Doerr was interested in Field. After Flipboard hired him, Oren Jacob the former CEO of Pixar, who now runs a startup called ToyTalk spotted McCue across a parking lot and shouted, “I heard you got Dylan”. Here’s one big reason why Field is such a big name. A math whiz from an early age, in high school he interned at O’Reilly Media, a publisher of technical books which also produces geeky events like FooCamp and Strata. So he got to know the Valley’s technical elite by helping out with those events. He went on to become an expert on data analytics and now speaks himself at O’Reilly events.
For those who don’t know, Dylan Field is one of the most impressive people in the world right now. At the age of 29, he founded a $10 billion company called Figma. And what does he do in his spare time? Buy CryptoPunks? Here’s the story from an interview he did, about why he bought CryptoPunks and why he believes a particular CryptoPunk is the digital Mona Lisa.
WHAT IS THE CONCEPT BEHIND CRYPTO PUNKS? – PART 4
For the uninitiated, CryptoPunks is the first Ethereum crypto art project. It was created in 2017 by two visionary artists, Matt Hall and John Watkinson. There were only 10,000 CryptoPunks, which anyone could claim for free in the early days. Out of those 10,000 CryptoPunks, there are only 88 zombie punks, 24 apes, 9 aliens, and exactly 1 alien punk smoking a pipe. Its name is 7804. I believe that in 100 years, we will look back at 7804 as the Mona Lisa of digital art. My relationship with 7804 started in January 2018, when I bought it for 12ETH or $15,000. At that time, most CryptoPunks were trading for around $100 or $200. Why am I paying $15,000 for this alien painting?
I have a feeling that other people out there will feel the same way. I also believe the question “what is art?” will propel the crypto art movement forward. So, what is art? And what does it mean to own art? What does the relationship with art mean? In the case of CryptoPunks, the answer to all these questions is not clear, which is part of the reason why I find this project so appealing. Let’s start with “What is art?”. You could say that CryptoPunk’s artwork is the algorithm Matt and John used to generate the CryptoPunk image, or you can assert that the artwork is from each individual punk. I believe the real work of art is the CryptoPunks community, which has been speculating, trading Punks, and discussing Punks for the past three and a half years. This may sound ridiculous to those who listen, but many of us in the community have formed deep relationships with our Punks. We see them as our avatars. We discuss them, even dream about them. The Punks become deeply entwined with our identities. They work efficiently. So why am I selling the 7804? Honestly, it’s because I want to see the 7804 become the patron saint of digital art. 7804 is not widely recognized as the best, most valuable CryptoPunks. It is by no means a symbol for the entire crypto art movement. There is a paradox as the 7804 cannot be considered a symbol of the crypto art movement unless it changes hands. So I priced it at 4,200 ETH, which is an extremely aggressive but still reliable price. That’s twice the price for someone who already resonated with the 7804, knowing it was bought for that price it would draw more attention to CryptoPunks as a project and 7804 as an artwork.
WHAT IS THE CONCEPT BEHIND CRYPTO PUNKS? – PART 5
7804 was purchased earlier this week by a mysterious figure known only as Peruggia. Peruggia is, of course, related to Vincenzo Peruggia, who stole the Mona Lisa on August 21, 1911. The theft was widely reported and became the most known work of art in the world. Since purchasing the 7804, Peruggia has made a great statement on Twitter, which I encourage all of you to read. As I thought about it, the sale of the 7804 took me by surprise. Not because I think I can make more money from it, but because I have a working relationship. When I think about buying and selling, I also feel a very deep relationship with Peruggia, the new owner of the 7804. I don’t know who Peruggia is. I don’t know what their gender is, their ethnicity, or where they live. But I finally found someone who appreciates the 7804 as much as I do. Peruggia, if you’re out there listening, enjoy your time with the 7804. But know that owning a 7804 is a paradox and possibly a curse. Because if you appreciate the 7804 as much as I do, you won’t stop there to make sure it’s considered by everyone to be the most valuable piece of digital art. Because of that, your time will be limited with it. When you do sell, you’ll forever live with the question of why you broke up with a digital Mona Lisa. Dylan is awesome. And that’s part of the equation. That’s how Dylan Field got CryptoPunk in the first place. He then sold it for $7.5 million. But then, let’s think about the other side of the story. Why would someone buy that CryptoPunk from him for $7.5 million, when just 3 years ago he just bought it for $15,000?
WHAT IS THE CONCEPT BEHIND CRYPTO PUNKS? – PART 6
Listen to Peruggia, which is the pseudonym of the person who bought the 7804 CryptoPunk that Dylan Field sold for $7.5 million. Now here is a Twitter thread that Peruggia posted shortly after he bought this Punk.
- How I Learned to Stop Worrying and Love the Punks: If this comes across your timeline you likely believe that in the future the world will grow more digitized and decentralized. If not I doubt a guy who values MS Paints at over $13,000 per pixel will convince you otherwise.
- What is scarcity worth? I like to view the Mona Lisa as the scarcest asset. If the French government were facing bankruptcy and needed to sell assets and put it to auction what should it sell for?
- Long after Elon Musk is priced out-would the U.A.E government and the high value their country places on scarcity be able to outbid superpowers like the U.S government and Chinese government? What’s the right price? 0.01% of world wealth? 0.1%?
- My framework for valuing punks is:
A. How large is the global demand for scarce assets?
B. How likely is it that in the future the most valuable assets are digital?
C. How likely are the first NFTs to be viewed as the scariest?
D. Among scarce assets what % of that value should be placed on the most esteemed?
E. How likely is Punk 7804 to be viewed as one of the most esteemed?
I think it requires very minimal faith in innovation to conclude this space will be of more value in the future. - And thus from my estimates, I think the 4200 ETH I spent on this punk is virtually a rounding error. Much like my namesake, I may have acquired what will one day be viewed as a scarce asset for a cost basis of roughly $0.
- Are NFTs a bubble? Absolutely.
Is CryptoPunks? You betchya.
But so was bitcoin at $30.
Time in the market beats timing the market. It always has. And it always will.
SUMMARY
That’s why CryptoPunks might be worth $7.5 million today. It may even be worth far, much more in the future.
CRYPTO PUNK’S SUCCESS CONCEPT
- The founders were convinced that the project will work out
- They had a community that believed in them
- They had a limited edition of their art pieces
- They had free advertisements by influential people
It’s a bet on the future. Time and time again in the past, it has been proven that betting on the future is a pretty good bet. I believe time will prove us right that one-day CryptoPunks will be worth more than $7.5 million. Not only CryptoPunks but many NFTs, you can consider 2021 as the first year that digital assets have real value. You can think of this, almost like the Internet was in 1995. This was the beginning and we were decades ahead of what NFT was developing. Thanks very much.
