WHY ARE NFTs POSSIBLE TODAY? – PART 1
Now, let’s dive into another question. Why are NFTs possible only today after the advent of blockchain technology? Why have we never had such scarce and obtainable things on the Internet before? That ultimately comes down to the essence of blockchain and why has blockchain become so fundamental and revolutionary for NFTs and beyond? So, after all, what is blockchain? In a very simple sense, you can think of blockchain as a distributed ledger of sources. Initially, this ledger was created just to keep track of financial transactions and that is when bitcoin was invented. Initially, this ledger was created just to keep track of financial transactions and that is when bitcoin was invented. In 2008 Satoshi Nakamoto, a pseudonym. No one knows who he is. Proposing bitcoin, this is the first use case of blockchain technology. Blockchain was invented specifically to create bitcoin, which Satoshi Nakamoto is trying to model as a kind of digital gold. His goal is to create the first trustless digital currency that someone can trust in the same way you trust gold in the real world without having to trust a government like the United States supports the US dollar and the European Union supports the Euro. Gold is one of the few real-world currencies where you don’t have to trust the government to manage fiscal policy well and avoid inflation. To print large quantities of this currency, its supply and value are decreasing over time. Gold is extremely precious because no one can create more. It’s just off the ground. And it was created billions of years ago. Today, we will never find a way to make more gold. So you can trust that gold will always be scarce. And since gold will always be scarce, we can count on it, maintaining and keeping its value well over time. Gold has held its value for thousands of years, whereas a non-free currency means a currency backed and created by the government. Because of that fact, the ability to create digital gold is quite valuable, as gold is rather bulky.
There’s a reason we don’t use it for transactions. Nobody goes to a car dealership and shaves off an ounce of gold to pay for a car or you go to a coffee shop, and shave off a little bit of gold to do it. That would be pretty crazy. This is why people often use the currency. Despite all the disadvantages. Although you have to trust that this coin will keep its value. So if you can create a digital gold that will be very powerful. But how can you do it in such a way that you can trust that no one else can generate more of these coins over time? Let’s talk about how blockchain was used in the case of bitcoin and then we can translate it into how it is used for NFTs today. In the case of bitcoin, the goal is to create an asset that is reproducible to gold but is digital. What we mean is that something that can be guaranteed to last forever is scarce. So there is a guarantee that only 21 million bitcoins will ever be created. We know exactly what careful regulation of the bitcoin supply will produce over time. At the beginning of 2008, 50 bitcoins were being created on average every 10 minutes, and then 4 years later in 2012, about every 10 minutes that dropped to 25 bitcoins. Then again in 2016, that number halved to just 12.5 bitcoins. In 2020 we have the last bitcoin release averaging just 6,125 bitcoins every 10 minutes.
That will keep going down until essentially, no more bitcoins are produced every ten minutes or so. When that happens, we know exactly around 2040, there will only be a complete supply of about 21 million bitcoins. And so we can try that Bitcoins will keep their value the same as gold because no infinite supply can be created out of thin air.
WHY ARE NFTs POSSIBLE TODAY? – PART 2
So how is a blockchain-enabled? Let’s talk about why scarcity is even valuable because it’s the same for bitcoin and NFT. If you only have 21 million bitcoins, think of a perfectly ideal economic world, assuming you’re valuing the economic pie.
You’ve probably heard of that concept before. Let’s say there are about 100 bushels of corn. It’s the only thing that ever existed in the world and you have 100 bitcoins worth 100 bushels of corn. So one bitcoin equals one bushel of corn. Now, let’s say you double that supply, now you have 200 bitcoins and you still only have 100 bushels of corn. Well, if you’re doing that then 2 bitcoins should now equal a bushel of corn. Because you don’t have more corn. Those 100 bushels of corn are now worth 200 bitcoins so each cob is now worth half what it was. One bitcoin currently buys only half a bushel of corn.
Now we can see this very simple model. If the economic pie is held, the amount of value in the world remains constant, which is not true in the real world. You know the world is evolving. We create more value over time. Let’s say they only have 100 bushels of corn. That’s all there will be. If you make more money, that dilutes each unit of money, representing this entire economy. So, in the end, that’s why the scarcity in your money supply counts. It’s the same thing with art. If you think about why photographers and other artists often only do limited edition prints. They say, hey, I promise I’ll just make 100 pictures of this, or I’ll just make 100 prints of the work I’ve made. They realized that if there were an infinite number of versions of this thing in the world, people wouldn’t judge it the same way. Because they say oh, I can make a new one for ten bucks. Why do I need to pay $10,000 for one of 100 limited edition prints? We can see this type work the same way. Scarcity is critically important for both fungible currencies like bitcoin or the US dollar, and no commodity is as fungible as art.