NFTs as a superior crowdfunding tool vs Web 2.0 Legacy Solutions
This article is made up of abstracts a more in-depth paper being prepared by the author for educational and sharing purposes on Medium. For beginners to NFTs, please find an attached guide to NFTs here: https://linda.mirror.xyz/df649d61efb92c910464a4e74ae213c4cab150b9cbcc4b7fb6090fc77881a95d
Exec Summary — tldr; NFTs were the movement and technology of the year to watch. So much money has moved into the space, and technologies are beginning to bud from it. The article seeks to better define some reasons why NFT technology has been able to draw the attention of so much free-flowing capital, and why those exact characteristics make it a good fundraising tool.
The discussion will be carried out on the fronts of accessibility, storytelling, and proof of ownership, all summed up in the essence of being a superior community building vehicle.
Just as 2020 saw DeFi summer (an event where swarms of people ran to crypto to start, curate or invest into Decentralised Finance Protocols) and its resulting months drove the movement of trillions in capital moving into the Cryptocurrency scene (Total Market Cap of Cryptocurrencies rose from just under 200B to 2.5T, as recorded by tradingview.com), 2021 saw an unbelievable boom in the number of NFT projects released, with over $3.5 billion in monthly trading volume on top NFT platform Opensea, currently. (Kirmi, 2022)
Fig.1 Total Market Cap of Crypto, as taken from tradingview.com
Many of these projects have touted some form of social good, from charitable donations to raising awareness for key issues. This article will make a comparison for crowdfunding and fundraising with NFTs, as compared to traditional means (NGOs, GoFundMe, Kickstarter), with a specific nuance into the realm of public good. References and research will be listed at the bottom. APA citations formats are used.
1. Baseline: NFTs vs Traditional Memorabilia
Before we can deep dive into some disruptive counter-arguments, I believe it’s important to first frame the discussion for those who may not be so well versed in recent discussions of the benefits of NFTs, please feel free to skip this part.
NFTs are a superior fundraising tool because they curate a much deeper “post-purchase” experience, since each NFT is, well, “non-fungible”. The NFTs are unique, it has a unique hash, usually has unique artwork, and is a tradeable deed of ownership. This makes receiving an NFT a much more meaningful experience, as compared to receiving a confirmation e-mail, or maybe a T-shirt. Each of these key attributes will be further elaborated on later in this paper.
2. Sense of Community
Beyond the unique sense of ownership that NFTs can provide, NFTs also provide a sense of community and belonging. It’s an interesting phenomenon: being part of a group of people who own a similar unique item, makes that unique item even more special for someone.
This phenomenon, however, was hardly pioneered by NFTs or blockchain. From the deeds given to first time purchasers of a Patek Phillipe, to having your name engraved on the Rolls Royce umbrella; the sense of belonging to an elite (their words not mine) group of people, remains one of the key psychological drivers to these exorbitant purchases; the social aspect cannot be ignored. Many can argue that this effect is replicated digitally through the mass purchasing of Bored Apes by celebrities.
Fig 2. Justin Bieber buys BAYC
On a less luxurious scale, NFTs have created a sense of ownership amongst many global communities that share certain interests, these communities range from lovers of fishing to people spreading awareness of women’s rights, to those fighting to raise funds for mental health awareness.
The counter-argument to this of course is obvious, if all these traditional brands have been able to create this sense of community without the need for NFTs, what tangible benefits does NFT technology have?
The benefits can be broken down into the following accessibility, storytelling, and proof of ownership — which all extend converge back at a singular point: superior sense community.
Cryptocurrencies were built on blockchain technology to make the transfer of value (read: complement or replace banking) more accessible and seamless. Smart contracts were developed in parallel to facilitate these exchanges with some foundation of law (read: replace lawyers and other rent-seeking middlemen), and in the same way NFTs create a more accessible proof of ownership to people all around the world.
Fig 3. Meme about fundraising
The world of crowdfunding has long been subject to many rules and regulations. Many of these serve as a necessary security for investors and donors, but they also serve as a barrier to entry for smaller niche areas that require funding. For example, in order to fundraise as a charity, you need accreditation from states, legal contracts and advice from law firms, and interval auditing. While this protects donors, it also means that certain causes may never get the funding they require, because they simply lack the interest or the founders lack the know-how to jump over these hoops.
There is a disease called prenatal toxoplasmosis. This disease has little effect on adults, but for a pregnant woman, it carries the risks of miscarriage and even stillbirth (NHS). And yet there only exist two drugs on the market to treat the disease for which proper clinical trials have never even been conducted because pharmaceutical companies lack incentive. Teams of top pediatricians have attempted research trials, but time and time again failed to raise enough funds to conduct comprehensive studies. How much is needed for a comprehensive study? Roughly $100,000.
Now putting this in the context of NFTs; a team of inspired individuals simply has to sell 1,000 pieces at $100 each, both ridiculously low goals in the NFT space, in an industry that sees hundreds of thousands of sales a day and $3.5 billion in monthly transactions, in order to raise enough funds to carry out this research and bring about significant public good.
Much of this is made possible because, using smart contracts and NFTs as proof of sales, we can carry out a completely traceable, permissionless yet transparent fundraising, that leaves donors with a permanent digital proof of donation, and access to a community of likeminded individuals who believe in a similar cause.
Colloquially speaking, NFTs are very powerful storytelling tools. The ability to turn a piece of art, music, or video into a permanent digital collectible has attracted many enthusiasts of sports, music, art, and culture. The stories of many artists have been recorded as a part of digital history and this movement will only continue to boom. Crypto punks, the most famous OG NFT project, minted their 8bit digital art and gave them out for free — one just sold for $2 million dollars recently. Anyone can appreciate that as a good story, and a huge piece of internet history. (Tomaino, 2021)
Having said that, I would like to take a more academic approach to justify NFTs storytelling abilities.
Permanence and justification of ownership of digital assets are only part of the reason why NFTs are such powerful storytelling tools. One of the largest reasons for the allure of NFTs has a significant amount to do with René Girard’s theory of mimetic desire (Palaver, 2013). Humans desire to own what others own. All NFTs contain metadata, that can be used to explain the origins of the NFT (mint authority), the attributes of NFT (Attribute traits), and their respective rarities. This creates scarcity and uniqueness in each NFT. Each NFT becomes a rare desirable art collectible based on its art and core metadata attributes, giving each NFT a rarity score and also visual appeal. This creates an innate sense of scarcity and desire for each piece, which means each NFT has its own “story”, within the larger story of the community. This creates a strong sense of mimetic desire for those who have an emotional and affective connection to the original inspirations of the entire collection.
Fig 4. Mimetic desire and the bull run of $BTC/$TSLA
To put this in a more relatable real-world context, imagine if an artist were to sell a piece of art for crowdfunding, but the art could tell you exactly how rare it was compared to the rest of the artist’s collections, the exact date and time it was completed by the artist, and exactly who the past owners were. Every NFT has its own legacy, which just makes the overall story that much better.
5. Proof of Ownership
The paper has mentioned NFTs as a proof of ownership multiple times throughout, but what does this mean? When you donate to traditional crowdfunding sites, it’s not uncommon for you to get a t-shirt or a prototype or some other form of memorabilia native to the cause being raised for. Introspectively, this does seem like a much more tangible proof of ownership and donation than some magic internet token, that proves ownership of a .jpeg file that anyone can screenshot or download. And yet, NFTs continue to hold their value and become traditional.
This is because NFT ownership represents a concept of ownership that is unique to what is traditionally understood. In some sense, the token acts as a deed, the same way you use a deed to represent ownership of a house, or some other tangible tradeable assets, and that deed exists to represent the value of the asset and its tradability. But this still begs the question: why does a .jpeg file need to be tradeable.
The answer to this lies in the fundamentals of blockchain itself, the idea that the authority of value is decided entirely by the community and the people who write its code. When you trade a house, the deed is enforced by the governing real estate authorities and law in the area. When you trade an NFT, the token value is enforced by smart contracts — transparent, immutable, and easily audited (though not audited nearly often enough), by the communities who decide to give them value. NFTs are a testament that worth can arise through collective action is a testament to the unpredictability of human events — and a reminder that not everything in life gains value from top-down fiat. (Steinwold, 2020)
6. Superior sense of community (And a short note on DAOs)
I hope that the above points have served sufficient (or at least brought some meaningful insights) on the use cases of NFTs to be a superior fundraising tool, through their ability to make fundraising (and donating) highly accessible, highly mimetic, and also a unique experience.
Beyond these points, it’s also important to note that these factors have truly strung together communities where owning an NFT is the literal and provable gateway to online communities (something t-shirt memorabilia can certainly never achieve).
These communities have come together, and through collective action, begun to take shape of active functioning organizations. Commonly going by the denomination of Decentralized Autonomous Organisations (DAO for short), these are much more than simple online chat groups of people whom all love the same thing. Many DAOs have formed around a large myriad of reasons, treasuries have been set-up and many individuals now find themselves full time employees on these DAOs, building and harnessing value together with friends they met on the interent.
Fig 5. DAOs in a nutshell
DAOs are formed with proper structure, councils of individuals (who commonly have to be voted in) to push proposals, and a community-centric governance system (voting based on tokens/NFTs). Though the formation and execution of DAOs are at very early stages (ask the 5,000 Harvard/Berkley/Yale MBAs who are building DAO tooling solutions), we can see that there is a underlying desire for communities to operate and build within functioning organizations, that stem from a decentralized common interests, and NFTs and blockchain technology as a whole enable this forward movement in society.
7. Closing remarks
It is at this point that I must also mention (out of self-interest), that Clique is building a technology that will significantly improve governance in DAOs, creating an effective and trustable reputation system, so that governance and voting can be weighed effectively — those with more knowledge, experience, and vested interest should have more say in certain decisions. Though this is only one of the simpler use cases of our technology.
To conclude, I hope readers have found the points and summaries I have made in this article useful, and am happy to take feedback at any time to improve and learn more about this endlessly interesting space.
Please feel free to drop your thoughts and comments to me @ firstname.lastname@example.org.
Jonathan Zittrain, W. M. (2021, April 7). What critics don’t understand about nfts. The Atlantic. Retrieved March 15, 2022, from https://www.theatlantic.com/ideas/archive/2021/04/nfts-show-value-owning-unownable/618525/
Kirimi, A. (2022, January 17). OpenSea surpasses $3.5B in monthly ether trading volume setting new ath. Cointelegraph. Retrieved March 15, 2022, from https://cointelegraph.com/news/opensea-surpasses-3-5b-in-monthly-ether-trading-volume-setting-new-ath
NHS. (n.d.). NHS choices. Retrieved March 15, 2022, from https://www.nhs.uk/common-health-questions/pregnancy/what-are-the-risks-of-toxoplasmosis-during-pregnancy/
Palaver, W. (2013). Rene�� Girard’s mimetic theory. East Lansing: Michigan State University Press.
Richardson, K. (2021, June). NFTS: Authenticity, accessibility and Equitability in the art world. STEP. Retrieved March 15, 2022, from https://www.step.org/sponsored-content/nfts-authenticity-accessibility-and-equitability-art-world
Steinwold, A. (2020, July 19). 💻🌃🧙♂️crypto will change value, nfts will change society. 💻🌃🧙♂️Crypto Will Change Value, NFTs Will Change Society. Retrieved March 15, 2022, from https://andrewsteinwold.substack.com/p/crypto-will-change-value-nfts-will?s=r
Tomaino, N. (2021, March 21). Stories, scarcity and mimetic desire. Medium. Retrieved March 15, 2022, from https://thecontrol.co/stories-scarcity-and-mimetic-desire-c4a344fa74e1