A Novel Perspective on NFTs

Over the past few weeks, I’ve been in a handful of conversations about NFTs and I noticed that I seem to be holding a perspective that is not (yet?) widely shared. For example, I think that NFTs have more in common with Nation States than with baseball cards. Or, perhaps the best metaphor: NFTs are like DNA. That last part is going to have to wait until the very end.

I figured it might be valuable to some for me to spend some time to express that perspective more broadly. This post is going to be pretty dense and, frankly, a bit of a mess. This topic requires a vast work and this is proving to be beyond my current capacity and willingness. If it shows promise, I might take the time at some other date to make it more broadly shareable. At this point, if you already have good background in the works of Manuel Delanda and John Holland, it will be easier reading. I’m not using their words or concepts directly, but am quite leveraging their insights as best I can.

Otherwise if the style, vocabulary, level of abstraction or just plain messyness here isn’t your cup of tea, no worries. You’ve only invested a few sentences, stop now and save yourself time and attention.

Still here? Ok, we are going to need to lay out some conceptual ground to put this thing together.

Some words

Quality” - Specifically abstracting out quality, per se, separate from any given object that “possesses” that quality. Like “sharpness” or “durability” or “loyalty”. Qualities are precisely that which makes some thing “non-fungible”. To say that some thing is non-fungible is to say that it possesses certain qualities that are the basis for its value.

For example, imagine that you have ten one dollar bills. If you take them from the point of view of their “one dollar billness,” then their unique qualities (like their serial numbers or the wear and tear of their journeys through the economy) are not relevant. What is relevant is how many you have - that you have ten of them. If someone came along and offered to trade you twenty dollars for your ten dollars, then you might likely choose to take the trade.

By contrast, if one of them happened to be decorated with a doodle by, say, Picasso, you could shift your perspective to this unique quality. You have a “non fungible” object. No other “one dollar bill’ is equivalent to that one.

Embodiment” - when a quality or set of qualities are actualized in a real object they are an “embodiment” of those qualities. Qualities are not fungible, but two things might possess a certain quality (say, sharpness) with different degrees of “intensity”. Thus, a well constructed blade is an instantiation (or “instance”) of the quality sharpness. As is a dull razor but at a lower level of intensity.

Essence” - a quality (or more often a collection of qualities) separate from any embodiment. We might note, for example, that the essence of The Hulk includes qualities like “green,” “prone to anger,” “very strong.” If an object presents itself as an embodiment of The Hulk, but it lacks these qualities, we will sense a wrongness or “offness”.

Value” - refers to the degree to which a given agent’s basis of choice is bound to some given quality. Let’s say, for example, that you are given the choice between a scoop of chocolate ice cream and a scoop of vanilla ice cream (ice cream distinguished by quality of flavor). If you choose the chocolate, we can say that you value the chocolate more. i.e., that your choice is bound (more) to that quality. We can also say something like, if you are choosing on the basis of your values, you will chose chocolate.

Since two given embodiments can possess the same quality with different levels of intensity, this differential will result in different levels of value for those objects. So if you value sharpness in an object, you will value the well constructed blade over a dull razor.

For the most part, any given embodiment will possess many qualities. And these might be subject to quite different values. Thus, a piece of obsidian might be “sharp” but also “brittle” and thus less valuable as a whole constellation than a katana that is less sharp but much less brittle.

The value of any given embodiment will be the result of the different values associated with the different qualities and their intensities, in the context of their relationships.

Operating Structure” - the means by which an agent (defined below) manifests choice in the world. If I value chocolate, for example, such that my choice (right now) is bound to that quality, I will endeavor by means of my operating structure to realize that quality. In the present world, I might go to the store and exchange money for chocolate. In other contexts, I might harvest cacao, extract nibs, dry and process them.

Sensemaking System” - the means by which an agent evaluates the field of choice available to it. Given finite attention, finite perception, and a finite understanding of the causal structure of reality, agents must always “do the best they can” in terms of making effective choices on how to realize their values.

Token” - an aspect of embodiment that can be used by a sensemaking system to determine the presence and intensity of qualities. Tokens increase the legibility and ease of sensing qualities. They thereby tend to increase the value of (binding of choice to) those qualities.

Fungible Token” - a token whose signaling characteristic is provided along dimensions of quantity. If you have ten one dollar bills, the bills are taken as “the same” and the relevant characteristic is their number (ten of them).

Non-Fungible Token” - a token whose signaling characteristic is provided along dimensions of quality. If you have ten one dollar bills, but one of them has a doodle on it by Picasso, this characteristic can be taken as relevant - making that bill “non-fungible” with the others.

Energy” - the raw potential capacity of an agent for making change in the world. All things being equal (and they never are) an agent with more energy will change the world in accordance with its choices.

Efficiency” - the measure of the degree of actual change that is realized by a given amount of energy. Different operating structures can realize quite different degrees of actual choice with the same amount of energy if they differ in efficiency.

Agent” - something that possesses the ability to make choices about how to deploy energy by means of some operating structure. An agent’s choices are determined by its total values in relationship with its context and both its sensemaking system and its operating structure.

Agency is mechanism indifferent and most agents are both made up of agents and a parts of many different ‘‘larger scale” agents. Thus, a cell is an agent as is a human as is a family. The world is made up of many different agents of different kind and scale (of both space and time) in incredibly complex relationships with each other.

Boundary” - some aspect of reality that differentiates capacity in sensemaking and/or operating structure or subjective evaluation of qualities and, thereby, produces relative agents in the environment. For example, the many different components of a cell show up in the world (in some contexts) as a singular agent due to the variety of boundaries that bind them - cell walls, local structure, relative density of catalysts, etc.]


The model

(Very) broadly speaking, the results of choices in the landscape are determined by the relative effectiveness of sensemaking systems, operating structures and energy in complex relationship with the total environment (including myriad other agents). Over time, as agents make choices and change the world those agents who choose in such a fashion as to deplete their energy below the minimum necessary to effect change in their environment are removed from the board as agents. Those who increase their relative energy (and or the relative efficiency of their operating system) will increase their agency in the world. This is just a restatement of “fitness” using the above language.

Now let’s take this box of tools and begin looking at some examples to see how it works.

@punk6529 fired off an insightful Tweetstorm worth an extended quote:

In his book Sapiens, @harari_yuval split human experience into:

a) the objective/mutual/visible: It is raining
b) the subjective/individual/invisible: I feel great
c) the intersubjective/mutual/invisible: "Imaginary" things that we mutually believe in 

His thesis is that the intersubjective is the most important factor in human development because it allows large numbers of people to cooperate.

Most theorists believe that pre-societal humans (and other great apes) can cooperate with up to 150 people. 

This limitation seems ballpark correct and is somehow physics and biologically based.

Our brains can't spend enough time with enough people to coordinate and synchronize with more than about 150 to 200 

So how did humans break out of small tribes to come to rule the world?

"Myths"

Abstract stories that progressively larger groups of people can believe in (the intersubjective)

Think of these as scaling technology for the human brain 

Some myths will seem obvious to modern eyes:

- The gods of Mt Olympus
- All powerful kings, emperors and royalty
- Organized religion 

But myths did not stop in the Middle Ages. They are all around us today:

- Democracy
- Human Rights
- The Land of the Free and the Home of the Brave
- Family values
- Tolerance

These are some of our most powerful modern myths 

The myths don't stop at the national or global level, they are everywhere

The idea of a company, a church, a university, a non-profit, all of these are a myth

The idea of Goldman Sachs, of Nike, of the Ohio State University, these are all a myth 

What do you mean 6529, Goldman Sachs exists?

One of the best parts of Sapiens is where it asks "Where is the car company Peugeot?"

Is it the plants, the shareholders, the employees, the logo, the CEO, the directors?

No, all of these can and do change over time 

The joint stock company (or companies as we know them) are just as imaginary as your kid's imaginary play friend.

It is a mutually agreed convention that if you take certain steps with a special priest (corporate registrar), then we all agree to pretend Peugeot exists 

In my language, a myth as he is describing it here is a particular way of talking about an “essence with Agency”. Others might call this an Egregore. Others a “memplex.” In older times we might have simply referred to them as gods.

The point is that there is some complex of qualities (an essence) that binds the choice of some agent (which might be a complex thing indeed) to realize change in the world as part of the evolutionary landscape.

Let’s take Nike. But instead of taking it as it is now, turn back the clock to the beginning. Well, as I don’t actually know the real beginning, to a plausible beginning that serves to illustrate the general principle. Nike began as a dream. A vision largely of Bill Bowerman and Phil Knight. An essence whose constellation of qualities were valuable to Bill and Phil. Valuable enough that they bound their energy to realization of those qualities in the world. In a fashion, Bill and Phil became the earliest embodiment of the essence of Nike.

Their agency furthered the embodiment of the essence. The boundary of Nike expanded to include more reality. Tokens like the name “Nike” and the swoosh helped realize the essence, to make it more real and to expose those qualities more easily to other people. Choosing to adorn yourself with the swoosh placed you on the boundary of the agency of Nike, bringing the essence of Nike into the sensemaking of more agents.

The operating structure of “Nike” deployed energy in a fashion that returned more energy. This helped support the furthering of the agency of the essence. Over time the operating structure included more and more people (and more and more energy). A distributed sensemaking system oriented attention towards the instantiation of new tokens: new shoe designs and technical patterns, new icons like Air Jordan and Just Do It.

As the essence became more embodied, more choice was bound to its qualities. Its boundaries included more agency and more of the world changed in accord with its values. And now, here we are.

We can tell the same story, more or less, about Starbucks. Or the Rolling Stones. Or the European Union.

And, of course, we can tell the story of the decline of these kinds of things as well. Blockbuster video, for example, arose in a fashion similar to Nike. But it ultimately declined. The Agency of Blockbuster video made ineffective choices. The operating structure failed to return energy. The embodiment and tokens lost their value. There are of course many reasons for this decline, but chief among them was the actual disconnection of the agency from the essence. Too much of the embodiment of Blockbuster was in fact simply a proxy of fungible tokens like USD and local values like “operating structure for operating structure’s sake” (innovators dilemma) and personal power (fiefdom). The result was that the essential source of value underlying Blockbuster shifted to a new agency called Netflix and the old embodiment, disconnected from its essence, was returned to the earth from whence it came.

NFTs at last

So now (at long last) we can turn our attention to NFTs and my proposition that Nation States are a more reasonable comparison than baseball cards.

The modern Nation State is Blockbuster. Five hundred years ago it was a dream. A whole cluster of qualities beginning to embody themselves into the world. The operating structure of the emerging Nation State began to find itself in conflict with older embodiments like Kingdoms and the Church. Boundaries began to be discovered around the delineations possible between ethnicities (principally languages) and the physical territories they occupied. Nations and States began to find each-other. Some, like France, were relatively straightforward (though the Breton might beg to differ). The essence expressed by the token “Germany” underwent many mutations until it finally found an embodiment in the agency of Prussia that could provide an operating structure capable of changing the world towards its qualities. Sometimes the operating structure of an agent (e.g., England) found itself put to service to another essence (Great Britain) and began the embodiment of Empire beyond Nation State.

Nonetheless, in a world characterized by the dominance of physical space and analog information and, in particular, dominated by the energetic leverage of “economies of scale” and “mass production” (of both physical objects and narratives), the boundaries of the world largely found themselves mapping to Nation States and most energy was being directed according to the values of Nation States (and, in particular, the values of the United States).

We no longer occupy that world. And like Blockbuster before them, the Nation States are showing their disconnection from any kind of coherent essence. Instead they are mostly pure inertia - much of the embodiment of legacy Nations are a proxy of fungible tokens (like USD) and local values like “operating structure for operating structure’s sake” (bureaucratic inertia) and personal power (defection).

They are walking dead. Like Blockbuster in 1999, they still dominate the landscape, but not for long. NFTs are coming for them.

Here is the thesis: the level of abstraction of NFTs is perhaps as high as it can get. It is a pure form that can be used to tokenize essences in a fashion that is hundreds or thousands of times more precise, flexible, mutable, efficient and combinable than anything previously available. They are also, of course, pure digital. Which means that they are natively able to take full advantage of the speed, distribution and efficiency of digital computation and networking. The two biggest things to happen in the world of “operating structure” . . . ever?

An NFT is the cleanest possible vehicle for embodying qualities and realizing value. When combined with the other tools in the blockchain toolkit, fungible tokens and DAOs, we have what we need to hyper rapidly explore the space of qualities, the space of agency and their relationships. Unbound to clunky coarse grained and trivially capturable agents like Google or California or the Republican Party, NFTs can emerge and evolve on the landscape of value seeking the most valuable constellations of qualities (essences) that can embodied in the most effective agents.

Those that attract the most energy and deploy it the most efficiently to further their embodiment will expand according to the “natural boundaries” of their environment. These natural boundaries are only very lightly connected with “physical boundaries” and are largely a combination of the Aesthetic and the Pragmatic.

The Aesthetic: We are deeply confused when we conflate art with artifacts. The birth of Nike was art. Both in Ancient Greece and in 20th Century Oregon. Neither the statues nor the shoes are the art. Great art is the sensing of a coherent constellation of qualities that combine into an extraordinarily attractive (valueable) whole and then the embodiment of that in a precise, clear and effective Agency. As the field of value is explored, by means of NFTs, those qualities that cannot be mixed into the same constellation coherently, will begin to be replaced by more pure, clear, resonant essences that combine qualities in a way that expresses an intensely valuable whole. Art is the very founding of creation itself.

The Pragmatic: Those essences that are embodied in stupid or inefficient ways will lose energy to those who’se agency is more fit at the energetic level.

Sometimes energy will flow according to operating structure. Othertimes it will burst onto the scene according to pure essence. But, ultimately, the energy that has hitherto been embodied in legacy agents (like Nation States) will find itself flowing into the service of new agents bound to constellations of NFTs. A new Pantheon emerges.

How long will this take? Shorter than you think. Lets just look at a few “NFT projects” that I happen to be closely familiar with to look at what has happened in just the last few months.

The Bored Apes Yacht Club (BAYC) popped onto the scene in April of 2021. For those who are counting that is five months prior to this writing. The embodiment of this essence first showed up as a procedurally produced series of 10,000 “Bored Ape” jpegs, each with a mix of different characteristics (like golden fur or laser eyes) and each bound to a unique NFT. Like this:

Ok. That is super lame, right? Well, in the space of under six months, these things have spawned a collection of “dogs” and another collection of “mutants,” they have attracted attention from massive crossover people like YouTuber KSI and NBA star Steph Curry, have made it all the way to an official auction on Sothebys and have exploded to a total collection value of $1.5Bn.

Am I trying to tell you that a collection of Ape jpegs is the future of the world? No. Look much closer. There is Agency here. And energy. A lot of energy. And the sensemaking of that Agency has enabled the deployment of that energy towards very high growth. Initially embodied in four people, this thing now has thousands of humans collaborating in its Agency and clearly an operating structure that can make things happen.

What is the endpoint of this Agency? Who knows?

Next Axie Infinity. This one was born in the frigid crypto winter of 2018 and took longer to find its feet. Axie is, at least in some sense, manifesting as a game. Something like an NFT version of Pokemon, players collect “Axies” and pit 3-Axie teams against each-other in combat. The winner earns a fungible token that is required to “mate” Axies and produce new ones. This embodiment hit the note in June of 2021 and took off like a rocket. At the time of this writing, Axies had a market cap of $4.5Bn and *sales* of nearly a billion dollars in August of 2021. Vastly more interestingly, in that same month, they reported 1 million active daily players. This is an essence now embodied in the collective agency of a million people working with billions of dollars of energy - almost all of which was produced in the past six months.

What is the endpoint of this Agency? Well, they have built their own ethereum sidechain (Ronin) and virtual land economy and are planning on building their own social network and marketplace - all increasingly governed by their own member-based governance system. Starting to see where this heads? How long until they start thinking about their own phone network or start thinking about competing with Starlink?

Next take a look Wilder World. This one is a metaverse/NFT project. The project’s first fungible token hit the market in May and the fully diluted market cap is already over $1Bn. They’ve already announced two NFT drops over the next few months, but what makes them notable in this context is that Wilder World is a project of the larger project Zer0.io. Check out their whitepaper. Unlike BAYC and Axie, these guys are coming into the space fully aware of the stakes. Will they be able to deliver on the potential? In some sense it doesn’t matter at all. Remember Friendster? Or MySpace? How about Facebook? The essence of “social network” doesn’t care particularly which agent embodies it. Zer0 has the advantage of having both a conscious intent (which should help with sensemaking) and proven success in the operating structure department. Maybe they punch through. But literally every innovation that that they produce becomes “common knowledge” of the larger NFT/DAO/Metaverse ecosystem. With people like Zer0 pointing directly at the target, its not going to take long for the consciousness to spread. Then it is a matter of how long does the effective agency take to evolve?

The last bit.

Back in the real OG, when protein synthesis was done the very hard way through straight stochastic chemistry and a few helpful catalysts, a new kid showed up in town. First with RNA and then with the division of labor between the DNA/RNA/ribosome complex, the game changed completely. In our language, the “genotype” is an essence that is embodied in a precise, clear way by the very non-fungible token “DNA”. This then realizes that essence in a fashion that enables the Agency of RNA and ribosomes to highly efficiently deploy energy to embody the qualities encoded in the DNA into a phenotype that has still more agency to bring in the energy necessary to further the process. Hello life!

NFTs are very much like the DNA of the blockchain ecosystem.

Projects like BAYC, Axie and Wilder are explicitly “about” NFTs. But I’d like to go deeper. Bitcoin is an NFT. Obviously. The essence of Bitcoin was initially embodied in the non-fungible token of the Satoshi Whitepaper. This made the essence of “Bitcoin” more legible and attracted the further agency of the “core developers.” They, in turn, embodied the essence in software system popularly known as Bitcoin. Each individual Bitcoin is a fungible token, but collectively, they are a procedural NFT collection of 21 million.

The same, of course, is true of each alt-coin and shitcoin. Each is an expression of a slightly different constellation of qualities. Each is, therefore, valuable to a different kind of agency - with distinct sensemaking, boundaries and operating structure. What drove the BTC / Bitcoin Cash / BSV fork? Or the forks into Ethereum and Cardano and Solana and . . .? Different values. Each embodiment is an expression of a different constellation of qualities. Each “project” is a cluster of NFTs directing a different agency.

Over the past 14 years, this evolving ecosystem has grown to over 40 million people and more than $2 Trillion dollars of stored wealth. It has birthed an entirely new global technology stack, a fundamentally new approach to finance and is now quite aware of the “public goods” problem and the requirement of expanding its agency beyond technology and finance into politics and beyond.

Now with the emergence of the officially named “NFT” space, it is beginning to become “self-aware”. Now that the Aesthetic has entered the game, the ecosystem is empowered to search the landscape of value directly and unbound to any received mythos.

The Cambrian explosion has begun.