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"What was that thing again where you could sell pictures?", my friend joked after his credit card didn't work at the rental car place. "You mean NFTs?", I asked. "Yeah", he said "How weird was that?"

Mention NFTs to anyone outside the web3 world and you can watch the gears turn in their heads as they excavate the memory. NFTs have vanished from mainstream discourse and mainstream thinking.

If you experienced the 2021 mania, it makes sense:

• Floor prices are down

• A struggling economy creates more pressing issues

• Rumblings show that there's only a few thousand active trading wallets left

• New collections rarely skyrocket in price.

There are also less tangible signs of the downturn: If there ever was cultural cachet to NFTs, it's gone.

The remaining hexagon profile pictures on Twitter seem to follow the same philosophy: Stick it out until the next bull market drives prices up.

But what about the prices now? They aren't good, so it's time to find culprits: Recently, the community found one in Proof founder Kevin Rose. He was pilloried on Twitter Spaces for not developing the Moonbirds IP enough, which (according to them) tanked the floor price by 95%.

While Kevin Rose and Moonbirds is a starkest example, you could find dozens of examples on Discord, Twitter and more. The pattern is the same: Communities accuse founders of not doing enough to keep floor prices up.

Most judge the success of NFTs (and specific NFT projects) in terms of (floor) price, market cap and sale prices. ‌

I find this obsession over prices stupid. NFT buyers act as if they're early investors, when in fact they're early customers.

In this essay, I want to explore why that's a mistake and why NFTs could become a widespread, successful technology, even if prices remain low. 

To do that, let's first face something hard to admit:

The Uncomfortable Truth: Most NFT Trading was/is a Ponzi

NFTs are not a Ponzi scheme. They’re a vital technology to advance digital ownership and a decentralized internet. But some of the dynamics that emerged certainly resembled a Ponzi.

Most NFT transactions were placed as speculative trades.

Sure, there are the in-game items, community memberships and artwork people bought for the aesthetic value or utility they provide. That's not what I'm talking about.

What I mean is that most NFT purchase decisions were motivated by profit on secondary transactions. Even promised utility or IP expansion only mattered as far as it would entice other people to buy the NFTs at a high price.

Even the standard NFT project playbook of announcing companion NFTs, launching an ERC-20 airdrop and creating staking were basically strategic constraints and expansions of supply and demand—not an organic increase in people wanting to buy more NFTs.

Most of the NFT market was/is a zero-sum game. It may not have been an outright Ponzi scheme, but it felt like one—and then behaved like one: Once a collection's price started to fall, it crashed.

And then buyers faulted the creator/company behind the collection for not doing enough. What those buyers forgot:They bought NFTs, not shares. By buying an NFT, they bought a tradable blockchain token.

This doesn't mean that it's the company's job (or even intention) to increase secondary market prices.

If you own a first edition of the first Batman comic, that's now worth a small fortune. But that was never DC Comics' goal. DC Comics wanted to sell comic books people wanted to read.

But owning that comic doesn't mean you own part of the company. It makes you an early customer. But DC Comics has no responsibility to increase the value of comic books on secondary markets.

NFT traders seem to think buying an NFT means the company now has to increase its price:

NFTs don't exist to increase in price

Just because something is tradable doesn't mean it should trade at ever higher prices. You can theoretically sell any item on eBay, but most things are (almost) worthless on secondary markets. That's because we buy most sneakers to wear them on our feet and most comic books to read and shelf. 

If NFTs usher in a new era of digital ownership, the same dynamic will be true: Most NFTs will be bought for the things they enable, while also being basically worthless on secondary markets.

(To dive deeper into this, read the section "Primary Transaction Thesis" in my previous piece)

Your price could’ve been wrong

Secondary market prices aren't decided by the company selling the items. NFT prices might go up as the collection's cultural significance increases, but that doesn't mean the price an individual trader paid was actually a fair price.

For a while, people were dunking on Moonbirds nesting rewards, stating that getting a fanny pack and socks was a joke because people paid hundreds of thousands of dollars for them. 

But when you buy something on secondary, you don't get to complain about the price for what you get to the original company.

It's like buying the original Batman comic ahead of a major movie release and then complaining that the hype subsided and the comic now sells for less. 

Just because you decided to buy an NFT at a certain price (maybe motivated by expectations of price increases) doesn't mean the company has to deliver you value equal to that secondary price.

A "good" NFT market doesn't have to mean high floor prices

There’s an unspoken expectation in the crypto world: If a bull market arrives, my tokens will be worth more and I’ll profit. 

That's probably not true. The total NFT market has shrunk and might expand again. But that doesn't mean individual NFTs will sell for high secondary prices again. 

NFTs are a technology, not an asset class. If blockchains are the rails, tokens are the containers on the trains. 

Let's imagine NFTs become the standard way to issue digital event tickets. Concerts, sports, lectures—all the tickets issued as NFTs. This would massively expand the NFT market and increase adoption of web3 and decentralized infrastructure. But it probably wouldn't increase the price of any 2021 PFP collection.

A company's success doesn't have to correlate with NFT prices

Imagine you're a venture capitalist and buy 10% of a company for $25,000 as their first investor. 12 years later, that company sells to a big tech firm for $100 million. How much do you get? You own 10% of the company, so you'd get $10 million.

(I know things can get trickier in practice, but I'm keeping the math simple for the example.)

Now imagine you're that company's first customer and buy a lifetime deal to their premium subscription for $1000. Even as others pay hundreds a month for enterprise subscriptions, you get the same benefits without paying another penny. When that company sells for $100 million to a big tech firm, how much do you get? Zero. You're not a shareholder.

NFT traders are the customer, not the investor.

If tradable on a secondary market, your lifetime subscription might be more valuable than the $1k you paid because the company expanded its offerings. But that doesn't have to scale 1:1 with the company's success.

NFT companies don't win much from secondary sales

If, as so many NFT traders insist, it's an NFT company's job to increase secondary prices, most NFT companies will not be viable businesses. 

Businesses run on money and exist to make more of it. Unless today's NFT companies find a way get consistent cash flow and create viable economic models, they'll eventually crumble. 

Secondary sales don't bring in money. While it's great for NFT owners to sell their NFTs at a profit, the company issuing those NFTs doesn't benefit from that. 

Royalties exist in web3, but those are not a realistic revenue stream:

1. They're not enforceable

2. They make things more expensive for buyers

3. To make enough from royalties to generate just one extra "sale" at 10% royalties, you need your NFTs to 10x in price.

4. You don't have any influence over when these transactions occur.

Royalties are a great concept. But they're not a reliable or sizable revenue stream for anyone but the top few collections and creators.

There's little to no incentive for companies to spur secondary sales—besides the expectations of their own customers.

Where do NFTs go then? What happens in the next bull market?

Most people believe the future of NFTs will look like the past, but better. They think it'll be like 2021 with even higher prices.

I don't think so.

Most projects will disappear like 2017's ICOs. Sure, the same way the ICO bubble gave us stuff like Aave (then called ETHlend), we might see some successful enterprises bloom from the ashes of this cycle.

But I for web3 to be a success, we must be able to envision a future of NFTs that doesn't look like 2021. I believe all of that starts with a core insight:

NFTs are infrastructure

When we think of NFTs, our brain thinks of artwork, PFPs, memberships and other types of NFTs we've interacted with. 

But that obscures an important truth: The ERC-721 and ERC-1155 token standards aren't the cargo. They're the the shipping container.

The shipping container transformed logistics across the world, supercharged globalization and lowered worldwide shipping costs. Even though it completely changed logistics, nobody at the store cares if their items got there by shipping container or packing mule. 

This could be true for blockchains (and, by extension, NFTs): They might become infrastructure that fades into the background. 

If this decentralized infrastructure enables entrepreneurs to deliver experiences faster, cheaper, safer or otherwise better, then using blockchains becomes a competitive advantage:

• If it's more economical for Ticketmaster to issue all their tickets on a blockchain as an NFT, Ticketmaster wins.

• If using an NFT protocol makes it easier to build in-game item systems, game developers win.

• If selling virtual collectibles as NFTs makes Marvel more money, Marvel wins.

In these scenarios, customers might not even know they're buying NFTs, the same way they have no idea what infrastructure is powering Ticketmaster's current operations or what ship got their iPhone to their local Apple Store.

This would skyrocket adoption of NFTs and decentralized infrastructure. It would advance the vision of true digital ownership. 

But it would probably create little to no change in price for PFP projects. 

This is not a bad thing. In fact, what's good for NFT adoption doesn't have to be good for NFT prices. 

That's perhaps my central point: A world in which NFTs are widespread and ubiquitous doesn't have to mean a world in which most NFTs are valuable.

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