NFTs are starting to feel a lot like a new kind of social network that sits above other social networks and communities

People are status-seeking monkeys

People seek out the most efficient path to maximizing social capital

Social capital is, in many ways, a leading indicator of financial capital, and so its nature bears greater scrutiny. Not only is it good investment or business practice, but analyzing social capital dynamics can help to explain all sorts of online behavior that would otherwise seem irrational.

NFTs blur the lines between social and financial capital, and as the media has been quick to point out, buying jpegs for thousands or millions of dollars seems irrational. 

Each new social network issues a new form of social capital, a token.

You must show proof of work to earn the token.

Over time it becomes harder and harder to mine new tokens on each social network, creating built-in scarcity.

Many people, especially older folks, scoff at both social networks and cryptocurrencies.

Neither Bitcoin nor Twitter existed fifteen years ago. Both are dominant forces today. They bootstrapped from nothing to something by rewarding early adopters, incentivizing them to do work for the network, and making it increasingly challenging to mine new tokens. 

the most useful is the idea of proof of work in status games.

The fact that high follower counts are scarce makes them valuable, and the proof of work requirement enables scarcity.

First Utility, Then Social Capital. “Come for the tool, stay for the network.”

First Social Capital, Then Utility. Wei highlights Foursquare, Wikipedia, Quora, and Reddit as products that used the promise of social capital to get people to do free work that then becomes a utility for the masses.

Wei points out that there are two forms of asymptotes that limit growth or lead to downright collapse.

Social Asymptote #1 is Proof of Work itself. Not everyone in the world can do what it takes to gain social capital on any given social network, which creates an upper limit.

Social Asymptote #2 is Social Capital Inflation and Deflation.

Lack of social graph portability is frustrating for users. This one is particularly germane, and highlights a main difference between traditional social networks and NFTs

the only scarce resource in an abundant digital world is users’ attention, so it’s necessary to deliver the things they’re most likely to engage with.

The power of NFTs is that they make digital assets scarce. Scarcity makes digital assets valuable

On the deflation side, social networks can get less cool as more people join. The canonical example here is what happened to Facebook when parents started joining:

“At that point,” Wei cautions, “that product or service better have moved as far out as possible on the utility axis or the velocity of churn can cause a nose bleed.”

Social capital can be used as temporary energy. “You can think of social capital accumulation incentives like these as ways to transform the potential energy  of status into whatever form of kinetic energy your venture needs.”

New proof of work can lengthen the status game.

Social capital turns into financial capital, and vice versa.

Over the past thirty days, according to DappRadar, the top ten NFT marketplaces did $1.86 billion in volume.

This is the power of valuable NFTs: they are high in social capital and utility, and moving higher in entertainment. They hit the social network trifecta.

Social Capital. NFTs are social capital with skin in the game. It’s “Investment-as-a-Status.”

Utility. NFTs also have utility as investments, as tickets for access to Discord groups, and even as something that you can hang digitally on your wall. Over time, NFTs will give owners access to events and unique experiences as they evolve and infiltrate a wider audience.

NFTs are entertaining as well: it’s fun to watch the sales, and some people are already building personas and online characters starring their Apes or Punks. Bidding on PartyBid is as much a social activity as it is an investment.

NFTs more directly tie social and financial capital.

NFTs bring status signaling and social capital online at global scale.

It’s possible that a direct exchange of social capital for financial capital is enough to get people to duplicate work or move their work to a new platform, but it’s challenging. 

you need to reward an entirely new behavior. NFTs may be different enough to work, and they’re not asking people to leave their favorite existing social network.

On new and existing platforms, members could bring the exogenous social capital that comes with owning valuable NFTs, and work as a group to build up the social capital of their NFT avatar.

NFTs make it possible to come for the tool, bring the network wherever there’s the most social and financial value.

NFTs have the ability to add infinite new proofs of work, which Wei said can lengthen the half-life of status games.

NFTs have the advantage of being decentralized. While certain platforms may present NFTs in an algorithmic feed, NFTs themselves are portable and can be used and displayed wherever the owner chooses.

New NFT projects can harness a potent combination of social and financial capital to get off the ground. Ownership brings social capital, utility, and entertainment. There are ever-evolving proofs of work, from figuring out the next big thing to creating brand extensions

Powerful things happen when you combine money, status, and community.

Social networks reward early adopters, and a social network with money baked in gives early believers a double-whammy.