🧢 NFTs Will Be Far Bigger as Digital Wearables

Hello Defiers! This week’s guest post explores what may come next for NFTs — will exclusive digital collectibles lead to the way to more inclusive digital wearables?

The current boom in non-fungible tokens has been about collectibles — rare and scarce items like limited-edition creations and art pieces. But while the multi-million dollar price tags have attracted the attention of the mainstream, it has also excluded many from actually participating. Once more, we’re seeing the web3 world be dominated by wealthy investors and experienced crypto traders. This is ironic as blockchain tech is designed to achieve the opposite; open and transparent networks which lower the barriers of entry so that anyone can use, build and own decentralized applications.

Blake West of Goldfinch argues that digital clothes, not collectibles, will be the way for NFTs to really reach the masses. Clothes are much more than how we protect against the elements; they’re how we express ourselves, and as our world becomes increasingly digital, these “skins” for our online avatars will be crucial to how we interact with the world. NFTs will allow us to actually own these wearables, and to support the creators behind them. Read this interesting take on how the future of NFTs might play out.

Blake West is cofounder and CTO of Goldfinch, a DeFi lending protocol bringing crypto loans to the real world, starting with emerging markets. Previously, he was a senior engineer at Coinbase, and long ago was a full-time musician in Austin, TX.

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NFTs Will Be Far Bigger as Digital Clothes Than as Collectibles

By Blake West, Goldfinch CTO

When I first read about the $69M NFT being sold at Christie’s, I thought it was incredible. But I certainly did not think it was relatable. It's literally a fine art auction. Which, for most people, is up there with yachts and islands as symbols of the ultra rich. And this is the story being told to the masses about NFT's. It's all about the multimillion-dollar price tags, which, if you're the average joe, sounds pretty exclusionary. Yet we also talk about NFT's as the path for crypto to "go mainstream", as if big-name celebrities selling to dozens of rich whales is going to get us there. I think if we want NFTs to go mainstream, we need to think much bigger, past digital collectibles, towards the far, far larger opportunity of digital clothes.

Real-world clothes are about so much more than staying warm. They're fashion, style, showing tribe alliances, age cohort, time of year, classiness of event, etc. They're really about expression. And as our lives become more and more digital, we will continually demand more digital expression. NFT's are the next step. One could argue that the first two decades of the internet were mostly about expanding our digital expression abilities. Starting with simple text chat, then inventing emoticons, like :), to emojis 🙂, GIF's, memes, videos, Vines, Tweets, status updates, encrypted messaging apps, photo sharing, etc. The time, money, research and usage dedicated to new digital expression abilities has been truly staggering. And somewhat similar to the GIF or JPEG, the NFT can be a platform agnostic standard for owning items and showing them off across the entire internet, thereby allowing all the expressive capabilities of clothes, but built for the digital realm.

And once we view NFT's as clothes, all sorts of fascinating implications arise. Who will make them? How will we "wear" them? And why exactly will producers and consumers find value with them? The rest of this post is about exploring those questions for both now and the next few years.

Lots of us are already wearing digital clothes

It's worth realizing that gamers have already been "dressing" in digital clothes for years. The "skins" market, for games like Fortnite is estimated to be ~[$40B](https://venturebeat.com/2020/12/18/newzoo-u-s-gamers-are-in-love-with-skins-and-in-game-cosmetics/#:~:text=Skins (and battle passes) are,is %2440 billion a year.) / year, with 80% of gamers using "in-game cosmetics" in some form. That's 10s of millions of active players per month already using and wearing digital clothes, and paying money for them. I see gaming as the harbinger of what we'll all be doing in several years, across the entire internet, and NFT's will be the standard that makes it work. You can imagine all sorts of creators, like bands, artists, YouTubers, etc. all selling branded digital clothes. Or why not brand name fashion designers too, making stuff that just looks cool?

Example Fortnite "skins" that sell for around $58

But we're still missing key infrastructure. The reason digital clothes are showing up in games first is because games have a built in way for other people to see your clothes. In order for NFT's to become huge, we need this piece. So how does this happen? My prediction: Just like the emoji standard, eventually all major communication channels, like Twitter, WhatsApp, FB, Signal, Telegram, et. al will eventually have first class support for showing off NFT's.

They'll let you to drop in any NFT next to your profile photo or your post, and they'll verify you own it with a quick lookup on the blockchain. It'll be like a digital hat you can wear anywhere online. And it's in their interest to do so, because it gives them extremely valuable info about their users. What you spend money on and what you choose to show off to your friends is very revealing.

Once that's in place, NFTs will explode. Imagine, a few years from now, your favorite show live-streams a season premier and sells NFT's to anyone who was "there". You watch the show, pick one up, and immediately change your What'sApp NFT slot. The next day, your friend sees you online and without you saying or posting anything, says, "Oh, I see you were at the live stream. How was it?".

To me, that's an organic, natural kind of interaction that's hard to do online today. NFTs, if well supported, can give you some of the same light touch "expression without speaking" that analogue clothes do. The use cases are endless. You can add class and emotion to any event within our digital lives. Maybe you want to wear something digitally "nice" for a virtual fundraiser, or wear your digital band shirt when you watch a live stream of that band. Or solemn events may call for solemn digital clothes. We've already seen numerous versions of this where huge groups of people change or alter their profile photo to show support for a particular political cause (eg. climate change, BLM, Pride, etc.)

You might ask "why not just keep using an image then? What are NFT's doing?" NFTs are elegantly allowing you to express actual monetary support. Going back to the political causes example, it's one thing to put a "BLM" image as your profile photo, but it's quite another to prove you spent hard earned money on a BLM digital t-shirt. There's just no other good way to do this digitally except with the blockchain. JPEG's are free. NFT's will cost something (or have a limited supply). They don't have to cost much, but they'll cost something. It's the same as wearing a t-shirt of a specific concert or tour. People assume you paid something for that. It doesn't matter exactly how much you paid. The mere fact that you paid anything actually says a lot. It can also tell people you were there, which says you spent time as well*.* And the magic of the blockchain makes these cross platform, which dramatically increases the value you get from your purchase. Facebook could just sell you a digital hat, which can only be used within Facebook — and in fact they did this with digital stickers over 10 years ago — but how much cooler is it if you actually own the item, and you can take it anywhere on the internet, even long after your friends stop hanging out on Facebook?

Creators will love this too

Check out this shirt. It nicely encapsulates why creators will like NFT's.

It was made by the British metalcore band While She Sleeps. This shirt is great because it gets at some deep truths for any creator who's work is now primarily consumed digitally:

1. Merch is much more profitable than streaming (or views, likes, re-tweets, etc.)
2. People don't buy merch because they need a new t-shirt. They do it to show off their support of an artist. They do it for self expression.

These points are actually related. Merch is more profitable because people are buying it for self expression as well as the shirt. It's why they'll spend $40 on a mediocre t-shirt. The premium they're paying is the value they get feeling like they're expressing themselves, or the feeling they get from letting others know they support the artist with more than just words.

If you want more backup on this idea, all you need to know is a single key stat: ~60% of all music merchandise sales by dollars are from t-shirts. The next 15% are hoodies and hats. Then the long tail are things like "koozie", "accessories", "poster", or "stickers". So of all the vessels for merch, people overwhelmingly choose the ones that their friends will see, like clothes.

In short, merch is where the money is at for analogue creators, but most digital creators don't have great options for selling merch. NFT's are the answer.

Why NFT's are a compelling merch option for creators

To better understand why NFT's are so great, it's worth considering what selling merch is like today. If you're a creator and you decide to sell shirts, you'll then have to answer some key questions. How much time/money will this cost me to produce? How much time/money will this cost me to transport to shows, and/or sell it? How many should I make? What if I don't sell them?

NFT's make these questions disappear. They are amazing because they are the first merchandise that costs nothing to produce, and nothing to transport [1]. They can move anywhere where there's internet, and you can produce them on demand. In fact, considering it's zero cost, you have to ask yourself, why would a creator not make NFT's? With no production cost, there would be no downside to offering them.

Having no production costs also opens up the design space of what "merch" even means. A lot of the magic of merch comes from the story you can tell about it, which makes it special. You got a shirt on that tour, or you went to the White Sox 2005 World Series, etc. When you're in the analogue world though, the news vendor problem means creators have to pick these "moments" carefully, or risk losing money on unsold items. But with no production costs, why not make a particular dunk a moment, like NBA TopShots does? Or why not make NFT's available for each game in a given season, for any fan who was at the game itself? What TopShots and Logan Paul are doing is just the tip of the iceberg. I think this will be a huge area of exploration over the coming years.

Of all types of creators though, digitally native creators will be the first to really adopt NFT's. I'm talking about YouTubers, Substackers, Patreon-ers, Influencers, Bloggers, Twitch streamers, etc. We're entering an era where many of our favorite pop culture stars exist only on the internet. These types don't have physical events where they can sell merch. They don't have the equivalent of a concert or a book tour. Instead, these digital creators will sell digital culture, and NFT's are the material they will print it on.

The Road Ahead

The idea of clothes on the internet may seem weird to some, but as is typical, the future is already here, it's just unevenly distributed. It's likely going to take a while to really be mainstream, but we're already heading in that direction. First step is awareness. Check. Creators, consumers, and social media sites are all definitely now aware of NFT's and early adopters are experimenting. Eventually creators will realize that auctions aren't the only way to sell them, consumers will then realize it's more than just a rich person's art game, and social media companies will realize it's another way to get data on their users. We'll also need big advances in wallet usability and scaling solutions to reduce gas fees so that the average consumer can easily buy and hold onto NFT's. Those are all definitely going to happen, but likely still about 18-24 months away. The final piece will be better ways to show them off including online galleries and social media support. Once each piece is there, the fly wheel will begin to spin, and I'm not sure it will ever stop.

Thanks to Mike Sall (@sall), Allie Ettenger, and Jon Tzou for reading drafts of this piece.

[1] - Technically it can cost into the hundreds of dollars to produce an NFT on Ethereum right now, because "gas costs" are so high. And many are decrying the environmental impact. But all of this is temporary. Many companies are working on blockchain scalingsolutions, and big projects are already starting to migrate to them. Costs should be dropping by a couple orders of magnitude within the next year or so, and will eventually be near zero.

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