What is a non-fungible token, otherwise known as an NFT? Ask almost anyone, and you’ll receive a mystery box of interpretations, most of which will leave you scratching your head. Most of us at one point or another have been curious how these seemingly simplistic digital images are fetching tens of thousands of dollars online, despite the fact that they can be screenshot and set as your iPhone background absolutely free.

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Hot words like blockchain, digital rights, and “the metaverse” tend to obscure the truth even further. While these concepts do play a role, they don’t serve anyone in helping to understand the logistics of how to create or invest in them wisely, nor do they clarify why heavily pixelated mice are worth over $8,000 at the time of this writing.

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Why Generative Art?

 

The value of NFTs lies so much deeper than just art ownership. For this reason, simply digitizing single works in any manner isn't very effective, especially for larger economies that need to be scaled upward. The ability to scale up is a well-known benefit to most businesses. By drawing a collection in layers categorized into numerous traits, we can leverage art generation software to quickly create thousands of unique, yet similar items. This is the foundation for a Non-Fungible Token - it is one-of-a-kind, like a serial number on a dollar bill, or a CUSIP number on a stock certificate. It represents unique ownership and a stake in the assets of the community as a whole. Additionally, the "rarity" of specific traits can be customized in the generation software to create NFTs within the collection that are more desirable or rare than others. Regardless, by generating NFTs in this manner, we invite a large pool to participate in the ownership of the community, and by extension, the assets and value of the community. Similar to how a publicly traded company works, minting a collection of NFTs raises capital for the community (think of an initial public offering of stock, or IPO). This capital can then be deployed to invest in real-world assets that appreciate in value, and the NFT holders own a stake in those assets and have voting rights, if the project is designed to do so.

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Because of our understanding of this opportunity to build a legitimate business with actual cash flow, we will be using an initial public offering (minting) to raise funds, some of which will go into a community pot. By purchasing one of our NFTs (a.k.a. shares of stock), a person can own a piece of the pie. By providing our NFT owners with voting rights on what to do with these community funds, we give the community the power to drive their own growth. These funds are often used to purchase high value items such as expensive watches and cars to be raffled off to the community. This makes each NFT function as a raffle ticket with no expiration, for as long as it is held in the owner’s wallet. Some NFT communities have even used their community funds to purchase legitimate businesses, for example the Desperate Ape Wives NFT community recently purchased a record label. Additionally, every transaction pays a royalty back to the owners, and back to the community pot. As demand grows for the opportunity to win prizes, build businesses, and obtain access to exclusive events, the price of the NFTs will increase >> the royalties will increase >> the community pot will increase >> the opportunities to create value will increase. The key function of a good NFT project is to create value for owners efficiently.