Three use-cases of NFTs

In the first part of Use-Cases of NFTs, I tried to establish a framework to determine when an NFT might have actual use-value—that is, when it’s actually warranted, useful, and valuable for a project. I settled on two criteria:

What if we could move away from a world in which financial status came from how much money we made and instead towards how much money we gave away?

You could argue, of course, that this is already happening and is not such a great thing. Money donated is inevitably a proxy for money earned, one that validates the ultra-wealthy as good people, no matter how they’ve made their money (witness mega-philanthropists like Jeffrey Epstein and the Sacklers family). You could go further and say most philanthropic giving is anything but: donations to Ivy League schools to help secure the admission of your heirs is not exactly redistributing wealth to those who need it, nor is giving money to private corporations whose stock you hold necessarily a model for creating a less inequitable world.

And finally, you might find it morally unseemly that the way to trade money for status is through philanthropy, that the best way to be self-serving in the world today is to act un-selfserving, that bad intentions go so well-rewarded. Shouldn’t we give status to the workers who give their lives to saving rainforests rather than the wealthy donors who took a moment of their day to transfer some relatively meaningless numbers from their computer screen to private charities?

My answer to each of those would be: absolutely! You’re completely right. It’s totally gross. But also, the world is burning, vertebrae populations are about 40% of their size 50 years ago, and we live in a world where people have lots of money they would like to trade for status.

How can NFTs help? Three ways.

Status. Imagine nonprofits worked with artists to auction off NFTs or to give away limited editions at different levels of donation. Artists might opt to take a few percent on each sale and resale, and could even make as much as they would with a traditional gallery through high auction prices and resales. Meanwhile, the donor would not only acquire a work of art but have a publicly visible badge in their wallet, in their online galleries, in their profile pics, and in public-viewing-galleries-that-likely-don’t-exist-yet to show how much money they had given away.

Instead of endless annual lists of billionaires who have made the most money over the past year, we could track lists of who had given away the most. When we want to do business with someone, we might check their wallet and see how generous they’ve been, what causes they’ve donated to, etc. DAOs purchasing NFTs could drive up the value of artists and works associated with good causes—conserving the rainforest, for example, rather than donating to Harvard. As gross as it is to say that philanthropy NFTs could be the new Ferraris, or to assume that they offer full-scale solutions to deeper structural problems, perhaps it would be much better for everyone if they were?

Financial opportunity. The fact that NFTs can be sold can also drive up donations in two ways. First, it means that there’s financial opportunity in giving philanthropically, so donors would presumably be willing to pay much from the outset for NFTs that they could eventually place on a public art market. Second, the non-profit could continue to earn some percentage of each resale.

Most significantly, the NFT itself could evolve with resales. At the simplest level, it might change its presentation from saying “$20 donation,” for example, to “$30 donation.” But there are more interesting evolutions as well. For example, let’s say you donated $100 to a beaver rehab charity and got an NFT of a baby beaver. Reselling it for $200 might “unlock” the NFT to evolve into an adult beaver, then a colony of beavers at $500, a full beaver lodge at $1000, an interactive beaver game at $5000, etc., all of which could be placed and played and resold in virtual universes. Non-profits could put timing stipulations on these resales—it will only evolve once per year—to incentivize long-term interaction and publicity as well as continued cash flow for years to come.

Meanwhile, investors could buy and sell NFTs for profit, making money while supporting non-profits in turn.

Transparency. Finally, all this giving would be public in some way—a good thing for donors who want public status, but also for the rest of us who want to know both how money is being spent as well as who paid for our world. All this information can be visualized virtually. For example, our beaver charity might set up a virtual replica of its real-world site: we could walk around and tap on food supplies, fence posts, and baby beavers, each an NFT corresponding to real-world items, and we could see who had purchased each. A new school might fund itself by creating a virtual model first and then auctioning off each piece as an NFT to users; for decades, students and teachers could just tap to see the entire financial history of who had paid for the gardens and the bricks. Integrate that capability with AR glasses, and we could mosey around the world and start to see the financial origins of everything around us.

Dozens of companies have risen and fallen over the past decade to try to solve the problem of payment for freelancers, particularly freelancers who work variable hours with clients and thus typically get paid long after the fact—if at all. For companies representing freelancers, the pain points are many: invoicing, collection, and credit card fees, all of which can be contentious, particularly for hours that clients canceled.

NFTs could solve all of these problems while giving workers and companies upfront income for years in advance. Workers could release NFTs for set hours on set days in the future that clients could buy in advance in order to schedule time at their convenience. These NFTs would disintermediate credit card companies, whose 2.9% fees often represent a hefty chunk of businesses’ margins, while solving all pain points around collection and cancellation fees.

Of course, there are two questions here. Why would clients want this? And what if the freelancer didn’t honor their commitment?

First, why would clients want this? For one, clients would be able to schedule whenever they want for the times they want without worrying about negotiation back-and-forth—Calendly à la NFT. For another, they wouldn’t have an option if freelancers dictated the terms. But these are, frankly, fairly weak reasons. Clients often have the upper hand to move times around and wouldn’t necessarily love the idea of being beholden to a worker’s terms in advance.

The more compelling reason is that NFTs would not only give clients preferential access the sooner they booked, but offer them an investment as well. For example, take the case of a test prep tutor. A parent might want to book their hours years in advance not only to ensure a slot with their child but to lock in a much lower rate—betting, essentially, that the tutor would be worth much more in the future. A week before the session, the parent would have four options: work with the tutor at the appointed time, cancel the time for a partial discount, switch the time for a slight fee, or resell the hour to another family, potentially at a significant markup that would also offer the tutor some share of the profit.

The value of any given NFT could shift on a number of variables—going rate of a tutor, the desirability of time slot, time remaining until the session—to give freelancers the same pricing benefits for capturing consumer surplus that airlines, for example, have always enjoyed.

And what if the tutor didn’t honor their commitment to work? Perhaps the money could be held in escrow until the time of the session (and automatically paid out unless there was a dispute). Perhaps the protocol that minted the NFTs would have some dispute functionality. Perhaps bad reviews for bad service would tank the worker’s value. Perhaps the NFT could connect with Zoom to verify the interaction or even stream the money as the service was performed.

The point is that the question itself is no different from the current one that freelancers have to ask every day—and what if the client doesn’t honor their commitment to pay?—except that it puts power on the side of the worker. But it’s safe to say it’s much easier to verify transactions through NFTs and distributed ledger technology than it is to do so currently.

The larger implication here is that the work freelancers perform is already non-fungible, variable depending on both the time they can supply and the time that clients demand. Formalizing that labor-time as an NFT will not only ensure that workers get paid but let them build up careers with future cash flow while ensuring the highest rate possible for any given moment. And it would give clients more options to invest in workers as well.

Crypto credentials have been a frequent topic of conversation in crypto circles (see Balaji Srinivasan’s conversation here), though usually in the context of math and programming. That STEM-bias makes sense: computer science will of course be top-of-mind for a crypto community of developers, but more importantly, STEM is much easier to credential automatically than humanities. Computers are good at reading computer code and assigning a value of accuracy and efficiency to a student’s work in order to assess right answers, so it makes some sense that a computer, rather than a human, would credential computer code.

But even in computer science, we run into limits quickly. How do we reward a student for their creativity in the project they took on, the problem they solved, or the opportunity they created? How do grade their success at gamifying an experience, refusing to gamify an experience, making user-friendly projects, making something meaningful? These are, in many ways, the same problems we run into with humanities credentialing—Was the argument meaningful? How well was it structured?—that I discussed, obliquely, in “The Legitimacy Crisis.” Who decides what’s valid and how do they determine its validity?

Here NFTs could stand in as review-like credentials. It could work something like this. Any time you decide to study a subject with someone else—whether that’s studying entomology with a friend or etymology with a professor—you could pay them to teach you as part of a class. At the end of working together, you would receive an NFT that would serve as a recommendation and review, like a traditional grade report. You could then decide whether to share the recommendation publicly along with other attributes: the number of hours you worked together, samples of your own projects, etc.

The result would be something like a decentralized university system, in which the legitimacy of the institution’s status was only as great as the legitimacy of each of the teachers.

But the protocol could be extended beyond classes to any project that anyone wanted reviewed. Two friends making a drone together could each pay each other some minimal sum as a proof of their own work together; a student writing a doctoral thesis on Plato could ask top classicists to review; a programmer building a DAO could ask a company to audit. Likewise, professional critics might offer NFT-reviews to projects for free at first in order to build their own status and legitimacy on the market.

But what’s that market? In other words, what determines the worth of one of these reviews? We said before that NFTs should reflect unique human properties and offer resale value. It makes sense why reviews and credentials should be NFTs as codifications of human bias and criticism—but by the same standard, how could these NFTs be resold if they’re one-time reflections of a given project? If you wanted to give credential-NFTs to a number of your own students, would you only have one NFT of your own credentials to resell to them? You might resell it at a higher value if your own work has gained tremendous cache, as the value of the NFT would be tied to the value of your own intellectual status and insights—but why would you even resell your own credentials in the first place? And what happens when you want to credentialize multiple students and only have your own single NFT-diploma to resell?

What we need is an ability to mint multiple new NFTs whose value would be reflective of your own. After all, we might sense that intellectual legitimacy is less as a glass-cased Oscar Trophy and more like a pollen that disseminates itself across host bodies: if others give you legitimacy, you now have it to give others as well at your discretion. In that sense, the value of your own intellectual credentials, whether university degrees or followers on Twitter, is what gives you meaningful power to credentialize others in turn.

So rather than simply resell your own NFT-credentials to students you work with at a higher or lower value, you could sell multiple NFTs, one for each student and class. These NFTs would carry the full history of your own NFTs to show, for example, that you were trained by a famous writer whose knowledge and insight you’re presumably passing down. And even if your own value in the marketplace goes down, you should be able to make back the cost of your education by sharing it with others—that is, by working with numerous students and giving them each NFTs.

What excites me personally is that a protocol like the one above could enable a whole new educational system of students working to teach each other in a free-form, decentralized, p2p learning network that triply empowers students to learn whatever they like, earn credentials for it, and make a living by teaching what they’ve learned. But I’ll be honest: I’m not wholly satisfied with this system either. While all NFTs tend to reward the highest bidder, NFT credentialing in particular has the potential to turn status into a pay-to-play for the wealthy.

But then again, that’s what status always has been, and I’m hopeful that a system like the one above, which allows for students to recoup costs of education by sharing knowledge widely, and which encourages credentialers to gain status by supporting the projects they love, is a step towards decentralizing authority to those who are most passionate and thoughtful about projects. I also hope, of course, that credentialers—educators, builders, and those with intellectual status—would give away time for free for those they were excited about, share class time with underprivileged students, or, at worst, make agreements for small percentages of future income ISA-style. But it is also important that they be paid for their labor-time in teaching.

Finally, of course, there’s the fundamental issue that this system just reifies human bias as the determinant of what is meaningful and what’s not—though we could say that at least decentralized authority, which can balance out diverse views, is less prone to the violence of human bias than centralized authority.

Let’s end with a larger question: is that true? Recent decentralized online collectives have included QAnon, anti-vaxxers, and incels, for example, in which the loudest and least likely voices prevail, but they’ve also included DAOs and worker-owned companies, along with garden-variety meme-stock enthusiasts. The primary achievements of centralized authority over the past year, meanwhile, have come from scientists ignoring science to give us the most nuanced arguments, which have been equally disastrous: telling us for months not to wear masks, to use disinfectant on an airborne disease, and finally that a lab leak was a crazed conspiracy.

This, too, is an academic issue with life-or-death stakes. Even in the more humble terms of my own humanities credentials, the most esteemed English professor at my own college was a known sexual abuser who would judge his female students’ beauty openly, touch them after class, and suggest that young men needed to have their female colleagues advocate for their work by meeting with him alone. I wouldn’t doubt that he saw this as part of his higher calling to be an arbiter of taste. It would be nice if there were a market not only to devalue his credentials, but at the very least balance them with others.

The more fundamental problem is that we need status at all. Using NFTs to reallocate human bias from institutionally-appointed central authorities towards human collectives might necessitate a certain acceptance of cult-like circles of legitimacy—your Scientologists and Objectivists alongside your more humdrum religions like Christianity, Judaism, and neoclassical economics.

Overall, though, I’d like to think that rich institutions are not better gatekeepers to legitimacy than a collective of people devoted to their field. And I’d like to think that the real question is how we can balance out bias not simply by listening to all sides, but privileging the voices and viewpoints that have been systematically oppressed by the norms that bias us the most. It is a problem for decentralization and centralization alike, but the opportunity to collectively credential individuals for their projects can, at least, shift power away from single sources of bias to diverse coalition whose voices can build on each other as well. Whether that actually happens, of course, remains to be seen.