A Big Crypto Brain Poop
Alright it’s been maybe 8 months since I finally went off the deep end into crypto. A smart person would have pages of notes by now but I don’t because, contrary to what my grade 11 resume claimed, my organizational skills are horrible. I am actually very proficient in Microsoft Office though. Anyways, I hit the point recently where my brain was a big sloppy pile of spaghetti and I no longer knew what I knew and what I didn’t know so I decided it was time for some cleaning.
Below is me trying to make sense of everything I’ve absorbed from these past 8 months and organize it into a somewhat cohesive narrative. A couple of months in I started really narrowing my focus onto social tokens and utility NFTs, and more recently have been fascinated by DAOs, so there will be a heavy bias towards those applications of crypto. DeFi (decentralized finance/finance without banks/the rebuilding of wall street) is very cool and very real but I don’t really enjoy thinking about money any more than I need to so I’m just going to leave that specific bowl of spaghetti up there for a while.
Beyond just trying to clean up my own head, my goal is to get crypto beginners, or people not paying attention to social tokens, to realize how exciting and fundamentally different this new world will be. I’m going to fly through topics pretty quickly but hope you’ll tell me where to go deeper on future posts.
Alright without any more ado, and contrary to what my self-doubt would prefer, let’s get into it.
I bought some crypto and it’s sitting on an exchange. Am I doing this right?
It’s the right first step, but you’re missing the entire point by stopping there. Especially if you have ETH (the native asset to the Ethereum blockchain), which is mostly what I want to talk about.
Bitcoin’s primary use case is as a store of value, or as the central bank of crypto, meaning it really is just intended to be held. Ethereum on the other hand is essentially infrastructure for a new internet that’s actively being built. ETH and the tokens for the thousands of protocols and products being built on top of it are intended to be used.
What are tokens?
Tokens are just digital assets that are created and tracked on Ethereum (or other similar blockchains) and are used for varying purposes specific to the product they’re native to. These tokens are amazingly powerful because by default they’re plugged into Ethereum’s global, permissionless, and extremely efficient marketplace making them seamless to buy, sell, and trade.
That’s probably not overly helpful yet so let me try to simplify things. There are two widely used types of tokens right now, fungible tokens and non-fungible tokens (NFTs).
Fungible tokens are designed to behave like a currency (albeit one with superpowers), meaning people often have a bunch of them and the blockchain mostly just worries about how many each address (your identity on a blockchain) has. We’re going to talk about some applications of these in a minute but for a quick example, in my wallet right now I have 86.197 $FWB, a token that gives me access to and ownership in the Friends with Benefits community.
Non-fungible tokens on the other hand are used to represent ownership in unique and discrete digital assets. Current use cases include digital art, gaming assets, plots of land in virtual worlds, event tickets, and even claims on physical assets like real estate. For an example, in my wallet right now I have a piece of shitty digital art I created. This is a 1 of 1 NFT and the blockchain ensures I’m the sole owner of it and the only one that can sell, transfer, use it.
Okay, could you talk more about how you use them?
In web2 (the current non-crypto internet) you use products by logging in with an email and password. In web3 (the new crypto-powered internet) you use products by connecting to them with your crypto wallet. Your crypto wallet (a mobile app or browser extension connected to your address) allows you easily access and use all the crypto assets you own across this new internet.
Let’s run through a quick example. Foundation is a web3 product that facilitates artists releasing digital art as NFTs and collectors purchasing these NFTs. If you click that link you’ll see “connect wallet” in the top right corner. By connecting your wallet you’re essentially bringing all your crypto assets along with you into Foundation. Now to purchase an NFT all you have to do is have some ETH in that wallet to spend and you’re instantly able to bid on pieces of art.
So it’s just a different way to login?
No, it’s so much more. One of the most transformational things about web3 is that all of these products are built on top of the same permissionless and open infrastructure. It’s why you were able to seamlessly bring your wallet into Foundation, and NFTs you buy don’t live within Foundation but instead on this shared infrastructure layer.
Most importantly it means that you actually own it. If Foundation was built on web2 infrastructure you would only be able to see and use that asset within it’s walled garden and they could take it away if they decided they didn’t like you. But in web3 nobody but you has access to the NFT you just bought and you can take it anywhere and do whatever you want with it.
Okay, but I don’t really care to own art.
There are so many other exciting use cases for NFTs beyond collectibles. Do you like concerts?
Yea, sure.
You’re enthusiastic. Anyways, currently concert and event tickets are distributed as PDFs. This is fine if you just buy them from the source and attend the event yourself, but a lot of problems arise in the secondary market like fraudulent tickets, massive markups with no value streaming back to the venue or performer, and generally just no control over the market. NFTs solve this completely.
If these tickets are released as NFTs you can code into the smart contract (the rules that manage them) that 20% of all secondary sales go to the performer, they can’t be sold for more than a certain amount, and that only people who are holding NFTs of previous tickets are allowed to re-sell them. The movement of tickets is also 100% transparent because they’re stored on the blockchain.
That’s kind of cool, what else?
I could spend all day talking about NFT use cases, but I don’t want to. Go read this and this. Let me hit you with social tokens now.
Social tokens?
Well a social token is just an application of a fungible token where it’s being used to organize, incentivize, and share ownership in a community. These communities can be anything from fans of a band, to readers of a publication, to just groups of like minded people collecting around a shared interest or mission. Really any community with an internet presence can benefit from these. And you know what, probably any community with a primarily real world presence as well but I’m getting ahead of myself.
How do communities use them?
The specific use cases of the token can be pretty different depending on the type of community but they’re often being used to gate access, sell goods and services, reward community participation and contributions, democratize decisions, stuff like that.
….
Ughh have some imagination. Fine, let’s take a specific example of a mildly popular TikTok influencer. Without social tokens they’re probably completely reliant on advertising to make money. Not only does this probably not provide a reasonable living, but it’s also tangential to how they actually provide value and grow their influence.
This dynamic completely changes if the influencer launches a social token. They can use this token to gate access to a private community (usually discord right now) where they engage on a much deeper level with fans, include them in the creation process, reward them for helping them grow, and even let them vote on important decisions.
Fans who buy into this community are not only getting deeper access and participation, but they also get exposure to the upside of the creator. The creator gaining influence will mean more demand for access to the community, increasing the price of the token. If a fan decides they no longer want to support a creator or they want to capitalize on an increase in token value they can seamlessly sell it on any number of decentralized exchanges like uniswap.
In this new world creators are no longer lone wolves, but have incentivized communities of supporters also helping them grow.
Fine that sounds cool, but I don’t get how the creator makes money from that?
Right, so there are a few ways this changes monetization. First, they can structure their token distribution as a crowdfund where they sell tokens at some preset value. This will generate an initial pile of ETH they can use to fund their work and build the community.
Second, when individuals launch tokens they’ll start off by owning a bunch of them. By driving adoption of their token they’re able to increase the value of their holdings. They can capitalize on this value creation by selling some if they need cash or using it directly to reward the community for work/contributions that they would have previously used cash for. Soon they’ll probably also have DeFi options like using these tokens as collateral to borrow against or use them to generate interest in lending protocols or shhhh money.
Finally, they can also now much more easily accept payment in the form of tokens from their community for anything they can conceive of. For our TikTok influencer this could be 1 on 1 calls with fans, shoutouts, TikTok strategy advice, collaborations, etc. Previously, accepting payments from anywhere in the world for a service like this would have been a nightmare but now doesn’t even require a second of consideration.
What about more legit creators, like the real publications you mentioned?
Yeaaa social tokens are sick for them too. In fact I’m actively working with a publication called Raptors Republic to tokenize ($RAPS) their community. While they (or bands, authors, musicians, etc) already had a reasonably straightforward way to monetize (ads in this case), the addition of a social token has unlocked new monetization channels and is empowering them to take a much more serious approach to building their community.
They still have their core publication as before, but now their most hardcore fans can be a part of a vibrant discord server, get access to exclusive in person events (like the draft party we just hosted), share ownership in community held seasons tickets, and anything else we can conceive of. This is all coordinated seamlessly using $RAPS.
At the highest-level social tokens are the organizing tool that allows creators to transition from screaming at their fans across the void of the internet to building an open space where them and their fans play, collaborate, and collectively benefit from their growth.
Can’t get over the fact that this is just creating fake money out of this air.
Well it’s backed by the value of the access it provides and the reputation of the individual or community. So actually it’s very real. In fact there are already many examples with large market caps proving how very real it is. And this is all happening with the most basic and earliest iteration of available tools, and basically no general public understanding of crypto. With further iterations of tools and broad crypto usage every internet community will be tokenized in some way and you’ll just take it for granted that this is real currency.
Okay fine, but you have to put a ton of trust into the creator.
Yup, you’re right. In the examples I shared above you’re completely dependent on the creator not destroying their token economy since it’s centralized around them. I’m not sure why they would do that since it would destroy their reputation and potential to ever do anything on the internet ever again, however yea theoretically they could. Buuuuut… want to talk about DAOs?
DAOs?
Shit. Alright I’m still kind of nooby here, but why not. DAOs are another way for tokenized communities to organize but instead of them being mostly owned and controlled by a single creator and the token value being tied to the reputation and prospects of that creator, they’re completely decentralized and community owned. So that big pile of tokens that gets created on launch that the creator owns in the creator token model, is now owned and governed by all holders of the token.
The simplest way I’ve heard it described is as a subreddit with a bank account, but it’s evolving into so much more than that. There are some very sophisticated organizations with hundreds of people doing things I can’t even comprehend using this structure.
That sounds kind of like… a company
Yea it kind of is, but with some major differences because of their permissionless nature (not always) and efficiencies with everything being on-chain (always). Often anyone can join a DAO, start providing value, and get rewarded for it. No interviews, no paperwork, no hierarchy, no centralized decision making, no bureaucracy, just output. And because of these efficiencies people are able to work for a bunch of DAOs simultaneously and flow in and out as they wish or are needed.
You want an example don’t you.
Yes.
Alright let’s use a DAO I’m a part of that just launched a couple of weeks ago called mClub. mClub is a group of people that came together with a mission to support creators on Mirror (kind of a web3 version of Medium but ughh this is a whole other rabbit hole and not important unless you’re a creator in which case reach out to me because I want to talk) and help transition web2 creators over into this new world. The token launch to be a part of mClub was structured as a crowdfund to set our community up with some initial capital (47 ETH, or $120k at the time of these parentheses) to use towards this mission.
We’re now 100+ random people working together to collectively decide how we’re going to govern ourselves, how we’re going to brand ourselves, what functions we need within the DAO, and generally just how we’re going to make progress against that above mission. Nobody is telling us what to do, but we’re making rapid progress because we’re incentivized to care and have tokens to spend.
It’s hard to explain how revolutionary this feels until you experience it first hand. I don’t think we’re too far away from people working exclusively for DAOs and DAOs competing directly with traditional companies.
Okay so what does this all meaannnnn?
I don’t know, buy some ETH maybe. Then grab your first NFT and try that on for size. Then maybe get a little dirty and buy a social token. Then if you’re feelin extra spicy go join a DAO. Then stick your head between your knees and kiss your corporate office chair goodbye because you’re doneee baby.
But really, just spend some time going deeper into the topics above that sound interesting. There’s legitimately a new internet being built and it’s going to be a revolution for creators and builders. There’s space for everyone to get involved.
