Lab Summaries - Storing Value in Digital Objects

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Why do you purchase and/or invest in NFTs?

• Do you see them as cute little digital collectibles?

• Do you use them to obtain certain utilities?

• Or do you see them as a store of value?

While it might sound like a stretch, digital objects and NFTs can actually accrue value and be a store of value themselves.

How so?

Here's Derek Edws' thesis on how digital objects can store value, especially in today's evolutions in technology and economic systems.

A 18 minute read, summarised:

Attention and Value Creation

Aggregated attention can lead to value for brands, companies, or individuals.

This value translation is based on several factors:

• the object's creative, cultural, and technical merits

• the object’s brand association to other items,

• or an economy formed around the object.

With the rise of digitalization, the speed and impact of value translations have multiplied.

Digital objects can also gain value rapidly due to near frictionless exchange, real-time provenance of assets, global and 24/7 trading, and a globally connected database.

Additionally, digital objects can be viewed and enjoyed by the public at any moment, leading to a greater networked awareness.

Types of Digital Objects

While the value and potential of digital objects have gained tremendously from these trends, it is also important to distinguish between the different types of digital objects.

There are currently two valuable categories of unique digital objects on blockchain-based databases: (1) products/services and (2) stores of value.

Products and services

A product or service is created to meet a market need or want, and its value may depreciate over time as it is consumed.

Some common examples of products/services include video game skins, or subscription services.

Stores of value

On the other hand, a store of value object is used to retain purchasing power. It is often scarce, durable, and enjoys a large attention network. The value of these objects increases simply due to demand outpacing supply over time.

Common examples of store of value objects include gold, real estate, and art.

How do we categorise digital objects?

To determine whether a unique digital object is a product/service or a store of value, we need to look at the object's external dependencies.

The three most important indicators to evaluate the object's category are asset sovereignty, content durability, and contained value:

• Asset sovereignty refers to the control that the owner has over the object.

• Content durability refers to the object's ability to persist over time. This is done ideally with both the ownership token and the content associated with the object to be recorded directly on a blockchain.

• Contained value refers to the object's preservation of inherent value that is independent of external factors and new value creation by the object’s creator.

On top of these factors, The Lindy effect is also a relevant theory in play here.

The Lindy effect, also known as Lindy's law, theorizes that the future life expectancy of non-perishable objects is directly proportional to their age.

In this case, the longer a digital object has been in existence as a reliable store of value (e.g. Bitcoin, Cryptopunks), the more likely it is to continue to hold its value.

Main takeaways

1. Digitalisation has brought along a huge wave of interest and attention in digital objects, and value accrual alongside it.

2. Value translated to objects depends on the type of digital object itself - whether it is a product/service or a store of value.

3. Store of value objects will have wealth preservation functions over a long period of time.

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