The Bored Ape Yacht Club (BAYC) is by far the crown jewel of NFTs. At its peak, its floor price reached a staggering $300k. To put things into perspective, $300k could get you a comfortable house in almost any part of the world, or a high-end sports car like Lamborghini Huracan, with plenty still left over!
As such, it can be perplexing for most of us to comprehend how on Earth is a digital image be worth that much. Who in their right mind would pay $300k for the JPEG of an ape that anyone can right-click and save?
You’re right — they don’t. Hang with me for a bit here.
More Than JPEGs: The Social Utility of BAYC NFTs
$BTC or $ETH, just like the USD, is fungible: every unit is equivalent to each other. The $ETH in your crypto wallet will denote the same value as any $ETH out there, just like how the USD1 note on your hand will represent the same value as any USD1 note out there.
By contrast, NFTs are unique tokens living on the blockchain. They are non-fungible — hence the acronym NFT: non-fungible token. Each BAYC is not identical to one another, despite existing under the same NFT collection.
As an analogy, you and your friend could both live in Beverly Hills, but your property is not identical with your friend’s, or in fact with any other property in Beverly Hills. Each property will have their own designs and layout, which means they will all have differing market values (although highly correlated).
Diving into how cryptocurrency (and blockchain) works under-the-hood is beyond the scope of this article — for further reading:
Back to BAYC. To wrap your head around it, you have to stop looking at BAYC NFTs as 2D JPEGs, but rather the social utility associated with owning the NFT alongside highly prominent figures: athletes like Neymar (#5269, #6633) and Steph Curry (#7990), musicians like The Chainsmokers (#7691), Post Malone (#961, #9039), and Marshmello (#4808), and public personalities like Kevin Hart (#9258) and Mark Cuban (#1597).
To further illustrate, imagine a scenario where Yuga Labs (the creator of BAYC) hosts a private yacht party, with access only given to BAYC NFT holders. The guest list is star-studded — Neymar will be there; Steph Curry will also be attending; and hence you’d want to attend the party as well.
Its utility would now become apparent: you can right-click and save as much BAYC JPEGs as you want, but in the end you will still be denied access to the yacht party. Why? Because the “real” holders own the underlying NFT of that JPEG, which is transparently verifiable on the blockchain by anyone.
The above is just a specific instance. What if Yuga Labs partnered with Steph Curry to give first priority to BAYC holders for the tickets to Golden State’s NBA Finals Game 7? Or teaming up with Post Malone giving away free front-row seats to BAYC holders for his upcoming concert in Paris? Or joining forces with Mark Cuban to allow BAYC holders to a one-time private dinner session?
Even better, what if Yuga Labs partners with Epic to bring BAYC skins into Fortnite? Or collaborating with Coca-Cola to feature a couple of BAYCs drinking Coke for the latest Super Bowl ad? Or joining forces with Marvel to showcase BAYC NFTs in a 1-min scene on its latest MCU movie?
With the amount of money sloshing around Yuga Labs’ coffers and the celebrity-clad holders of BAYC NFTs, these scenarios are certainly on the cards. Epic won’t see BAYC as a mere collection of digital ape JPEGs — rather as a powerful brand boasting a sizeable big-name following. Same goes to Coca-Cola or Marvel when they are on the negotiating table with Yuga Labs.
With a self-imposed artificial cap of 10,000 units, BAYC NFTs also double as a status symbol as a byproduct of its exclusivity — akin to owning Rolex watches or Ferraris. In due time, its prestige could even surpass those of physical luxury goods, as we march towards an ever-increasing digitally-literate society led by millennials and Gen Zs — only time will tell.
Finally, the programmable, composable nature of on-chain tokens, fungible or non-fungible, would enable just about any NFT (including BAYC NFTs) to be tapped into as a “money Lego”. Unlike physical items like Gucci bags, NFT owners could easily trade their NFTs no matter where their counterparty is based on, collateralize their NFTs and borrow money off it, sell fractional shares of their NFTs, or even spin up custom derivatives out of their NFTs!
BAYC is undeniably a special case: a first-mover (or “OG”) of the NFT space, with a massive audience populated with prominent figures and celebrities. As such, the value of its NFTs are largely derived from the social utility that it can bestow upon its holders — backed by the coffers of Yuga Labs as well as the public standing of its VIP holders.
With that said, most NFT projects are not of BAYC’s stature — they are more often “pure” digital art collections launched by artists with no distinguishable community, nor money or influence. This begs the question: do NFTs even have any value beyond social utility?
NFTs for Provenance in the Digital Age
On permanent display at the Louvre in Paris, Mona Lisa is believed to be worth circa $850m as of today’s dollars. While the painting itself is indeed no slouch, it is by no means irreplicable. A skilled artist given enough dedication could have painted a “perfect” replica of Mona Lisa (in fact, there has been a replica of it; this one sold for $300k back in 2021), which would have been indiscernible from the original except for the eyes of a few aficionados.
But then, why is the original painting is valued almost 3000x more than its “perfect” replica?
Short answer: historical provenance.
It doesn’t matter if a replica has “better” quality — the only thing that matters is the provenance of Mona Lisa. No matter how many Mona Lisas emerge in the future, the only one that was painted in oil on a white Lombardy poplar panel in the 1500s by Leonardo da Vinci, stolen from the Louvre in 1911 and brought to Italy but somehow was retrieved back to the Louvre in one piece, survived World War II, then finally became the property of the French Republic, is the Mona Lisa.
NFTs could provide the digital art of an artist with provenance. Make no mistake, provenance doesn’t actually stop someone from replicating your work. Just like how Mona Lisa has countless replicas, your digital art will inevitably get duplicated — no way around that.
What provenance entails is that no matter how many exact replicas of your digital art that exists over the internet, there would only be one instance of it that is minted as an NFT under your public address.
Sure, someone could actually mint your digital art as an NFT under their own public address, but the fact remains that you are its original artist, and hence the digital art’s provenance would be based off you as its rightful creator.
So long as the digital art is recognized as your work in the public eye (just like how you recognize Mona Lisa as Leonardo da Vinci’s work despite the existence of numerous replicas claiming to be the “original”), then no one could really “steal” your digital art. Once you announced your public address, then mint your digital art as an NFT under it, all value accruing from your digital art will rightfully flow straight back to you from the “fakes”, even if those grifters happened to mint their NFTs ahead of you.
Just like how the value of Mona Lisa mainly stems from its historical provenance, the value of a digital art NFT would heavily depend on the issuing artist itself: 1) the more enthusiasm for the digital art, the higher the value of the NFT; 2) the less NFT units reserved for the digital art, the higher price each NFT will command. And vice versa.
In theory, an artist could actually issue additional NFTs down the line for the same digital art that is already minted as NFTs earlier. In practice however, doing so not only dilutes the value for the existing holders of that digital art’s NFTs, it will also cause a significant loss of trust towards the artist.
NFTs: Your On-Chain Swiss Army Knife
The use case of NFTs transcends beyond just BAYC-style social utility or provenance for “pure” digital art collections. Being programmable tokens at its core, NFTs could in fact be the on-chain representations of anything deemed to be of value: income sharing agreements (ISA), real-world assets (RWA), loyalty programs, in-game items, you name it!
Nonetheless, NFTs are no magic bullet — as the saying goes: garbage in, garbage out. The value of the NFT itself will ultimately depend on its underlying issuer: BAYC NFTs imbue holders with social utility, digital art NFTs provide holders with a trail of provenance, ISA NFTs represent claims to the issuer’s future income streams, RWA NFTs represent claims to ‘off-chain’ assets held in custody by the issuer, in-game item NFTs entail holders with certain in-game functions or utilities, and the list goes on.
Social Tokens for the Creator Economy — for further reading:
NFTs for Domain Names — for further reading:
Tokens and NFTs in the Gaming Industry — for further reading:
Disclaimer: The author @0x_delken is a Reitio core team member. The views and opinions expressed throughout are those of the author as an individual, and do not necessarily reflect the official policy or position of Reitio as a project.