Monday, September 13, 2021

Why I am offering NFTs as a crowdfunding perk

Non-equity funding campaigns are always based on promises: "Back us now, and we promise you early access to the product when we launch, or we promise you a discount, digital shout-out or swags". I am currently running an Indiegogo campaign where the promise will also include an NFT: Non Fungible Token, which is a digital artifact that can be used to prove things like ownership. This, as far as I know, is the first time NFTs would be used in this capacity.

In this post, I will shed some light on what NFTs are and share my thoughts on why they are a  perfect perk for a non-equity crowdfunding campaign. In doing so, I will touch on my thoughts on the continual march towards the digitalization of the human experience. How digitalization and technologies like virtual/augmented reality, blockchain technology, etc are making it possible to further digitize aspects of society and human interaction that were previously rife with problems or just plain impossible to digitize.

By the way, my campaign is to kickstart the development of DishAfrik: a recipe app to discover, enjoy and share African recipes. Think of it as Yummly or but focused on African cuisine. One of the perks of the campaign is going to be 54 uniquely generated collages made up of 54 recipes from 54 countries. 54 because currently Africa is home to 54 fully recognised sovereign states.

You should check out the IndieGoGo campaign and back the project :) Find it here 

  • Ever since the third industrial revolution, there has been a march towards digitalization of the physical world. 
  • Blockchain-related technologies, like NFTs, provided the possibility to digitize aspects of the physical world that relied on scarcity, uniqueness, and proof of ownership, aspects that were previously hard to digitize. 
  • DishAfrik's Indiegogo campaign will be making use of NFTs as a perk, using it as a way to capture participation, while also creating digital art in the form of a recipe collage that can also be owned.

In the beginning, before the Metaverse

It started with the Third Industrial Revolution, often referred to as the Digital Revolution. A period that began in the late 1900s that led to the spread of automation and digitization through the use of electronics and computers. The technological invention of this era made it possible for things that once existed only in the tactile realm to now also exist in a new and alternative realm: the digital world. 

Obviously, such powerful technology would have an impact on society. First, it was radio that killed the town crier, and then video killed the radio star. It was not enough to have good old mails, we got new ones with an e as a prefix: e-mails. The music industry had its Napster scare, and then we had the spotify-cation of music distribution, which killed the CD, at whose hands, cassette and VHS suffered similar fatal fate. Journalism, Medicine, Education, Entertainment you name it, all got impacted by this continual digitalization wave.

Even with all these seismic shifts that digitalization brought, there were certain aspects of society and human interactions that just could not be properly represented in the digital world. This is because these human interactions are inherently at odds with the very nature of digitalization.

For example, digitalization makes it possible to produce digital artifacts once, and then duplicate them till Infinitum with little or no extra costs. Also for all practical purposes, nothing is distinguishing an original copy of a digital artifact from a duplicate. 

These are unique characteristics of digitalization. Given this, how then would it be possible to properly digitize commerce for instance? How would it be possible to create e-money just like e-mail? Electronic mail is not problematic, because duplicating a message and sending it multiple times does not in any way compromise the objective of communication which email serves, the same can't be said of a naively designed digital version of money. 

If the same endless duplication is possible with digital money, what is stopping someone from making multiple copies of a digital coin, to spend the coin multiple times? Being able to do this negates the ability to carry out commerce in the digital world. This problem, by the way, is called the double-spend problem. 

Also, how can things like ownership be properly grafted into this new digital world? Since a digital copy of a digital thing is as good as the original? 

Trusted third parties, bottlenecks, and anarchists

To enable commerce, on the internet, humans had to come up with financial institutions that acted as trusted third parties. This is not a new thing. The antithesis of anything digital when it comes to commerce, the paper money, originated in China in the 7th century, on the back of trusted third parties. 

Before the use of these notes, the Chinese used circular copper coins. If you were wealthy, these copper coins soon became a burden to carry around, especially when used for larger transactions. To solve this problem, the coins could be deposited with a trusted person, who then gave the wealthy merchant a slip of paper (the receipt) that says how much money they had deposited. This slip of paper was then used in commercial activities in the exchange of goods and services. When the recipient of the paper slip returns to the trusted party, they could then exchange the slip of paper for the actual coins.

In the hundreds of years between 7th century China and the 20th century, human monetary affairs came to follow the Chinese model. Therefore it is no surprise that a model involving trusted third parties was also employed when commerce first moved online. In this model, the trusted party serves as the electronic mint that creates and tracks every digital coin that is being spent. In doing so, they can prove ownership and who is allowed to spend what coin, when it is spent, and that it can't be spent twice.

The first successful foray into digitizing money was E-gold. E-gold was a digital gold currency run by Gold & Silver Reserve Inc, which served as trusted third parties. In this capacity they enabled people to transact business online by moving computer bits from one location to another with the assurance that transaction accounting was handled by the E-gold system and the actual money would be made available to parties when requested. 

It is also worth pointing out that trusted third parties are not limited to commerce. They are a common modality when there is the need for an intermediary to mediate verification and exchange of value. Value could be money, or it could be real estate (then you need a notary), or IP addresses (then you need internet registries). The scenarios abound where trusted third parties are relied upon.

So with this model, digitalization of commerce, tracking, and transferring anything of value was made possible. Finally! Well, maybe not quite.

There is something not quite kosher, with a model involving a trusted third party: and that is the need to have a trusted third party. As the saying goes, absolute power corrupts absolutely. Trusted parties usually occupy a unique role that bestows upon them, if not absolute power, the closest thing to it. 

Apart from the political schools of thought that would rather get rid of trusted third parties, there are other weaknesses to relying on trusted third parties. For one they are usually a single point of failure, or point of corruption, depending on the situation. They can also be bottlenecks as their inefficiencies can have rippling effects. Trusted third parties are also by their very nature centralized, and centralized systems are generally harder to scale. The internet would never have evolved into what it is today if it was centralized. (The internet is decentralized by the way).

What then do we have? We are left with a deceleration in this march towards the digitalization of everything previously analog. The best we could come up with left us with an internet, where commerce, that quintessential human activity, could not be liberated from trusted third parties. It was also a state where concepts like ownership could not be fully grafted onto the digital world.

Cryptography wins again!

The genius of Satoshi Nakamoto, the creator of blockchain was in conceiving a protocol that relied on cryptographic primitives to mediate the transfer of value without requiring the services of trusted third parties. Instead of trust, the cryptographic proof is relied upon. This creation is often referred to as the blockchain.

The blockchain is often seen as a synonym for bitcoin, which is not surprising, as bitcoin was the first implementation of the blockchain. But the blockchain is more than bitcoin. At the most fundamental level, the blockchain can be seen as a distributed ledger. The protocol outlined by Satoshi Nakamoto made it possible to have a distributed ledger that can track ownership and the transfer of ownership of digital artifacts, without needing a centralized repository. Instead of trusted third parties, a peer-to-peer, decentralized model is used, which relies on cryptographic proofs to keep the integrity of the ledger.

This means, instead of relying on centralized, trusted third parties to keep records of ownership and transfer of ownership of digital artifacts, we rely on cryptography instead. Making it possible to put information in a distributed ledger where everyone and anyone can see its contents, inspect and verify. This means once a transfer of ownership is reflected in the ledger, another attempt to invoke the same ownership transfer would be visible to all relevant parties involved and declined. 

This invention made it possible to truly elevate money into the digital realm. Usage of physical money has never had to deal with the problem of double-spending, due to the very nature of it being physical. Once a coin goes from one hand to another, it is impossible for the former holder to still have the exact coin and attempt to transfer it to someone else. This was possible in the digital realm and for a long time, having a mediating third party that serves as a mint, was the only solution. Blockchain created a system that was able to impose constraints similar to those that come with physical money on digital currency, while avoiding the centralization trap. The protocol was able to achieve this without the need to have a trusted third party.   

Satoshi Nakamoto's outline of the blockchain was just the spark that ignited other ideas that have led to the emergence of the cryptocurrency/blockchain industry. Once it became clear how to transfer digital artifacts between parties, the next step was to make this programmable. And this is exactly the innovation Ethereum brought into the space. 

Ethereum created a computation layer on top of the blockchain, making it possible to encode autonomous rules that control how digital artifacts are to be moved between parties on top of the blockchain. This layer of computation on the blockchain is often referred to as smart contracts. Even though it was coined in the 1990s, by Nick Szabo, arguably Ethereum was what made the term smart contract mainstream.

Another important idea that proved to be critical is the idea of permanence. There are cases where information is required to be unmodifiable. For example, the details of a contract for instance should be unmodifiable after the fact. Unfortunately digital information cannot generally guarantee such a constraint. Digital information is by nature modifiable. 

Permanence is one of the central value propositions of the blockchain. If you think about this, it makes sense. A technology that records transactions of value should not allow rewriting of history. Information contained on the blockchain can be considered permanent because the way the protocol is assembled, again making use of cryptography, is such that the cost of going back to change any information on it is so great that it is effectively impossible.

The only snag is, the blockchain is not designed to be a store of arbitrary large data. It does not scale for such a use case. This is where the idea of a permanent web comes into the picture, which, simply put, is a web where contents are immutable. That is, once content is created it should not be editable. 

The current web is mutable. Digital content at a particular URL can be changed even though the URL remains the same. Having such mutability is at odds with the need to make statements about permanent events on the web. For example, a contract between two parties found at a particular URL provides less value when there is no guarantee that the content at the URL would always stay the same. A permanent web provides such guarantees.

There has been, and continues to be many attempts at implementing such a permanent web. Arguably, the effort that has been enjoying the most success is IPFS. Which is not only a permanent web but also a distributed web. With IPFS, it is possible to offload large data that needs to be immutable out of the blockchain to the permanent web and have only a reference stored on the blockchain.    

The appearance of these technologies: blockchain, smart contracts, permanent web, etc has made it possible for us to continue with the onward march of digitizing our world. These technologies have made it possible to replicate the properties of physical items like scarcity, uniqueness, and proof of ownership in the digital world. Properties that were previously hard to digitize.

Emergence of the NFT

Now that we have these technologies, as is usually the case, thanks to human ingenuity, what has followed is the realization that these technologies can be put to use in clever ways. We have since seen their applications in the financial industry (Defi — Decentralized finance), to new and creative ways organization can be managed (DAO — Distributed Autonomous Organisation), to applications in the supply chain industry.

How blockchain and smart contracts can be used is almost endless and rightly so. This is because a lot of society and human interaction involves dealing with scarcity, uniqueness of things, ownership, and transferring of value. Once we had the means to represent these in the digital world, the possibilities became endless. 

A recent application of blockchain and smart contracts that succinctly captures this is the emergence of what is now known as NFTs (Non-Fungible tokens), which have proven to be particularly germane in the creative — music, art, collectible — industry.

What actually is a NFT?

Let's start with what a token is. A token can be said to be a digital artifact that could either exist 100% in the digital world, without any physical counterpart or a digital representation of something physical. 

A token could represent currency, lottery tickets, shares in a company, reputation points in an online platform, title deeds, etc. 

Tokens could also be of two kinds. They are either fungible or non-fungible. A fungible token is a digital artifact without identity and hence not unique. Non-fungible tokens on the other hand are inherently unique because they possess an inherent identity.

To illustrate: A 5 dollar bill is as good as the next 5 dollar bill. This is because each banknote does not function on the basis of a unique identity, hence they are fungible. Which is another way of saying they are replaceable with one another, as long as their values are the same. Some other artifacts, on the other hand, carry intrinsic identity and can't just be replaced by another. For example a birth certificate, if tokenized, would be non-fungible. 

An NFT is then a unique, digital artifact that can exist on a blockchain.

Why NFTs?

It turns out there are a lot of things in the physical world that are valuable because of their non-fungibility. Being able to capture this and represent it in the digital world is what makes an NFT such a valuable piece in the crypto space.

In the digital art sphere, an artist can create a work of art, sell it to a buyer and issue an NFT that can be used to prove ownership of that unique work of art. 

In the gaming industry, NFTs can be used to represent and prove ownership of unique in-game items. 

In the music industry, an artist can issue a unique NFT to everyone who buys an album. Such an NFT can then be used to prove ownership of purchase and/or to unlock extra content. 

NFTs can also be used to create digital collectibles as well as memorabilia, in which case the NFT can be used to capture and document the authenticity of a memorable event.  

NFTs can also be used as perks in crowdfunding campaigns. This is exactly what the DishAfrik NFT will do. 

DishAfrik's NFT perk

As earlier stated, I am currently running an IndieGoGo campaign to kickstart the development of DishAfrik: a recipe app to discover, enjoy and share African recipes.

One of the perks for backers of the Indiegogo campaign will be an NFT. The NFT will be a uniquely generated image collage similar to Beeple’s Everydays: The First 5000 Days . The NFT will consist of pictures of 54 recipes from 54 African countries. The ingredients and cooking steps will be included as part of the NFTs meta-data. The NFT galley would be hosted on CryptoDisho.

The DishAfrik NFT perk will serve as a means for capturing participation in an activity (in this case the backing of a non-equity fundraising campaign) and encode that in the digital world. Recipients of the NFT perk will be able to prove that they indeed backed the IndieGoGo campaign. 

The NFT will also be a digital art that can be owned: a picture made up of a collage of 54 recipes from 54 African countries. 

As the IndieGoGo campaign will be an event in time, the NFT will also have memorabilia value.  Who knows what this will be worth in the coming years?

Participation in an event, prove-able ownership of art, and memorabilia artifacts were all things that existed without hassle in the physical world before now. But with the advent of new technologies that further the convergence of the physical and digital world, it is now possible to represent these things also in the digital world. 

This is why the DishAfrik NFT perk exists. 

Metaverse, virtual and augmented reality

This convergence of the physical and digital world that started with the digital revolution shows no sign of abating. One can say we are on the cusp of breakthroughs in these endeavors. Technologies within the space of virtual and augmented reality are exploring ways to further translate other unique physical attributes like "presence" into the digital world.  

Mark Zuckerberg thinks this is the future. And spurred on by this belief he has laid out his intention to transform Facebook into a metaverse company. This would turn Facebook into a place where there is the convergence of physical, augmented, and virtual reality in a shared online space.

Although we do not have such a metaverse yet, and it might take a couple more years before its full realization, we do have technologies like NFTs now. And because of that, there is a campaign to build a platform to showcase African cuisine that if you back, you have an option of owning an NFT. 

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