The supply of Ether, the underlying token of the Ethereum network, is currently being debased at a rate of 4.47% per year.i That’s not bad! At least compared to pretty much every fiat currency extant, but it’s still close to triple Bitcoin’s current 1.79% annual inflation rate. And while it’s still true that “diversification is (largely) a scam designed to spread you thin and steal your money,” it’d be slightly crazy to ignore the eye-popping amount of financial and technological innovation that the Ethereum network has underpinned and catalyzed since its launch in 2014, the interest in which continues to grow exponentially.ii
Not that’s it’s all rainbows and unicorns over in ETHLAND. Far from it. They’re still in deep doggy doodoo over the size of their blockchain, the solution to which mostly includes “sharting” and “proof of snake,” as per the Ethereum 2.0 proposal, and don’t be surprised if the implementation of this Eth2 proposal kicks off another round of economic chain warz as Bitcoin Crash did, if with a less predictable winner (although I suppose the alien-autist-christ-child Vitalik usually wins these kinds of things so he has to have at least 4:1 odds). But what’s an opportunistic bystander to this confetti parade supposed to do? Why, marry his passion for fine art with his passion for sound money!
Which brings us neatly to CryptoPunks,iii the “first”iv provably scarce digital collectible on the Ethereum network (ie. the OG NFT),v which utilized the ERC-20 protocol and went on to inspire the ERC-721 protocol that forms the foundation of most NFTs today. Designed by artists Matt Hall and John Watkinson, the Daft Punk-esque duo behind Larva Labs, the 10`000vi unique 8-bit-style head-and-neck profiles are the darlings of the crypto-arrivistes (ie. those who increasingly decide “What Is Art?“). Even Christie’s is getting in on the hype with their upcoming 21st Century Evening Sale on May 13th in New York, which will auction off nine (9) CryptoPunks previously owned by the developers. Such provenance! Such wow!vii
Anyways, rather than me blathering on much further about things I scarcely understand, here are some prime quotes from early CryptoPunk investors and their thesis for spending perfectly good Bitcoin/Ethereum on 24 x 24 pixel jpegs. Maybe you’ll find it compelling and persuasive? I certainly did. First up, Peruggia:viii
1) How I Learned to Stop Worrying and Love the Punks: If this comes across your timeline you likely believe that in the future the world will grow more digitized and decentralized. If not I doubt a guy who values MS Paints at over $13,000 per pixel will convince you otherwise.
2) If you’re anything like me- your current self has learned a lot of things about digitization that your past self doubted. Each unnecessary purchase I made or other investment I held when bitcoin was $100 was me financially voicing an opinion that bitcoin is worth under $100.
3) Each quarter I left in my change jar was me deciding it was better than used to fund @VitalikButerin building @ethereum because my past self underestimated innovation. Each lot of bitcoin I’ve sold was me fighting innovation and financially choosing other assets.
4) If you’re a participant in cryptocurrency markets who has less holdings than you’d like- it’s probably safest to just keep accumulating your preferred chain. Avoiding the NFT and Punks craze is likely the prudent decision.
5) That said scarcity is what this whole space is about and many people miss the forest for the trees. When I see (fellow) bitcoin maximalists belittle other digital investments it makes me feel that they’ve simply gotten lucky and do not understand why this space is valuable.
6) Whether they think 10 minute blocks are a lucky number, or that a cherry-picked version of certain things Satoshi believed in 2009 is a requisite trait for a digital asset to be a good investment is beyond me.
7) Each investment in this space is a bet that over time people will allocate more resources in that direction. The arguing I see over which chains/projects are “better” is something I find strange as your goal should be to speculate on adoption for your intended time horizon.
8) And here is my time horizon surrounding punks: I think the cryptocurrency space is going to both produce and eventually be joined by all of the wealthiest people on earth. Those that embrace technology will outperform those that fight it which is a tale as old as time.
9) I’ve seen extremely prominent figures in this space mock my purchase. I feel exactly the way you do when someone asks you what bitcoin is backed by. I know you don’t “get it” yet but you will. Just like they’ll get it a few cycles from now.
10) If anything this has informed me just how early I am. Many of these same people buy art, or trading cards, or other collectibles. Is it because that card feels better in their hand than a cheaper card? Or that painting looks better than a cheaper painting?
11) No. They buy it because they are fine paying the market price for something they like with resources they’ve earned. It is a testament to their accomplishments that they can afford such luxuries.
12) As society progresses do we expect this trend to change? As wealth disparities between rich and poor grow progressively larger do
13) Cryptopunks were first. A floor punk is 2,100 times scarcer than the bitcoin I cherish so deeply. Much like bitcoin’s biggest advantage being that it was first to gain adoption- as were cryptopunks.
CryptoPunks: the Emergence of NFTs as Stores of Value
The launch of Ethereum resulted in the emergence of a new, nascent industry around digital collectibles represented as non-fungible tokens (NFTs).
Proto-NFTs existed on Bitcoin in the form of Colored Coins but the NFT ecosystem wouldn’t blossom until Ethereum, thanks to its turing-complete capabilities, allowed developers greater freedom to experiment with new asset types. The first proposed experiment with digital collectibles on Ethereum was a continuation of Counterparty’s Rare Pepes (originally designed to work with the Bitcoin blockchain), however the project ultimately did not take off as envisioned.
In truth, the NFT phenomenon really started with CryptoPunks. CryptoPunks consist of 10,000 unique pixel-art “punks” given away for free to anyone willing to claim them. Each punk has different characteristics (beard, skin color, hair, etc.) with some characteristics being far more rare than others. The properties that give CryptoPunks their SoV status in the NFT space are as follows:
- Hard cap: 10,000 max punk supply. Any attempts to generate another set would not be respected by the market as original. Unlike most crypto-related projects, developers cannot use technological improvements to justify a fork of an NFT. Digital collectibles and art are not at risk of becoming obsolete like tech platforms are.
- None of the sustainability issues Bitcoin faces due to relying on the security of Ethereum as the underlying substrate.
- Many punks belong to addresses that haven’t moved in 3+ years—many of these likely represent lost punks, making the supply even more scarce.
- Thanks to the permissionless innovation on Ethereum, NFTs like CryptoPunks can be sharded and those shards can be sold individually. That means that if a rare punk commands a lot of money, a seller won’t necessarily have to wait for a whale with the necessary funds to buy it, but can fragment it into shards and effectively sell partial ownership, greatly facilitating liquidity. In fact, it is inevitable that NFTs will be financialized which will create potentially more buying pressure on the market. Imagine using a punk as collateral to borrow another asset–and this is just a rudimentary example. Eventually, NFT indices will exist that will make them even more liquid.
- Many new NFTs have flooded and will continue flooding the market, but punks are the original NFTs. No matter how many new NFTs flood the market, there will only be one set of original NFTs, just as there will only be one set of original Babe Ruth cards and Superman first edition comic books despite the proliferation of new trading cards and comic books. The NFT industry will converge on the first mover just as the crypto industry converged on Bitcoin due to its first mover status. CryptoPunks are an NFT schelling point.
- Punks with certain features (such as ape, alien, or zombie punks) are exceedingly rare and command an even higher premium. This means that punks have a sort of meta-scarcity within the CryptoPunk set.
- Fair distribution: The set of 10,000 punks were given away freely to anyone willing to claim them. There was no entity that was entitled to a large portion of the initial supply that could potentially create huge selling pressure. NFTs were ignored and misunderstood by the market for a long time and it’s unlikely that VCs accumulated large positions while punks were relatively cheap. Even now most funds have very little exposure to the space and are struggling to understand it.
- Any first mover NFT set would likely be valued highly no matter what that set consists of, but punks have a lot of personality and interesting qualities that make their owners esteem them even more. This sentimental value makes owners less likely to sell them.
- Many people critique NFTs by claiming that they can own an NFT just by screen grabbing the image, but NFTs are *not* images, they are a signal that you own the original copy. Even if you could generate an exact replica of the Mona Lisa—emulating even the most subtle brush strokes—the copy would be worth almost nothing compared to the original. So clearly it is not the physical aspects of a collectible that give it value but in the social consensus that you own the original. And decentralized, censorship-resistant blockchains such as Ethereum are great at both proving ownership and authenticity as well as enforcing property rights, which can be done in the real world only at a great cost.
This mentality that a digital collectible is worthless because anyone can duplicate the image is causing the market to greatly under value and ignore the NFT space altogether. Moreover, although digital collectibles have existed for decades (e.g. World of Warcraft currency, Hearthstone trading cards, etc.), they are not good SoV candidates because their supply, transmission, and accounting is entirely dependent on centralized entities that can and have seized assets for any arbitrary reason.
It’s difficult to measure the market cap of a set of collectibles because each one is unique, but if the average punk currently sells for $4,000 and there are 10,000 of them, then the current market cap can be approximated at 40 million dollars. This is assuming that no punks are permanently lost and will at some point come back on market.
Considering that the NFT market could be worth just as much as DeFi (read: trillions of dollars) and considering that CryptoPunks are a schelling point within the NFT space because they are the first mover, the punk market has significant upside left since any growth in the NFT market will likely translate to price appreciation for CryptoPunks. 100x gains within 5 years is not out of the question and PUNK CAPITAL plans on holding its CryptoPunk position for at least that amount of time if not longer.
So it is that Punks as a profile pic are the new blue checkmark a.k.a. the
Rolex Richard Mille of the crypto-native digital world,x while also being a creative way to gain exposure to ETH for those of us who are finally done licking our old wounds.
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Ok, here we go, I’m gonna try this in Wikipedia speak: CryptoPunks are NFTs that leverage the speculative value of eth in nine, key means: (1) unlike eth, their supply is defined and scarce, (2) their avatar nature invites self identification (read: the dude in the chat now who “needs” a cowboy hat because he’s “from Texas), (3) their pixelated quality limits the number of potential features which in turn creates a matrix of combinations which in turn creates a objective valuation formula among subjective features, (4) the pixelated aesthetic is timeless and will age well, (5) the embedded sense of pluralism (many races and genders and fashion choices, etc) is at once futuristic and hopeful, (6) they’re simply, genuinely beautiful, (7) they appear well on screens of all sizes, and (8) they collapse art and a marketplace into a singular, inextricable unit, taking the “galleries and collectors are ruining art” debate (which has been materially static since anti-art was first created in the ‘70s) to entirely new dimension that/and (9) introduces the fundamentals of blockchain to the masses (see the SNL skit).
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- Recall that approx. 72 mn ETH were pre-mined and that the denominator matters a lot for inflation calculations! So if we zero out those 72 mn, we see that the ETH monetary base has gone from 110`466`428 to 115`403`966 in the last 12 months, which is a 12.85% increase! ↩
- “But Pete,” you ask, “aren’t you like a Bitcoin Maximalist who hates shitcoins more than you hate socialism?” Well Timmy, I’m glad you asked, because you really had to be there in the beginning. It’s story time — pull up a chair.
Getting into Bitcoin in 2013 meant that, then as now, there were a million and one shiny non-BTC things to invest in, though the names of the shiny objects back then would be barely recognisable to new entrants of the crypto-economy today. Names such as Litecoin, Feathercoin, ASIC Miner, Havelock Investments, and a handful of other flash-in-the-pan and/or fly-by-night operations/exit-scams existed side-by-side with the greatest investment opportunity of a lifetime, and it wasn’t always as easy to tell them apart, or at least it wasn’t always easy to stay disciplined enough not to throw some flyers out. Given the Wild West nature of the space, you can imagine that there were varying investment theses at the time, even for those primarily focused on Bitcoin. I knew several people at the time who spent tens of thousands of dollars (ie. hundreds of coins) on soon-to-be-obsolete ASIC miners from Butterfly Labs instead of paper walleting that shit and HODLing off into the sunset. I knew others who kept their entire stashes on Mt. Gox and lost it all. Others still who bought Robocoin ATMs for tens of thousands of dollars (ie. hundreds of coins) and never saw 1% of that back in their noble attempts to lubricate the fiat-to-crypto on-ramps and off-ramps. Hardly 5% of the people in the space back then did what I did: threw their life savings at Bitcoin, played with 10% of it on fun crypto side investments (that thankfully broke even on net) and hung on for dear life through the darkest of bear market days between 2014-2016, eating ramen noodles and thrifting at Value Village so that one day, maybe a decade onwards, we could dip our chicken tendies in champagne, so to speak.
But having seen basically everything burst into flames in 2013 that wasn’t a “not your keys, not your coins” approach to Bitcoin and Bitcoin alone, the launch of Ethereum in 2014 was met with, how shall we say, skepticism. In early 2014 when the pre-sale was announced, I was still very much licking my wounds from the year before, so the whole “Turing Complete World Computer” sounded about as sensible and plausible at the time as emoji-based-linktree-esque Yats do today. Does that mean I shouldn’t have thrown a couple coins at the start-up launched by my fellow Canadians when I was offered 5`000 ETH for a single BTC for as many BTC as I cared to throw at the sure-to-be-dumpster-fire? You tell me.
What we can safely say nearly a decade later is that I clearly underestimated Vitalik’s knack for marketing himself as an alien-autist-christ-child, the saviour of those unwashed masses in need of a more tangible earthly icon than the hebraically unknowable Satoshi Nakamoto (ie. Len Sassaman?!), and of course the applications of blockchains beyond just sound money. Anyways, the past is the past! Where were we? ↩
- Archived simply because you won’t be able to believe how “cheap” these goddam jpegs were in 4-5 years from now (ie. 2025-2026). I already can’t believe the archive from 6 fucking weeks ago. ↩
- Curio Cards were earlier by a month but no one seems to particularly care about this inconvenient truth. The mainstream narrative is that CP was first and that’s that! Curio Cards don’t have “A Thousand True Fans” so to speak, ie. Metcalfe’s Law applies! ↩
- It’s actually quite funny to observe the degree of obsession that we humans place on this “being first” business. But maybe it shouldn’t be so surprising! Stephen Wolfram (archived) eloquently points out that temporal sequencing and temporal construction is one of the principle fundaments of human consciousness:
If the observer is going to have a coherent description of “space” they can’t in effect be tracking each atom separately; they’ll have to fit them into some overall framework, say by assigning each of them particular “coordinates”, or, in the language of relativity, defining a “reference frame” that conflates many different points in space. But if the observer is computationally bounded, then this puts constraints on the structure of the reference frame: it can’t for example be so wild that it separately traces the computationally irreducible behavior of individual atoms of space.
But let’s say an observer has successfully picked some reference frame. What’s to say that as the universe evolves it’s still possible to consistently maintain that reference frame? Well, this relies on a fundamental property that we believe either directly or effectively defines the operation of our universe: what we call “causal invariance”. The underlying rules just describe possible ways that the connections between atoms of space can be updated. But causal invariance implies that whatever actual sequence of updatings is used, there must always be the same graph of causal relationships.
And it’s this that gives observers the ability to pick different reference frames, and still have the same consistent and coherent perception of the behavior of the universe. And in the end, we have a definite result: that if there’s underlying computational irreducibility—plus causal invariance—then any observer who forms their perception of the universe in a computationally bounded way must inevitably perceive the universe to follow the laws of general relativity.
But—much like with the Second Law—this conclusion relies on having an observer who forms a coherent perception of the universe. If the observer could separately track every atom of space they won’t “see general relativity”; that only emerges for an observer who forms a coherent perception of the universe.
What’s special about the way we humans experience the world? At some level, the very fact that we even have a notion of “experiencing” it at all is special. The world is doing what it does, with all sorts of computational irreducibility. But somehow even with the computationally bounded resources of our brains (or minds) we’re able to form some kind of coherent model of what’s going on, so that, in a sense, we’re able to meaningfully “form coherent thoughts” about the universe. And just as we can form coherent thoughts about the universe, so also we can form coherent thoughts about that small part of the universe that corresponds to our brains—or to the computations that represent the operation of our minds.
But what does it mean to say that we “form coherent thoughts”? There’s a general notion of computation, which the Principle of Computational Equivalence tells us is quite ubiquitous. But it seems that what it means to “form coherent thoughts” is that computations are being “concentrated down” to the point where a coherent stream of “definite thoughts” can be identified in them.
At the outset it’s certainly not obvious that our brains—with their billions of neurons operating in parallel—should achieve anything like this. But in fact it seems that our brains have a quite specific neural architecture—presumably produced by biological evolution—that in effect attempts to “integrate and sequentialize” everything. In our cortex we bring together sensory data we collect, then process it with a definite thread of attention. And indeed in medical settings observed deficits in this are what are normally used to identify absence of levels of consciousness. There may still be neurons firing but without integration and sequentialization there doesn’t really seem to be what we normally consider consciousness.
These are biological details. But they seem to point to a fundamental feature of consciousness. Consciousness is not about the general computation that brains—or, for that matter, many other things—can do. It’s about the particular feature of our brains that causes us to have a coherent thread of experience.
- There’s only 10k punks! Which is to say that they’re non-dilutive, unlike my dearly beloved NBA Top Shot. ↩
- Christie’s are the same ones who blew the top off the emergent NFT market with their historic $69.3 mn Beeple sale last month, so don’t underestimate their ability to fetch, I dunno, 2-3x the $7-9 mn estimate, so call it $20-30 mn with fees? ↩
- Archived ↩
- Archived. ↩
- Have I completely lost my mind? Probably! But I also haven’t been this excited for new technologies and investment opportunities since 2013. Make of that what you will. It’s taken several months of concerted effort and a few stumbles along the way but this whole NFT thing is finally clicking. ↩
- The spiritual successor to IRC if ever there was one. ↩