Circle of Competence in NFTs
Where your sweet spot in the vast world of NFTs?
Every single day thousands of new NFT collections are born.
How can anyone possibly keep up with it all?
It’s simple — you shouldn’t even try.
The NFT space lives on FOMO (Fear-Of-Missing-Out) and it is in your best interest to resist the urge to participate in everything.
Rather, the objective should be to define, master and grow your circle of competence. Borrowing some words from Warren Buffet and adjusting it for our context:
NFT buyers need the ability to correctly evaluate “selected” NFTs. Note that word “selected”: You don’t have to be an expert on every NFT, or even many. You only have to be able to evaluate NFTs within your circle of competence.
What is the Circle of Competence?
The circle of competence is a sweet spot where your knowledge and life experiences culminate into a very deep understanding of a particular niche of the NFT landscape.
For example, let’s say you’ve lived in a dense jungle for 20+ years in a wooden hut. You’d be able to easily navigate the surrounding areas, maybe even blind-folded. Drop a foreign explorer in the same place and they’d be lost as hell. That’s the difference between being inside or outside of your circle of competence.
Now, the actual size of this circle isn’t what is most important — instead it is how well you know the boundaries. To improve your odds of success in NFTs, you should define the perimeter of your circle of competence and where you can be an expert.
Over time, work to expand that circle but stay honest to yourself and never be afraid to say “I don’t know”.
What are the different circles in NFTs?
On the surface, all NFTs appear to simply be an on-chain token representing ownership over a digital asset. However, if you dive deeper, you’ll notice NFTs can be so functionally different to each other.
Generally, NFTs find themselves in three key categories:
Brand and fashion
Arts and media
Metaverse, gaming, and other utilities
A particular NFT may stretch across multiple categories, and all of these categories can be broken down further into sub-categories. However, to keep things simple for now, we’ll stick to the 3 high-level categories to illustrate the importance of knowing your circle of competence.
Note: The space moves insanely fast and categorisation can change over-time
Brands and fashion
What is it? NFTs which express a particular type of lifestyle, attitude or culture. The majority of NFT brands manifest themselves as “Profile-Pictures” (PFPs). However, we chose not to name this category as “PFPs” because it oversimplifies things. BAYC isn’t just a PFP. Additionally, we also include fashion collections like Adidas NFTs as simply extending their existing brand. You also would’ve noticed that majority of PFP projects have evolved to also launch merchandise — because what they really are is a brand that enables holders to express their identity in all facets of life.
Why does it exist? Brand and fashion NFTs exist for the same reason they exist in Web 2.0 — for people to express their identity. It’s intrinsically human to seek feelings of significance and social connection. Because of this, NFT brands have been the easiest for the world to understand and accept (and why celebrities are buying BAYC).
How does it work? Brands exist in the minds of people and its value is determined by their collective opinion. For example, BAYC is ultimately the most successful NFT brand because through their amazing innovations they’ve convinced the most amount of people that they are the best NFT brand. This is why community is so important to brands — brand value is directly proportional to the size and strength of the community. The same applies to luxury brands like Louis Vuitton, which is why they spend so much on advertising. If one day everyone forgets about a brand — it dies.
Examples: Fortune Friends Club, BAYC, Adidas
Arts and media
What is it? NFTs which represent ownership over artwork, music, photography, videos, and other collectibles. These NFTs may offer access to physical pieces, exclusive events with the artist, or even a share in the royalties of the work. Generally these NFTs focus on an appreciation of the art or media itself — like the Beeple painting that sold for $69m.
Why does it exist? Arts and media NFTs exist because humans intrinsically have a strong desire to collect things — especially if it is from their favourite musician, painter, or sports star. Ownership of these things bring the holder an immense sense of personal joy (if you’ve ever watched an episode of Pawn Stars you’ll know all the weird and whacky things people collect). For example, imagine being a huge Lebron James fan and being able to own one of his game jerseys (or his game highlights).
How does it work? Art and media NFTs are typically reflective of an existing creator’s skill or reputation. On the technical side, it is a relatively simple application of NFT technology to prove ownership over an art or media asset. For royalty sharing in the case of music NFTs, there are lines of code in the smart contract to re-route payments to respective parties which cuts out the middle men of the traditional music industry. Generally, however, these NFTs tend to have lighter roadmaps or ‘utility’.
Examples: Beeple, 3LAU, NBA Top Shot
Metaverse, gaming, and other utilities
What is it? NFTs which represent ownership over an asset which can be used in a variety of ways. This will contain the broadest sub-categories: Metaverses, Gaming, DAOs, Domain Names and Alpha Groups. I’m sure that most people are aware that your Sandbox land are NFTs and that your pets in Axie Infinity are NFTs. But did you know your ENS (.eth name) is also a NFT? So are the access passes to Alpha Groups or DAOs. This category generally pushes the limits on what NFTs can be used for.
Why does it exist? These NFTs exist to be used on frequent basis and find new ways to solve old problems or previously unsolvable problems (such real ownership over your in-game assets). The technical innovations of the blockchain have enabled new protocols of information exchange and storage — which has improved the way people work and play. Ultimately, they exist because it makes people’s lives better.
How does it work? The technical applications behind these NFTs are relatively the most complex. Metaverse companies are here to redefine the way humans interact online — with land ownership promised to generate income via the in-game currency. Gaming companies store your in-game assets on-chain, so you can sell them or even take them to another ecosystem. Alpha passes provide access to private discord channels which have useful information or market analysing tools.
Examples: Sandbox Game, Axie Infinity, Champs Only Alpha Pass
Where’s your circle of competence?
Now let’s bring together the Circle of Competence and how it interacts with the different NFT categories. When deciding where to focus your time, energy, and money — stick to the category that’s within your circle of competence. Then, slowly grow your circle over time.
Here are the 3 next steps I’d recommend:
Define your circle. After finding and identifying where your interests, skills, and curiosity combine in perfect harmony — invest wholly into that space. Learn from all the available information and build deep connections (so much knowledge is in hidden in people’s heads in this space).
Master your circle. As you expose yourself to everything within that category, critically evaluate and understand the nuances. Test your own theories and identify your different criteria of success. Train your brain to critically evaluate with speed, such that your decision-making becomes second nature
Grow your circle. As you come to understand the intricate details within your own circle of competence, you can look to grow it and start researching new areas of NFTs. Effectively, you’re going back to Step 1, re-defining a larger circle and developing a new mastery.
Learning takes time and nothing (good) is ever easy.
After finding your sweet spot, you should never FOMO mint or blindly follow the masses again — and instead think for yourself.
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