Scarcity

Scarcity is important to functional economies and is usually the reason something is considered valuable. This can be applied to the mundane (currencies, baseball cards) all the way to the philosophical (love, limited life span). For most of human existence, scarcity was managed by the laws of the physical universe. Gold is rare because those atoms were not fused together frequently, life appears to be rare because the optimal conditions for it to arise are improbable and our time on Earth is precious because we only have so many years before we die. If we invert these physical limitations —say, make gold a common element— then it would not have been precious to our ancestors and would never have been a form of currency or source of power.

Another attribute of the physical world that is key to understanding scarcity is the requirements for replication: resources and knowledge. In order for me to replicate an object in real-life, I must have the knowledge necessary to reconstruct it and the raw resources to build it. If I see a beautiful, hand crafted Japanese sword that I want, I not only need to understand how to make it, I would also need the raw materials. Only one does not get me the sword. If I am gifted in courtship (knowledge) but alone on an island (lacking resources), I will not fall in love. The physical universe is very good at constraining resources.

With this understanding, we can see how powerful figures arose throughout history simply by hoarding raw materials. If you control resources, you control production of valuable, necessary items for survival. Even if your enemies have the requisite knowledge to build machines of war, if you control the supply of necessary metals, they are not a threat.

In the past, replication was constrained by access to resources and knowledge because we operated almost entirely in physical space and our technology was limited. The future will be different. We will operate more frequently in virtual spaces, regardless of our preferences. Knowledge workers will conduct meetings and sessions in virtual offices. Children will learn in virtual classrooms. People will meet, fall in love and have relationships without ever meeting physically.

VR is not constrained by physical laws like our real-world. It is constrained by energy and computation (technically storage as well, but storage is cheap and getting cheaper so quickly that its cost will be negligible). It takes energy to power the computations necessary to operate VR and it requires CPUs/GPUs to render it. The latter is technically constrained in the physical world, but every year chips get faster, cheaper and more commoditized. Access to technology is so pervasive, even some of the poorest people on this planet have smart phones with advanced chip-sets. This leaves us with energy, which is also physically constrained. However, energy production is becoming increasingly more efficient and as technology improves —especially solar and battery technology— we will soon have access to virtually unlimited energy by capturing the majority of the solar energy hitting the Earth or by fusion.

Energy and computation only constrain VR externally. Internally, VR has no constraints other than knowledge. The concept of limited raw materials is nonsensical in most virtual environments. If I draw in Photoshop, I do not worry about running out of the color red. If I'm building a 3D model, there's no shortage of polygons. Scarcity is not a concern.

In addition to essentially unlimited raw materials, objects in virtual environments can be perfectly replicated with only knowledge. This is already a large problem in present digital systems. The music industry was turned upside down in the early 2000s because replicating owned music moved from requiring knowledge and resources (the music files and the machinery to produce CDs) to just knowledge (knowing where to download the file). This same problem has plagued every form of media, including film and digital art.

Digital systems have unlimited resources and perfect replication with only knowledge. This is a problem.

If the future is virtual spaces and the metaverse, and these environments have unlimited raw materials, how can economies and valuable items arise without scarcity? If generating income moves into VR, what would compel someone to train and build amazing new creations if their hard labor was instantly reproducible? Economies will not emerge without scarcity.

"But wait, we already have scarcity in digital systems! Look how video games and social networks create economies and enforce scarcity." This is true, closed systems can create artificial scarcity by restricting replication and controlling the "resources" of their ecosystem. However, closed systems are dangerous for two reasons.

First, they control how the resources work and can change the rules at any moment. Imagine being a laborer inside a closed system controlled by a corporation. You've built up a business inside their virtual world and are making money mining a resource that is hard to find. One day you wake up and discover a new software patch the corporation released has changed the quantity of that resource considerably and now the resource is abundant. There's nothing you can do; the rules of the environment have simply changed.

Second, closed systems are ephemeral. Corporations shutter. Business owners trade hands and change direction. There is absolutely no guarantee any business you currently work with will be around in 10, 5 or even one year. So not only are the parameters of a closed system unreliable, there's no guarantee that the system will persist.

Closed systems —Fortnite, Facebook, TikTok, etc— were up until recently the only real way to restrict resources and replication inside digital environments. Fortunately, that is no longer the case. With the invention of blockchain technology, we can now have an open system that allows for the persistent storage of digital assets and verified scarcity.

This is a revolution that's for the most part ignored by the majority of people. For the first time in the history of modern computers, a means to verify scarcity exists in a system not controlled by a private corporation. You can own a unique digital asset that no one else has. Everyone can verify only you own it. Even if copies exist elsewhere, everyone will know your version is legitimate. Most importantly, this asset will not disappear when the business/person/entity that made it disappears. As long as the blockchain persists, the object persists, regardless of the businesses that come and go.

From my view, this explains the fever induced explosion in NFT prices from 2021 on. From a cursory view, it may appear to be strange and bubbly (and it most certainly is bubbly), but the people invested in this space see the potential and believe they are buying some of the first assets ever to be part of this pivotal moment in history.

There is no future in virtual systems without scarcity and there are only two known ways to implement it that we know of: proprietary, closed systems and blockchain technology. The former is closed, unreliable and ephemeral. The latter is open, reliable and has the potential to last indefinitely. Which will we choose?