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Digital Scarcity And A Lesson From Nissan
Digitally scarcity is a profound innovation, and is the foundation of the 21st Century economy
The domain name Nissan.com is not owned by the car company.
It was purchased in the 1990’s by an individual, and despite Nissan Motors Company’s efforts, the domain name remains out of their reach. As a result, customers searching for Nissan cars must look elsewhere, by going to NissanUSA.com or Nissan-Global.com.
This is an example of digital scarcity.
The idea of digital assets being scarce may seem counterintuitive. Digital photos, mp3 songs, and PDF documents posted online can be duplicated and downloaded infinitely, at little to no cost. Unlike physical goods, digital goods are inherently abundant.
However, even though the text, images and videos on Nissan’s webpage can be infinitely duplicated, the domain name nissan.com and its ability to direct web traffic to a webpage cannot.
Nissan.com is a scarce resource.
The same goes for all real-world entities that wish to stake claims in digital space. Apple is both the name of a record company founded by the Beatles in 1968 and the name of a computer company founded by Steve Jobs and Steve Wozniak in 1976. Despite multiple Apples in the real world, there can only be one apple.com in the digital world.
This scarcity of domain names is real, and ensured by real-world infrastructure and regulatory bodies, which direct internet traffic to the webpages of registered domain name owners. Even though Nissan Motors would like to re-direct all traffic from nissan.com towards their own web page, they cannot, due to the infrastructure and governance of the Internet.
The reason domain names are valuable is because they are both scarce and useful as a portal through which people can engage.
Scarcity + Usefulness = Value
Digital scarcity extends beyond domain names. Famously, video game assets such as Fortnite skins and World of Warcraft gold coins are digitally scarce assets that have in-game uses. Similarly, Twitter handles such as @nissan lead to scarce sub-directories of Twitter.com, and are useful in engaging with an audience of Twitter users. There can be only one twitter.com/nissan, and that Twitter handle is taken by the car company.
The scarcity of these digital assets and their respective uses have given rise to marketplaces, where people can buy and sell domain names, twitter handles and in-game digital assets. This is the new digital economy, where digital goods are transacted in digital marketplaces to serve both digital and real world purposes. Investing in a high-value domain name can yield real world revenues for real world businesses.
Although domain names cannot be touched, tasted, or smelled, they nevertheless exist and are valuable. Nissan.com doesn’t physically exist, but it is still worth millions.
Despite their value, domain names and similar digital assets are not well-suited for transacting. First of all, domain names are not fungible. Apple.com is not the same as pear.com, or orange.com, and anyone seeking to trade a domain name must take into consideration the particular uniqueness of that domain. Furthermore, domain names are not divisible, as you can’t sell half of amazon.com.
And finally, domain names are inherently centralized, relying on the authority and governance of network administrators to facilitate transfers with associated documentation and wait times. For example, domain name registration is coordinated between ICANN and domain name registrars, who can impose a 60 day lock on domain name transfers when a registrant changes their information.
Although domain names, Twitter handles and other digital assets are scarce, useful and valuable, transacting with them is cumbersome.
This is where Bitcoin comes in.
Bitcoins are fungible, as one bitcoin is the same as all other bitcoins.
Bitcoins are divisible, as each bitcoin can be subdivided into 100 million satoshis.
Bitcoin is decentralized, as it lacks any semblance of an authority and exists in equal measure across its global network of nodes.
In the same way that domain names do not physically exist, yet can have tremendous value due to their usefulness and scarcity, so too can Bitcoin carry tremendous value. Bitcoin’s usefulness lies in its ability to store and exchange value through its immutable properties as a fungible, divisible, decentralized, portable, durable, and scarce digital asset.
Bitcoin’s scarcity is enforced by a real-world network of nodes and miners, which are continuously monitoring and updating Bitcoin’s blockchain to ensure that no invalid transactions occur. The growth in the total mining power backing Bitcoin effectively renders it mathematically and economically impossible to create bitcoins outside the protocol’s 21 million Bitcoin limit. As previously discussed, Bitcoin’s scarcity is backed by mathematics, cryptography, and game theory to the point where it can be considered immutable and scarce.
Given that Bitcoin’s source code is publicly available, many people have made copies of Bitcoin in the form of other cryptocurrencies, however, such duplicates do not carry the same level of miner-enforced security or robust ecosystem of nodes and developers. Just as if someone were to create an alternate Internet, where new domain names would be up for grabs, such domain names would have little to no value unless their scarcity and ability to attract millions of web users were established. The presence of Bitcoin copycoins is meaningless in the face of Bitcoin’s entrenched network effects.
The result of Bitcoin’s rise is the establishment of a global value network, similar to the Internet’s global information network. Value is stored and exchanged digitally within Bitcoin, resulting in a global network that can leverage the power of digital properties to its advantage.
Owning a Bitcoin is akin to owning a domain name, except if domain names were limited to 21 million, all identical, highly divisible, unencumbered by any central authority, and seamlessly tradable 24/7/365 across all currencies and timezones.
Bitcoin is digital scarcity.