Digital Luxury: The Software of Identity

How do you create digital luxury?

A digital Gucci Dionysus bag in Roblox

“Who would claim to be that who was not?” 

That’s one of my favorite movie quotes from The Untouchables. Sean Connery’s character says it, as only he can, to Kevin Costner after Costner informs him that he’s a treasury officer. Apparently, treasury officer is not an identity one would falsely claim to a cop.  

People claim to be things they aren’t all the time, although that may change in the coming years. Last week, I wrote about 2020 as the decade of identity where pseudonymity, political corporations, and digital luxury will rule. With these concepts, identity may become both more flexible and more rigid. Pseudonymity may allow someone to claim to be something in the digital world that they aren’t in the real world, but the digital realm is infinitely flexible. If you assert you are who you are under a pseudonym in a digital context, who’s to say you’re not? 

On the other end of the spectrum, we have digital luxuries. A digital luxury is a piece of software verifiably owned by someone primarily for purposes of identity formation, a far more rigid concept in contrast to the flexibility of pseudonymity. Either you own the luxury, or you don’t, and anyone can easily verify it. How these digital luxuries form is what I will explore in more depth here.  

Digital luxuries are built on three things: art, community, and utility. The primary function of any luxury is to convey identity, and it starts with the art behind the product or idea. In the digital world where social capital is more important than monetary capital, the community is what powers the identity associated with a digital luxury rather than money. Utility often serves as the initial spark to build a following for any product, and digital luxuries are not immune to this reality. 

The stronger the combination of these factors, the stronger the relative power of the digital luxury.

Art 

Art is the language of memes. It’s the story behind the product or idea that infects the minds of believers and forms the basis for identity. The more powerful the art, the more infectious the idea. Without some support of art, an idea has no mechanism for transfer and cannot create identity. Of the three things that determine the power of identity, art is probably the most underappreciated for digital luxury but most obvious for offline luxury. 

Art can be literal or figurative, and it can be conveyed by pictures or words. CryptoPunks are a literal form of art. There is beauty in the pixelated aesthetic to some viewers. Those who share in that perception of beauty form a community around the art. The same can be said for those who see beauty in sneakers or handbags in the physical world. The story and rationale behind Bitcoin is more figurative, almost myth or legend, created by a mysterious pseudonym. 

While words carry a certain power to convey depth and specificity, the most powerful art will always be visual. In a digital world with an unlimited demand for your attention, those things that are most striking will capture attention the best, and pictures strike harder than a string of words. Online memes are memes because they compress a lot of meaning into a single visual. It’s the same reason why logos and branding are such important parts of identity brands in the physical world. Visual forms of art will dominate the stories behind digital identity that help create the communities that support them. 

Art alone may convey meaning, but art supported by a community conveys identity. Art without a community is just a meme that never infects.

Community

The purpose of a community for a digital luxury is to make the associated identity a living, independent organism. In the offline world, identity is built on brands that are carefully cultivated by centralized corporations. In the online world, identity is built on the social capital spent associating with communities. Online communities are naturally decentralized in how they evolve, contrasting with the centralized brand of offline identity creators. Nike is a brand people recognize, but “sneakerhead” is an identity that exists built on communities. The sneakerhead community is outside of Nike’s control, but the relationship is symbiotic. Nike serves the community, and the community serves Nike. 

Digital luxury companies will be far more dependent on community than physical luxury makers. Nike does something hard that few others can — it makes high-quality sneakers in mass quantities. Creating high-quality digital goods in mass quantities is far more trivial. Anyone with basic coding skills or budget to hire a freelancer can create them. It’s the communities that form around those goods that grant identity and power. Creators and brands that don’t understand that power dynamic around digital luxuries will lose what power they do have. 

For a community to sustainably mean something, there must be some qualifications for membership. Sacrifice and scarcity both serve to limit community membership to true supporters. A community without sacrifice and scarcity is merely a crowd, and crowds eventually fade away. 

All luxuries require at least a sacrifice of money to acquire them. The idea of never selling something — HODLing Bitcoin or diamond handing meme stocks — is a sort of sacrifice in practice by members of those communities. If you buy something with the intention of never selling it, is it really a financial asset of any type, or is it a collectible? Even if many involved in the Bitcoin or meme stock communities don’t live by the never sell ethos, it’s a powerful rallying cry that reminds followers of the desired sacrifice from the community. 

Beyond monetary sacrifice, some digital luxuries require the sacrifice is one’s physical identity. Bitcoin believers add laser eyes to their profile. NFT believers use their tokens as their profile. Wallstreetbet followers live by their pseudonymous Reddit names. People in the WSB community would rather hear from DeepFuckingValue, aka Roaring Kitty, than some guy named DougClinton. 

Scarcity not only limits community size on an absolute basis, but it also regulates the potentially infinite nature of the digital. Artificial scarcity is still scarcity. It affects supply the same in practice. When demand outstrips supply, prices go up. Of course, nothing has value purely because it is scarce. Scarcity serves to augment the power of the identity created by art and the community. Ironically, a great meme cannot be scarce, even if associating one’s identity with it can. 

Communities vs Religions 

We’ve talked about religion here before and how I believe religions form. Sometimes, communities evolve into religions. Turning into a religion requires the community to be built on extreme ideology rather than mere common interest. Religion cannot exist without an extreme idea that necessitates faith over logic. Faith is the sacrifice of reason through the suspension of disbelief, which grants membership to the community. 

Small groups that share extreme ideas are cults. When cults grow into large groups, they become religions. To define “large” enough, I revert to the classic Supreme Court Justice Stewart quote, “I know it when I see it.” 

Bitcoin formed a cult of believers that accepted the extreme idea that centralized monetary control is evil. It became a religion as the meme pervaded the broader world. The anti-central bank ideal may or may not be a good idea, but it is certainly extreme in the context of modern beliefs. 

Ethereum, by contrast, seems to lack the extremity required for religion. The idea of a decentralized computer that can power almost any application is not that far a jump from distributed, centralized cloud computing. Certainly not as far a jump as destroying the central bank. 

A religion creates a powerful identity for those who adhere to it, but not few identities are truly religious. 

Utility 

Utility and luxury seems an oxymoron. In fact, many physical luxuries are arguably defined by their negative utility (h/t Will Thompson at Loup). If you wear an expensive pair of sneakers, you might walk funny so as not to crease them. Or you might be careful about stepping in puddles. That makes them far less useful than sneakers than serve the pure function of sneakers. 

Physical luxury goods suffer from natural decay as they are used, which detracts from their long-term utility. A digital good suffers from no such depreciation. At least not naturally. 

Digital luxuries can grant utility in the digital or physical worlds. Digital utility is when you can use a digital luxury in a game or other digitally native environment to some intended benefit. Physical utility is entitlement to some offline reward for owning a digital luxury. This may be an income stream from an NFT or a random gift from the creator. For the purposes of establishing digital identity, the former utility is far more useful than the latter. Offline rewards come with the friction of having to import them somehow into the digital realm to gain social capital for owning the digital luxury. A digital luxury that serves as a tool in a game, for example, grants immediate identity association to others playing the game. 

In social media, there is a popular phrase come for the tool, stay for the network, meaning you might come for camera filters but stay for the social network element (Instagram). With digital luxury, it’s come for the tool, stay for the identity. If there is no identity that comes with the utility, then that utility will have to compete on its own merits in providing value. In almost all such cases, the customer’s long-term willingness to pay will be lower for a pure utility than for a digital luxury. No one claims to own a utility who does not.