Identity: The Mega Theme of the 2020s

Identity: The Mega Theme of the 2020s

Welcome to the 2020s, the decade of identity. Whereas search was the defining function of the Internet in the 2000s and social was in the 2010s, identity will be the tech megatrend that defines our current decade.

A Framework for Identity

Oxford offers two definitions for identity: the fact of being who or what a person or thing is, and a close similarity or affinity. Identity is the intersection of individuality and conformity; it’s both how we see ourselves and how others see us, even if the two don’t always align.

Before the internet, expression of identity was a relatively simple matter. It was dominated by visual cues that broadcast status and membership, such as clothing or physical appearance. Immutable genetic characteristics like race and gender also powerfully shape offline identity.

Since the visual aspects of the latter category cannot easily be changed, investment in identity pre-Internet was primarily in physical goods, especially those of luxury. Brands convey a message about the patron of the brand. Louis Vuitton says: I’m rich. Nike says: I’m athletic. Lululemon says: I’m rich and I’m athletic. But, a brand doesn’t have to be expensive. A $30 Nascar race shirt or a band t-shirt are also powerful indicators of identity.

This initial framework for offline identity expression gives us three categories: immutable physical characteristics, mutable physical characteristics, and mutable adornments.

Intentional self-expression doesn’t require luxury brands, but it does require disposable time or stored units of time (money) from the person trying to shape their identity. As such, expressing one’s identity in an intentional way is the ultimate luxury. This will remain true, perhaps even more so, as the importance of online identity grows.

An Online Identity Framework

I’ve long believed that technology isn’t inherently good or evil, it only magnifies human nature. This seems acutely true for technologies related to identity.

In the offline world, your identity is relative to a confined group wherever you live or work. Your local community is the original tribe, and the degree of uniqueness required to establish a unique identity within a pre-existing tribe is relatively small. In the digital world, there is no such original tribe. You’re part of millions and millions of other people searching for unique belonging. The degree to which you need to be unique rises, but so too does the necessity of attaching oneself to a tribe. Consequently, expression of online identity lives by the law of Balaji Srinivasan that the Internet drives extreme outcomes.

The necessity to engage in extremes means that people will invest more to build online identity relative to offline, whether through social capital paid for by time or goods paid for by money. 

We shape our online identities through social capital invested in how we speak and through the beliefs we present to the world. Social capital is created through consistent and persistent espousal of these beliefs. Scroll through any social media feed and you will see this positioning amongst everyone you follow. Scroll through your own feed, and you will see the same. Eugene Wei’s epic Status as a Service piece describes social capital in great depth.

Social capital is the most important expression of identity in the online world, while paid capital is in the offline world. Social capital is harder to establish and express in the offline world. Someone may go to protests or support a certain political candidate, but if they don’t adorn themselves with something that demonstrates those beliefs to the world, that social capital is not effective in transmitting identity. Immutable characteristics may come with some social capital in the offline world, although that assumption is fraught. We are a diverse society with diverse views that aren’t reflected simply along the lines of genetic characteristics.

Whereas social media has created a powerful tool for the creation of social capital through expression, paying money to build online identity is less widespread. In the crypto community, anyone can add laser eyes to their online profile, but a few people use Cryptopunks as their avatars, which demonstrates both a far deeper investment in crypto as well as belonging to a small community of NFT believers. Cryptopunks are a generative pixel art project, one of the earliest NFTs. The cheapest Cryptopunks today cost tens of thousands of dollars, so the investment is substantial. Similarly, someone spent $4,000 on a digital Gucci bag in Roblox. Whales on games like Fortnite spend hundreds of dollars a month on skins to use in game.

While the digital nature of the online world frees us of immutability and physicality, we import many of these offline aspects as part of our investment in social capital and paid identity. Immutable offline characteristics like genetic makeup grant social capital for online identities, as do mutable physical offline characteristics like body type or gender identity. How people spend money offline also grants online identity through pictures of private jet travel, hunting trips, and engagement rings.

The distinction between imported vs digitally native identity and social capital vs paid capital creates the following framework for online identity:

The construction of this could also be separated to show that the elements of identity that we import from the offline world constantly reinforce the digitally native elements of identity in a virtuous cycle. This is the necessity of extremes in action. The back-and-forth reinforcement of one’s identity from offline to on strengthens the allegiance to that identity.

We can segment the framework another way to demonstrate how I believe social capital is pushing out in all directions, reinforcing itself and influencing the function of paid capital.

The extension of social capital in all directions is what will make 2020 the decade of identity. I see three major classes of investment opportunity that will result:

1.     Social Experimentation

2.     The Political Corporation

3.     Digital Luxury

Social Experimentation

We’ve talked before how the attention game demands greater extremes by the participants playing. Extremity garners attention and social feedback, but it can also be ruinous as we’ve seen with cancel culture. Cancel culture is the forced bankruptcy of one’s social capital. We can debate whether cancel culture consists of fair and appropriate consequences for “bad actions,” but it’s indisputable that inappropriate consequences reduce positive risk taking and free speech, and that restricts the discovery of truth.

Most people naturally understand that free speech and experimentation with ideas, sometimes seemingly dangerous ones, is the path to truth. It’s why people try to both defend and control speech so vigorously. In a digital world with no real fixed properties other than social enforcement mechanisms, human nature dictates finding ways to work around restrictions in search for truth.

The Social Experimentation opportunity relates to online pseudonymity, which allows for free speech and creative expression against forces that try to restrict it.

Others have described opportunities in pseudonymity elsewhere, so I will limit my observations to two. First, pseudonymity is already a real and growing part of social media. Those networks that find ways to embrace it will, by nature, have the most extreme and compelling content given greater freedom of expression. This will be, and has been, a double-edged sword. Unfettered creativity leads to profound discovery, and it can also lead to the profound departure from truth. New systems, probably decentralized in nature and perhaps financially incentivized, will need to emerge to reel in bad actors.

The second observation is that as worlds become more digitally immersive, pseudonymity becomes a more inherent than adopted feature. Current social networks are largely built on the idea of importing of offline characteristics and identity into the digital world. Gaming worlds and virtual worlds rely on little to no importation of offline characteristics and are pseudonymous by nature. I see those types of worlds being a large part of the future social paradigm.

Pseudonymity enables the uninhibited expression of thought, which is the most authentic form of identity. This is why it will define social networks for the next decade, whether current ones or new ones.

Digital Luxury

On the righthand side of our framework, we have the intersection of social capital and online paid capital, which I call Digital Luxury. The defining feature of Digital Luxury is verifiable ownership, which interacts with both the Social Experimentation and Political Corporation themes. In the context of Social Experimentation and pseudonymity, digital goods will be the primary way to express identity through monetary means because importing offline activity risks revealing the identity behind a pseudonym. In the context of the Political Corporation, digital goods eliminate the analog inefficiency of the Political Corporation needing to find ways to augment customer identity through some stated association between the two.

Public, blockchain-based NFTs are a powerful way to demonstrate verifiable ownership of unique digital goods. That’s why I believe NFTs are such a potentially valuable category despite the hype cycle and broader skepticism that often comes with prematurely hyped technology (see the Internet, VR, AI a few times, self-driving vehicles, etc…). NFTs, or something similar, are a necessary component of establishing Digital Luxury. It’s hard for anything to be luxurious that doesn’t have defined scarcity or verifiable ownership. Additionally, the NFT community consists of many forward-thinking people in tech, and community is often what determines the success of any emerging technology.

The Digital Luxury segment may be the most exciting of all three opportunities here as it combines two traditionally high margin businesses: digital and luxury. The margin of a digital Gucci handbag must be higher than the margin of a physical one. Digital Luxury companies may generate the highest margins of any company we’ve ever seen since the cost of creation is often negligible. 

The greatest challenge for a Digital Luxury goods company may be its ability to reinvest enough of its profit back into those high-margin businesses to compound. Capital allocation has historically been a challenge for offline luxury (see LVMH). The best Digital Luxury companies may similarly need to rely on creative M&A to build empires.

Given the ease of creating digital goods, the market will be flooded with unique items to mark identity, but most of them will hold little value in doing so. It is the investment in meaning that fosters identity that makes a Digital Luxury valuable, and that is intangible. Memes matter in the world of digital goods, so ignore them at your own peril. The seemingly stupid can be just as powerful as the ingenious provided it empowers some audience with identity. But this doesn’t mean identity is stupid. Quite the opposite.

Identity is a fundamental aspect of human nature. As Wei states in the aforementioned Status as a Service piece, we are status-seeking monkeys. The 2010 decade of social media emergence built the initial framework for we humans to act out our status-seeking nature persistently and at scale. The 2020 decade will come with the evolution of identity through pseudonymity and a deeper connection to how we spend money, although we will still just be status-seeking monkeys at heart.

Disclaimer

Contrarian Mindset, Philosophy