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NFTsor non-fungible tokens, have become ubiquitous in recent years — a phenomenon that’s undoubtedly symptomatic of our new, post-pandemic, hyper-digitalized lives.
An NFT represents any digitally represented asset that can be bought and sold. Because it is stored on the blockchain (a system that tracks crypto transactions via peer-to-peer networks) and comprises unique identifying information, the token cannot be duplicated. Likewise, it is non-fungible, meaning it cannot be interchanged, unlike a cryptocurrency like Bitcoinwhere one coin equals another coin.
Since their debut eight years ago, these blockchain-based digital tokens have disrupted several industries. These industries are not just art and collectibles; gaming, music, De-Fi, and virtual reality (or VR) are also set to reach new heights with NFTs. But, beyond the hype, do NFTs have a real future? I believe the answer is an unequivocal “yes.”
Where do we see NFTs?
All NFTs have smart contracts attached to them and can be obtained in exchange for cryptocurrency. Typically, NFT data is stored in files such as image, video and audio. Hence, this is why NFTs have come to be so inextricably associated with the world of art. NFTs have revolutionized the creative industry. Brick and mortar galleries no longer define the way art is bought and sold. Now, artists can monetize their work through a new kind of self-publication, with websites such as OpenSea and Rarible functioning as online auction houses. The most expensive NFT ever to be sold was The Merge by Pak, raking in an eye-watering $91.8 million USD. Albeit extortionate, it’s the price consumers are willing to pay for something so rare and unique — a mere example of the principles of market demand.
Sure, these ostentatious displays of wealth give NFTs a controversial sheen, but it’s worth noting the impacts this monetization can have on the wider art community at large. The opportunity for artists to “tokenize” their work is truly game-changing. In addition to being rightfully paid for their labor, they are also guaranteed intellectual property rights in their creations and a percentage of the proceeds every time NFTs get resold. Yet equally, NFTs open the market to everyday consumers — more people may now be able to purchase the art they admire.
Further examples of NFTs
NFTs have a life beyond the art world. For decades, music has been a fungible asset, widely recorded and disseminated in the form of CDs, records and online streaming services. With these transactions, however, a musician’s royalties are only a tiny proportion of the overall money raised. Yet, with NFTs, musicians are now able to cash in millions within a matter of hours. Raking in practically 100% of, there’s wonder it’s becoming an attractive earnings method of sharing work.
NFTs even emerged in political races. Recently, a candidate for Senate from Arizona, Blake Masters, minted NFTs for his campaign. Masters, a crypto evangelist and protege of legendary technology investor, Peter Thielcreated an NFT of the best-seller book, Zero to One, that he co-wrote with Thiel. He made 99 copies as a reward for top donors to his campaign.
In addition to music, another industry that has jumped onto the NFT bandwagon is gaming. In-game content, such as skins, avatars and various add-ons can now be sold as NFTs. While downloadable content (DLC) can be sold to millions of players, only one copy of an NFT can exist.
Play-to-earn is one of the most exciting spaces within the NFT world. The niche model permits gamers to play games on the blockchain and earn in-game rewards. These winnings tend to be NFTs and can be used in both the virtual — and real — worlds.
Platforms such as MetaPlay, an all-in-one blockchain incubator for DeFi, GameFi and metaverses, offer simple blockchain games to help onboard new crypto users and get them acquainted with NFTs and play-to-earn models. This cutting-edge platform aims to improve the esports experience by allowing amateur players to compete as if they are professionals in esports tournaments. Impressively, in just a few months, the platform has managed to cash in about $13,000,000 from over 16,000 investors.
With the launch of the metaverse comes a promising future for NFTs. Virtual marketplaces are becoming an exciting prospect, with companies creating their own virtual spaces (eg NikeLand). Similarly, museums like the San Francisco Museum of Modern Art are starting to place their work in metaverses. Without the pretension of a gallery space, potential buyers can now browse artwork in the relaxed atmosphere of their home.
While the collaboration of NFTs with the metaverse is a very new concept, it is nonetheless a compelling one. And this can also be said about the future of NFTs. With the launch of the metaverse comes a whole new universe (no pun) of possibilities. And we would be naïve to ignore NFTs’ long-term potential.
However, it’s not just digital assets that can be sold as NFTs. Real-world assets represented by NFTs, although in their early development, are becoming an increasingly desirable option for investors. For items that need their value to be preserved — such as a rare Greubel Forsey tourbillion watch or a priceless book like The Codex of Leicester — eliminating the physical transfer of the object and instead having it stored in a safe place reduces the risk of damage and fraud.
An effective method of prohibiting the transfer of counterfeits, NFTs have become a popular means of trading collectible items. Baseball cards or other sports collectibles for example, can be traded virtually for prices as high as a million dollars. The benefit of this is that an item can be traced back to the original seller to prove authenticity, establish provenance and avoid fraudulent reproduction.
Why NFTs are here for the long run
There’s no wonder people label NFTs a fad. The hypo that surrounds them is somewhat distracting. But that doesn’t mean they’re not here to stay. It’s important to note that as with all ground-breaking technology, there comes a “plateau of productivity” — a phenomenon outlined in Gartner‘s high cycle, which indicates a period of lesser interest following a period of considerable hypothesis. This plateau was indeed experienced by the likes of Amazon way back when.
While these headline-making, seven-figure NFT purchases may seem fickle, there’s no denying NFTs’ long-term potential. Unlike other digital assets connected with cryptocurrencies, NFTs’ non-interchangeable nature has completely redefined the rules of ownership. All NFT transactions are recorded within the blockchain and powered through smart contracts. Therefore, their technology enables the storing of an entirely accurate history of ownership transfer. Such concrete documentation of ownership has the potential to be ground-breaking for certain markets — especially property. With just a third of the world population having secure legal rights to their properties or land, those without may struggle to invest in their home or acquire financial support.
When it comes to a decentralized economy, we have only started to move the proverbial needle. The full extent of NFTs and their potential are yet to be imagined. What is for certain though, is that this space is transformational in creating new markets, augmenting existing markets and raising the bar for market integrity and authenticity of assets.