What even are NFTs?
NFTs are tokens that we can use to represent ownership of unique items. They let us tokenize things like art, collectibles, even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence. – ethereum.org
What Even are NFT’s?!
To make it easier to understand what an NFT (non fungible token) is it’s better to first explain each element. If something is non fungible it means that the item can’t be replicated and has qualities which are unique and specific to it. Crypto tokens are a type of cryptocurrency that represents an asset.
Even though NFT’s are digital tokens and held in a crypto wallet they can’t be used to purchase anything but are rather digital collectibles/ an asset which has the ability to gain in value over time. Examples of this are digital art pieces, memes, gifs, music albums, videos, virtual real estate and even a tweet! Once you purchase an NFT your ownership is guaranteed through a file with a digital signature. In its simplest terms an NFT is just digital paperwork saying you’re the owner of some digital content- but it could very well be the future.
Where Is the Value of an NFT Derived From?
Uniqueness is the foundation and where the value of NFT’s is derived from. Now buying decisions for collectibles are not only driven by the desire to claim ownership of a special one-of-a-kind object, but is another way for people to partake in investing within crypto. Unlike individual bitcoin which all represent the same value, an NFT is a one-of-a-kind token (each having a different value) and is a way to assign ownership to its data that has been logged on a blockchain. NFT’s are part of the Ethereum blockchain which allows for the storing of this information and differentiates them from an ETH coin.
Blockchain technology proves ownership and the scarcity of the item, which is what gives it value, so it’s a major perk that this can now be verified (e.g. this artwork truly is 1 out of a series of 100 created). The market value is created for any kind of collectible knowing that you have ownership over a piece of history and knowing it was created by greatness- replicas don’t have that appeal.
Now work produced by creators allows the possibility of ownership to also be divided between people, creating a shared wealth incentive tied to its success. This could be the first recording of an artist’s soundtrack or artwork that could gain value as the artist’s fame rises and a community is formed around them. Through this network, effect not only does the artist benefit but so does its community of fans.
Why Should We Be Taking Note?
Right now we’re in the midst of the wild west of NFT’s. There is a lot of confusion around what an NFT company actually is, how investors are investing in it, and an assumption that everything can be made into an NFT- which isn’t the case. It hasn’t been totally obvious yet on how to create a business around crypto and make money with it- comparable to the early days of Facebook.
According to the outlet Cointelegraph, $9 million worth of NFT goods were sold to buyers during the second half of last year, fast forward to this year where within one 24-hour window $60 million were sold along with Beeples digital art piece which sold for 69 million.
It’s also worth mentioning that with the recent surge in crypto prices there have been more Bitcoin investors that have money to spend and NFT’s are right up their alley.
Current NFT Use Cases
According to Pier Kicks, we are on our way to the “Metaverse” — a “self-sovereign financial system, an open creator economy, and a universal digital representation and ownership layer via NFTs (non-fungible tokens).”
So far NFT’s have given ownership to mostly digital collectibles, art pieces, and assets such as virtual real estate, digital media, music albums, and sports videos. Some example includes items sold and their prices tags:
- Lebron James Dunk NFT $200,000
- Beeple $69 million
- Twitter CEO Jack Dorsey’s first tweet $2.9 million
- A digital home $500,000
- Burnt Banksy $380,000
- Digital marijuana
- Various recordings such as Kings of Leon’s new album
The main focus has currently been on art, music, and trading cards because these have been the most widely adopted collectable investment items with an existing community of fans to tap into- giving it instant value. This is only the start though and the beauty of NFT’s is that this traditional concept can now be expanded upon in so many ways.
One of them being a “creator coin” which allows people to invest in someone that they believe has current or potential value. The concept can be seen as a stock market for people. Some investors are betting that the future of social media is connected to tokens which allow for creator monetization. Leading the way in this concept of a social currency platform is Bitcloud which allows users to buy and sell tokens based on people’s reputations. Even though there has been some controversy in the crypto community over the platform, it hasn’t stopped investors from pumping tens of millions into it. The list of backers includes Sequoia Capital, Andreessen Horowitz, Coinbase Ventures, Winklevoss Capital, Chamath Palihapitiya’s Social Capital, and Reddit co-founder Alexis Ohanian. Other companies focusing on creator coins are Roll and Rally which also seek to enable creators to monetize on their following and also allow those fans to bet on them.
VC’s are also looking to place their bets that NFT’s are here to stay by investing in the infrastructure behind it. One of those being OpenSea, a platform to buy and sell NFT’s, just raised 23 million from a16z along with other firms and angels such as Mark Cuban, Naval Ravikant, Dylan Field, Alexis Ohanian, and Linda Xie. The platform has already been around since 2017 but only recently gained some serious traction with a spike in sales as seen in the image below.
SuperRare, another NFT marketplace with more of an art gallery vibe, sells one-off pieces and is also currently selling works for six figures (even by lesser-known artists). The company recently raised $9 million in funding which was led by Velvet Sea and 1confirmation, while earlier investors included Mark Cuban, Chamath Palihapitiya, and Marc Benioff (CEO of Salesforce.com).
The crux of blockchain’s potential here is the theory that player loyalty will increase when they have more skin in the game: when their digital assets can be transferred between games or platforms, or traded on open markets, they will invest more of their hard-earned cash.” — Cointelegraph
Games are one of the best opportunities to implement NFT’s since within these virtual worlds currencies already exist and with NFT’s it will allow items within the game to be tokenized, traded, and exchanged peer to peer or through a marketplace. Now that players will have real ownership over their digital assets it will make the experience more rewarding as they now also have the potential to earn money and grow their in-game assets. Evaluations have already soared in the first quarter of this year for gaming-focused blockchain projects such as Sandbox and Axie Infinity.
Along the same lines as games, virtual worlds have been another big use case for NFTs. Decentraland, The Sandbox and Cryptovoxels are just some of the decentralized virtual reality platforms where users can create, own and monetize in-game NFT items along with virtual land.
NFT’s In the Future
Other areas where we can expect to see the development and implementation of NFT’s is in real-world assets (such as property) and all kinds of official documentation. Tokenizing real-world assets is still in its early days but once certain securities, insurance, and infrastructures are built out the use cases could be endless, which is what DeFi funds are currently focusing on. Once in place, it’s not hard to imagine any kind of documentation you need proof for would be found in your crypto wallet- merging the old world with the new.
In 2020 the NFT market had already tripled in size compared to 2019 with a total value of $250 million according to bitcoin.com– now only three months into the year the combined market cap of NFT projects is over $550 million (sources). Even though it may seem like hype when you look at the potential for projects within the space, the value we can gain from it, and the money that’s being invested into space- it seems as though NFT’s are here to stay.