It seems that the market has reached a consensus: proven ownership of digital assets can increase intrinsic value. So how does it work, and where can this technology be useful?
But what are these tokens?
NFT stands for "non-fungible-token," and it consists essentially of a special token built/coded with a unique identifier that cannot be modified, replicated nor destroyed, thanks to blockchain technology, these digitally unique tokens are used to establish a verified ownership of a digital asset in the worlds of crypto art, crypto collectibles and other crypto assets.
The token is, like crypto-currencies, part of the blockchain, a permanent ledger accessible to all. The non-fungible aspect of the asset implies that each NFT is completely unique, exclusive to the owner of the given token; two people can buy NFTs at the same price, but that doesn't mean that these are interchangeable. One NFT may be the entitlement to an illustration by a famous artist, while another may to an exclusive song by a musician.
But how useful are these tokens and what difference do they bring to us, humans?
NFTs first had an application in digital art, as they were used to prove ownership of digital creations by renowned artists and illustrators. In exchange for bitcoin, Ethereum or other crypto-currencies, you can now play patron and acquire art online.
The question is always the same: what's stop someone from simply downloading the image you acquired? Well, nothing. It's a shame, isn't it? Anyone can still download the image, have it on their computer, use it as wallpaper or whatever. However, the media they have on their computer is worthless, they do not have the ownership title, because only you have the key thanks to the NFT. You have the original, with the value that comes with it. Similarly, you can buy a poster of a Da Vinci painting. It looks the same, but it's only worth $30 because it's not the original. It is the rarity that makes the NFT valuable.
Moreover, the fact that the image is available may even increase the value of the original. Why? Because having more people see and know about the illustration contributes to its perceived cultural value.
NFTs and music
The whole sphere is carried by the future promise that NFTs have for artists, especially singers & musicians: what would you think of a future where artists were paid more fairly? What if we could directly reward artists every time a ticket or merchandise item was sold?
In addition to the ability to acquire exclusive pieces of music in digital form, NFTs could be an interesting solution for the music industry as a whole. It would be possible to implement a code in the NFT so that the owner gets paid every time one of their items is transferred, creating a sort of "merchandise loyalty." This would replace the one-time income with a longer-term, more sustainable source of income for the artist, an advitam eternam kind of royalties.
NFTs as tickets
What if the secondary ticket market was no longer operated by resellers looking to make a quick profit? Have you ever bought a concert ticket for four times its original price? This practice may soon be a thing of the past.
NFTs could hold tickets with a price limit. It could be coded into the asset that there are such and such a number of seats, that this ticket is good for such and such a row and column, that the price is $50 and that it can be resold for up to $100 - with, of course, a portion of the premium going directly to the artist and the venue, because you can also code where the money is supposed to go. This solves a very simple problem: the secondary market for concert tickets is a ten billion dollar market from which artists, venues and labels do not receive a penny.
Of course, this solution would not only apply to concerts, but could be used for sporting events, theaters and other events for which tickets are issued.
NFT and collectibles
Collectibles are, along with art, probably the area where NFTs have made their strongest push so far. NBA Top Shots is a collectible platform where basketball fans can purchase their favorite "moments" from the NBA league - often in video form, such as a great 3-pointer or an awesome dribble. According to data from NFT Dapper Labs, NBA Top Shots generated more than $700 million in NFT sales between 2019 and August 2021.
There are many other platforms for trading NFTs, whether they are collectibles or digital art, which are sometimes the same thing. The largest and most popular is OpenSea, with total trading volume exceeding $10 billion for the year through November. This new record comes just three months after crossing the symbolic $1 billion threshold. While the average user sold just over $1,000 of digital assets, many items were sold for unprecedented amounts.
NFTs and games
Mix NFT and Pokemon, and you get Axie Infinity. It's a digital pet community where users can breed, raise and trade digital creatures called Axies. The game is not only popular because it's fun, but also because you can earn cryptocurrencies by leveling up your characters. It's one of the first play-to-earn models, with users earning tokens worth $4 to $7 per hour - not bad during a pandemic. The game has become a complex world with a real labor market and a complex economy.
Skyweaver is a digital trading card game. To change the perception of ownership in the game, they turned to NFTs to install proven and legitimate proof of ownership on the cards played. These cards are stored on a blockchain wallet and can be transferred to any Ethereum wallet. These play-to-earn games have become a real phenomenon, and we expect more and more games to use this strategy to attract players.
NFT and decentralized finance
One of the latest developments in NFTs is their marriage with decentralized finance (DeFi), with new projects such as NFTi. NFTi allows borrowers to deposit digital objects as collateral. It is said to be one of the first platforms to allow non-fungible assets to be used as collateral, whereas other DeFi platforms such as Compound or Aave only used fungible assets like Ethereum or other stablecoins.
"As NFTs reimagine how we produce and define ownership of digital content online, we will also, in turn, begin to reimagine a whole new class of financial services based on these new building blocks," said Lasse Clausen, partner at venture capital firm 1kx, in a press release.
There are also countless other projects, such as NIFTEX, which enables fractional ownership of NFTs; Mintbase, a platform that facilitates the mining of NFTs; or NFTX, which enables the creation of community index funds, meaning one token can represent ownership of multiple NFTs.
A speculative danger?
One might be skeptical that this is a speculative abuse, especially in the field of collectibles and digital art. The fact that one can buy a work of art for $500 and sell it for 30 times that price - or more - a few days later seems ridiculous. Even more, why would someone pay $100,000 for a digital representation of a car?
Ultimately, your art assets could lose value. But then again, art has never been a sure way to make money. While we hear about amazing profits, this is not the norm, as most people don't make much money. In fact, many art and crypto-currency experts estimate that 90% of art NFTs will lose most of their value within 3 to 5 years.
Conclusion: an undeniable booming adoption
While much of the success of NFTs can be attributed not only to their functionality, but also to the steady growth of the crypto-currency market, we must admit that its full potential has not been reached yet and the whole nascent NFT ecosystem resembles to a bubble to outsiders, luckily, NFTs have proven that the NFT concept is here to stay, thanks to ease of transactions, creativity, super-scalability and disruption of archaic ways of dealing arts.
Seeing the need to adapt to young generations way of thinking/creating, companies in various industries are increasingly interested in this technology (Gucci, Disney, Nike, Marriot, Alibaba, to name a few), as NFTs are also a way for companies to enter the metaverse - nothing is easier than creating a digital version of your products!
Finally, NBA Top Shots and its recent $700 million in sales have proven that NFTs can be a new revenue stream opportunity.
Overall, what was initially seen as nonsense by the public - or largely misunderstood - is becoming a great opportunity. We believe that NFTs, like crypto-currencies, are here to stay, and will likely disrupt our business on many levels.