With the latest surge in cryptocurrency prices over the past few weeks, non-fungible tokens, which peaked in popularity in the early months of this year, have started to go under the radar. For those unfamiliar with what NFTs are, they’re essentially digital tokens that can be used to represent ownership of unique items on the blockchain, and they’re poised to take the world by storm.
NFTs are ways in which we can represent anything as a unique digital asset. They’re powered by smart contracts and they’re enabling content creators to have more power and control over their work than ever before. Digital artists are seeing their lives changed thanks to a huge influx of sales from a new audience, and even celebrities are joining in as they spot a new opportunity to connect with their fans.
However, digital art is only one use case for NFTs. In reality, NFTs can be used to represent ownership for any unique asset. NFTs let us tokenize things like art, collectibles and even real estate. They can only have one official owner at a time and they’re secured by blockchain technology, which means that no one can modify the record of ownership or issue new NFT into existence.
‘Non-fungible’ means something that is not interchangeable. For example, you cannot exchange a Picasso artwork for a coffee in Starbucks. You can however exchange a $100 bill and get change. This is because dollars are fungible. One dollar will always be worth one dollar, just like twenty dollars is interchangeable with two ten dollar notes. NFTs are not interchangeable because they have unique properties. Fungible items like money however, can be exchanged. This is because their value defines them instead of their unique properties. This is also what makes NFTs different from cryptocurrencies. Although both of these crypto-assets are powered by blockchain technology, ultimately their value is determined by different factors.
So far, the biggest use case for NFTs have been digital art. Beeple, a famous digital artist, became widely known this year when he sold a collage of all of his NFTs at the famous auction house Christie’s for more than $69 million. Now, you might think that someone has to be mad to pay $69 million for a piece of digital artwork. After all, aren’t you able to simply copy and paste the image? The thing with NFTs is that proof of ownership is verified on the blockchain. That means that the person who truly owns that piece of art can now easily prove that they are the owner.
This is similar to owning the Mona Lisa. Sure anyone can go and take a picture of it, but ultimately someone doesn’t own it unless they own the deeds to it. And that is what blockchain verification proves. That you are indeed the owner of a unique item. Ultimately owning the real thing is as valuable as the market makes it. The more a piece of content is screen-grabbed, shared, and used the more value it gains. Owning the verifiably real thing will always have more value.
What’s even cooler about digital art NFTs, is that the creators can build in resale rights directly in the smart contract. This means whenever a piece of artwork gets resold, the artist will receive x% of the sale. This is massive for content creators. Imagine what this would mean to artists like Van Gogh and his descendants, where he only sold one painting during his lifetime and never saw any of the profits of his creations come back to him or his family. If his creations were NFTs and there were resale rights ingrained directly into his artwork, resale commissions would get distributed automatically.
Although digital art has been the biggest use case for NFTs so far, there are some greater use cases for them. This includes digital content like in-game gaming items, domain names, physical items where proof of ownership is represented as an NFT (like property deeds) and tickets for an event. And yes, resale rights can be included in all of those NFTs too. That means for example, that event organisers can benefit from the resale of tickets and property developers can gain from the resale of their properties!
NFTs power a new creator economy where creators don’t hand ownership of their content over to the platforms they use to publicise it. Ownership is baked into the content itself. This is massive, especially for artists like musicians. The potential for NFTs is massive. While critics have suggested that the current state of the market represents a bubble, experts have pointed to the fact that technology of NFTs is strong enough to survive a possible crash, and is expected to be around for quite some time.
As investments, NFTs can be hits or misses. The same principles that make something in real life valuable also makes NFTs valuable. Often, these factors are scarcity, uniqueness and replicability. Just because you own an NFT it doesn’t mean that it will always appreciate or even hold its value. An NFT in itself isn’t valuable. What makes an NFT valuable is its unique properties.
Ultimately, NFTs are just another product of the fantastic innovation that is blockchain technology. When blockchain enthusiasts say that blockchain technology and smart contracts will change the world, it’s new technologies like NFTs that they’re talking about. Smart contracts and NFTs have the potential to wipe out entire industries like real estate agents, solicitors and distributors. Essentially, blockchain technology is a real big problem for middle-men. And that is what this industry is all about. Removing the need for intermediaries and moving to a more decentralised, fairer and transparent world. As time goes on, NFT adoption will only exponentially increase.