Non-fungible Tokens, or NFTs, are sweeping the globe, with the market already worth ten times more in 2021 than it was in 2018.
Beeple, a digital artist, recently sold an NFT-backed artwork at a Christie's auction for nearly 70 million dollars. As a result, he is the third most valuable living artist in the world.
But what are NFTs, why do we care, and will they become the future of digital art?
NFT
NFTs are crypto tokens that can be identified by their uniqueness.
Consider a unique key that unlocks only one door and cannot be forged, exchanged for a similar key, or broken down into different parts due to the blockchain's immutability.
Those who purchase or inherit digital products now have concrete proof that they are the rightful owners of their properties thanks to NFTs.
NFTs first gained traction in 2017, when a swarm of virtual cats clogged the Ethereum blockchain.
Every Crypto Kitty is backed and represented by a single Ethereum-based non-fungible token. The more distinctive features they have, the higher their future selling value, as shown by the sale of one digital kitty for 600 ETH (approximately $170,000 at the time of purchase).
However, the NFT ecosystem can include more than just digital artworks and collectibles; it can also include music, video game pieces, and even tweets.
Jack Dorsey, the founder of Twitter, is auctioning off his first-ever tweet as an NFT, with the winner getting a digital certificate confirming ownership of the Tweet (currently valued at over 2.5 million).
Following this news, Elon Musk, the CEO of Tesla, attempted to smash the internet by auctioning a tweet of a video of a song about NFTs as an NFT.
Dance music producer 3LAU, who raised over $11 million for his new album, and rock band The Kings of Leon, who raised $1.4 million, are among the musicians who have joined the NFT train.
Aphex Twin, a pioneer in electronic music, received $127,000 in ETH by making an audiovisual piece as an NFT. Because of the Proof-of-Work consensus's environmental effect, the artist agreed to devote a portion of the proceeds to tree-planting initiatives.
Apart from well-known artists jumping on the NFT bandwagon, one clear potential use case for NFTs in the music industry is to enable smaller, up-and-coming musicians to both copyright and regulate the transfer of ownership for their work, removing the 'kingmaker' power of intermediaries like record labels and streaming platforms.
Commentators are split on what to make of all the frantic action and creativity in the world of NFTs. Some believe this is only the beginning, while others believe the NFT space is a bubble that will burst soon.
Is the hysteria around non-fungible tokens justified?
Beeple also sold Punk 2890, a single version of his Crypto Punks series, for 605 Eth - more than $700,000 dollars at the time - before selling his composite artwork Everydays: The First 5000 Days.
Nobody can honestly say that a single square of pixel art is worth that much money, but no one can say that an abstract painting by Jackson Pollock is worth 200 million dollars either.
The value of digital art is determined by the buyer's preferences and needs, and it is often used as a financial instrument, much like physical art.
NFTs provide crypto whales with another safe haven for funds they don't want to send back to the legacy financial system as Bitcoin produces more and more crypto millionaires. They also provide a fun, illiquid alternative to volatile liquid crypto assets.
One possible criticism of NFTs is that they should be hosted on decentralized cloud storage networks that cannot be shut down by third parties in order to be completely non-fungible.
NFT marketplaces like Nifty Gateway currently host the purchased files on their servers, which means that if the business behind the site goes bankrupt or is sold to a third party, legal disputes between the NFT owners and the new owners of the site may ensue.
However, given the recent news surrounding Beeple's $70 million deal, the NFT market is unlikely to slow down anytime soon. Other auction houses are likely to follow Christie's lead and hold their first NFT sales as well.
Another well-known Christie's sale demonstrates an alternative use case for NFTs.
Block 21, a hand-crafted artwork etched with Bitcoin's genesis code and backed by an NFT, was developed by Robert Alice. This demonstrates that non-fungible token technology can be used to authenticate physical artworks and provide concrete digital evidence that they were purchased legally.
I'm looking for a place to purchase digital art.
Gaming is one of the top existing use cases for non-fungible tokens in terms of user adoption, as demonstrated by blockchain gaming platform Enjin, which has developed a range of in-game objects (such as weapons, costumes, and tools) that can be used in any games that support Ethereum's non-fungible tokens.
The Ethereum ERC-721 coding standard was developed by Enjin CTO Witek Radomski for the development and distribution of NFTs, and the Enjin marketplace now has over 2 billion unique in-game products and collectibles for sale.
Users can not only buy NFTs on the Rarible marketplace, but they can also win Rari tokens in return for facilitating the purchase and selling of digital goods. The Rari token may be sold or held in order to exercise platform voting rights. Rarible's team includes several designers, giving the marketplace a creator-centric feel.
Bounce Finance is another NFT exchange, but this one uses both the Binance Smart Chain and the Ethereum blockchain. The aim is to alleviate the current auction issues of missed bids and squandered gas fees caused by Ethereum network congestion.
There are new projects like NFTX, which compiles NFT index funds that track the development of well-known projects such as Crypto Punks and Crypto Kitties, for crypto enthusiasts who are interested in jumping into non-fungible tokens but are afraid of being burned by a new technology they don't understand. These funds trade on decentralized exchanges like Sushiswap, and NFTX is developing a protocol that will enable NFT owners to borrow money in the form of crypto loans. This aids in the fight against illiquidity and wash trading in the rapidly expanding world of NFTs.
And if you're wondering, "How much does it cost to make NFTs?" the good news is that it just takes your time, though some marketplaces may charge a small seller's fee.
What are the opportunities for NFTs?
Millennials are now the generation most familiar with digital currencies, and since they are on their way to being tomorrow's breadwinners and inheritors, they will be the ones to drive the NFT market forward.
The NFT market will inevitably expand in tandem with the already massive video game market. Steam (the video game download store) has its own community marketplace for buying and selling in-game products, and the popularity of professional gaming competitions is steadily catching up with that of physical sports.
The same idea applies in the world of card and sticker collections, where websites such as Sorare are partnering with football clubs to produce officially-licensed digital trading cards of players that are backed up by NFTs.
On the web, a Cristiano Ronaldo ‘unique' (one-of-a-kind) card recently sold for $290,000. Chiliz, a blockchain eSports project, has been hard at work developing fan tokens for football clubs, leveraging the existing gap between fans and football stadiums caused by Covid-19. Juventus, the biggest football club in Europe, was the first to sign up, and their JUV fan token was launched on Binance Launchpool.
Despite this progress, the NFT space still has room for growth, as it must translate this increase of interest into ever more user-friendly applications and products. Popular NFT marketplaces like Open Sea still need users to understand how to win auctions by optimizing their Eth gas fees on Metamask, despite Open Sea's efforts to solve this by expanding into the Tezos blockchain.
Despite the rush by commentators to declare NFTs the new crypto bubble, it's difficult to imagine all of this rising infrastructure and operation simply disappearing. Entire virtual worlds, like Decentraland's, are being built out and becoming increasingly complex, to the point that users can sell their virtual land as advertising space for real-world businesses.
When every aspect of our lives increasingly moves online, so does our commercial activities, which must be governed in a trustless, decentralized manner.
NFTs and decentralized cloud storage can hold the key. How far away will we be from the first $100 million meme until it becomes a reality?