While most media coverage has ranged from the sublime to the ridiculous, NFTs are much more than immutable digital representations of over-priced art or collectible felines.
[Read now: What are non-fungible tokens (NFTs)?]
NFTs have the power to shape the future of ownership in just about every area of our lives, and they’re becoming impossible to ignore. The NFT market grew by 299% in 2020 alone and, in February 2021, more NFTs were traded in 24 hours than in the entirety of 2020. So, what’s driving this growth, and how can NFTs be put to revolutionary use? Let’s look at some examples.
According to Sotheby’s auction house, NFTs are “reshaping the landscape of digital art,” thanks to their scarcity and uniqueness. It’s much-needed security for work posted online, where content flows freely and can be easily copied and shared to the detriment of artists.
Thanks to the blockchain’s immutable ledger technology that cannot be tampered with or replicated, NFTs allow online assets to have verifiable scarcity and original ownership. It’ss a breakthrough for artists in the fight against creative theft and plagiarism and enables them to monetize their businesses.
NFTs also, according to Sotheby’s, allow collectors to value digital art in a similar way to physical art, which creates opportunities “for artists that never before existed.” Beeple recently made this theory a fact when he sold an NFT of his collage, The First 5,000 Days, for $69 million.
Thanks to their ease of use and ability to prove ownership, NFTs could cause a landslide in the real estate industry.
Real estate is mired in a sea of bureaucracy involving layers of intermediaries from estate agents and banks to notaries and solicitors, all inflating the cost of what should be a simple transaction between two parties.
By replacing these intermediaries with smart contracts that allow for the safe and simple transfer of ownership, NFTs could greatly expedite the property-buying process. All history of ownership and rights are recorded and committed to the blockchain and instantly and easily verifiable.
NFTs could also allow for fractional ownership in properties, allowing owners to quickly unlock value from previously illiquid assets and raise funds without having to turn to a bank. The possibilities are endless and could have huge repercussions beyond the real estate industry and across the traditional financial sector.
NFT collectibles began to make a splash soon after the ERC-721 protocol was created through an Ethereum Improvement Proposal (EIP) in January 2018. That’s when Dapper Labs’ infamous CryptoKitties caught the imagination of collectors worldwide, the most expensive one selling for 600 ETH (around $170,000 at the time).
The demand for the unique digital felines was such that it clogged the Ethereum network and dramatically highlighted its scaling issues before the bubble burst and interest from the public waned. Yet, the concept had proved successful, and more use cases for collectibles began to appear.
Some major mainstream sports teams saw the appeal of NFTs, and one of the most popular sports fan applications today, NBA Hot Shot, replaced traditional trading cards with NFT digital video ‘moments’ of their star players. One video highlight of LeBron James recently sold for a massive $200,000. NFTs generate new revenue streams for clubs and help increase engagement over a geographically dispersed fan base.
The tokens also appeal to a younger, more digital native that trades them over peer-to-peer networks. Their in-built scarcity and immutable history mean that ownership and authenticity can easily be proved, and, unlike their physical counterparts, they can’t be damaged or eroded over time.
NFTs also make huge waves in the music industry right now, with popular DJ and EDM remixer 3LAU selling $11.6 million of NFTs in February. Dance DJ Steve Aoki also secured $4.25 million from his NFTs in March.
However, beyond the currently inflated prices that fans are paying for these digital collectible music videos, lead singer of Airborne Toxic Event, and author of “Hollywood Park,” Mikel Jollett, points out:
“More important than the money-making promise NFTs offer to musicians is what the phenomenon is revealing: There is a massive gulf in our culture between the value music brings to people’s lives and the price they currently pay for it — which has for years been kept artificially low by large corporations to prevent the so-called piracy that cut into their enormous profits far more than artists’ incomes.”
Thanks to smart contract technology, musicians can commit the copyrights of their work to NFTs, so they automatically receive royalties when their music is played. Artists may finally receive their fair share for their work without profits.
Of course, while much of the focus lately has surrounded art and entertainment, in no other sector do NFTs make as much sense as within gaming. In an industry with more than 2.7 billion online players worldwide, the concept of digital collectibles is nothing new.
In many gaming ecosystems, players are encouraged to unlock special accessories for their characters or other in-game items that can be traded in-game or sold for fiat currencies, creating robust economies in online gaming.
Again, it’s the NFT qualities of scarcity and immutability that make them so valuable to players, who can check the history, authenticity, and origin of their items. Ed McCormack, chief executive of Dchained told Finance Magnates:
“The practice of creating digital items that are unique and can be traded based on their utility or scarcity has become a sizable economy in the gaming industry for years.”
As Metaco Digital Assets points out, “It might well be that we’re witnessing a bubble, but it doesn’t follow that NFTs are a fad.”
There is an estimated $78 trillion of non-bankable assets in the world right now, spanning fine wine, real estate, rare stamps, and other such collectibles. NFTs may provide the answer for unlocking this liquidity by bringing these assets on-chain and allowing for a simple, provable transfer of ownership.
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