NFTs - Disrupting technology or hype?

NFTs - Disrupting technology or hype?

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6 min read

Crypto has opened up millions to the idea of digital assets. A stream of 1s and 0s representing what most people are familiar with as crypto currencies such as Bitcoin. This has laid the framework for industry disrupting technologies such as NFTs.

In 2021 we saw the meteoric rise in popularity of NFTs. From celebrities to large multinational companies were getting involved. Brands such as Nike even created internal divisions dedicated to NFT development. In terms of sales volume in comparison to 2020 the market went from $88 million to a whopping $17 billion in 2021. Considering these numbers were produced while a majority of the population had no idea that it was happening and that the most valuable of NFTs are images of illustrated apes, the potential for this space is enormous.

NFTs - What are they?

NFTs(Non-fungible tokens) utilize blockchain technology like that of Ethereum to create digital scarcity. A blockchain is a publicly visible, globally distributed, immutable ledger. A ledger of transactions made visible to the public creates a trustless system of verification. NFTs are basically a digital signature that is recorded on the ledger. This gives them their unique identity. Currently the most notable of NFTs are images(JPEG) but any digital content can be turned into an NFT, more on this in the next few paragraphs.

Non-fungible

The term fungible used in the context of NFTs refers to interchangeability. When one item's value can be exchanged with another for equal value, the item is fungible. A good example is currencies. If you had $1 and exchanged it with someone else for a different $1 you would still have $1. Opposite to that would be non-fungible. Trading cards for example. Each card is unique in its characteristics and has a different perceived value, therefore exchanging for an equal value is impossible.

fungible

How is authenticity achieved?

In order to create an NFT you must have access to a blockchain address. This is typically known as a wallet. This wallet address is your unique identifier on the blockchain. Specific to you and cryptographically secured. When you create/buy an NFT the interaction between your address and the NFT are recorded on the blockchain ledger. Since the ledger is public, anyone can verify that your address is the owner of said NFT.

Real World use case

The internet brought us digital content but there has always been an ongoing struggle for ownership. With the ability to right click “save as.” In the digital world how do we prove ownership? Numerous industries stand to benefit from verifiable authenticity when it comes to digital content. Here are a few examples of how users, companies and innovators are utilizing this technology.

Terms

Smart contract - A digital contract that executes when certain conditions are met. Terms of the agreement are written in code. Execution and transactions exist irreversibly on the blockchain ledger.

Minting - The process of creating an NFT of a digital asset.

Take-rate - Fees charged by a marketplace on transactions.

Music

The music industry has a reputation for being unfriendly to musicians. Often taking large percentages of their sales volume and leaving them with little in the way of post production revenue. NFTs have the power to change this. With the ability to retain 100% ownership, musicians have full control over their creative works. By minting their music as NFTs and using the power of smart contracts it is possible to program distribution as well as royalties. Selling their music directly to fans and even sharing revenue with them in perpetuity is now feasible.

Projects working with music NFTs

Art

Currently the most recognized use case for NFTs is images. The digital image landscape is fraught with copies and theft. As artists it is difficult to prove authenticity. NFTs give artists a method of verifying that they are the creator. In the physical world artists can only show their work in galleries but in the digital world a piece of work can be displayed anywhere at anytime effectively increasing their exposure 100x or more.

opensea landing page

Using the same smart contract technology artists can program the terms of sale. Imagine an artist minting a 100 piece collection and receiving a 10% royalty on every secondary sale forever or automatically donating 5% of every sale to charity. Artists can connect with their fan base in new ways and control how revenue is distributed to align with their ideas.

Marketplaces and galleries

Gaming

NFTs are set to disrupt the gaming industry in a big way. With billions of dollars being spent on in-game digital goods. For example, the popular online game “Fortnite” boasted $1.5 billion in sales for 2019 with little to none being distributed to the players. NFTs offer a way for players to own their digital assets outside of the game environment. A player can potentially transfer this NFT between games or trade and sell for real world currency.

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Players in the space

Events and Ticketing

The world is moving towards mobile first retail. This means everyone has a smartphone and can use it to transact. Displaying tickets for entry using your device is nothing new but forgeries, fakes and scalpers are a real struggle facing the industry. What if your ticket was an NFT with fully transparent ownership or what if owning an NFT meant you had access to a certain event? A ticket is not only a means of entry now but a collectible, potential revenue stream and perks for supporters.

Fundraising and Charity

Supporting a cause through donations and fundraising has never been easier thanks to websites like GoFundme and Kickstarter but like other centralized points of infrastructure the take-rates can be exploitive. A novel use case for NFTs means individuals can bootstrap funding in a more grassroots way.

community

For example say you wanted to start a community garden but didn’t have the money for supplies and equipment. By creating an NFT that people can purchase and therefore contribute to the cause, capital can be sourced not only locally but internationally. Supporters may be incentivized to participate by offering physical goods, a share of revenues and more.

These are just a few ways that NFTs are changing the way we interact with digital content. Programmable ownership empowers creators and businesses by offering them a whole new way to monetize their content. Connecting fans and users directly rather than through intermediaries. Centralized parties have take-rates ranging from 5-100% while NFTs make it possible for content creators to retain 100% of sale revenue. With these favorable conditions expect individuals and companies to make the move towards tokenizing their content which incentivizes both creators and supporters to participate.

Conclusion

NFTs have made it possible for us to verify digital authenticity. Never before could you prove ownership of a digital asset. This breakthrough in adoption and technology paves the way for new innovative use cases for digital property. As the world continues to go digital NFTs have the potential to disrupt every industry on the planet, whatever can be tokenized will be tokenized. Present use cases are only the tip of the iceberg. Expect this space to grow beyond that of crypto currencies as it works its way into our everyday lives.

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Sources: a16zcrypto.com/state-of-crypto-report-a16z-..