We’ve discussed what NFTs are, now let’s talk about what they have to offer over other assets a.k.a their unique value proposition (UVP). The focus of this article will be on the positive potential aspects of NFTs, and their potential downsides will be addressed another time. NFTs possess a unique ability to create value for both digital and real world entities. They bridge the gap between digital and physical, and allow for abstract ideas, events and concepts to suddenly have tangible commercial worth. Through NFTs, creators are opened up to the borderless, expansive digital world that never sleeps, while buyers and sellers are exposed to new opportunities to trade for tokens attached to anything they can imagine. NFTs are returning control back to creators, removing third party obstructions and cutting the fat on reaching consumers and investors. NFTs are decentralised, and the power is shifting away from traditional incumbent authorities into a more democratised ecosystem. The hope is that everyone has a chance at a fair go with NFTs.
Just as video games and animations can manifest worlds and figures limited only by our imagination, NFTs could come to attach a monetary amount to almost anything. Are you a sports fan? Buy an NFT from your favourite athlete representing the prosperity/ future of their career. Do you admire the wonderful pursuit of perpetually pushing the boundaries of the scientific frontier? Buy an NFT representing the discoveries of a Nobel Prize winning academic. Do you want to build another life for yourself on a new planet (but don’t want to wait for a billionaire to make that affordable and take you there)? Buy an NFT for some real estate on a digital and decentralised online planet. Have a family recipe for lasagne that you think could take the world by storm? Create an NFT linked to that recipe and watch the value of both grow as your new lasagne innovations sweep the globe.
It is a testament to the potential of NFTs that only the latter of the above hypotheses has not yet come to fruition. In its most popular form, NFTs represent digital art. Jpegs, gifs and other visual media are where we have seen the most growth in NFTs. For a lot of digital artists, this is a first, and an exciting new way to make a living off of creating artwork. Previously, they might have had to wait for commissions or take work as graphic designers to sustain such a career, but with the advent of NFTs, they have a way of connecting with purchasers and actually seeing digital art take on real world prices.
The art world is often regarded as highly protected, opaque and guarded by numerous barriers to entry like prestige and prejudice. NFTs create a way for digital art to access the benefits of the internet and the new ecosystem it has created. While you may be sceptical about the online ecosystem and why anyone would want to own digital art, it may be worth exploring how much infrastructure is being created to support NFTs, and how dominant the internet is consuming more and more of our time. Regarding the latter, think of how much more time you spend reading internet articles than you do reading magazines. Think about how much more often you will see online images than you would spend in an art gallery. Children grow up with more and more of their waking hours lived online. Nowadays, even their schooling is online. All of this leads towards more time spent online. With this time, worlds are being created for virtual reality and online gaming, a future begins to become feasible where the vast majority of everything we do to interact with each other is online. And such is the power of NFTs that all of the things that we do and see and experience online can be tokenised, and makes it just a little bit more real. Domain names even have NFTs now. While NFTS have not achieved mainstream adoption, the crypto space is busy establishing the rails to be ready for if and when the wider population is ready to adopt NFTs as a medium for transacting goods.
Aside from digital assets, NFTs can be attached to real art as well. An NFT can be used simply as a token to price a smart contract - the terms of which are the exchange of ownership of a physical piece of art. Using an NFT, the art becomes more tradeable and its ownership easier to track. And there is no reason for the tokenisation of the physical world to stop at art. Some houses are now being sold as NFTs, and as we will come to realise, there are few limitations to extending NFTs to tokenise everything.
NFTs give you a lot of oversight into the purchase and movement of your artwork - or whatever asset or idea you’ve decided to attach to it. NFTs can be designed to assign a portion of royalties from each sale to the original creator. The record of transfer of NFTs exists immutably on whichever blockchain it was created. Once, where creators may have sold their work through a dealer and never seen or heard from the buyer, they can now track its worth and ownership in real time.
The existence of countless NFT marketplaces gives people more options for how they buy and sell their art, as well as the price they expect from it. It also gives them visibility into the state of the NFT market, and finer control over terms by which the art is sold. They can stipulate a number of conditions which determine how the art is bought and sold - including but not limited to, creating artificial scarcity.
Why is this important? Since the inception of the internet, digital art has struggled to find value because of how easy it is to duplicate. Moreover, the duplicability of digital art is so potent that copies are more or less identical (give or take some details in the metadata). It’s as simple as copy + paste. It’s a natural apprehension of newcomers to NFTs that they can’t see why you would purchase an NFT when you can copy and paste an image. What NFTs introduce is artificial scarcity. While an image or digital file may be duplicatable, the NFT is not. By their nature, NFTs exist to be one of few - or even one of one. It is a rule of their creation that they are limited in number. The underlying asset may still be easily copied and distributed, but the token is not, and people have chosen to attach a lot of value to that fact. As mentioned in the previous article, a lot of NFTs’ power comes from how we as buyers, sellers and creators choose to use them. There is nothing stopping NFTs being worthless, but their scarcity in contrast to the assets they represent makes them precious.
An example of this kind of artificial scarcity is NBA’s ‘Top Shots.’ These NFTs are tokens representing highlights or clips from various NBA games. The NFTs come with replays of the moments, and are not usually one-of-ones but one of thousands. When you buy a Top Shot, you don’t buy the rights to that video clip, or anything related to the players themselves, but a token representing the moment. It has value for several reasons: 1) While there could be millions of iterations of that video floating around the world, there are only a handful (or so) tokens for that moment; 2) Top Shots are an official product of the NBA, and carry with it some weight of officiality; 3) The movement and existence of tokens, as opposed to videos on your harddrive, are recognised, recorded and observed by millions of people around the world. The NFT is not the video, it’s an item that reflects the gravity of what happened in the video, that is endorsed by the league. It’s a little bit like monetising moments in history.
Most NFTs and their blockchains are decentralised. Their existence is checked and maintained by thousands of ‘nodes’ around the world, and not by a single company, government or authority. Existence on distributed blockchains makes the assets secure and out of reach of government seizure (at least outside of authoritarian regimes). As traditional fiscal policies and economies begin to crumble, cryptos and NFTs will continue to hold some measure of value throughout any collapse. It is likely that governments will begin to make moves to incorporate cryptocurrencies into their reserves, and as that digital wealth accumulates in places of authority, the market and technology to support NFTs in a more mainstream setting will also grow.
NFTs, as well as cryptocurrencies like Bitcoin and Ethereum, avoid the inflationary habits of money printing wrought by governments desperate to escape debts, recessions and other crises. This allows people to retain the value of their hard earned money. It helps people to find ways to connect and interact outside the reach of ‘Big Tech,’ creating systems which allow for a fair exchange of value without compromising personal data and privacy.
In a digital world, decentralisation means security. A security for the enduring existence of assets. Something like job security for your digital goods. A nice case study is the common monetisation practice for game developers to sell ‘skins.’ Skins act as cosmetics for games, changing visual and sound effects for in-game objects or characters. These skins are exclusive for the game in which they are bought. The issue with this is that, should the game development studio collapse, all of these assets could disappear, or at least be rendered useless, along with all of the money spent on those assets. Even without this scenario, if you were to spend money on a game, and stop playing it, there’s usually no way to sell those skins on to anyone. You can’t recuperate or recycle these assets, they and they’re value are lost when you decide to stop playing the game. NFTs provide an avenue to overcome all of these shortcomings. If these skins were minted as NFTs, they could exist beyond the games and as assets in the real world. Additionally, if the data and format of these NFTs was standardised, it's feasible that the skins could be usable across multiple titles, so that as you go from one game to another, you can hold onto a piece of clothing or a weapon or an ability that you spent money on and use it in each game. Such ecosystems are starting to germinate in the NFT space, and it is curious to see how far this nascent field may grow.
An exciting proposition for NFTs is its potential for fundraising. For a lot of artists, waiting for commissions or old works to sell can be slow, and isn’t scalable. Often the artist will struggle to find the right audience for their art. The existence of NFTs has triggered a boom in interest for such art. Artists now have begun to sell NFTs as a way to raise money for the very works the NFTs represent. Think of these NFTs like small ICOs (Initial Coin Offering) where each coin is unique. The ability to generate revenue before a work is finished means that artists can sustain an income while at work. The amazing thing about such NFTs is that it’s possible for their value to grow even as the work is still in progress, providing something like interest for the investor.
For young artists, musicians, athletes, NFTs represent an access to a market that traditional marketing methods couldn’t afford. A young football or tennis player entering their respective league might not have a major shoe or sponsorship deal, but they can connect with a different, wider, more diverse selection of fans and investors through the generation of NFTs. I would recommend looking up Spencer Dinwiddie, an NBA player who tokenised a portion of his professional contract to sell to investors. Conversely, elite athletes have found a way to exploit NFTs to manifest and solidify their greatness, such as with those on Autograph.io. In a somewhat egotistical move, a few select athletes at the top of their fields are giving investors the chance to purchase NFTs representing… them. The value of these digital collectibles is simply tied to the overwhelming power of these athlete’s magnificence, and their digital signature. Again, it is important to remember that NFTs can really be used to tokenise and create tangible, commercial value for anything.
While some may consider NFTs a bubble, the sheer volume and size of transactions indicates some lasting interest in the market. NFTs are a new breed of digital asset with few rules and limitations. When you consider the UVP of NFTs, all you really have to remember is that their value is that they give people a target for valuation. Your dog could have an NFT. Your life could have an NFT. The stars in the sky might have their own NFTs. For better or for worse, the future will be a universe where anything, physical or abstract, might be assigned a tradable token with a price tag.
