The newbies on the crypto scene- NFTs (Non-Fungible Tokens), another blockchain-based digital token class are currently proving to be the gold rush, having taken the internet by storm after several NFTs got sold for millions. Suddenly, everyone seems to be talking ‘NFTs’- whether as a bubble ready to burst or as a potential gamechanger in digital ownership. But what actually are NFTs and how do they function? Let’s discuss.
The Rise and Rise of NFTs
From Jack Dorsey selling his first-ever tweet to Lindsay Lohan selling her face’s image as an NFT, from NBA star LeBron James’ NFT garnering USD 2.25 million to Electronic musician Grimes selling her digital art for worth USD 6 million, NFTs are inscribing a new testament in digital space while revolutionizing digital ownership, fan engagement, digital gaming and online art auctions like never before.
One of the reasons NFTs have been steadily rising the popularity charts is that everyone can grab what they are all about. If you are a millennial reading this piece, you might remember the Tazos and cricket player cards you used to collect as a kid. NFTs are nothing but ‘digital collectables’ on the blockchain.
Cryptopunks and Cryptokitties were the first use cases of NFTs that served the primary purpose of popularizing crypto by Ethereum enthusiasts. The advent of NFTs began in 2020 with the rise of DeFi (Decentralized Finance) solutions when NFTs were reinvented from a mere novelty to digital tokens that could be used to monetize anything by tokenizing it.
What are NFTs?
Unlike cryptocurrencies, every NFT is unique, i.e., non-fungible. To put it simply, You can exchange or trade a bitcoin for another bitcoin or a dollar for another dollar note, and it would have the same value. However, in the case of NFTs, each NFT has an individual value assigned to it for the scarcity that emanates from its unique existence.
It is a digital certificate of ownership that can be purchased and sold. NFTs, like cryptocurrencies, include ownership information to facilitate token identification and transfer between holders. Artists and owners can even digitally sign their signatures in the metadata of their digital artworks.
How do NFTs function?
NFTs represent digital art, collectables, real estate, or anything on a blockchain, the most popular being Ethereum. Ethereum, the world’s second-largest cryptocurrency by market cap, is best-suited for NFTs and DeFi solutions. All the information regarding the tokenized asset and its transaction history is immutably recorded on the Ethereum blockchain. The decentralized aspect of blockchain further lends security and traceability to tokens, which is extremely beneficial for artwork sale and resale. Artists can claim royalty every time their artwork is sold.
The artist or any person tokenizing their artwork or asset can independently decide the terms and conditions of the sale and purchase. The smart contract feature ensures that every time a sale or purchase is made, all the contract terms are fulfilled.
Another notable thing is that a digital artwork can be reproduced or duplicated any number of times despite being tokenized as an NFT. For instance, the famous portrait Monalisa has innumerable versions and duplicates around the world, but the worth of the original remains intact. So is the case with NFTs. An NFT guarantees ownership over the digital asset or the digital copy of the physical asset stored over the blockchain, i.e., its value lies in the ‘aura’ associated with the original or the unique.
Use Cases of NFTs: The Future of Digital Ownership
NFTs, owing to their immense versatility and easy deployability, are being used to ‘tokenize’ anything and everything, ranging from artworks, collectables, music, tweets, moments, in-game collectables, memes, and GIFs, and even ludicrous sound recordings like farts! An animated Gif of Nyan Cat, a 2011 meme of a flying pop-tart cat, was sold for over $500,000 in 2021. Proclaiming their fandom, Basketball fans have already spent $230 million on NBA Top Shot trading cards. A well-known French company, Sorare, that sells football trading cards as NFTs, has raised $680 million in funding. And the list goes on:
Artists and auction houses across the globe are finding the NFT route towards art collectables all the more enticing. Several NFT marketplaces such as Opensea have already successfully sold artworks for millions. Earlier, the artists had to rely on social media such as Instagram to find exposure and patrons for their artwork. These decentralized marketplaces are providing opportunities to both known and new names sans any bias. The artists needn’t rely on traditional art galleries and auction houses to sell their works.
Plus, fractional NFT ownership is making possible the entry of the masses into the art arena. People from all levels and classes can now look forward to owning a piece of their favourite artwork or trade them in the market to earn returns.
Encashing Digital Time
Our physical lives are quite intermingled with our digital lives these days. The majority of people spend a considerable part of their day online watching their favourite sports or playing the latest video game. NFTs can help monetize the time people spend online via fan engagement apps and collectables, or in-game assets like football trading cards as NFTs, or trading in the same to earn gains.
NFTs for Fractional Ownership of Real Estate
NFTs are most commonly used in the digital world that doesn’t mean they can only be used to store digital data. NFTs can also represent a physical property or real estate ownership fractionally, wherein an individual could individually hold each fraction.
By issuing tokens on the blockchain, homeowners could sell a portion of their property to a large number of small investors. Investors could hold these tokens and receive a rental income, a profit split on capital appreciation on sale, or a combination of the two.
NFTs in Gaming
One of the industries that stand to benefit most from NFTs in the gaming industry. NFTs are being used to create non-duplicable in-game items, allowing gamers to experience a new level of ownership in games such as Axie Infinity, Sorare, Lost relics, The Sandbox, among others. The players collect virtual non-fungible in-game coins as they progress through the levels. They can choose to sell the in-game coins for a profit once they have completed the most coveted goals, as they have full ownership of those virtual coins.
NFTs in Sports Industry
NFTs are also being used to tokenize sports memorabilia such as tickets or sports equipment of some iconic games or memorable moments from matches. NBA Top Shots is a fine example of the same.
In the ticketing industry, non-fungible tokens are also useful. NFTs can be used to represent tickets to a sporting event or a concert on the blockchain. This ensures that each attendee has a unique ticket and that any ticket duplication is tracked and avoided.
NFTs: The Metaverse Asset Class
Earlier this year, the sale of the NFT-backed digital art piece ‘Everydays – The First 5000 Days’ by Beeple for USD 69 million made global headlines capturing the attention of artists, collectors, entrepreneurs, and tech-enthusiasts worldwide. The artwork is currently displayed in a virtual monument called ‘Souk’, which soon will become the hub for concerts, live events, and thought leadership discussions once this ‘metaverse’ goes live on November 4. Anyone with the address link would be able to view the artwork in the virtual gallery for free. Everydays’ buyer Metakovan has also founded Metapurse described as the world’s largest NFT fund. This use case can become a reality with people being able to move to and fro between various digital worlds existing in the Metaverse.
NFTs are becoming more complex and advanced to suit multiple use cases to which they are being put. Being built on the distributed ledger, NFTs can prevent ownership frauds and title misattribution in art while opening up an entirely new marketplace for digital assets. Many companies have started researching and working on NFTs as a phenomenon built on unique fundamentals and adding utilities to the digital and physical space. Post Blockchain, the time might not be far for another digital revolution via NFTs and tokenized ownership.