Over the last few weeks, it has been impossible to escape the hype surrounding the latest tech craze of non-fungible tokens (NFT). In simple terms, an NFT is a unique digital certificate that proves who owns a photo, video, or almost any form of digital asset. Recently, Kings of Leon became the first band to release an album as an NFT, and Grimes also sold out NFT-affiliated artwork in around 20 minutes and generated nearly $6 million.
Elsewhere, Beeple’s digital work Everyday: The First 5000 Days sold for an incredible $60.25m ($69.3m with fees). Speculation that Jack Dorsey’s first tweet would sell for $2.5m prompted Elon Musk to do the same, and bids quickly reached over $1.1m. The technological craze has become impossible to ignore as fans continue buying and selling unique digital collectibles.
What is a non-fungible token (NFT)?
Much like cryptocurrencies, NFTs are cryptographic tokens that are recorded on a blockchain. Non-fungible refers to the unique digital token that can prove the authenticity and ownership of almost anything digital. But it cannot be duplicated or swapped for anything else. From here, things get a little complicated.
Sure, anyone can take a screenshot, download a copy of a tweet or piece of digital art for free. But only the NFT owner will hold the digital contract of ownership rights. Content can be broken, deleted, lost, or destroyed, but the NFT stating ownership will always be safe on a blockchain that ultimately stores an immutable record of transactions.
One of the hardest things for many to get their head around is that users are not buying the artwork, but the token representing it, and that token represents ownership. In short, it’s the token that is rare rather than the artwork itself.
Haven’t we been here before?
The concept of NFTs had been knocking around for many years. In 2014, artist Kevin McCoy sold a GIF via the blockchain live onstage at the Seven on Seven conference. The experiment involved the sale of the GIF for only $4. Fast forward to December 2017, and the infamous tradeable cartoon cats known as CryptoKitties dominated headlines. By 2018, bidding reached $140,000 for CryptoKitty artwork by Guile Gaspar.
Wired magazine famously declared the moment as Pokémon cards for the bitcoin era. The obsession with CryptoKitties was responsible for one dapp clogging the entire Ethereum network and slowed down transactions across the whole platform. Several years later, lessons have been learned, and vast improvements to the efficiency of the Ethereum network have been made. But non-fungible digital assets have been a big part of our lives for longer than you might think.
Some gamers have arguably spent more money on the clothes and costumes of their gaming characters than on themselves.
In 2018 alone, Epic Games generated $2.4 billion in revenue from selling digital costumes for Fortnite. As cryptocurrencies continue to boom, the sale of digital collectibles via NFT is taking the internet by storm. Leading the charge are established NFT marketplaces such as Rarible, Nifty Gateway, and OpenSea, all of which are collectively making big waves in the industry.
With easy financial gain on the table, the hype around NFTs is also attracting what some are calling crypto grifters and scammers. An increasing number of users are reporting on Twitter that their non-fungible tokens (NFTs) have been stolen by hackers and resold on the same platform.
Elsewhere, many artists are discovering that their publicly viewable work is being transformed into NFTs and sold to potential buyers at huge prices without their permission. Some are even using bots to automatically turn tweets containing artwork into an NFT by tagging the @tokenizedtweets account on Twitter.
The future of digital ownership
Our shelves that were once filled with albums, DVDs, and computer games are beginning to look empty as we replace physical goods with digital items. But to what extent do we own our growing collection of digital things? In the physical world, we enjoyed the freedom to hold and transfer items to others indefinitely. In a digital world, we have largely sacrificed these rights with digital assets in the name of convenience.
Ownership in a digital world is notoriously complex. As the crypto goldrush gathers pace, many are thinking outside of the box to create the next million-dollar product out of thin air and risk creating a bubble in the process. But make no mistake, NFTs are going nowhere.
The NBA is already using NFTs to sell highlight videos. Musicians are using them to retain and upgrade how they protect royalties. Artists are selling their art, and tech CEOs are selling their tweets. Collectively they are fuelling the hype around tradable digital collectibles as the excitement around getting something for nothing intensifies.
There is an argument that we are unwittingly racing towards a Ready Player One style open metaverse consisting of multiple virtual worlds connected by NFTs. Gamers are already spending their hard-earned cash ensuring that they look their best in alternate digital realities. The road ahead is not just about NFTs making millions or reimagining the future of digital ownership. It’s about the convergence of our physical and digital lives.