The things we don’t understand such as Non-fungible tokens ( NFTs), we simply dismiss as fads or shove them to the back of our minds. NFTs are tokens traded on digital marketplaces, people are shelling out millions for them, and we don’t understand any of it.
Most people are not clear on how tokens work, unsure what non-fungible means, and the fortunes spent on a jpeg that anyone can copy for free just adds to the perplexity.
Two reasons lie behind why NFTs are booming: Digitization, and people’s love for status and scarcity.
Let’s first take a quick look at NFTs’ market growth to confirm that this is no passing craze.
A booming NFT market
To date over $500 billion has already been spent on NFTs, digital assets that provide a unique identity to our avatars and digital items like shirts, music, artwork and essentially anything we can save on a hard drive.
NFTs exist on a blockchain, possess a monetary value and have the job of authenticating and tracking the provenance of digital media assets.
NFTs really took off a couple of years ago when digital artists and photographers realized they could create, distribute and get paid royalties for life from every sale and resale of their digital artwork.
According to a recent Bloomberg report, the crypto art market alone generated $3.5 billion in sales in the first nine months of 2021.
From the New Year until Jan. 16, 2022, there were $2.53 billion NFT sales, with Ethereum-based (ETH) NFT sales capturing $2.45 billion of that market.
The priciest NFT was Meebit #13824, which sold for 15,000 ETH or $50.6 million. The Meebits collection saw 574 buyers make nearly 2,200 sales transactions worth $1.23 billion.
Opensea, the largest NFT marketplace that transacts over Ethereum and Polygon blockchains, has over $15 billion in total sales. Second place goes to NFT-based online video game Axie Infinity, exceeding $4 billion in total sales. Over a quarter of a million NFT enthusiasts trade monthly on OpenSea.
New entrants to NFT marketplaces
Christie’s, a world-leading art and luxury business, hosted the historic $69 million sale of a digital work of art “Beeple’s Everydays, March 2021,” a first for a major auction house, while also using cryptocurrency as a means of payment.
UFC, a mixed martial arts organization, and Crypto.com, a cryptocurrency platform, last year launched an exclusive line of UFC NFTs. Digital collectibles included unique fighter collections, fight night artwork, event posters, championship belts, avatars, artist collaborations, mystery boxes, athlete profiles and more.
Boasting over 2 million users, global cryptocurrency exchange CoinBase will soon open its own NFT marketplace.
As-of-yet non-crypto player Niantic, the company behind Pokemon Go, has recently thrown its hat in the ring with the announcement of “NFT Champions,” a game in which players can earn bitcoin. Former Twitter CEO Jack Dorsey will run Block with the aim of getting streaming services to adopt music NFTs. Meta (Facebook) will make a big splash with its own metaverse release where NFTs will feature prominently for millions of its users.
How crazy is the NFT craze?
If you’re wondering who is dealing what and where, NFTs such as Bored Ape Yacht Club and StereoheadZ enable users to mint their own art such as personality avatars and earn serious income.
The Bored Ape Yacht Club is a collection of 10,000 ape NFTs, each with different personality traits, some rarer than others. A rare Bored Ape digital profile picture recently sold for over $1 million while typical ones today average sales of around $200,000, quite the jump from when they each sold for $190 just last April.
The StereoheadZ NFT is a decentralized music label and community providing artists and creators ownership of and ability to mint the digital content they produce.
But the creative space around NFTs goes beyond selling unique first labels or unpublished lyrics and melodies.
Say a singer-songwriter like Adele buys a T-shirt, and then sells it as an NFT. Blockchain will track and confirm the transaction, and that T-shirt will suddenly go from being worth a few hundred dollars to a few hundred thousand dollars.
Even people could become personality NFTs. Starting in 2022, artists will perform as NFT personalities for their digital fans rather than themselves. The musician Teflon Sega already only exists in the Metaverse as a performer. It just makes it easier to earn income selling and buying records, shirts and other memorabilia connected to the artist.
Beyond scarcity: Exclusivity
We should not be shocked about the millions some people are throwing around on digital creations, be it a song, art, shoes or DNA. It’s human nature, and reflects our infatuation with spending fortunes on things we don’t really need.
Some people will spend a few million dollars on a pixelated piece of art NFT, the same as what they would spend on a luxury car, watch, mansion or yacht that they don’t really need. What they are really after is a status symbol.
And it’s not just the rich who do that. Many of us spend beyond our means to project an image of success, and gain access to higher spheres of influence. But we don’t need them to survive.
Luxury fashion brand Balenciaga is trying its hand with Fortnite to deliver to gamers designer “skins” to digitally wear within the game. Not to be outdone, Gucci followed in step with Roblox, while Louis Vuitton and Ralph Lauren have launched their own Roblox experiences.
It may be true that NFTs are happening in the digital realm rather than the physical one, but that’s immaterial because the metaverse will soon blend those two worlds anyway.
NFT Marketplaces and the metaverse
The metaverse is a shared immersive virtual world, where we as Avatars go shopping, hang out with friends in cafes, and conduct business in virtual reality.
This type of digital economy depends on authenticating digital properties such as one’s metaverse home, car, or office. Armed with cryptographic keys, NFTs will use smart contracts to validate possessions and even identity in the metaverse.
“NFTs really started initially with the digital art side. But it’s going to be a lot more powerful,” says Eric Anziani, COO of Crypto.com. “It will be the tool that represents any digital type of assets in virtual worlds going forward. So, the applications are tremendous.”