NFT’s, or Non-fungible Tokens, are all the rage at the moment. With prominent artists and celebrities endorsing them or offering their own versions, NFTs have become a huge fad that people are desperate to know more about.
Ivan Soto-Wright is Founder & CEO of MoonPay, a company that provides payments infrastructure for offering cryptocurrency purchases. Here he discusses the wider implications of NFT’s on the financial sector.
The meteoric rise of NFTs has not gone ignored this year, with high-profile public figures including Elon Musk, Mark Cuban and Jack Dorsey bringing awareness of Non-Fungible Tokens to their masses of followers, to the point now where we could almost say that NFTs are a household name. Tweets, articles and in-depth analysis by content creators centred around NFTs have ballooned into the thousands over the last couple of months, with headlines like ‘What is a NFT?’ becoming the most read story on the BBC News back in March. In particular, the digital art and music worlds have felt the impact, offering a whole new way for artists to engage with their fanbase, get discovered, or at a very base level, simply make more money.
In short, an NFT is a cryptocurrency token that has the characteristics that ensure an identical token is not interchangeable. The keyword here being ‘fungible’, meaning ‘unique’. NFTs create scarcity, ownership and exclusivity for digital assets, and it’s not just musicians and artists getting involved in the space. An increasing number of high-profile athletes, those from the world of business, media and even fast-food joints are joining the throng to capitalise on an innovative way to monetise their work.
While many argue that NFTs are just a passing fad, an increasing number of high profile figures are embracing the space, including digital art creator Mike Winkelmann, who cited them as ‘the next chapter of art history’. In what was perhaps NFT’s biggest endorsement to date, world-famous Christie’s Auction House offered a piece of Mike’s artwork purely as an NFT (i.e. with no physical accompanying piece) to much fanfare. The piece sold for over $69 million, making it the third most expensive artwork by a living artist.
While it can get easy to get carried away thinking NFTs are just a passing trend, if you look under the surface at some of the drivers of their rise in popularity, you’ll see they tally with some of the larger macro-economic trends we’re seeing impact financial markets and innovation across the globe. NFTs are all about offering the potential to open up local marketplaces to a global audience, reaching consumers they wouldn’t have been able to access previously. These benefits work in tandem with, and are closely linked to, the gradual democratisation of cryptocurrencies, as consumers have continued to engage with crypto markets. Widespread adoption of cryptocurrencies opens a host of potential benefits for the financial services sector, including transparency in transactions (meaning reduced opportunities for malicious activity), and blockchain technology enabling secure and irreversible transactions that are all recorded on a decentralised ledger.
NFTs too have the potential to play a significant role in the evolution and continued development of a new democratic financial system where we, as users, are able to value a product or service. As new markets spring up for products and services across the board, and new financial assets are created, this essentially creates the potential for a market for sentiment, and the feelings linked with that digital asset. The mainstream market is paying attention, and art, music and sports are easy to relate to and attribute feelings for, whether they be of admiration for a sports star, or appreciation for art. However, with NFTs, this pride of ownership is abstracted from exclusivity. This essentially means that NFTs enable price discovery on feelings such as ‘pride of ownership.’
However, there is still a way to go on this journey. As NFTs continue to rise in popularity and even become the norm for many, technology will need to continue to develop to support this. Although crypto technology is constantly evolving and developing, as NFTs continue to increase in value, a new ecosystem will be needed to allow it to reach its maximum potential and widespread adoption, over an extended period of time of course. For example, one major factor we need to look more closely at is online verification. Whatever happens over the coming months, one thing’s for sure, the financial services sector is on the precipice of a new, exciting age, and old and new players alike need to work together to ensure the best consumer outcomes.