This November, The Fintech Times is looking to broaden the understanding of digital currencies, ranging from blockchain’s use outside of crypto to CBDCs, in an attempt to replace the notion that digital currencies are a synonym for crypto.
As part of our coverage into digital currencies, today we’ll be unpacking the various elements that have driven the sustained popularity of NFTs.
NFTs – Non-Fungible Tokens – have become a popular form of digital token for their ability to convey information in an exclusive way whist simultaneously protecting the ownership of the information itself.
Due to this, they have evolved beyond what we expect from a digital token as just an asset to value, to become an increasingly collectible item with an endless variety of faces, as Brittany Allen, Trust and Safety Architect at Sift explains: “People love to collect things, whether it’s baseball cards, matchbooks, or bottle caps, and NFTs satisfy that urge without taking up physical space.
“They also have a high potential upside, meaning someone’s $100 investment could turn into $1,000 in the coming years, much like investing in the secondary art market. NFTs are an innovative tech play, so they appeal to consumers who want to break the mold and try something new and unique.”
The cherished nature of NFTs is also being utilised to create engaging new experiences for audiences. Sotheby’s recently auctioned off Robert Alice’s NFT that was produced in collaboration with Alethia.AI, whilst NFT.FAMILY has established its BoringStone Genesis Collection; an NFT project focused on engaging members of the wider NFT community.
As Lars Rensing, CEO of enterprise blockchain solutions provider Protokol explains, sports and media spaces are also jumping on the bandwagon: “The popularity of NFTs in the sports and entertainment space offered an opportunity to engage with fans at a time when traditional avenues for this were closed during the pandemic.
“Hence why we’ve seen a huge number of sports teams, esports teams, artists and musicians jumping into the ring, from Kings of Leon releasing their most recent album as an NFT to the success of the NBA Top Shots, to WePlay Esports’ NFTs.
“If implemented in the right way, NFTs hold the potential to drive tangible long-term growth and increase fan engagement. Issuers can ensure this is the case by turning NFTs into more than just simple digital collectibles, and instead offer them as personalised rewards for fan loyalty or engagement.”
The Rise of NFTs
Whilst speaking about her collaboration with Steve Aoki at the Token 2049 event ‘NFTS: From Zero to One’ last month, the digital artist pplpleasr cited meme culture and social media as the fastest accelerators to the growing worldwide popularity of NFTs, saying: “I think memes are part of this journey because it’s the fastest way to spread information, and when you think about it in an advertising way, every time one of these memes is successful, you see it and have the intuition of ‘I want to share this with my friends or as many people as possible.’
“And so, creating a good meme is an element of calculating what the hit rate of the NFT going to be amongst like the average person, and then on top of that, there’s that tiny element of serendipity and luck, which nobody can grasp; that’s the hardest part.
“So sometimes, a meme just starts but then sometimes it’s totally random, and so that’s why I think it’s actually an extremely valuable to study what people are doing and seeing, because it can be the best way for people to advertise; a cornerstone of the digital token industry.”
One of the most alluring advantages of NFTs is their ability to retain the rightful identity of the owner; making them a contemporary step forward for the trajectory of the art world.
“NFTs are an early example of how content can be financially owned by its creator as well as its users,” explains Bradley Miles, CEO and Co-Founder of Roll. “They flip this model of ownership on its head. The creator completely owns the content or item and the platform simply exists as a way to showcase, trade or utilise what the user owns. Although NFTs are new, this model fundamentally aligns with creators because it gives them more economics over what they create on the internet.”
Humayun Sheikh, CEO and Co-Founder at Fetch.ai added: “The reason why NFTs make possessing digital art so popular is because of the factor of authenticity it lends. It has revolutionised the way we retain rights over digital art.”
The hybrid format of NFTs is also causing many from the world of crypto to step into the realms of art collection, and vice versa as Vanessa Pestritto, Partner Programs Director at Agoric explains: “NFTs are a tied use case to an audience that appreciates the value of immutable ownership. In the past few weeks, I have met small business owners that are also part-time art collectors, they are purchasing NFTs because of the value and the culture of owning art. Artists tied to day jobs to fund their passion are finding a clear opportunity where they can immediately reach patrons in crypto that value the unique ownership of the NFT/artwork created.”
Yet although they are providing people with ways to represent, store and trade their assets, do NFTs actually carry any long-term value?
What separates NFTs from other forms of collectibles is their potential for unforeseen financial loss. The value of an NFT is determined by both the public’s perception of their value and their exclusivity and rarity. It is indeed a difficult market to gage, and isn’t necessarily a stable investment if all the boxes haven’t been ticked and understood, as Desh Weragoda, the Chief Technology Officer at MBANC explains: “Most people don’t really understand the technology behind NFTs, or what NFTs really are, and you have to understand what you’re getting into before you start putting money into hyped-up illusions. It’s this same kind of thing that is leading a lot of people to lose money in crypto, for example.
“Be careful when associating NFTs with something that provides real utility, because what is it, exactly, that you’re putting your money into? There’s a lot of demand for buzzwordy technology because it’s the new kid on the block, and it’s crazy.”
Assessing the true value of an NFT is often difficult when no solid factors are present to justify its cost, as Humayun Sheikh explains: “As we all know the crypto community has a very short attention span. The community perceptions change easily and if the asset is being bought for store of value then it has to be established how the value in the future can be determined.
“Furthermore, without the ability to determine where the actual value for the NFT is coming from, it is hard to attach a sense of value. This is why the current trend is not sustainable. Once NFTs are used for proof of ownership on real-world assets like real estate, they will become a sustainable trend.
“For a given NFT to be valued as a prized asset, it depends on the community’s perception of whether that asset will continue to appreciate in value. There has to be a more quantifiable method of establishing the future value of an NFT.”
According to the data of Statista, in the short time between July and August 2021, the worldwide trade of NFTs more than doubled, topping out at 280,000 unique buyers and sellers.
This is supported by NonFungible.com‘s recent report that highlighted how NFT sales amounted to between $10 million and $20 million per week, and has at various points throughout the year experienced an increase in weekly trade volume of almost 300%.
So is their rising popularity here to stay, or are NFTs soon to be yesterday’s news?
Debating their longevity, Brittany Allen comments: “Right now, NFTs are in their infancy, so it’s difficult to predict which forms they will take. Once we begin to see the secondary sales of NFTs increase in value – or at least have continued interest – I can confidently say they’ll be here to stay.
“However,” she warns, “there will be failures along the way. This young adult literature NFT project, for example, crashed when literary Twitter found it was exploiting the intellectual property of minors, so investors need to be smart with their choices at such an early time in the market’s lifecycle.”
Vanessa Pestritto’s thoughts follow a similar trajectory: “NFTs are here to stay and the uses will continue to expand within art to artist collaborations, support for secondary market sales, then beyond art to other unique instances for businesses. Though less exciting, the promise of NFTs for business can create a more trustworthy interaction between transacting parties, including bill of lading, concert tickets and minting instances of projects and collaboration.”
Whilst seeing the value in their future, James Kirk Cropcho, Co-Founder and CTO of Flipkick warns against the use of NFTs as a means to seek short-term gains: “NFTs are both a trend and they are here to stay. That said, NFTs are still a novel and hence a somewhat “shiny and new” thing, so many who are otherwise not interested in collecting have transiently entered the field, although plenty of them are surely seeking only a quick buck (and will probably leave disappointed).
“However, NFTs are not mainstream, no matter how many articles and news segments cover the subject, often with a dismissive air of wackiness, not an attempt at sincere exposition. By way of comparison, I conjecture on pure speculation that the global NFT market is smaller than the global market for jellyfish.”