A Non Fungible Intro
The NFT, or non-fungible token, is making financial news headlines all around the world. It is hard to go a day without hearing about the latest piece of digital art trading for an incredible sum of money; in fact one recently sold for $69M USD. How and why are art collectors paying such outrageous sums for something so easily duplicated and copied? It’s because you get an NFT to go along with that art piece. Okay, so what exactly are these non-fungible tokens (NFT)?
Today we are going to find this out, see why they are special, rare, and what future might they have for you and me.
Today’s Outline:
What Exactly is an NFT?
NFT stands for non-fungible token. In the most simple of terms, it is a one of kind digital token that represents ownership over a digital asset. Additionally, it can also represent ownership of a physical object in the real world while online. For example, prove I own an Xbox. These tokens are traded on blockchains, such as the Ethereum network, and are therefore secured, guaranteed to be unique, and tradeable. The initial owner, creator, or manufacturer of the digital asset mints the unique token and then sells the token along with the digital asset.
Fungible Definition
To be fungible means it can be easily replaced or interchanged for an equivalent item. For example, a $10 bill can be easily replaced with any other $10 bill. A one ounce gold coin can be exchanged for another one ounce gold coin, wheat for wheat, and one bitcoin for one bitcoin.
In contrast, a non-fungible item is something that cannot be replaced with an identical equivalent. As an example, a piece of art you created whether good or bad, cannot be replaced with an equivalent item. Your piece of art, drawing or sculpture, is unique and one of a kind. Because it is unique it is also non-fungible.
Now expand that to include pieces of art in society, music, sporting events, concerts, and you begin to see how these items are also non-fungible. Seat C-13 in section 415 to the upcoming concert in your town is non-fungible. As we can see, it cannot be replaced or interchanged with another equivalent C-13 section 415 seat for that given evening.
So we’ve determined the ownership of that seat for that given night is non-fungible. In our normal day to day experience, ownership is often represented as a ticket that we redeem upon entry. Now, instead of issuing physical tickets, the event organizer could instead tokenize them and issue them over a blockchain. This is an NFT!
NFT Examples
So, now that we know NFT’s are unique tokens on a blockchain that can be used to prove ownership over a digital asset, let’s see some examples!
First Tweet – $2,900,000 USD
Jack Dorsey, the co-founder and CEO of Twitter, recently sold the ownership of his first tweet for roughly $2.9 million USD. It was sold to Bridge Oracle CEO Sina Estavi for 1630.58 Ether. Here it is:
So while we can view the tweet, and even embed it in this blog post, I don’t own it. In fact Jack Dorsey doesn’t own it either because he sold the ownership rights to Sina Estavi. Valuables, the service that facilitated the transaction, says Sina will receive a digitally signed version of the tweet and will own the rights to the tweet going forward.
Artwork
The most popular use case of NFTs today is for selling digital artwork. Here are some examples and the price they were sold for.
Nyan Cat Rainbow GIF – $590,000 USD
An NFT featuring the popular piece of internet history that is the Nyan Cat meme sold for $590,000. The auction for the NFT lasted just 24-hours and took place on Foundation, a platform for crypto art.
Crypto Punk #6965 – $1,540,000 USD
In February 2021, a fedora-wearing ape Punk, CryptoPunk #6965, was sold for $1.5 Million. While there are many similar designs for crypto punks, each portrait is actually unique and Ape designs are exceedingly rare hence the premium paid for this design.
Crossroad by Beeple – $6,600,000 USD
On February 24, 2021, the digital art platform Nifty Gateway announced that a work from Beeple, called Crossroad, netted $6.6 million. The NFT features an anti-Trump message. Click here, or on the image, to see the version with sound and animation.
The First 5000 Days by Beeple – $69,000,000 USD
Beeple is a political cartoonist who in started his career back in 2007. He started drawing a new original piece of digital artwork each day and publishing it online. Here are his first 5000 days sown together into one piece. You can see the full image in all its high-resolution glory here on Christie’s where the auction was held.
Beeple Explained
Watch the video below which further explains this incredible story and the history making transaction.
Why Are They Suddenly so Popular?
Blockchain technology is still relatively new, but already it has impacted our lives in many ways; sometimes without us knowing. Did you know that a lot of healthcare systems are already implementing blockchain technology? And, of course, we already know it has impacted, and will continue to impact, our financial systems.
Now Add the NFT
The newest blockchain technology is the NFT. Built on top of blockchain technology, this form of cryptocurrency is being used to buy and sell digital collectibles, including art, music, video games and more.
Because it is new, this means all entrants are seeing this for the first time. Buyers and sellers are in a discovery phase of what the true value of digital items are. On top of this, transactions are normally facilitated with cryptocurrencies like Ether and Bitcoin. Because of their recent price runs, old school holders of the tokens have tremendous buying power and this tends to inflate the fiat currency price tags.
Now, because of the exorbitant prices being paid in fiat denominated terms, it is making for wild and crazy headlines in the current news cycle. Add the current stay at home orders for COVID-19 and you have the perfect storm for highly priced digital collectibles.
Digital Property Rights
In the physical world in which we live, we have ways to prove property rights or ownership. Until the advent of NFT’s, there was no easy way to prove ownership of digital only assets. Now, through NFT’s, we have a way to prove, sell, and buy digital property rights. This inherently creates an element of scarcity and thereby value.
Yes, digital assets can be duplicated with little to no cost, but not the ownership for that digital asset. Through an NFT we can tokenize the ownership and ensure it is unique.
Future Use Cases of the NFT
Here are some of the incredible uses cases that highlight the bright future and potential businesses opportunities for NFT’s going forward
Digital Artwork & Collectibles
We have already seen just how popular this can be with many digital pieces of art and assets selling for incredible amounts of money. As the world progresses more and more towards an online and virtual lifestyle, these pieces of digital artwork will likely increase in value much like master pieces of artwork in our real world today.
Additionally, people will want to accumulate as many pieces of digital valuables as possible into their digital wallets. In other words, start and grow a collection of prize worthy digital assets and show them to others much the same way you collect and hoard stamps, trading cards, or coins.
Gaming
Digital and virtual environments are a natural fit for NFT’s where digital ownership is highly prized. Many online games these days are expansive worlds where certain upgrades could be sold to online gamers in exchange for digital currency. The NFT ensures ownership of the digital element which can be used in the game for an advantage and resold to other users within the same game. It is a natural fit in this space.
In addition to gaming elements and upgrades, ownership of the actual game title can be sold by publisher and the resale market controlled. In addition to this, games could be rented and more tightly controlled.
Event Ticket Sales & Resales
Most tickets for concerts and sporting events are already sold online, and a QR code or UPC bar is then sent to your phone and then redeemed on the event day. With just a few different steps, this entire process can be converted into an NFT. So instead of a QR code, an NFT is sent to your phone and stored in your digital wallet. Much like your current Apple wallet or Google Pay wallet that you already have on your smartphone. Instead, now the NFT sits there and is easily redeemed at the event.
On top of all this, NFT’s are programmable which means the issuer can include code that executes when certain conditions are met. For example, if the holder of the event ticket NFT resells the ticket as a scalper, then certain logic executes and a portion of the resale proceeds go back to the original issuer.
This programmable nature of NFT’s is highly attractive to event organizers as it gives them new market possibilities and control mechanisms they never had before.
Warranties
NFT’s for warranties is a terrific use case for this new technology. Now owners of new appliances, vehicles, televisions, laptops, etc. could hold an NFT issued to them by the manufacturer. Submitting a warranty claim is now much easier.
This could be even more valuable for extended warranty programs which you will pay extra for, but have difficulty proving ownership years down the road because you misplaced the paperwork. A simple validation of the NFT is all that is required. On top of this, when you sell the physical good, you can also transfer the warranty NFT to the new owner.
A Conclusion Beyond Fungification
If we put aside for a moment the ridiculous prices being paid for the digital artwork, some of which are just simple 8-bit avatars, we can start to see a future with these non-fungible tokens. They can help secure ownership of digital assets, be traded later on, and be collected. On top of this, there are incredible use cases for event ticketing, and even warranty claims on physical goods.
Over time the prices will settle down and the marginal unit of value for each will be discovered as relative comparisons begin to develop. Put another way, as we discover the value and price of digital assets, the prices paid for such items will become reasonable and fair. In the wake of all the price excitement and news headlines, a terrific new technology will be left for us to use and leverage for future opportunities and innovation.
Just as blockchain technology is finding new uses each day, NFT’s will also find new and exciting uses going forward! The technology is just too useful and entrepreneurs will want to leverage these to solve real business problems going forward.
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1 comment
Hello, Good Post.
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