Non-fungible tokens (NFTs) are new forms of asset ownership rapidly creating new opportunities for businesses. They can be anything from a tweet to an expensive piece of art.
Just when it seemed possible to understand complex technologies like blockchain and cryptocurrency, along come non-fungible tokens (NFTs). In simplest terms, NFTs convert digital collectibles and other assets into unique, verifiable assets that are tradable on the blockchain. Buying and selling NFT versions of digital images can be mentally hard to grasp at first. The art world was one of the first markets to utilize NFTs, but other businesses are now finding ways to use them to their advantage. It is difficult to predict NFT longevity as an investment tool, because serious issues must still be resolved for people to feel safe using them. Having said that, they are still in an early stage of utilization, and so issues are likely to be worked out further down the road by the creators and technology developers.
Fungible…Non-Fungible….Let’s Talk the Whole Thing Out
The first principle to master is the difference between fungible and non-fungible. A fungible asset is one that can be easily interchanged for a like-kind asset, such as a five-dollar bill converted into five one-dollar bills or five dollars in change. The converted assets are worth the same amount. A non-fungible asset is not interchangeable, for example a piece of art and a truck. When someone owns a non-fungible asset, the asset is not mutually substitutable because one of the traded assets has unique qualities.
A non-fungible token (NFT) is a unique digital token. It is not a cryptocurrency, because a cryptocurrency can be exchanged for an asset of equal value. An NFT is a digital token with ownership of transactions digitally recorded as blockchain in a digital ledger. Unlike cryptocurrency, an asset is tied to the NFT. The asset can be anything digital, like video, an image, music, clip art, digital art, social media post, and even a tweet. The asset is found in the marketplace, making it sellable.
A fungible asset is defined by its value. A non-fungible asset is defined by its unique properties.
Non-Fungible Assets are Used Across Industries
NFTs are already used in a variety of industries. Ethereum is the most common NFT marketplace used and has a platform for tokenizing anything unique as an Ethereum-based asset. The digital ledger is the record of ownership, with each NFT having a digital signature that cannot be traded for an equal one.
The use of NFTs is already broader than many people realize. The digital art world has embraced them with enthusiasm and was one of the first groups of users to do so, because they give creators opportunities to globally sell and resell their work while maintaining proof of ownership. Some say NFTs brought high-end art into the modern technology world. The NFTs enable cutting out the middlemen – the art dealers – so artists can trade directly online, sometimes through an auction site. Prices are listed, anyone can buy an NFT, and the creator makes a profit with each sale. Financial transparency is one of the advantages of the NFT.
There have been some huge NFT transactions. On March 21, 2021, Christie’s auction house sold Beeple’s digital collage called “Everydays: The First 5,000 Days” for $69.4 million. There were 22 million people watching the auction and bidders represented 11 countries.
As of today, NFTs are now used across industries to buy and sell a range of assets. Anyone can download the digital asset that someone else paid for, but they cannot sell it. Digital assets that have been sold include items like TikTok Moments videos, limited edition copies of a Fortune magazine cover created by Pplpleasr, Twitter co-founder Jack Dorse’s tweet (sold for more than $2.9 million), NBA Top Shop video clips of NBA moments, a Nyan Cat GIF, digital sports trading cards, and anything else digital imaginable. NFTs are bought with cryptocurrencies, but recent research found the pricing of NFTs and pricing of cryptocurrencies has a low correlation.
Taking Emerging NFTs into New Areas
The full potential of NFTs is unrealized, but they are not only used as investment tools. Verizon is focusing on fan experience and engagement in the esports community as a test. Game Changers 2021 strove to elevate women and marginalized groups within the esports community through a partnership between Verizon and Dignitas. The first content drop of NFTs was holographic images of the Dignitas all-female Valorant team, each doing a victory dance, with a separate NFT linking an autograph. A live signing event captured the on-demand team member’s autograph and applied it to the relevant augmented reality image capture. This is a good example of how NFTs will change the digital content world and can promote diversity and inclusion.
Innovative entrepreneurs are incorporating NFTs into their businesses. Jen Glantz is the founder of Bridesmaid for Hire and believes staying on top of industry trends is crucial for a small business to stand out in the crowd. She is creating a collection of NFTs that enable people to access her library of courses and will allow her customers who buy NFT to resell it.
Gantz was inspired by entrepreneurs on podcasts who explained their use of NFTs, like Gary Vaynerchuk. He has an NFT collection that gives buyers access to a private membership club called VeeFriends. His website demonstrates the innovative ways small businesses are starting and growing through NFTs. He is holding one of the first NFT-ticketed conferences for VeeFriends token holders in May 2022. This novel business is built entirely on NFTs, with Vaynerchuk regularly expanding his product lines.
Working Through the Issues
There are some issues needing resolution. Piracy in the art world is accelerating. OpenSea is the main marketplace for NFT art, and in one case, a user on OpenSea pirated the work of painter Aja Trier and put the NFTs up for sale after remaking them. Artists need to patrol OpenSea and issue takedown requests, which can become time-consuming and difficult to manage if enough theft is going on. There is a need for a system that verifies a buyer is making a legitimate purchase of an NFT. DeviantArt is trying to slow down piracy by constantly scanning blockchains used by NFTs, to let users know when copies of their work are showing up on NFT exchanges.
Are NFTs here to stay? People thought cryptocurrency would not survive for long, and it has thrived. The same is likely true of NFTs. There are some issues to resolve, but that can be said of any new technology. Going forward, the prediction is greater use of NFTs in large and small businesses.