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NFT – non-fungible tokens

18. May 2021, Editorial

Where works by the likes of Picasso and van Gogh were once the epitome of uniqueness, priceless collectors items like these already seem to be slightly antiquated in today’s world. After all, why bother with an expensive painting locked away in a vault when you can acquire digital ownership of a piece and share it with its online fanbase instead? This is the idea behind NFTs, or non-fungible tokens to give them their full name. It’s high time that we took a closer look at this latest internet phenomenon.

Thema:

art and culture
Bitcoin
Blockchain
future
music industry
nft
non fugible token

Non-fungible… say it again?

All the hype surrounding NFTs and the expression itself came like a bolt from the blue, giving us a new buzzword overnight. A non-fungible token is a unit of data  stored on a digital ledger called a blockchain. In fact, you could say that a token is a unit of currency. A non-fungible token is a unique asset that is not interchangeable. NFTs are a way to buy and sell objects and digital files online.

They transform digital artworks, specific passages of play from sports matches or even Tweets into tradable entities that can be sold off to the highest bidder or retained in a portfolio. In March, the US artist Beeple sold a collage comprising multiple digital images at Christie’s. Entitled “Everydays. The first 5,000 Days”, the piece fetched almost USD 70 million at auction. The Indian multimillionaire Vignesh Sundaresan, who bought the NFT that goes with the artwork, is now its sole lawful owner.

This method of acquiring ownership of digital objects first  became famous in art and culture.

Other examples of NFTs include Jack Dorsey’s first Tweet, a digital column from the New York Times and internet memes such as the famous rainbow Nyan Cat, all of which fetched record prices at auction. And in the world of music, too, NFTs are currently revolutionising the way that work is paid for. Hip-hop producer Gramatik sold one of his pieces for a cool USD 1.5 million in a matter of just a few minutes. And now it is also an NFT.

But is it really possible to talk about “ownership” of a song or Tweet if this object is generally freely available and anyone can look at it online?

Yes. And even though anyone can do a screengrab of the Tweet or save a specific sequence of sports footage to their laptop, the appeal is that only one single person can be said to be the owner of the video, Tweet or digital artwork. After all, lots of famous paintings and photographic works are frequently duplicated, or available to download from the internet. But there are strong safeguards in place, as the identity of the true owner is indelibly written into the NFT. With the NFT securely logged in a blockchain and registered, it cannot be subsequently tampered with or forged. This gives each NFT its very own certificate of authenticity and officially confirms the owner’s ownership rights.

But is all the hype justified?

The website nonfungible.com is the largest collector of NFT data. According to its latest annual report, NFTs had a market cap of more than USD 380 million in 2020, compared with just under EUR 141 million a year earlier. So it’s definitely a trend that you should not ignore – and probably will not be able to ignore for much longer. At the end of the day, NFTs transform digital objects into tradable goods that can be bought and sold like other assets. This is a phenomenon that could have a bright future, given our increasingly digitalised world. The boom that the online retail sector experienced due to the coronavirus pandemic could be followed by another one that is shaped by NFTs as they rewrite the rulebook. From digital art to music and social media – NFTs are already in the process of changing online commerce as we know it.

NFTs combine two mechanisms: the technical opportunity to produce tradable music and artistic events, combined with the value that comes with owning a unique asset that, while used or shared by many people each day, still only belongs to a single person.

And in future?

But is it more of a bubble than the marketplace of the future? At the moment it is still hard to tell, as NFTs are still the new kids on the block. However, it’s clear that NFTs have the power to transform digital art and also have what it takes to change the way that we use social media. The kind of art produced by Beeple, Banksy and their peers, as well as Tweets and gifs can now be accorded a financial value that is not defined purely by metrics such as likes and views. Social media success is contingent on reach, visibility and a large number of followers, likes and shares – something that can increasingly be seen on TikTok. NFTs could be a potential source of income for artists or influencers who have the requisite social media cachet. The trick is to find a way to convert all these followers into collectors. This could also give many followers a fresh way to invest in and support their idols or favourite influencers.

And it could bring about some pretty major changes in the music industry.

With streaming up and sales down, artists are finding it increasingly difficult to assert the value of their work and ensure that they are adequately compensated for it. NFTs give musicians the power to license and sell content and allows them to pitch it to the global market more quickly. This has the potential to give greater exposure to previously unknown niche artists, while also cutting out the middlemen who often take a hefty cut in exchange for distributing and marketing music.

There’s been a general trend in our society for a number of years now: rising demand for one-off or rare consumer goods such as special-edition sneakers and items of clothing. The more limited the production run and the more exclusive the item in question, the higher the demand. Economic, sociological and market research show that the value of consumer goods such as these lies not in their utility, but in the way that special or unique products give people a means of expressing their social status. And this is a niche filled perfectly by NFTs.

However, this new phenomenon, which is still highly nebulous for many, is not without its sceptics…

Mike “Beeple” Winkelmann – one of the chief beneficiaries of the boom, having cleared 53 million dollars in NFT sales – thinks that non-fungible tokens are a bubble that will burst sooner or later. Respected US businessman and author Seth Godin warns that NFTs could be a “dangerous trap” that should not be confused with the artworks themselves as, in essence, they are only a representation of them. And of course, you have to exercise extreme caution as regards verification and authenticity. Especially online, every precaution needs to be taken to protect yourself from scammers: unscrupulous vendors could create NFTs for works without obtaining permission from the copyright owner first. Or NFTs that have already been purchased could be stolen by hackers. It’s all too easy to fall for phishing attacks, so anyone who pays in advance should triple check to make sure that the link to the expensive files is legitimate.

All that said, financial markets are very optimistic about the future of NFTs. Star investor outfit Andreessen Horowitz has teamed up with a raft of stars including Michael Jordan, Kevin Durant, Ashton Kutcher, Shawn Mendes and Will Smith, pouring 305 million dollars into Dapper Labs, the company behind the online, token-based NBA Top Shot forum for trading virtual basketball cards. They believe that the market is poised for rapid growth and that the model could be applied to other industries, which would open up huge opportunities for lots of other areas.

Only time will tell

Particularly during a pandemic, digital sales channels involving things like NFTs and blockchain are extremely compelling. Over the past few months it has become increasingly clear that we are dependent on digital retail. Thanks to their decentralised structure, NFTs are an attractive prospect and have the capacity to cut out the middlemen and gatekeepers, making the overall process more transparent.

As it will still take some time before NFTs show up on regular consumers’ radars, speculative trading will continue to push prices sky high. It remains to be seen whether NFTs really will become part of our daily lives at some point. Until then, we will leave you with the words of the New York Times: “It doesn’t really matter what NFT stands for, they are cool, fun and can be sold for a lot of money!”

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