The NFT revolution – reimagining digital assets

A couple of weeks ago a friend was telling me about “beeple crap”. Without any capitalisation, I thought beeple was an autocorrect for something that was annoying him. A few days later I knew all about Beeple Crap, AKA Mike Winkleman the digital artist, as I watched his Everydays: the First 5000 Days artwork sold at Christie’s for $69.3 million. The third most expensive artwork by a living individual – a JPEG.

For some this epitomises the hype of Non-Fungible Tokens (NFTs), but for others it’s just the beginning of a new world of possibilities unleashed by blockchain technology.

What is an NFT?

Let’s start with explaining “non-fungible”, an economic term. If something is fungible it is easily replaced and interchangeable. It is certainly not unique. A cow is non-fungible, meaning if you cut it in half, the front is not worth the same as the back (I think?). If you divide a dollar, 50 cents is still equal to 50 cents. It is fungible. An NFT cannot be divided or replaced by another – it is one of a kind.
The token part of Non-Fungible Tokens is what links it to a digital asset. It’s a way or proving ownership to the original file. This has made it possible to sell all manner of digital assets to collectors or investors looking to trade and resell the assets on digital marketplaces.

Now let’s get to the blockchain aspect. If you’re a content creator and you want to sell your digital work as an NFT, you first need to ‘mint’ it on the Ethereum blockchain. This process confirms it as an asset on the blockchain and you as the owner. It can now be bought and sold on any Ethereum-based NFT market. With Ethereum smart contracts, you can also specify royalties to be paid every time your asset is sold.

The NFT revolution

One of the foremost uses has been digital art, but another big player has been the sports world. Fans of the NBA have spent$230 million on NBA Top Shots cards. And Sorare, a global market for digital football cards, reported $6.5m of sales in February alone. But increasingly we are seeing other creative applications of NFTs. Twitter CEO Jack Dorsey is selling his tweets. The band Kings of Leon recently sold an NFT on the OpenSea marketplace that included one front-row, VIP treatment per tour for life to the holder. Other markets like gaming appear ripe for NFTs, and platforms and digital assets that tap into their audiences are inevitable.

I believe the collectibles market is here to stay: over time the different worlds will merge as new digital content creators and established players realise new earning potential. Artists whose profits are at the mercy of large platforms are realising that NFTs can cut out the middleman. But even if you think it’s a bubble waiting pop, beyond the hype and headlines there is a more paradigm-shifting perspective of NFTs.

We can gain a deeper understanding of NFTs by looking at the originally designed purpose of this new technology. NFTs were conceived to solve some of the specific problems we face on the internet.

For instance:

• much of what we exchange on the internet can be copied, and without scarcity it loses value;
• ownership, and the history of an asset, is easily and publicly verifiable with NFTs
• NFT markets provide a decentralised and secure platform for proving ownership removes our reliance on third parties;
• an NFT can be traded for any other NFT, or traded on any other NFT marketplace, creating an open ecosystem that has portability by design;
• NFTs open the door to new creative possibilities in terms of what can be traded and exchanged by virtue of the above points.

A new understanding of digital assets

There’s another interesting view to NFTs, and that’s how they will reshape our understanding of digital assets. Most people have probably never considered what their digital assets are, and may be somewhat confused if you asked them. If pushed, I would guess they would list their photos, videos and files.

What NFTs are doing is to blow open the doors on almost anything that could eventually be minted on the blockchain and be considered a digital asset. Whether that’s something digitally created or a physical object (for example, an artwork that has an NFT chip sealed into a wax seal).

We’re seeing a tremendous shift of wealth into new digital objects. Whether that’s a digital football card or an animated piece of 3D art. People are already spending millions on this new space every month, creating a spiralling number of extremely high-value digital assets.

News that some users were hacked on the popular NFT marketplace Nifty Gateway highlights some issues around this new reality. With one user claiming$150,000 worth of art was stolen, it’s a painful reminder that not owning the keys to encrypting your own digital assets can come at a punishing price.

While Nifty Gateway has publicly toyed with the idea of mandatory two-factor authentication (2FA) for users making purchases, 2FA is far from bullet proof as seen in the recent SolarWinds and other mega cyber breaches.

As those well versed in owning and trading cryptocurrencies know, the only way to own your digital assets is to own the keys. The world we’re entering is one where a diversity of assets and wealth will be stored, traded and exchanged digitally. Understanding that, and the necessary steps we need to take to manage this, is critical to realising the importance of fully owning your data and digital assets.