Mark Twain’s supposed death in 1897 isn’t the only one that has been greatly exaggerated. NFTs, an acronym for non-fungible tokens, are now experiencing premature declarations of their demise. One source says the NFT bubble is bursting, another points out that NFT prices are falling, and yet a third says billionaire Elon Musk’s mockery of NFTs was one of the reasons for the collapse. Of course, these reports come amid a broader decline in the stock market and cryptocurrency markets as well.
Much of these reports of the downtrend of NFTs (pronounced “niftys” or “nefts” or simply “eN-eF-Tees”) have focused on the number and price of certain NFT sales, completely missing the broader technology trend signified by NFTs. . NFTs represent an important new way of thinking about virtual property and digital property, and the innovation it represents will not disappear simply because of current fluctuations in market prices.
The value of NFTs is recognized in the non-virtual world. The UK High Court recently ruled that NFTs are legal property.
Those who underestimate the power of this new technology will end up like those who believed the World Wide Web was dead after the crash of 2000. In reality, the power of the web had only just been realized. Think of all the things that were still a long way off: Facebook and Twitter and YouTube, Zoom and Fortnite, Netflix’s video streaming service, Musk’s Tesla selling used cars on his website out of the blue!
Why are NFTs another key part of this digital revolution? A non-fungible token represents verified ownership of a distinct digital asset, such as a digital image or virtual real estate in a video game. Like the purchase of any property, to be accepted as valid the property must be registered somewhere. If you buy a house, it goes through the local deeds registry. For a car, it’s at your state’s Department of Motor Vehicles.
Similarly, with NFTs, if you purchase a unique digital item, your ownership is recorded on the internet through a technological wizardry called blockchain. Unlike a single physical or digital repository, a blockchain is a new, decentralized way to track any type of information, including ownership of NFTs and cryptocurrencies, without requiring a central server or authority. (Disclaimer: I hold and regularly trade cryptocurrencies such as Bitcoin and Ether, and am an owner of NFTs, as well as an investor and advisor to several companies that create and sell them.)
NFTs started out as collectibles in games (think digital baseball cards), rising to prominence in 2018 with CryptoKitties, which allowed buyers to collect individual “kitties” as part of a new type of video game. When a buyer purchases these pieces of digital property – often a simple but increasingly complex JPEG image – they are registering their ownership on a public blockchain. Purchasing an NFT can also give the owner access to benefits such as preview or VIP access to movies, music, or video games, and in some cases, copyright of the work itself.
The best-known NFTs today are sold in collections that are variations on a theme, such as the monkeys from the Bored Ape Yacht Club series, which became so popular they were featured by host Jimmy Fallon on NBC’s “The Tonight Show” and even have their own set of movies coming out soon. Other celebrities to get in on the NFT action include Reese Witherspoon, Katy Perry, and even Paris Hilton.
Indeed, the mega-sales of unique NFTs have created a gold rush mentality among many artists and celebrities. The most expensive NFT ever sold to a single owner was made by artist Beeple, which sold for $69.3 million. The highest ever NFT sale, for $91.8 million, showed the ease with which NFTs can provide fractional ownership: the purchase was made collectively by more than 28,000 people who now own a share of this work of art.
However, it is a mistake to think of NFTs as just art, as they have the potential to do so much more in the virtual and real worlds. One of the most popular uses of NFTs is collecting and equipping virtual characters in the Metaverse, an increasingly popular idea of sci-fi virtual worlds that we explore with our 3D avatars. Last year, Nike acquired RTFKT (pronounced “ar-te-fact”), a creator of virtual NFT sneakers. Big brands are realizing that Gen Zers can value self-expression with their avatars as much as their real-world wardrobes.
NFTs are also proving useful for tracking investments in virtual land, the next frontier of real estate, which is fetching millions. A person paid $450,000 in December to buy an NFT that represents ownership of land next to rap artist Snoop Dog’s Metaverse residence (located in a virtual world called The Sandbox). Even amid all the recent hype about the end of NFTs, virtual land sales for an upcoming video game from the creator of Bored Apes pushed NFT sales to $1.7 billion in the first week of may.
The value of NFTs is also recognized in the non-virtual world. The UK High Court recently ruled that NFTs are legal property. This is a big step forward because it means that if someone hacks into the system and steals your NFTs, they are as guilty of theft as if they were stealing “real” art from your house or pirated a movie. Hollywood.
You can already borrow real money using your NFTs as collateral in an emerging area of decentralized finance (or DeFi for short). And there are real estate funds that are now using NFTs to create real estate fractions for investors to buy.
In short, not only will NFTs become easier to use, but smarter NFTs that have utility beyond just visuals – which I like to call NFT 2.0 – are only now starting to come online. Much like the internet after the web bubble burst in 2000, blockchain technology and NFTs are still in their infancy. Buying and using NFTs is still cumbersome for the average user, but that will start to change as popular consumer apps like Instagram add support for NFTs, which was just announced this week.
As long as there are assets, real and digital, that people are willing to pay for, NFTs will be an important new technology for tracking ownership and profits across many industries. Years from now, even today’s pessimists might agree with my invocation of Mark Twain that reports of the demise of NFTs have been greatly exaggerated.