NFT: From Kitties and Socks to Christie’s
It is nigh impossible to overlook the explosion of interest in NFTs in the past year. From artist Beeple’s $69M auction at Christie’s, to NBA’s Top Shot moments grossing over $230M in sales, and the more bizarre like Jack Dorsey’s $2.9M sale for his first Tweet, the list of creators and celebrities issuing these unique, Non-Fungible Tokens grows by the day. Why is there such fervor?
Valuing the Intangible
Creators monetizing their fanbase is nothing new, but pricing is often difficult as the value of creations is inherently subjective. Worse still, creators may prematurely sign away rights, as seen with Taylor Swift’s master recordings.
With NFTs, creators can directly sell a series of creations via auctions for price discovery. Even more importantly, they can charge royalties on all secondary sales. This was the “aha moment” for Mark Cuban, who minted a motivational quote with 15% royalty on Mintable, a platform he invested in.
This creates a virtuous cycle where creators can monetize quickly to bootstrap expenses, early supporters pay for the intangible value they perceive, then both parties benefit from secondary sales as the fan base grows. Even for more mature creations, NFTs can unlock further value, like American Gods collectibles on Curio Digital, which sold out in 90 seconds. In short, NFTs can fundamentally maximize creator economics to capture value both across the demand curve, and across time, as Chris Dixon from A16z writes.
The Blockchain Angle, and Where it Falls Short
One may wonder why NFTs need to be on blockchain, and the answer is simple: provable and programmable ownership. While creators can still rely on centralized platforms or entities to verify ownership and enforce royalties, doing it on blockchain means it runs on code, which reduces the trust needed on the platform, and prevents platforms from exploiting creators. We explored this idea in our piece Crypto is Not Just Money, it’s Power.
Once it is on blockchain, NFTs also open up a world of possibilities because it is easily portable across platforms as an “internet native asset”. At a basic level, you could port easily between marketplaces. For example, mint on a community-driven marketplace with net-zero platform fees like Unique.One, then sell it on an aggregator like OpenSea. Going deeper, you could even “energize” your NFTs by fusing them with interest-bearing assets from DeFi using platforms like Charged Particles.
But there are still pitfalls. Because anyone can mint NFTs on blockchain without seeking permission or verification, piracy and fraud are already emerging. Like fake websites and social media accounts, creators need to verify that they have not minted NFTs if they have not done so. Also, the content itself e.g. MP3, JPEG still needs to be stored somewhere, and often it is done by the platform, which could be lost. Hence, creators are encouraged to upload the content onto decentralized networks using IPFS, Filecoin or Arweave.
New Frontier Trials
Yet it is precisely because there are still so many gaps, that new opportunities continuously arise in the NFT space.
Expanding beyond art, game assets are a fast-growing segment of NFTs, for example Pokemon-inspired Axie Infinity where the pets are NFTs. In games, virtual land is often a scarce resource. They could also interact with art NFTs as galleries, as already seen in Decentraland and CryptoVoxels. Another fascinating trend is infusing algorithms or randomness with art, such as Hashmasks or EulerBeats.
But by far the most exciting area is the intersection of NFT with rights. Owning a song’s NFT, for example, could earn you rights to VIP concert tickets, as with Kings of Leon. Uniswap, a top decentralized exchange, airdropped their cryptocurrency UNI to holders of their Unisocks NFT (literally socks). This extends into a vast design space especially with financial applications, where assets like invoices (rights to future payment) or land titles (rights to occupy). And these rights can be programmable, personalized, or even added retroactively.
In time, we may see NFTs evolve from simply a way for artists to make a living, into the primary way that creators interact with communities, or even become the de facto format for any unique physical or digital asset on the internet. Till then, hang on to your Socks and Kitties.