From digital art, music, and gaming, to real-estate, purchases, and investments, non-fungible tokens, or NFTs for short, have emerged as a new mode of transaction in the investment ecosystem, transforming everything we knew about the digital economy. With the pandemic pushing society online and the expeditious increase in the digitization of businesses, more people are immersed in the digital world and are increasingly investing in digital assets, particularly in NFTs, the new foundation of the digital economy. With that being said, let’s dive into the what’s and how’s of the trending digital assets called NFTs.
Investors are now increasingly recognizing the power of a virtual economy. The ascent of Bitcoin continues while a decentralized economy based on cryptocurrencies and non-fungible tokens emerges. The once ridiculed NFTs are now swiftly becoming the integral aspect of a new digital reality. 3D worlds including Roblox, Facebook Horizon, Decentraland, Fortnite (by Epic Games), and The Sandbox are gaining popularity among not only gamers but also investors and entrepreneurs, who are willing to spend thousands and millions of dollars to purchase digital art and assets.
What Is It & How Does It Work?
An NFT is a digital asset, similar to real-world objects, such as a piece of art, music, picture, video, or in-game item, that has a certificate of authenticity generated by the blockchain technology that supports many cryptocurrencies. Despite the fact that they’ve existed since 2014, NFTs are gaining popularity lately as an alternative to buy and sell digital artwork. Since each NFT has a unique identifying code it cannot be forged or tampered with in any way. NFTs exist on a blockchain, which is a distributed public ledger that records transactions. And NFT purchases and trades are conducted with cryptocurrencies such as Ethereum (CRYPTO: ETH), however, traditional auction houses are aiming to capitalize on the trend.
Where To Start?
The simple answer is an NFT Marketplace, aka the gateway to participate in the trading of these digital assets. NFT Marketplaces are like the Amazon of the digital world. There are several different types of marketplaces, each with its own offerings of the kind of digital assets and crypto (or token) it supports. Prior to opening an account on an NFT Marketplace, users would be required to open and fund their digital crypto wallet, which will be used for completing transactions on the Marketplace. Similar to NFT marketplaces, there are several types of crypto wallets, each with its own pros and cons.
Here is a list of some of the most popular digital wallets and NFT marketplaces:
Why Are NFTs Suddenly Trending?
If anyone can view or download these images, music, and other forms of the art online for free, then why are people willing to pay thousands and millions for it?
Well, the built-in authentication that comes with NFTs serves as proof of ownership and gives the owner exclusive ownership rights, which is sometimes more valuable than the actual item itself. Since NFTs can have only one owner at a time, the creator can easily verify his/her ownership and can store specific information within the NFT. Moreover, the digital signature of an NFT is impossible to be exchanged or traded with another, giving it its non-fungible characteristics. For instance, one NBA Top Shot clip is not equal to, and cannot be exchanged with, another NFT, even if it is another NBA Top Shot clip.
In addition, NFTs offer a unique opportunity for artists and content creators to monetize their items. Instead of depending on art galleries and auction events, they can sell their artwork directly to the consumer in the form of an NFT, keeping more of the profits. Also, another feature of selling artworks through NFTs is that artists can add in royalty programs which will allow them to receive a percentage of the profits every time the NFT is re-sold.
Some Notable Transactions…
The image below, titled “EVERYDAYS: The First 5000 Days”, created by the popular digital artist Beeple (Mike Winklemann), is the world’s most expensive NFT ever sold. This work of art was up for sale on Christie’s and was bought at a staggering $69.3 million!
Apart from art, media and content industries have also been quick to hop on the trend. Lionsgate, Disney, and Warner Bros have all entered the industry, with Warner Bros offering ‘The Matrix’ franchise-inspired NFTs. Companies including Taco Bell and Charmin have raised charitable funds through auctioning NFTs, whereas, Fox Entertainment‘s Blockchain Creative Labs, Decentralized Pictures, and NFT Studios were among the NFT-powered firms that emerged in 2021. Jack Dorsey, the co-founder of Twitter, generated over $2.9 million through selling his first tweet as an NFT. An NFT of LeBron James highlight was sold for over $200K, and lastly, a single NBA Top Shot was sold at over $500 million. Lastly, as NFTs take the world by storm, the MENA region has witnessed the launch of its first NFT Marketplace, NIFTY Souq, that will enable content creators and collectors to purchase and trade unique digital assets online. Though NFTs are still new to the MENA population, considering the region’s openness to new technologies and digital advances, the region is expected to quickly adapt to the ever-changing digital landscape.
Sania Shah – Researcher