NFTs: we've only seen the tip of the iceberg
Discouraged by the complexity of NFTs (Non-Fungible Tokens)? This world seems too bizarre and far-fetched? Well, it’s simpler than you think. At least, that’s what I’m trying to show through this article.
Through this article, I'd like to help you get a better grasp of what an NFT is and help you get a better idea of NFTs' enormous potential. Simple ideas and simple words.
Non-fungible tokens explained
A non-fungible token is a medium in itself. It represents proof of ownership of any asset. So instead of having a piece of paper stating that you own your car, or your house - the proof is stored on the blockchain, which brings key advantages:
- Transparency:
You can think of the blockchain as a public ledger that records all the transactions that were made since its inception. It’s very straightforward to check what was bought when, and for what price. - Transferability:
In a couple of clicks, the ownership of an asset can be transferred from one part of the world to another part. - Security:
The blockchain is the most secure online database out there. Its inherent nature makes it extremely hard to hack. - Creator Economy:
Creators own the content they create, they can benefit from royalties whenever one sells their creation. They can also easily reach out to their followers. In contrast, current social media platforms extract most value from creators by capturing all the revenue from ads and by preventing creators to reach out to their followers (e.g. they don’t share followers' email addresses).
An explosive market
Messari data shows a secondary market of $15B including December. Cryptoslate estimates that the current market cap of NFTs is $37.65B.
Suffice it to say, the NFT market is booming. What's even more interesting is that these numbers only cover a couple of the actual applications of NFTs.
A framework to categorise NFTs
- Art: Digital art, as shown by Refik Anadol, and generative blockchain art such as Chromie Squiggles. You can find a myriad projects, some let the blockchain decide what the artwork will look like (see Chromie Squiggles). Others leverage AI technology to create mesmerising effects, Refik Anadol is a true master in this respect.
2. PFPs (Profile Pictures) and avatars: Epitomised by Cryptopunks, these represent people’s online identity. They range from simple pixelated 2D images to high-quality 3D avatars (CloneX).
Some of these projects experiment with IP rights. The trending CrypToadz project by famous NFT creator Gremplin uses CC0, i.e. public domain. This framework means that no rights are reserved and that anyone can use these images without owning them. To many people, publishing NFTs under CC0 seems like a silly idea — why would a collector buy an NFT if anyone can use it freely? Well, CC0 is the best way to leverage network effects (see Metcalfe’s Law). Indeed, the more people create copycats of the project and share it, the more it becomes popular and the bigger its network/community. As the network grows, its value grows exponentially, which ultimately affects the value of the project.
Other projects such as the Bored Ape Yacht Club, Hashmasks, RTFKT's CloneX provide passive income. Owners occasionally receive airdrops (either in the form of an NFT, or in the form of fungible tokens) that they can sell for a profit. For instance, owners of a Hashmask receive $NCT tokens that they can either sell, or use to change the name of their Hashmask.
3. Access: Access is usually granted through a POAP (Proof of Attendance Protocol). Concretely, you receive an NFT with a QR code that gives you access to the event. After this event, you can keep this NFT that will show that you have attended the event. Marketing agencies / companies / brands can issue special offers to customers that can prove that they have attended different events, or bought special assets.
4. Music: Songs can also be stored as NFTs. There are many ways this can take place — e.g. the artist can keep the commercial rights, they can transfer them to the customer, or the song can only be made available to be streamed. Artists benefit from countless options here.
The French artist Jacques took an inventive approach by dissecting one of his songs, second by second. Each second was sold as an NFT, which enabled him to raise enough funds to cover the costs of producing his whole album — effectively freeing himself from any music labels. In short, by selling the rights to one his songs, he managed to fund his whole album.
5. Redeemables: This type of NFT represents an underlying asset (e.g. a watch or a painting). By burning (basically deleting) the NFT, you can get access the underlying physical asset. Courtyard.io is paving the way in this field. In effect, Courtyard's services enable buyers to easily sell their NFT without having to ship the watch, or the painting to the other end of the world. If a specific buyer wants to have the actual watch or painting, they can ship it to their location by burning (i.e. destroying) the NFT.
Damien Hirst has been experimenting with the concept of redeemables through his project “The Currency”. Collectors face a dilemma: they have to choose between owning the physical artwork or the NFT. Collectors cannot own both.
6. Identity: Also known as decentralised identity (DID) or self-sovereign identity. Such services (e.g. XSL Labs) allow users to store their credentials on a blockchain, and only share parts of them when required by services. For example, if a platform requires a person’s age and country of residency, DID services will confirm that Ms X is older than 18 years old and that she lives in Germany. DID services will not share more information than required, such as the exact age of Ms X or her exact address.
7. Web2 Databases: You could turn elements of a database into NFTs. This helps transfer data from one service to another in an easy way. This could also guarantee common standards in the future, something highly needed in databases.
8. Game objects: A very popular category, that stretches from skins and weapons in games to land parcels in metaverse platforms. The Sandbox and Decentraland are amongst the most appreciated metaverses. Gamers will be able to rent their in-game assets to other players, when they're not playing the game. For example, if I managed to upgrade my weapon because I played dozens of hours of Call of Duty, someone might want to rent it from me to improve their stats.
This introduces the concept of Play-to-Earn (P2E), whereby players get receive financial benefits from playing and contributing to a game.
The gaming community has not understood this yet. Gamers think NFTs are going to extract more value from them, whereas they’re about to give back value to the community.
9. Physical assets: This is by far the biggest and most underrated application of NFTs. In the future, a big share of our physical belongings will be tokenised. Our cars, our houses, our chairs, our computers will come with an NFT. The consequences of this are boundless.
The future looks bright and diverse
In the future, NFT technology will apply to assets such as houses, cars, brand names. All these assets will be tokenised (i.e. their proof of ownership will be recorded on the blockchain).
Now, imagine how many ways these can be combined, with fungible tokens (e.g. stablecoins, bitcoin or ether). You can reward people for their positive behaviour or their support to a community (see airdrops and lockdrops). Certain leading web3 projects rewarded people who were using their services early on — e.g. ENS and LooksRare. In the future, artists will be able reward their first collectors, NGOs will reward their first donators.
Even better than the examples above, ingenious governments will reward citizens for their responsible behaviour, instead of punishing them for not behaving as prescribed (see China’s social credit system).
People will also have the opportunity to easily pool resources together to buy assets, thanks to fractionalisation. For example, a community will be able to get together to buy a property, a school, or even a golf course (see linksdao). Communities will stand up against bigger actors to defend their own values, and they'll get the means to do that in a straightforward way, thanks to the blockchain.
Singers will reward people who attended different events — they'll send them a special invite, send them tokens (e.g. $Beyonce tokens), or even give them a special asset in a game. Deadmau5 and Richie Hawtin’s Pixelynx projet is building a music metaverse that leverages these different functionalities.
If there's one thing I'd like you to remember from this article, it's that NFTs, combined with fungible tokens (e.g. bitcoin, ethereum, USDC…), will open a plethora of new opportunities for all of us. We've only uncovered the tip of the iceberg.
I am aware all this might sound scary, or at least groundbreaking. Yes, the metaverse and NFTs are about to affect our ways of living, of playing and communicating. I do not think there’s any way to stop this technology from being adopted by our society. However, I do think there is a way to use this technology without letting it abuse you. It is up to us to define the values we want to promote.
Do feel free to reach out if you'd like to discuss some of these points. My DMs are always open.
