NFTs (Non-Fungible Tokens)
Chances are in the past year you have heard the term NFT (Non-Fungible Token). You may have heard this phrase on social media, in the news, or even from your favorite musician. The rise in popularity of NFTs has certainly been noticeable, but are NFTs just a fad, or do they provide value to their creators? Let’s take a look at exactly what NFTs are, how they work and understand their utility.
What is an NFT? What does “non-fungible” mean?
The easiest way to understand NFTs is to first understand what a fungible asset is. If you have ever had a dollar in your wallet or a frequent flyer mile in your favorite airline account, you have interacted with a fungible asset. Fungibility means that an item holds the same value, it can be exchanged for another like item and it is interchangeable. My one-dollar bill holds just as much value as your one-dollar bill, they are not unique. We could trade each other and continue on our day with the same value in our pockets.
“Non-fungible” means that an item is unique and can’t be replaced with something else that is identical. Here is a simplified example of this using a tangible “asset” such as a pet. You can think of your dog as an NFT, it has value (to you) and can’t be exchanged for another identical dog, it is indivisible and one of a kind. However, you could exchange your dog’s leash for another identical leash, which would be a fungible item. But your dog, not so much. Another popular example of this would be the Mona Lisa painting. There are a million printed copies of this famous painting by Leonardo da Vinci, however; there is only one authentic original version and it resides at the Louvre Museum in Paris.
Society has always had one-of-a-kind items such as the Mona Lisa, which is verified and certified by prestigious art collectors. NFTs have grown popular in 2021 because they allow individuals without accreditation to create certificates of authenticity (ownership) utilizing blockchain technology.
NFTs are digital assets that are publicly verifiable intellectual property, authenticated on the blockchain (a digital ledger).
What is the blockchain? Which blockchain are NFTs on?
The blockchain is a public digital ledger built around a peer-to-peer system that can be openly shared among users around the world to create an immutable record of transactions. Users who act as validators run nodes to support the network. Each node contains a copy of the blockchain ledger, and each confirmed record is time-stamped and linked to the previous one. Every time a set of transactions is added, that data becomes another block in the existing chain of data (hence, the name).
Blockchain technology can only be updated by consensus (confirmation) between participants in the network, and once new data is added to the chain it can never be erased. It is a write-once, append-many technology. Because the digital ledger is unchangeable, the blockchain creates a publicly verifiable and auditable record of every transaction on the network.
In 2021, there are thousands of blockchain projects that are hoping to come out of this cryptocurrency land grab as the blockchain of choice. Many compare this first-to-market race to the early days of the internet. Which blockchain will be Yahoo and which one will be Google?
Currently, the most used blockchain (by daily transaction volume) is Ethereum and it has by far the largest developer community, making it the clear choice for many companies looking to break ground in this innovative space.
The majority of NFTs are created on Ethereum and follow the ERC-721 Non-Fungible Token Standard. Although Ethereum currently has the largest market share of NFTs, transacting on their network is expensive which has created opportunities for competitors to make improvements. One of those competitors, Flow, is making NFTs their focal point and has created a new blockchain which they claim to be more efficient and developer friendly. Time will tell who the NFT leader will be in the future, but at the moment, you will most likely have to purchase your coveted NFT with Ethereum.
What can NFTs be used for?
NFTs are commonly used on decentralized applications (dapps) to issue unique digital items and crypto-collectibles. Many game developers have utilized NFTs, creating gameplay that allows gamers and collectors to become owners of these special in-game items. NFTs have many other use cases; for example, users can tokenize an item (photo, video, sound) and put it on the blockchain ledger. Believe it or not, we can even put proof of ownership of a physical asset on the blockchain ledger. The original creators of NFTs imagined the following assets on the blockchain:
- Physical property — houses, unique artwork
- Virtual collectibles — unique pictures of kittens, collectible cards
- “Negative value” assets — loans, burdens, and other responsibilities
Why have NFTs become so popular?
One of the reasons NFTs have become so popular is due to the lack of gatekeeping. Anyone in the world with an internet connection can put their item on the blockchain and claim ownership. Many NFT creators sell ownership of their digital creation to collectors, and in 2021 there has been a gold rush sentiment to collect NFTs created by popular digital artists.
Some are calling this the rise of the creator economy, with popular artists such as Beeple selling his NFT digital artwork at Christie’s art auction for 69 million dollars. Of course, this example is an outlier, but it sparked a great deal of interest from creators around the world who want to offer the possibility of a new ownership experience to their fans. One of the most exciting aspects for artists and fans is the ability to own an artist’s creation without needing to consult a middleman. This is due to the decentralized nature of blockchain technology.
Here are some recent examples of NFT’s in 2021.
- NBA Virtual Trading Cards
- Online Trading Card Game
- Digital Horse Racing
- Unique Collectible Characters
- Video Art by the Artist Grimes
- Tweets by Jack Dorsey
- Virtual Real Estate in Decentraland
- Viral Memes
- Access and Admission Tokens by Gary Vaynerchuk
According to Blockworks, “NFTs have a nearly $28 billion market cap with sports-related NFTs — such as the NBA’s Top Shots trading cards — being the most popular.” While it is clear that NFTs have grown significantly in popularity this year, their growth doesn’t appear to be slowing down anytime soon with more and more industries looking to get involved.
Where can you buy and sell NFTs?
The majority of digital artwork can be bought and sold on NFT marketplaces with Ethereum or with a marketplace-specific cryptocurrency. Here are some of the most popular NFT marketplaces in 2021:
- Open Sea — https://opensea.io/
- Nifty Gateway — https://niftygateway.com/
- Rarible — https://rarible.com/
- Foundation — https://foundation.app/
To get a full picture of what is being bought and sold on these marketplaces, here are some of the categories:
- Art
- Music
- Domain Names
- Virtual Worlds
- Trading Cards
- Collectibles
- Sports
- Utility
Many brand-specific NFTs are not sold on these popular marketplaces and are sold directly from the website that is offering that experience. For example, if you have more interest in collecting in-game Gods Unchained items or NBA Topshot sports collectibles, you can purchase those NFTs directly from the websites that offer those experiences, such as Gods Unchained or NBA Topshot.
NFTs and the event industry
There are many opportunities in the event industry to take advantage of these digital certificates of authenticity. We have already begun to see several sports leagues discuss incorporating NFTs into their ticketing process to create a unique fan experience.
Mark Cuban, the owner of the Dallas Maverick’s said on “The Delphi Podcast”, “We want to be able to find ways so that not only can our consumers, our fans, buy tickets and resell them, but we can continue to make royalties on them.”
The Golden State Warriors recently launched a Legacy NFT Collection that consisted of championship rings and commemorative ticket stubs. Due to the item’s scarcity, fans rushed to buy this new memorabilia and this auction sold out.
This demand isn’t limited to sports entertainment. Recently, Kings of Leon released their newest album as an NFT and also released a rare Golden Ticket. This Golden Ticket allows the holder to redeem four front row tickets to any Kings of Leon headline show, anywhere in the world, once per tour.
With the rise of NFTs, we can anticipate that concerts, sporting events, festivals, and conferences will begin to incorporate NFTs as enticing takeaways for their attendees.
The dramatic increase in popularity of NFTs and blockchain technology has created an exciting opportunity for event planners to create a new type of digital experience for attendees. NFTs are going to have a lasting impact on the event industry, and the creative minds around the world are exploring the ways to leverage this new technology.
