Non-Fungible Token or NFT has already taken the world by storm and is touted by many as the next futuristic technology. Some Indian companies have also joined the NFT bandwagon. The rate at which the NFT space is moving is truly mind-blowing. As Olawale Daniel, CEO at TechAtLast and a serial entrepreneur says, “If you are an artist and still don’t use NFT, you are potentially missing millions of dollars.”
Despite the buzz, most of us have little clarity on NFT and how it functions. So, let’s explore what’s this NFT buzz all about and what’s going on in the NFT universe? And more importantly, what does the future have in store for NFTs’?
What’s the NFT buzz anyway?
Simply put, NFT is a digital certificate of ownership and authenticity that confirms the sole possessor of an original digital object like a piece of digital art. This cryptographic asset is based on the Ethereum blockchain.
Much like the “Antiques Roadshows” where objects such as an artwork, a postage stamp or even a fancy dress can be bought, sold or auctioned for thousands of dollars — if it’s rare, unique or the original, in the digital world, this can be applied to virtual objects like digital images, videos and audio recording, software, video games or even a tweet.
Ajeet Khurana, a Blockchain expert, entrepreneur and angel investor explains that even though digital files can easily be copied and reproduced, you can prove you’re the owner of the original with an NFT that is recorded by a blockchain. Each NFT support its unique metadata and identification codes that separate one from another.
“That is why they are called non-fungible tokens, which mean that they can’t be traded with similar assets, unlike other crypto-assets like Bitcoins, Ripple that more are ‘fungible,’ which means they are identical and can be exchanged if they are of the same value,” he says.
The global hope and hype
While NFTs are much in-vogue today, the history of NFTs dates back to 2012 when Colored Coins’ attempt to use Bitcoins’ smallest units, the satoshi, to carry specific ownership information. However, Bitcoin’s scripting language was never meant to enable this type of behavior within its network – a reason why satoshi was met with limited success. In 2014, Counterparty, a peer-to-peer financial platform and distributed, open-source Internet protocol, built on top of the Bitcoin blockchain. Counterparty allowed asset creation had a decentralized exchange and even a crypto token with the ticker XCP.
In March of 2017, when a project by the name of ‘Peperium’ was announced to be a “decentralized meme marketplace and trading card game that allowed anyone to create memes that live eternally on Ethereum. Two creative technologists – John Watkinson and Matt Hall – realized they could create unique characters generated on the Ethereum blockchain, in which characters would be limited to 10,000 and no two characters would be the same. They called their project Cryptopunks, as a reference to the Cypherpunks who experimented with precursors to Bitcoin in the 1990s.
The primary standard for representing the non-fungible digital assets is ERC-721. The first project to use the new NFT technical standard was the famous CryptoKitties, a blockchain-based virtual game that allows players to adopt, raise, and trade virtual cats. With CryptoKitties NFTs hit the mainstream. Crypto Kitties released the NFT tokens in October 2017 which eventually raised a $12.5 million investment.
Even though the creation of NFTs has not been that much popular in past few years, it is showing a great hike since the pandemic.
Earlier this year, an NFT of a JPG file by American artist by the name of Beeple was sold by Christie’s at auction for the eye-popping sum of $69.3 million. And digital ownership of the first tweet made by Twitter CEO Jack Dorsey in 2006 was put up for sale for $3 million and purchased last month by the CEO of a Malaysian blockchain company.
Even National Basketball Association (NBA) partnered with Canadian-based Dapper Labs, makers of the Crypto Kitties to make its version of a collectible digital asset, which contain video clips and other unique content about their favorite players and teams.
According to a study from NonFungible and L’Atelier, the NFT market tripled in 2020, with the total value of transactions increasing by 299% year-on-year to more than $250 million. NFT traders have also experienced huge financial performance, with profits of up to $500,000 in a single year, and certain traders made annual profits in excess of $100,000 from trading NFTs.
Needless to mention, the growth of the NFT market comes as a result of increased online activity during the Covid-19 pandemic which increasingly forced us into the digital spaces.
Gains for the Enterprise
More and more well-known brands are entering the NFT space, creating lucrative NFT-based consumer goods and services. Nike, Louis Vuitton and Breitling; Turner Sports, NBA, Formula 1, BBC, Warner Music, Ubisoft and Atari, are just a few examples.
Similar to core blockchain technology, NFTs have several business applications that are specific in their use and can help in better digital transformation. Take for example, storing documents securely. To avoid data alteration and duplicacy, these NFTs can be highly beneficial. NFTs go beyond the basic blockchain functionality of robust encryption and eliminate the risk of any data forgery or unauthorized exchange.
Also, as all information of an individual and signatures is stored in an NFT, the process can be made truly paperless. Individuals who often need to present their documents for verification can carry them digitally without losing authenticity and get them verified real time.
Indian companies join NFT bandwagon
To ride this recent boom, several Indian players in the blockchain space have joined the NFT bandwagon.
The country’s biggest cryptocurrency exchange by volume, WazirX, has launched the country’s first marketplace for NFTs. The platform will allow Indian creators to place their digital assets for auction over the blockchain-based NFT marketplace and earn royalty.
On the need for an NFT marketplace in India, Nischal Shetty, Founder, WazirX said, “It will truly transform the market in our rapidly digitizing world with a growing interest in NFT across the globe. Both digital creators and collectors stand to benefit from the NFT marketplace.”
WazirX is currently working towards nullifying this cost to make NFT minting cost-effective for artists and creators.
ZebPay, India’s oldest and most widely-used Bitcoin and crypto asset exchange, at its quarterly board meeting announced its plan to launch an NFT and has been named ‘Dazzle’ (the name for a herd of zebras). Vikram Rangala, CMO, ZebPay believes that NFTs are getting a lot of mainstream attention and it’s only the beginning.
Rangala adds, “NFTs aren’t just for digital art and collectibles; they can store all forms of intellectual property and agreements, giving them huge potential. A lot of the other currencies are also associated with larger use cases, like decentralized finance, which has the potential to bring a lot of financial inclusion and opportunity. These are use cases that go far beyond price speculation.”
Giving the example of Dazzle, he mentions that each token will have unique properties and will confer rewards to the owner, such as lower fees on the ZebPay exchange as well as discounts from partners such as e-commerce retailers, streaming services, food deliveries, etc.
“NFTs will gain new powers over time, giving the owner even more membership benefits. It will also be possible to generate new tokens from pairs of existing ones,” he says.
More recently Zebi, a full-stack core-blockchain company, has leveraged its blockchain portfolio with NFT capabilities and announced the launch of a native blockchain ecosystem for the world of Cricket. The company tied up with Gaames Unlimited, a licensee of International Cricket Council, worked closely with Zebi over three years ago to create what could be the first samples of NFT from India. The company strongly believes that, in long run Cricket needs its own ecosystem, built by, run by and for the Cricket ecosystem partners.
Pruthvi Rao, Co-Founder & CEO of Zebi said, “We started Zebi blockchain way back in 2016 with the intention of bringing the latest technology for India. Having launched India’s first native private blockchain and first public blockchain, we have now leveraged our NFT capabilities with few of our esteemed and forward thinking partners.”
The pitfall however is that in India, there has been no separate legal framework for NFTs, even though the government and the RBI are contemplating on the same. So, one may have to rely on regular principles of the Indian Contract Act for the sale or purchase of goods. As Investors looking to jump on the NFT bandwagon should note that there is little clarity on how these instruments are regulated.
A global dilemma
There are several other potential complications associated with NFTs – including their high energy consumption, ownership rights, seller tax, and the speculation bubble.
An important question regarding NFT’s environmental impact surfaced after the sale of Canadian music artist Grimes’ collection of short films, produced by herself and her brother and the videos sold for a staggering $6 million. According to a recently defunct cryptoart carbon footprint calculator, invented by artist Memo Akten, the sale of Grimes’ video collection consumed as much energy as an average EU citizen would in over three decades. Experts believe, as the volume of NFT transactions rises, this issue will need to be addressed, and greener sources of energy will have to be identified.
Also, the question of rights ownership becomes important when it comes to an NFT-linked music sale. A recent Guardian article pointed out that “despite the clear traceability, there remains enormous uncertainty about just how the rights and ownership of the original creators apply in an NFT sale – especially in the field of music.”
Perhaps the industry needs tighter regulations that oblige sellers of NFT-linked music to define the precise terms of each transaction and declare exactly what is being sold. This can of course apply to all NFT sales.
A more serious issue threatening the long-term success of NFTs is the prediction that the technology is merely a speculation bubble.
The way forward for NFTs
Despite these and more challenges, Andrew Steinwold, Managing Partner at Sfermion and an NFT expert, believes that the growth of the NFT ecosystem will only accelerate as more people and companies realize the impact that NFTs can have and implement them more. “I suspect within five years the NFT space will look radically different than it is today,” comments Steinwold in an article on Medium.
Thanks to their unique and non-interchangeable nature, NFTs address some of the art market’s biggest and most longstanding challenges, such as authenticity and ownership.
Also as Khurana notes, “The potential of NFTs, extends beyond art, and could be applied to the trading of any virtual experience or objects.” Once the challenges can be addressed successfully, we may someday see people buying and selling NFTs from their mobile phones just the way we shop from Amazon.
At the moment however it is too early to predict the outcome, so we must see the NFT enthusiasm is steered toward improving the lives of people, businesses and society on the whole.