Wonder why Beeple is now the hottest artist on the planet? The American digital artist has just sold a digital image for $69 million through a first of its kind auction at Christie’s. What makes it interesting in the tech universe is the artwork titled “Everyday: The First 5000 Days”, is a unique digital art authenticated with a unique non-fungible token (NFT).
South Carolina-based Beeple, whose real name is Mike Winkelmann, has been creating digital sketches using 3D tools on a daily basis for the past 13 years. His art features a Pikachu with an anorexic human body, obese Mario, Mickey Mouse as a strong man and other incredible imagery of works.
If all this may sound a little bizarre, let’s get a little closer to business. Late last week when Twitter CEO Jack Dorsey decided to sell his first-ever tweet from 2006 as a non fungible token (NFT), users flocked to buy the tweet. The bids to this tweet have already reached $2.5 million, and the auction will take place next week.
Indeed, NFTs are creating a phenomenon in the digital world and already have a number of takers. But what is this NFT ‘craze’ and why it matters to the digital world?
What is NFT anyway?
According to MakersPlace, which issued the blockchain based NFT to Beeple’s work, an NFT is a collectible digital asset. It is a digital certificate of ownership of an asset on blockchain – a set of publicly accessible online database with unique identification codes and metadata that distinguish from each other. This unique form of cryptocurrency is not owned by any central authority, where the data cannot be altered.
Ajeet Khurana, a Blockchain expert, entrepreneur and angel investor explains that NTFs can be used to represent ownership of artwork, properties, a collection, and literally anything that are non-fungible, meaning that they are unique. It is transparent and stored on the blockchain, which makes it easy for everyone to see the ‘owner of the token’. For instance, an audio recording, an artwork, and even an events ticket can be a sign of ownership of ones space to watch the program, say a cricket match.
The roots of NFT
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. It had numerous projects and assets, including a trading card game and meme trading.
The most popular blockchain that currently enables NFT technology is the Ethereum blockchain. In 2017, Ethereum Request for Comments 721 was released as a cryptocurrency standard for non-fungible tokens. With this standard, NFTs would be much easier to implement. Thereafter, NFTs hit the mainstream with CryptoKitties, a blockchain-based virtual game that allows players to adopt, raise, and trade virtual cats.
The appeal of NFT
Data researched by Trading Platforms UK indicates that NFT trading volume on the five most popular NFT marketplaces over the last 30 days has hit $419.92 million. The highest daily trading volume was on February 22, 2021, at $64.20 million.
The trading volume over the last month highlights the recent surge in NFT interest that has correlated with the entire cryptocurrency market. However, the rise in the NFT marketplace trading volume is mainly driven by factors inherent to their distinct qualities, believes crypto expert and author Justinas Baltrusaitis.
According to him, “Each NFT is distinguishable, making it ‘easily verifiable’ while also preventing it from fake circulation. Basically, every NFT can be traced back to its original issuer while it is indestructible. These unique features make NFT lucrative in the field of artwork and collectibles.”
Additionally, the entry of big brands and personalities into the NFT field is likely to spur growth. Baltrusaitis predicts, “A combination of high returns and a sense of association among buyers and issuers are fueling the surge in the sector.”
Khurana also explains that non-fungible tokens do not prevent someone else from viewing the art or sports collectible or listening to the music, and at the same time grant an irrefutable right to some level of ownership and the ability to trade that right.
In other words, the advantages are NFTs provide ownership, low friction trading and the ability to share revenues with the original creator.
What Enterprises Need To Know
The NFT ecosystem is rapidly growing, with brands and celebrities endorsing the same. Already a number of user-friendly platforms have made NFTs more accessible. As Khurana says, brands are already entering the space. “NBA Top Shot taps into fan’s nostalgia for collecting digital cards.”
Mark Cuban, owner of NBA, in fact, sees a future for digital goods in the NBA. However, Khurana agrees that the challenge is creating the market, because it is still very early days.
Nonetheless, Khurana is positive that Blockchain and its associate technologies are ripe for opportunity. Businesses will eventually build the structures to support NFTs and find their clients on the decentralized web.
Already, Elon Musk’s Tesla is taking the leap. The electric car maker has acquired $1.5 billion of bitcoin in January and disclosed plans to accept the asset as payment in the near future. Other investors and enthusiasts are looking towards the ‘altcoin market to find the next big thing. With the Blockchain and Ethereum protocol cryptocurrencies well established, whether NFTs can generate sufficient interest in bitcoin and altcoins and deliver an appreciable return on investment is of course a million dollar question.
At the same, NFTs are also presenting an opportunity for the adoption of cryptocurrencies. Notably, the focus for mainstream crypto adoption has been centered around Bitcoin and other cryptocurrencies. However, NFTs tokens offer an alternative as they can capture individuals’ attention and onboard them into the blockchain space.
What lies ahead?
NFTs are gaining massive popularity and are becoming quite popular in the world of cryptocurrency. Even though the current use cases are restricted to the sale of rights in collectibles, art, music and video – and Tweets of course, its potential applications are much wider – in finance, healthcare, sport, media, real estate, retail and event management – with some even stating that these assets can touch people’s daily lives, and contribute majorly to the growth of the economy.
More recently, Taco Bell released a series of $1 NFTs to commemorate the return of their much-loved potatoes. The fast food restaurant reportedly sold out and that some buyers are reselling the NFTs for as much as $3,000. Sure, the hype cycle in full swing. But these are also a sign that NFTs are going mainstream. Or else seasoned entrepreneurs such as Mark Cuban and Jack Dorsey wouldn’t have been excited.
There are businesses to be built around NFTs. With the industry becoming more robust, we can expect NFTs to play a key role in pushing for cryptocurrency adoption in business.