There has been an explosion of interest surrounding NFTs in the past few months. Whether it’s Nyan Cat (you know, that cat gif from a decade ago) being sold, or Grimes selling $6 million dollars’ worth of digital art earlier this year, the mainstream has woken up to NFTs. Although many won’t be fully conscious of what they are, this increase in awareness looks like a good thing for this asset class.
What exactly is an NFT?
A non-fungible token (NFT) is simply a unique digital asset. Assets like Ethereum are fungible, meaning that all Ethereum is the same and completely interchangeable. A non-fungible asset is completely unique and cannot be replaced with anything else. Examples of these non-fungibles could be an exclusive trading card, a unique piece of digital art, or even an autographed tweet. Something which if you traded it for something seemingly similar, you would have something totally different.
Most NFTs run on the ETH blockchain, and contain owner ID, rich metadata, safe file links, and other identifying information that is recorded in its smart contract. This ensures that each NFT unique and unexchangeable.
How are they being used now?
Right now, the total value of the NFT market is over $250 million; with the volume of NFT transactions tripling in 2020. With this sort of growth, the volume of buyers exceeding sellers, and some incredible upside being made, it’s no surprise that use cases are expanding all the time.
While virtual worlds make up around 25% of the NFT market, digital art is catching up fast. At the high end, you have artists like Beeple (aka Mike Winklemann), who recently sold the unique digital piece Everydays: The First 5,000 Days at auction for $69m. What’s really interesting about this is speculative assets like fine art have always been the preserve of the old school wealthy. NFTs are changing that. Of the 33 active bidders, 91% were first timers at auction, and 64 % were either Millennials or Generation Z—primarily the newly minted crypto rich.
At the other end of the scale are things like unique stickers, exclusive editions of videos from popular influencers and trading cards. What’s really interesting about this end of the market is the real applications of some of these NFTs; beyond simply speculative assets.
The most compelling developments have been taking place in the gaming space. Companies like AnRKey X, whose gaming platforms merges DeFi, Esports gamification, and NFTs, have begun to add some really exciting use cases into the mix. They have had incredible success selling their unique NFTs, which are based on characters from their games, across platforms like Rarible. While these NFTs saw an incredible 13,602% increase in price on the secondary market, that’s not the whole story. What’s interesting is that these NFTs can be used as in game actions, staked, and traded within AnRKey X’s Esports team games (think two teams battling it out to be DeFi liquidity mining champions in a cyberpunk world) to massively increase their team’s APY yield.
Social media is another huge area of expansion and use cases for NFT. Most recently, DigiCol launched an NFT-focused social media platform which brings together premium publishers, brands and creators with collectors, curators and fans. The platform allows members to create, collaborate, discover and aggregate collectables and digital art from all around the NFT space.
NBA Top Shots is a really fascinating use case. This marketplace – which allows fans to purchase unique playing cards which capture a specific live moment from a particular NBA game - has been exploding. Proving that the market for meaningful collectibles is already there. It also points the way forward for ways in which brands and celebrities can reach out to their audiences in new ways.
What does the future hold for NFTs?
Digital artists, collectors and investors will continue to drive massive growth in the NFT token space as more and more mainstream names dip their toes into the water. The opportunity for decentralization of the space will allow for new, and more exciting models for how artists and collectors can interact. These new social networks will, in time, become more valuable than the traditional art sector, simply by broadening the appeal, accessibility and scalability of the assets which can be bought, sold and discovered by a much wider range of collectors.
We can definitely expect the existing application of NFTs which amplify the gaming experience to increase in prominence. Purchasing an NFT which allows you access to your favourite gamers’ environment, planet or city will become more commonplace. Indeed, simply owning digital land is already possible, with games such as Decentraland selling over $1 million in virtual land in the last year. This land grab unquestionably has the possibility to be the next URL domain rush that we saw during the Dot Com era.
Gaming companies seeking to mirror what producers such as AnRKey X are doing within the DeFi and NFT gaming space will also expect to see exponential growth. Blending unique collectibles, team games and DeFi mechanics is a growing sector. The Blockchain Game Alliance is working hard to enable much of this growth; and is definitely one to watch. How long before you are able to trade, increase your in-game performance or even mine for liquidity while you’re escaping from the police in the next Grand Theft Auto game using NFT tokens?
What’s really going to drive NFTs firmly into the mainstream however is the power it gives to celebrities and brands to connect with their audiences. The moves have already begun, with social media stars such as Logan Paul utilising NFTs to create unique Pokemon trading cards (selling for over $17k!), and fashion brands such as Gucci selling sneakers at $12 a pop. These are early days for this type of usage, but there’s already more than enough interest to warrant the hype. Imagine being able to own exclusive clothing, furniture, artwork, animals etc. from your favourite celebrities, brands and teams. This ability for these cultural brands to scale connections with fans is going to be the mainstream in the very near future.
There are countless more opportunities to utilize NFTs in completely new, fun and remarkable ways over the coming years. Instead of thinking of traditional ways of collecting, sharing, collaborating and socialising, NFTs are providing an innovative glimpse of what the future may hold.