Non-Fungible Tokens (NFTs) are the new hype in the digital world. These tokens are digital representations of value created using blockchain technology. They are 100% virtual and one of a kind since they have unique identification codes and metadata that differentiate them from one another. Similar to other digital assets linked to the blockchain technology such as cryptocurrencies, they create unalterable records of information and transactions, with the possibility of generating self-executing contracts known as smart contracts. These contracts allow traceability of transactions with automatic execution.
How important are NFTs?
In the last year, NFTs were all over the news for their million-dollar sales with a record of $91.8 million dollars for The Merge, by Pak. This digital artwork is the most expensive sold so far, fractioned to 321,686 pieces, and distributed to 28,983 buyers. Most NFTs are minted on the ETH blockchain, an open-source platform which is used to programme smart contracts and can be almost anything from music, art, videos, or documents, among others. Currently, the NFT market is mostly based on the purchase and collection of digital art, either by independent or recognised creators who are also looking to enter this new market.
In addition, NFTs can be linked with the virtual world, as they can play an important role in the construction of the new digital ecosystems. Platforms like OpenSea, The Sandbox, or even Meta (the former Facebook), have become large NFT marketplaces for digital art and collectibles in their metaverse.
What is the impact on the economy?
These new ways of commercialisation are open to content, digital and technological creators as a start and suggest new approaches to managing intellectual property. But the potential of these tokens is not limited to the artistic field. NFTs have made it possible to create new business models and social organisations, creating opportunities in the financial sector. They can act as digital receipts which are tied to bills, certificates of origin or any other type of documents. In practice, NFTs are sold as a way to protect digital art and copyright, as it always indicates who the author is, guaranteeing them a percentage of revenue for every transaction made, what is also known as, royalties. It also indicates who the current owner which means traceability of ownership at every step.
In any business strategy there are huge communication and marketing costs, especially for online investment and sales staff. However, crypto has grown in the NFT ecosystem to a market capitalization of trillions of dollars by exploiting their growth in popularity among social media (especially Twitter), influential figures and limited offers for auction.
Conclusion
The result is that there is a huge concentration of power in the Internet economy. There are several reasons why people are investing in NFTs. Some investors believe it’s a combination of factors, as NFTs can be seen as a way to store value by gaining the rights of a unique token. Other reasons might be that they feel a connection with the artist, or that they genuinely liked the design of the digital piece. At the end of the day, the belief is that NFTs will increase in value and scope and owners will profit in return. On the other hand, some experts fear that the NFT market is becoming a risky ground for speculation by buying something that might not have value. Some might believe that the objective of NFTs is wild speculation and profitability at any price.
There are a number of challenges ahead in which authors, publishers, lawyers and technical blockchain experts have to work hand in hand to balance the interests at stake, such as the revolution in the art and gaming industries and the legal procedures surrounding this new technology. This is only the beginning for the NFT market, and it will undoubtedly become more common as cryptocurrencies and their possibilities become established in different scenarios, beyond those we already know today.
