The first digital collection “Everydays. The first 5000 days” auctioned by the British auction platform Christie’s was closed in March of this year. The winning bidder obtained the “Non-Fungible Token” (NFT) for the work at a price of nearly 70 million U.S. dollars (69,346,250 U.S. dollars). The occurrence of this incident to a certain extent subverts the concept of the traditional collection market and has brought unprecedented impact to the entire art world and the alternative asset investment market.
What is NFT?
NFT means non-Fungible tokens, which are indivisible, irreplaceable, and unique. Different from ERC-20 tokens, because it is inseparable, it guarantees the uniqueness of each one from the code level. Therefore, NFT can represent physical assets and their ownership in a unique way on the blockchain. You can also understand it this way: there are no two identical snowflakes in the world, so you can use a snowflake to represent something unique in the real world, but the significant difference is that snowflakes cannot be circulated on the chain, so no one will use snowflakes to hype, although it is scarce enough in characteristics.
Use Cases
The current use cases of NFT are mainly concentrated in categories such as collectibles, artworks, games, and virtual worlds. But other categories such as sports, fashion, and real-world assets are also developing steadily.
In terms of sales volume, collectibles are currently one of the most popular applications of NFT. For instance, there is a market where NFT technology is used to create tokenized versions of celebrity athletes and celebrities. The fantasy football game Sorare allows players to collect “limited edition digital collectibles” of their favorite athletes from 100 football clubs, which has successfully attracted the attention of football fans. And now, this market is booming.
The application of NFT in the gaming industry is also very extraordinary. Gamers are the perfect target market for NFT because they are already familiar with the concept of the virtual world and currency. But unlike traditional games, NFT allows players to have real ownership of their digital assets, and thus creates a way for players to make money by creating and developing in-game assets, which gradually forms a new economic model. Players can learn encryption knowledge by playing games without taking any financial risks, and more importantly, they can earn ETH and NFT. A player in developing countries can earn as much as their monthly incomes by just playing games like Axie Infinity and Cryptopick.
For digital artists, one of the biggest challenges is to protect their works from copyright infringement. The emergence of NFT technology provides an excellent solution to this problem because they provide proof of ownership and authenticity. Starting in 2020, as more and more museums and galleries are forced to close due to the pandemic, many artists have now turned to NFT and online exhibition halls.
Challenge
Currently, there is a problem with the NFT issued on the two larger public chains in the NFT ecosystem, Ethereum and Flow. Although the cost of the NFT issued based on the public blockchain networks is almost zero and NFT itself cannot be modified, it also makes the cost of deceit negligible at the same time. Even though some NFT issuance platforms have pre-review, follow-up reporting, and other preventive measures, counterfeiters are still hard to completely eliminated.
Prospect
At present, the application spectrum of NFT is still relatively narrow, concentrated in the niche circles of games, encrypted artworks, and card collections. But I think the possibilities and potential of NFT are limitless. One of the obstacles to its large-scale application might be the lack of extensive education on blockchain technology and the world of encryption. This can be partially ascribed to the geek, rigid and technology-oriented natures of NFT and blockchain technology. Hence, to increase the acceptance rate of the general public, it is fundamentally necessary to further simplify it and make it easy to use. Besides, if the increasing interests from the capital market can greatly enforce the market supervision on NFT trading in the future, the liquidity of NFT in the global market will be substantially increased. At that time, I believe almost everything can be turned into NFTs, creating more interesting and exciting use cases.
Resources:
Beeple’s masterwork the first purely digital artwork offered at Christie’s. (2021, March11). CHRISTIE’S. https://www.christies.com/features/Monumental-collage-by-Beeple-is-first-purely-digital-artwork-NFT-to-come-to-auction-11510-7.aspx
Clark, M. (2021, August 19). NFTs, explained: what they are, and why they’re suddenly worth millions. The Verge. https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
Hi Yuzhen!
Very interesting blog written about the application of NFT’s. It is really amazing to see that people are willing to spend so much money on items they cannot physically touch. I am also fascinated by the fact that people are spending that amount of money just to prove that they are the owner of that NFT. The NFT can still be viewed and used by others, the only difference is that they are not the owner of it.
In your blog you mention that “For digital artists, one of the biggest challenges is to protect their works from copyright infringement. The emergence of NFT technology provides an excellent solution to this problem because they provide proof of ownership and authenticity.”, but currently one of the biggest problems of NFT’s is that some people create an NFT of somebody else’s artwork. How can we decide who is the original author of, for instance, a meme created many years ago?
Thank you for the insightful post! It really made me think more about the usage of NFT’s.