NFTs are booming, but they’re more than an artistic fad (and fashion)
Sotheby’s became one of the latest art establishment names to delve into non-fungible tokens – “NFT” – thanks to its collaboration with anonymous digital artist Pak and the NFT Marketplace Nifty Gateway. The auction house has sold The Fungible Collection, a “new digital art collection redefining our understanding of value,” for over $ 17 million, with some pieces, such as “The Switch,” a 3D build monochrome which is going to be modified by the artist at some point in the future, receiving offers well over $ 1 million.
For the uninitiated, NFTs are tokenized versions of assets that can be traded on a blockchain, the digital ledger technology behind cryptocurrencies such as Bitcoin and Ethereum. While one bitcoin is directly interchangeable with another, meaning the currency is fungible, NFTs are the opposite, meaning that the underlying assets are unique in some way and therefore cannot be traded. Alike. This uniqueness – and enduring market hype – is what allowed Christie’s to sell digital artist Beeple’s NFT “Everydays” in March for $ 68 million. For those who don’t have that kind of money, NFTs are also used to trade collectibles like baseball cards, computer games, and sneakers online only through Gucci.
The excitement around NFTs fuels a narrative similar to other recent price spikes, such as GameStop and Dogecoin, in that they are speculative bubbles. Look no further than celebrities like musician Grimes and YouTube star Logan Paul, who have released their own flagship NFTs to ride the wave. But speculation may be the name of the game, as even Vignesh Sundaresan, the entrepreneur who bought Beeple’s record-breaking artwork, says he sees investing in NFTs as “huge risk” and ” even crazier than investing in cryptography ”.
However, history tells us to be careful not to dismiss NFTs as a passing fad, as the importance of technological innovations often becomes clearer once the hype wears off. Many commentators have dismissed the influx of tech companies around the dot-com bubble of the late 1990s and the first wave of mass cryptocurrency enthusiasm in 2017, only to turn out to be totally wrong when Amazon and Bitcoin are reappeared. NFTs themselves are actually well below their highs, with the average price down 70% since February. Perhaps this is less about bursting a bubble and more about “wiping out” gadget tokens now that the initial hype has started to die down.
This phenomenon is well captured in the cycle of hype for US consulting firm Gartner, which illustrates the typical progression of a new technology. With NFTs, we’re probably coming out of the “peak of inflated expectations” on a journey to the same “productivity plateau” that Amazon hit long ago. This ties in with what Austrian economist Joseph Schumpeter said about why capitalism works. Schumpeter saw capitalism as a relentless conversion from the old to the new, as the newer and more innovative companies replaced those that came before – he called this “creative destruction”. With this in mind, NFTs are the new entrants challenging the way we perceive and record asset ownership. And the tension between innovation and incumbent status also contributes to the skepticism that still surrounds these new technologies.
What happens next
NFTs create opportunities for new business models that did not exist before. Artists can attach stipulations to an NFT – through a smart contract – which guarantees that they get a portion of the proceeds every time it is resold, meaning they benefit if their work takes any damage. the value. Granted, football teams have used similar contract terms for some time when selling on players, but NFTs remove the need to track the progress of an asset and apply those rights to every sale.
New artistic platforms, such as Niio Art, are able to demonstrate in a very simple way that they own digital works. When customers borrow or purchase art on the platform, they can view it on a screen knowing that there is no copyright or originality issue because the NFT and the blockchain guarantee the authenticity of the property. Still, NFTs offer musicians the potential to provide enhanced media and special benefits to their fans. And with sports memorabilia, between 50-80% of items are considered fake. Linking these items to NFTs with a clear transaction history to the creator could help overcome this counterfeit problem.
Beyond these areas, the potential of NFTs goes even further as they modify the rules of ownership to some extent. Transactions in which ownership of something changes hands have typically depended on layers of middlemen to build trust in the transaction, exchange contracts, and ensure that the money changes hands. None of this will be necessary in the future. Transactions recorded on blockchains are reliable because the information cannot be changed. Smart contracts can be used in place of lawyers and escrow accounts to automatically ensure that money and assets change hands and both parties honor their agreements. NFTs convert assets into tokens so they can move around in this system. This has the potential to completely transform markets like real estate and vehicles, for example.
NFTs could also be part of the solution to address issues such as land ownership. Only 30 percent of the world’s population have legally registered rights to their land and property. Those without clearly defined rights find it much more difficult to access finance and credit. Additionally, if more of our life is spent in virtual worlds in the future, the things we buy there will likely also be bought and sold as NFTs, which could prove to be a boon for businesses. of luxury goods.
There will be many other developments in this decentralized economy that have not yet been imagined. What we can say is that it will be a much more transparent and direct type of market than what we are used to. Those who think they see a flash in the pan are unlikely to be prepared when it arrives.
James bowden is a Senior Lecturer in Financial Technology at the University of Strathclyde. Edward thomas is Jones Professor of Economics at Bangor University. (This article was originally published by The Conversation)