Digital collectibles & NFTs

Imagine for a minute that you owned something, but the thing that you own had no yield, you did not control it, others had access to it, they could share it, use it, copy it, and that there was an infinite number of exact replicas of the thing you owned.

If you’re asking the question: ‘How does that amount to ownership?’ – you’re not alone. Welcome to the world of NFTs, or non-fungible tokens.

NFTs are a closely related cousin to cryptocurrency, and as far as booming asset classes go, NFTs are the star of early 2021.

NFT - WTF?

Non-fungible tokens have been used to sell ownership of digital goods as part of the exploratory and natural evolution within the crypto economy.

NFTs allow buyers to purchase and claim ‘ownership’ of a digital good. At this stage, the good is usually an image, a GIF, animations, or even a piece of video footage. The ownership element takes the form of a unique digital token, which lives on a blockchain as proof of ownership.

Unlike a traditional cryptocurrency, these are not fungible – in that they cannot be broken into pieces and partially sold.

The primary purpose at this point has been in support of the artists themselves who trade in digital art.

Now for the weird bit...

The only thing the buyer truly owns with NFTs is the claim to ownership, which is the token itself, but not the actual asset. Buyers do not have exclusive use or control of the asset (yet, more on that later).

Like all digital files, they can be shared around the internet, copied an infinite number of times, and used by others without permission. Much the same as we’ve all been doing with digital files ever since we started living our lives on the web.

At this point, the buyers of these NFTs usually just get bragging rights and the ability to resell later – a speculative asset play. It’s very crypto! 

Serious money

As is often the case in new economic realms, artists have led the way. Some artists are selling their NFTs for serious money.

A new version of the ‘internet famous’ Nyan Cat fetched the original artist Chris Torres US$590,000 (which was 300 Ether at the time of sale).

The Artist Grimes (also the partner of Elon Musk) has sold art worth more than US$6 million this month. This included some individual pieces for nearly $400,000, as well as pieces for which up to 700 NFTs were sold of the exact same item – yes, you read that right – over 700 claims of ownership – against the same copy-able digital asset. Let’s just say it is a very good result for Grimes. While the digital artist Beeple sold $3.5 million worth of digital art in 2020.

If you’re like me, memories of infamous pop artist Andy Warhol might be springing to mind. While he is now well established as one of the great artists of the 20^th century, much of his later work faced derision, mostly because many of his pieces were replicas, made in multitudes, and lacked exclusivity. However, today, his Brillo Boxes, of which he made 105, fetch over $3 million per piece. It was hard to see back then, where the value would be. It seems like this current incarnation in digital pop culture might also surprise.

Duplication & the internet

Until now, creating value on the internet has largely been a game of duplication. The more things multiply, the more value that flows back to the creators.

More readers, more video views, more likes, more comments often translated into money, albeit in a non-direct related realm. This makes sense, the internet is essentially a giant digital copying machine.

It has a natural bias built into it, the physics of how it works to want to copy everything. The key problem of course is that the internet is not very good at managing and maintaining scarcity.

The only form of scarcity it has created is attention itself. It’s solving this problem that I think NFTs can evolve into something very interesting.

Evolution of copyright

NFTs present an interesting future for much more than art, but potentially all forms of digital creative work. The potential for smart contracts around the ownership of digital assets cannot be understated.

Imagine having the rights to the NFT of a song, an image, or even a sporting highlight for which royalties could be paid to you as its rightful owner, verifiable on a blockchain. It could change the way monetisation of the internet works from a battle of attention and advertising dollars, to actually rewarding the creators of the digital content we consume.

In addition, artists could be paid royalties in perpetuity for each subsequent sale down the chain of ownership. This is something NFT platforms such as Nifty Gateway already do.

Speaking of platforms, while the technology which enables the Smart contracts purported above are not yet present, it’s highly possible this is the next step which could present an investment opportunity in yet another platform which has digital nautural monopoly potential.

And while the early versions of this asset class and related pricing might feel like a bubble, it might also lead us to a different type of business model across the entire internet which isn’t focused on privacy invasions and surveillance capitalism, heaven knows we need it.