NFTs have enjoyed considerable press and attention this year, overtaking DeFi as the hottest trend in crypto. However, with the explosive levels of growth within the sector, NFTs naturally invited skepticism from within crypto and from outside. When a single piece of digital artwork sells for $69 million via Christie’s, it’s easy to see why mainstream publications brand the market ‘crazy’. In regards to the wholly speculative side of the market, they may even be right.
Although, it may be that much of the criticism of non-fungible tokens comes from people whose minds are steeped in the old-fashioned paradigm of centralization and inability to comprehend true digital ownership. When you really start to think about decentralization and how decentralized technology works, NFTs make a lot more sense.
Decentralization is concerned with ways to accomplish what was previously handled by intermediaries — everything from Bitcoin, to smart contracts, to DeFi, attests to this. NFTs make possible with decentralization what was once only possible with centralization, and so, like all technological innovations before them, the rise of NFTs becomes easy to predict in hindsight.
Why Art?
Art and its collectibility is the original MVP of NFTs. The two emerged almost in tandem and coalesced in such a way that separating them is difficult. The headline-grabbing aspects of NFTs have often been connected to artwork, from the Christie’s auction to the rise of CryptoPunks. Such is the demand for NFT artwork, that specialist galleries such as NFTrade.com have sprung up to service this growing market of creators, buyers, sellers, and traders.
Moving beyond the hype cycle, there are good reasons for art to pair up with NFT technology. One particular use case that may bear fruit for the art world is that of provenance, confirming the origin and authenticity of art. In the physical art world, some estimate that over 50% of the art in circulation is fake. NFTs can demonstrate proof of ownership, making convincing forgeries impossible, although no amount of digital protection can help buyers who don’t bother checking before purchasing.
Even as the market expands, NFTs and art/collectibles will continue to move hand in hand; it is hard to separate the two. As one technology correspondent explained, “the simplest way to think about NFTs is as collectibles”, and while it is the simplest, the truth of this idea will continue to expand over time. Recent research from Protos has demonstrated that the demand for NFT collectibles is now being outstripped by other market segments.
As Protos explains: “NFTs linked to the so-called “metaverse” — like digital real estate and other virtual artifacts — are actually outselling tokens linked to crypto-art.”
Further Use Cases
For some time, NFTs have been extending their reach beyond the art world. NFTs are now moving digital and decentralized tokens beyond cryptocurrencies, demonstrating a wide variety of potential applications. Provenance is one, proof of ownership — and proof of identity is another. The uniqueness and non-fungibility of NFTs can be used in multiple sectors, from real estate to finance to logistics, and many more.
The music industry is another early mover in the world of non-fungible tokens. A number of artists have now released music as NFTs, and have enjoyed considerable success doing so. 3LAU is one of the early pioneers of music and non-fungible tokens. In February, the music producer sold $11.7 million of music NFTs, kicking off a trend that would then witness Grimes and other artists follow in his footsteps.
One of the great things about NFTs is that artists can design them in such a way so that resales on the secondary market can also generate profits for themselves, introducing the concept of perpetual royalties. An NFT can be coded so that each time the NFT changes hands in a transaction, the original creator receives a percentage of the sale.
There are many ways in which NFTs can be used and applied with great utility within the decentralized world and elsewhere, and with this in mind, they are the next logical stage of blockchain development. What has come so far is merely a prologue, the book of NFTs has just begun to be written.
Image by Gerd Altmann from Pixabay
