Is the NFT Revolution a Bubble?
Most of the articles in Reflection Attitude were written between one and thirty years ago. The following article was written just before the book was published. The world of crypto, DAOs, DeFi, FinTech, NFTs, and metaverse is changing rapidly. I have commented on each of these in this chapter but, because of the explosion of activity with NFTs, I felt compelled to write something new. NFT technology is complicated, but I hope this article will break it down into something which makes sense.
Written: July 2022
NFTs are digital representations of assets including art, music, and many other things. The National Basketball Association setup a platform called NBA Top Shot to sell digital art. The platform sold a clip of Lebron James’ formidable dunk for $ 208,000.[i] Musician Lindsay Lohan sold a photo NFT of herself for $50,000 and donated the proceeds to charity.[ii] The most amazing NFT sale was from Michael Joseph Winkelmann, known professionally as Beeple, an American digital artist, graphic designer, and animator. Beeple gave a boost to the crypto art movement by selling an NFT of his work titled “The First 5000 Days” for $69.3 million, the highest price ever achieved by a digital artist.[iii] I think it is reasonable to say something significant is going on here. I will start by explaining what an NFT is.
NFT stands for non-fungible token. First, an NFT is digital, nothing physical. Fungible is another word for interchangeable. If I give you a $5 bill, it is worth $5. You can give it to someone else, save it, or spend it. It is still $5. Non-fungible means something is not interchangeable. If I give you a piece of art I paid $100 for, it may be worth more or less than $100 if you sell it. A token is a representation of something. Casino chips are cheap pieces of plastic, but the different colored chips have different values as assigned by the casino.
NFTs are unique. Each one includes information about it such as date created, person who created it, how much you paid for it, etc. The NFT is stored on a blockchain. A blockchain is a database which resides on many computers, for some blockchains it is millions of computers, all connected by the Internet. Each NFT is encrypted (scrambled) and given a unique ID. Once a majority of the computers agree the NFT was properly created according to technology standards, the NFT is dropped (stored) on the blockchain. Once it is on the blockchain, it is there forever. The NFT is immutable, a fancy word which means it cannot be altered.
When an artist creates a digital piece of art and wants to convert it to an NFT, they can do so at one of the digital marketplaces on the Internet such as OpenSea, Nifty Gateway, Coinbase, or crypto.com. The artist can then promote their new work of art on social media and the marketplace. They can choose to sell it for a fixed price or initiate an auction to sell to the highest bidder. No longer are galleries, auctioneers, and investors in control of the art market. Digital artists can go directly to consumers.
A person could look at an NFT on their phone or computer and take a screen shot of it. Now they have the piece of art for free, but it is not the real thing. A person could also visit the Vatican Library or the Metropolitan Museum of Art online and take screenshots. The differentiator is the NFT is authenticated, meaning the artist is real and the edition of the piece of art is real. The NFT has the date created and the date placed on the blockchain.
The NFT revolution saw global sales surge to $17.6 billion in 2021, a 21,000% growth over 2020.[iv] Venture capitalists continue to pour money into NFT and related startups. The bubble may break but I do not think so.
The reason I am bullish about NFTs is the potential to modernize the way many types of assets are managed. In addition to art, an NFTs could represent games, music, avatars in the metaverse, mortgages, home and auto titles, birth certificates, marriage certificates, death certificates, and even votes. All these things could be NFTs immutably recorded on a blockchain. The way many assets are created and tracked is by paper. Paper trails often get lost and being able to prove certain things happened often requires paying lawyers. Finding a record of missing mortgages can take more than a year.
NFTs and all aspects of crypto have encountered startup problems with technology and legal matters including fraud and insider trading. Regulation is sorely needed but is slow in coming. It is not being resisted by tech companies, in fact they are begging for it. In the meantime, there will be business failures and ripped off consumers. One must be careful but not lose sight of the big picture and the long term. A digital world is ahead of us.
[i] Crypto Dukedom, The NFT Revolution – Crypto Art Edition (Amazon, 2021).
[iv] Ibukun Ogundare, “First Half 2022 Sees Highest NFT and Gamefi M&a Deals since 2013,” Coinspeaker (2022), https://www.coinspeaker.com/first-half-2022-nft-gamefi-ma/