Written by: Sophie Bergman
Digital products (NFTs)
It seems multiple NFT-related articles are published every day. Whether this be in the art, music, sport, fashion, or gaming industry. But what are NFTs? How are they being adopted in the mainstream market?
First and foremost, NFT stands for ‘non-fungible token’. In real terms, this is a unit of data that is stored on the blockchain, using distributed ledger technology (meaning the information is held across many networks instead of one centralised computer server). The tokens are usually purchased using cryptocurrency, predominantly Ethereum (otherwise known as Eth). This unique and non-interchangeable unit of data represents ownership of a particular item, for example, digital art, GIFs and audio clips. It provides a verified certificate of authenticity to the public and this can be accessed by anyone. Someone who has trained as an authenticator might be hired to verify that a piece of art is an original NFT. As with artwork, there may be thousands of copies on the internet or replicas for sale, but the original holds the most significant value. With NFT technology, the proof is in the code on the ledger.
Ultimately, the flexibility in how NFTs can be implemented and then generate profit has led to its widespread, cross-industry adoption. NFTs now hold a value in the region of $14B on the Ethereum blockchain. And in what is a tale as old as time, where there’s money, big business often follows. This means governments are playing catch up to regulate the space, implement a secure system for trading NFTs and cryptos whilst refraining from stifling innovation and dampening the adjacent public momentum. Lawyers will have to innovative, or risk being left behind. In the future, an increasing number of cryptocurrency trading platforms, hedge funds, private investors, NFT traders, artists and other businesses wanting to utilise blockchain technology will be knocking on the doors of law firms. For this reason, future expertise in cybersecurity, distributed ledger technology, decentralised applications (DApps) and licensing of NFTs may be critical. Other legal considerations include offsetting the environmental cost of the processing power that supports blockchain technology and various tax implications.
The first NFT was launched in 2014, but the technology really took off earlier this year. The pandemic accelerated the adoption of new innovations and encouraged day traders to invest whilst they stayed at home. New user-friendly trading platforms like OpenSea and Coinbase made this far more accessible. According to Business Insider, OpenSea topped $1.5b in 30-day trading volume earlier this year, in August. The NFT market is booming. From unique avatars to virtual fashion items and rare digital card packs, NFTs are often bought as an investment, either to be held long-term or quickly ‘flipped’ for an instant profit. Like with Bitcoin, many are holding the assets with the hope that the prices will rise significantly at some point in the future. In other cases, avatars are purchased as a sign of wealth or for ‘clout’. Many twitter users are seen flashing their unique Bored Ape or Crypto Punk NFTs as their icons, including none other than Jay Z (interesting side note: Square, Twitter founder and crypto-advocate Jack Dorsey’s digital payments business, recently became a majority shareholder in Tidal, Jay Z’s music streaming service).
The popularity of NFT avatars like the Bored Ape is just one example of how the trend is being rapidly adopted by the mainstream public. To demonstrate how far reaching this really is, I’ve outlined some other examples below.
• In the gaming industry, users can buy unique in-game content in the form of NFTs, and developers are leveraging this to build new, high-technology games on the blockchain. For example, using Sandbox, a virtual gaming world that runs in partnership with big names like The Smurfs, Care Bears and Snoop Dogg. Here, individuals can purchase real estate and monetize their assets using the unique $SAND token.
• Sports companies like the NBA have licensed their own NFT trading cards and collectible packs. These sell out in minutes when they ‘drop’ online.
• In the art world, earlier this month, Blue Chip auction house Sotheby’s launched its own exclusive NFT marketplace, and I’m sure you heard about Beeple’s $69M NFT sale at Christies Auction House.
• In fashion, Chanel’s Karl Lagerfeld recently minted two of his own NFTs which sold out in less than a minute.
• The Economist sold their own Alice and Wonderland themed NFT denoting jumping down the rabbit hole of the ‘weird and wonderful world of decentralised finance’, for 99.9 eth or $422,000. Part of the proceeds were gifted to the Economist Educational Charity which helps to engage young people in current affairs.
• Despite no relevant regulatory framework or guidance, even law firms are exploring the realm of NFT’s. Bristol firm Stephenson Law has created three unique NFT tokens that can be exchanged for legal advice.
So, it looks like NFT’s are here to stay and we will probably be seeing more of them in the future.
The final point I want to make on the mainstream adoption of NFTs is its use case in a new concept – the Metaverse. Facebook announced their ‘Meta’ rebrand and plans for the Metaverse in their Keynote speech just this week. Facebook acquired Oculus (a Virtual Reality hardware company) in 2014 and have been innovating ever since. The technology is genuinely unprecedented. It will have to be covered in another article because I could talk about this for days.
The Metaverse amounts to a virtual reality space whereby people can log into a 3D world through the eyes of an avatar into a digital landscape. This could make owning virtual items even more exciting as you can show them off in real time with others who are on their devices. This has huge implications for commerce, both through the sale of VR and AR headsets, glasses, games, experiences, and in-game purchases (verified by NFTs). Commerce is one thing, but the possibilities for Virtual and Augmented Reality are endless – community, work, education, sport, construction, interior design, fashion and more. Even MasterChef have released its own VR cooking game for kids!
The Metaverse could transform society. Because of this, it poses significant considerations in governance, data, and privacy. The succeeding influx of – even more – personal data into the hands of a big technology company like Facebook will probably be called into question by the public. In this virtual world, the amount of time you spend looking at a virtual advert could be monitored. And recently, Facebook filed a patent for technology that can read emotion and trigger a camera to start recording in response to certain facial expressions!
Whether its Facebook’s Meta or a different unique virtual reality experience (Apple are releasing their own VR Headset in 2022), this is an exciting time – the start of a new era of technological innovation.
The ‘Metaverse’ highlights how our new technological capabilities, otherwise known as Web3 or Web 3.0 can enable immersive, international collaboration in real time. Other than virtual reality, another branch of web3 is Decentralised Autonomous Organisations (DAO). The ease of collaborating online means groups can organise with other people globally and make rules and decisions autonomously on a Blockchain. One exciting example, which Damien Hirst (1) undoubtedly took inspiration from, is the Pixel Vault. Those lucky enough to have bought a PUNKS comic (which are currently reselling for a minimum of around 3 eth or approximately £9000 at the time of writing), were given the option to keep the NFT of their comic or burn it, in exchange for voting rights in the new decentralised Pixel Vault. This DAO allows PUNKS owners to vote on which NFTs they want to buy and sell to keep in their shared virtual gallery.
The possibilities are virtually endless (pun not intended) and non-fungible tokens could be key to allow users to authenticate and verifiably own personal avatars and items in this new digital world.