Beneath The NFT Hype: Signals Of Real Change
If you can look past the frenzy surrounding NFTs—which becomes harder to do every day—it’s possible to spot signs of a deeper, structural-level shift. What can look like hype are actually increasingly adventurous experiments with the new power structures and relationships made possible by the unique features of NFTs. They unlock a new kind of creator empowerment, providing direct access to markets and a conduit for creators and brands to forge direct, ongoing relationships with fans. They can support us in creating contractual connections that bridge the digital and physical worlds. They can even serve to unite and align strangers in self-governed communities.
NFTs offer functionality that can add richness to the experience of creating, owning and exchanging an asset. These features will inspire entirely new product lines and categories, and change could arrive quickly. Early energy—and money—behind NFTs is being fueled by the creative and innovative power of the industries that shape our culture most: fashion, arts, music, sports, gaming and movies, to name a few.
Once the obsession of tech insiders, NFTs catapulted to broader awareness in March 2021 when Kings of Leon became one of the first bands to release an album as an NFT, Christie’s sold a JPG file for over $69 million, and Jack Dorsey sold his first tweet for nearly $3 million. By April, even home décor magazine Real Simple, known for pieces on cookie making and DIY crafts, published an article to explain “everything you need to know” about NFTs.
Today, 11% of American adults say they have purchased an NFT. A who’s who of top consumer brands have launched NFTs, from Burberry, Gucci and Jimmy Choo to Budweiser, Clinique, Coca-Cola, Disney, Mattel, McDonald’s, NBA and Taco Bell. The annual NFT event held in New York this week sold out one release of tickets in four minutes.
Changing the relationship between creator and community
In the most basic terms, an NFT is a token that represents certifiable ownership of a specific, unique digital asset. This alone is new—because digital things are easily copied, it was historically costly or even impossible to certify something digital as “the real thing,” especially when it changes hands. But because an NFT is simply code, it can be minted with special features—terms or benefits that are baked into the NFT itself. This opens a channel for a creator or a brand to establish an ongoing connection with buyers, and even guarantee a share of the future value of an asset. In another twist, the holders of an NFT series can become loose communities as well, with the NFT serving as a key to a members-only club.
Consider the case of the Bored Ape Yacht Club. A billion-dollar ecosystem sprang up seemingly overnight from this collection of 10,000 NFTs. Its token holders not only hold usage rights for their NFT, but are part of an insider tribe that receives special perks from the creators of the series (recently this included a treasure hunt and an in-person party). The value of holding this kind of NFT is layered: It gives you entrance to a unique community with special perks, but the overall success of the entire series can also increase individual resale value. While this story is sensational, it illustrates the potential for a new kind of collaborative relationship between a creator, a fan, and an extended community of fans. Some communities are taking it even further by designing self-governing structures (decentralized autonomous organizations, or DAOs) around collective ownership of NFTs.
What do NFTs give us that’s new?
NFTs offer three kinds of new, basic functionality that form the foundation for these shifts.
1) NFTs make it possible to directly and cheaply verify who really owns a digital asset.
We haven’t previously had a good way to prove that something digital is “the real thing.” While we can take a screenshot of a piece of digital art, we now have a way to know who really owns the actual, original piece. Because NFT ownership is in the public record on a blockchain, it can be verified by anyone—we no longer need to trust or rely on an institution or a single platform to verify ownership (although there are privacy-preserving networks that obscure ownership enabling “secret” NFTs). From art to concert tickets, this independent verification opens up the potential for new markets and platform disintermediation. And this can extend beyond natively digital assets—a house or a car can be represented in this way and traded. This can lead to some surprising uses of NFTs. For example, NFTs are even being incorporated into supply chains to enhance product traceability, and decentralized finance products are making it possible to use NFTs as collateral for loans.
2) We can package terms and perks into the ownership and exchange of an NFT.
NFTs are programmable, so we can incorporate information into the token itself when it is minted, such as benefits and ownership rights, or conditions that are triggered when a token is sold. This capability unlocks the potential for creators to retain some ownership stake in their work, or to establish a direct claim on royalties when it’s resold—and we are already seeing this change the economics of being a digital creator. Kings of Leon included front-row concert seats for life into six of the NFTs they created. NFTs can even be used to link digital guarantees of authenticity, or warranties, to durable products and luxury goods.
3) NFTs are increasingly portable across digital markets and spaces.
Built on blockchain technology, NFTs can break digital assets from the exclusive control of a specific marketplace or platform, and can be used across digital spaces. Because ownership is substantiated by a blockchain, people are no longer reliant on a single provider to certify that an asset is theirs; they can sell or trade it on any number of marketplaces, and creators can access global markets for their work. Over time and with enough adoption, this could prove to be disruptive to some platform business models, pressuring them to deliver more value to creators and consumers in exchange for their fees, or to become increasingly open. In practice today, not all digital spaces have this compatibility, but over time we can expect to see more interoperability, with many assets breaking free from digital silos.
NFTs are still an early technology, and it shows. You have to be crypto-savvy to buy and sell an NFT; the fees to mint an NFT can be high; scammers and con artists have found plenty of ways to scam buyers; and regulation and tax implications are unclear.
But there is something that is very clear even in this early stage: immense creativity and investment is being channeled into this space and that is sure to trigger much, much more innovation. This makes it hard to predict just where this new functionality will take us. Yet it’s not hard to imagine that NFTs could add a richness to the narrative of many kinds of assets, both digital and physical, in coming years.Source