Time to cut through the NFT hype
What do racehorses, a LeBron James’ slam dunk, a virtual Eiffel Tower, and a digital artwork have in common? They’ve all been bought and sold this year as “non-fungible tokens” (NFTs for short).
The other thing that they share is headlines. Lots of them. So much so that some 81% of Americans are aware of NFTs, as their fame spreads from the depths of the financial supplements to the top of the front page.
Here we help you understand NFTs, filter out the hype, and focus on the sectors where we believe this latest addition to the blockchain universe offers genuine business utility.
So what exactly are NFTs?
NFTs are a kind of encrypted digital certificate that can be attached to any piece of digital content to establish ownership, for example, a digital artwork or a YouTube video.
Here’s what you need to know:
- Anything that is ‘fungible’ implies that the asset could be replaced by another identical item
- Non-fungible means something is unique, and cannot be interchangeable under any circumstances
- A token (with regard to the blockchain) is a digital, easily verifiable asset, built and stored on a blockchain
- NFTs are NOT a cryptocurrency. A cryptocurrency such as bitcoin is fungible - if you trade one bitcoin for another - you’ll have the same value. A one-of-a-kind trading card, for example, is not fungible
- Most NFT tokens are built using one of two token standards (ERC-721 and ERC-1155 standards). These are a form of blueprint, created by the Ethereum platform, that enables developers to easily deploy NFTs and ensure that they are compatible with the broader ecosystem.
Another area of confusion is ownership and copyright. Put it another way, how do you distinguish between the token and the digital object to which it binds?
One way is to use systems that allow information to be retrieved based on content, rather than location. These are called content addressable systems.
Take the example of Jack Dorsey’s first-ever Tweet which was recently sold for $2.9m. What did the buyer actually acquire?
In this example, the content addressable system is based on the InterPlanetary File System (IPFS). This enables an NFT to bind with a unique URL such that you own the resource, but the copy of the image file is a different resource.
In the case of Jack Dorsey’s first-ever tweet NFT: the IPFS URL that is bound to the token is worth $2.9M and the URL bound to the copy of the tweet is essentially worth $0. So it is the token “minted” by Jack Dorsey that makes the JPEG screenshot of the tweet worth $2.9M, not the copy of the JPEG itself.
We’ve established that blockchain is here to stay, but what about NFTs? Are they just a fad?
They’ve certainly cut through to the general public with a recent Adweek/Harris poll finding that 81% of Americans are “aware” of NFTs. The excitement is also reflected in a recent spike in Google searches.
But all the signs are that we are at that point in a classic investment bubble where speculative demand, rather than intrinsic worth, fuels inflated prices. Here are some numbers:
- Digital artist Beeple famously sold a piece for $69M at Christie’s
- Jack Dorsey’s first ever tweet was turned into an NFT and sold for $2.9M
- Cryptopunks #7804 (number 7804 of a series of 8-bit characters) was bought for $2139 and sold for $7.67M in 2021
Another sign that NFTs are yet to mature into a genuinely useful business technology is the large role in the market played by creatives and experimenters, who use these tokens for digital art, fashion, sports and gaming. A bizarre example of this is ZED RUN, an NFT horse racing platform where owners can win prize money paid out directly to them in Ethereum.
But just because we are witnessing a bubble, doesn’t mean that NFTs won’t have a serious role to play in the future. It is estimated that there is around $78 Trillion in non-bankable assets globally. These are assets that have sentimental, emotional, or speculative value spanning fine wine, art, rare books and collectibles. NFTs may hold the key to unlocking this liquidity by bridging these assets to the blockchain and allowing for a simple, provable, transfer of ownership.
Businesses should also keep in mind that the processes behind NFTs are energy-intensive and could pose a reputational risk at a time when the environment and climate change increasingly shape client decisions. Another is that the mainstream financial institutions and the regulators are still catching up. Future regulations will inevitably impact the value of NFTs and their usage.
So Now What?
What does this mean for your business? Now isn’t the time to buy a virtual Eiffel Tower, or a unique Cristiano Ronaldo collectible card.
But there are promising NFT use cases already in the works:
- IBREA - International Blockchain Real Estate Association is a research organization that provides objective research and analysis on the development and practical use cases of the convergence of Blockchain technologies, tokenisation, and the Real Estate Industry. In principle, NFT tokens would signify proof-of-sale and ownership of property.
- Shivom - Shivom, the global marketplace for genomic and healthcare data that operates with the OMX token, is rolling out the world’s first NFT marketplace for genomic data. This will allow the anonymous sale of your DNA and health data as a non-fungible token for the greater good, supporting research on complex diseases.
- IoTeX - IoTeX provides a “blockchain-within-a-blockchain” service working to secure the “internet of things”. Right now, IoTeX is working with HealthBlocks, a private health-care service based in Amsterdam that allows users to own, analyze and manage their health data.
The following sectors also show early potential. So if your business involves the following, you should be tracking developments closely.
- Certifications and licenses - The usual process of record checking and verification is time-consuming. Storing this data using NFTs removes the need for manual checking. An example of this is Zastrin courses requiring you to own a license token to access courses and other educational content.
- Real estate - Tokenisation enables title and ownership to be stored in a format that is constantly verified. There is already an online challenge where participants compete to be the first to tokenise a piece of real estate property.
- Service offerings Healthcare services could be offered as NFTs. Attributes could include the service description, provider, cost, redemption expiration date.
At Upstart we can help you understand how NFTs, blockchain and decentralised finance can be relevant to your business, its partners and your customers.Get in touch with us today.
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