NFTs: Why Now?
A breakdown of why the current hype cycle, how NFTs are going to affect your favorite industries, and a really hard sell for our space pigeon art.
This isn’t the first NFT article you’ve ever seen and it won’t be the last, but it’s a quick hit list of how a few of our favorite industries are riding the wave. TLDR: If you’re here to buy our space pigeon NFT, just click here.
What is an NFT?
A non-fungible token (NFT) is a unit of data on a digital ledger called a blockchain, where each NFT can represent a unique digital item, meaning they are not interchangeable.
NFTs can represent a physical good or digital good such as a video, audio, artwork, items inside video games, documents, and various other types of creative work but it is NOT the work itself.
NFTs can represent a physical good or digital good but it is NOT the work itself.
Think of it like the VIN number on your car or the serial number on your phone. They represent that exact car or that individual phone but they are not the car or the phone themselves.
In the case of an NFT, the person who owns that asset may not have it in their possession. The owner simply has a record and hash code proving that they ARE the owner of the asset. Someone can look at your car and maybe even drive it around but only you can PROVE you own that car. The whole concept challenges the idea of ownership entirely, which is noble. But strange.
Wait, what’s Blockchain again?
A blockchain is like a digital ledger. It keeps a list of transactions that is duplicated and distributed across the large network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and each time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. Each transaction has an immutable cryptographic signature — its hash.
Why are NFTs so big right now?
Maybe you’re asking:” Why didn’t we hear about NFTs in 2017 when blockchain was blowing up our feeds?” Well, we did.
There was a big stink about crypto kitties (a blockchain game that asks users to “breed” cute and fluffy cats), but technically NFTs have been around since 2015, since that’s when unique tokens were created for the Ethereum blockchain. As for the new interest:
- Crypto assets are simply more widely accepted now.
- NFT Marketplaces now exist, ie. OpenSea, SuperRare, Nifty Gateway (a Winkelvoss platform), and many more.
- Ethereum infrastructure developments (Ethereum is the most actively used blockchain and second-largest cryptocurrency by market capitalization, after Bitcoin. Ether is the native cryptocurrency of that platform.)
- The current hype cycle: Where are we in the chart? Can’t be certain but I’m pretty sure it’ll be a lot harder to sell farts this time next year.
Oh, and according to NFT sales surged to $10.7 billion in the third quarter of 2021, up more than eightfold from the previous quarter, according to data from market tracker DappRadar (Reuters).
So yeah, people are into it.
NFT sales surged to $10.7 billion in the third quarter of 2021, up more than eightfold from the previous quarter.
But is there any actual value in an NFT?
Well, we don’t know. But perceived value is powerful, too. Here are some real-world use examples where users are either already buying in big time or speculators are sure hoping they will.
Collectibles
Who better to get fired up than the uber-passionate fan bases? Collectors are now bringing their communities to blockchain where all their favorite “traditional” collector items — trading cards, coins, stamps, you name it — are now available.
A more non-traditional option? Collecting a big play or moment from your favorite sports game, which is what Top Shots is promising its users—“a piece of ownership over the action that happens on court.”
Gaming / Virtual Worlds
This is a fun one because it allows players to have more ownership of their digital assets inside their games, plus it’s launching an entirely new economy of gamer trading since players now can earn real money by building and developing quest-ready weapons and wardrobes. Virtual worlds alone account for around 20% of the total NFT market (source: NonFungible.com).
Virtual worlds alone account for around 20% of the total NFT market.
Art
This is a big one. Selling art as NFT can bake in continuous revenue for the creator via a smart contract and can improve and streamline artists’ revenue by connecting them directly to consumers.
The one you’ve undoubtedly read about is Beeple’s NFT of a collection of his work selling for for $69 million at Christie’s.
Real-world assets and documentation
If you can tokenize a tweet (Jack Dorsey sold the “first” one for $2.9M), or even an article about blockchain itself, then any asset can be an NFT. Read: Qualifications, licenses, medical histories, birth certificates, marriage certificates, vaccine confirmations. We’re not there yet, but the benefits do seem promising.
Real estate
Typically, land titles and property registration for record-keeping requires a lot of heavy-duty paperwork and bureaucracy. But NFTs can digitize and revolutionize that entire process. Imagine a property that’s turned into blockchain tokens and divided and traded easily in the marketplace? We might be able to cut out all sorts of real estate middlemen—from brokers and agents to lawyers and banks. Plus, no more property disputes.
We might be able to cut out all sorts of real estate middlemen — from brokers and agents to lawyers and banks.
The FUD of NFTs: Fear, Uncertainty, and Doubt
Environmental Impact
Any blockchain operation requires an ever-increasing quantity of computing power and therefore energy. Like, we’re talking serious fossil fuels. One analysis from Cambridge University said that mining for Bitcoin consumed more energy than the entire country of Argentina. And mining Ethereum is comparable to the amount of energy used by Libya.
Mining Ethereum is comparable to the amount of energy used by Libya.
So will cryptocurrencies doom us all like an unleashed Skynet? Maybe not.
Most cryptocurrencies rely on a “proof of work” system to process transactions and make new coins, but some currencies are moving to a “proof of stake” system. They both fulfill the two basic roles of a cryptocurrency system: to incentivize the community to maintain the blockchain and to discourage bad actors.
But where proof-of-work is energy intensive (“miners” need to compete for work with ever-larger/faster computers), proof-of-stake is capital intensive (“forgers” are chosen at random, put up their money, and wait their turn for work.)
For a deeper dive, read Binance Academy’s explainer of Proof of Stake here.
The Music Business
We are extremely hopeful for the music industry, but because of our insider relationship (thanks to Good Splits - our music royalty calculator) we have to admit, it’s going to be difficult to make this leap. But artists are still trying.
Kings of Leon released an album as an NFT this year (they reportedly made $2 million in sales) and electronic musician Jacques Greene sold an audio loop and GIF for 13ETH ($16,037.32 USD).
Sales of an item are great, but what’s really exciting is the concept of royalties through NFTs. The problem is, not all NFTs guarantee creator percentages (which would allow the original artist to take a cut of any future sales of their item), and not all of them are universal. Plus, if you create and share something one one platform, those methods might not be reproducible on secondary markets.
Here’s a deep dive on NFTs for music by Consequence of Sound and another from ConsesSys (who was selected last year by the Mechanical Licensing Collective (MLC) to modernize royalties data and payments in the coming years).
We love watching the music business grow and evolve and agree that NFTs are a good thing, if even as a disruptor, to remind the few overlords in charge (read: labels) that they are losing ground back to the artists if not today, then soon. Very soon.
NFTs can remind the few overlords in charge (read: labels) that they are losing ground back to the artists if not today, then soon.
The Risks
It’s not all cute kitties and artist equity, though. NFTs, thanks to their financial motives, are subject to the same human failings as every other product in the sector.
Some products, obviously are just not worth the hype. Some groups ask for investment in a project that never actually launches. (Read more: 4 NFT Projects Took Investors’ Money and Disappeared in One Day). There’s also no good way to track who really owns the rights to public items.
Take for instance, the Star Registry. Star Registries started in the late 70s and early 80s and are formatted similar to an NFT. They essentially offer consumers a piece of paper that says you own a star (which, according to this Little Prince meme, we understand doesn’t mean much). Naturally, a bunch of competing registries all popped up and registered the same stars, which essentially evolved into a pretty straightforward money-making scam. (It didn’t keep us from naming a star, but still.)
The difference with NFTs on ETH is the blockchain, which is meant to add transparency and trust. It all comes down to how much value a person gives to the core fundamentals of the space: decentralization and transparency. (And why someone might be willing to pay hundreds of dollars to mint an NFT on the ETH network versus name a star that 100 other people have already named.)
NFTs, of course, also have the potential to be used for money laundering, or “coin laundering” funds from illicit activities. Not that we would endorse it, but you could imagine someone might buy an NFT for $1,000, sell it to themselves on a different marketplace for $10,000, and then sell it to themselves a third time on a third platform for $1,000. (Read more: Are NFTs being used for money laundering? Yes, they are, claims Mr. Whale.)
So yeah. NFTs can be a dangerous game. Which is why we made our own.
Our Coalesce NFT
Most importantly, we made our own NFT art. For the fun. For the challenge. For the hell of it. Hey, if history tells us anything, you just never know. Snag your Coffee-Fueled Space Pigeon here.
Want to talk NFTs, music royalty tools, blockchain platforms, or make some outlandish tech predictions? Coalesce is here for all of it. Find us at hello@coalesce.nyc.
