1. They’ve been Around For a While
Back in 2014, when the creators of the first NFT gave a live demonstration of their “monetised graphics” system at the New Museum in New York City, their audience laughed. But the world has come a long way since its earliest non fungible token, Quantum, a psychedelic pixelated octagon minted in May 2014 on the Namecoin blockchain. NFT sales volume totalled $24.9 billion in 2021, up from $94.9 million in 2020.
2. They create “scarcity” in a digital world
Whereas physical money and cryptocurrencies are fungible, i.e., mutually interchangeable because they’re equal in value — one dollar is worth another dollar, one Bitcoin is worth another, each NFT has a digital signature that makes it unique (hence, non-fungible or non-interchangeable, like a precious stone, or a collector’s baseball card).
This non-fungibility makes it possible to create scarcity for digital creations — images, videos, gifs — that are otherwise infinite in supply.
Contrary to popular misconception, most NFT artwork isn’t stored on the blockchain. The Ethyreum blockchain isn’t designed for image storage — a pretty low res 500kb jpeg for example, would cost ~$20,000 to store. And NFT art is easy to duplicate — for instance, the actual artwork of Mike Winklemann aka Beeple’s $69.3 million NFT, “EVERYDAYS: The First 5000 Days,” is available online for free, for anyone to view, copy, download and screenshot.
This raises the obvious question: if NFT art is easy to replicate, and the artworks represented by NFTs aren’t stored on the blockchain, what exactly do you get?
3. What do you actually own when you buy an NFT?
When you purchase an NFT, you gain the rights to the unique token on the blockchain, connecting your name with the creator’s art. Buying an NFT also usually gets you some basic usage rights, like being able to post the image online or set it as your profile picture (as Eminem did with his $460K The Bored Ape Yacht Club EminApe). But there are caveats around copyrights, ownership and authenticity. Some buyers think they acquire the underlying work of art, and all its accompanying rights. However, in reality, they are often only buying the metadata associated with the work or a set of limited rights; not the work itself. For example, the Kings of Leon stipulated that their NFT music was for personal consumption only. There have been other NFTs, like Cryptokitties, where the buyer has been granted the right to use the copyright in a limited way.
Scarcity, desirability… and investment potential
Scarcity and desirability are what make any collectible valuable. In the 1960s, Yves Klein sold “Zones of Immaterial Pictorial Sensibility” an empty block space — by giving buyers a signed certificate of authenticity. As with any market, there are NFTs of dubious value, but the technology offers interesting opportunities and real-world utility. Ideas of ownership, community-feeling, scarcity and desirability ( plus royalties and earning potential for savvy investors) are often what matter to modern-day NFT buyers, not the object itself. Brands understand this. McDonalds, Papa John’s Pizza, SalesForce, Disney, Gucci, Adidas, Nike… the list of new NFT launches grows every day. From rewarding engagement and loyalty, to creating a buzz, hosting one-off experiences, building a community and helping charitable causes, a world of opportunity awaits.
Up Next: Find out: What Can Brands Do With NFTs?
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