NFTs: Beyond the Hype — How NFTs Will Impact E-Commerce & the Economy
SNL captures the confusion (and surprisingly many salient facts) about NFTs in its timely sketch “What the hell are NFTs?”:
Kidding aside, as you peel back the layers, it becomes increasingly clear that NFTs are more than just hype. In fact, NFT technology may be new, important building block of the internet. Even in its earliest days, NFT technology is already manifesting in ways to fundamentally reshape how commerce is conducted for digital media, virtual goods, luxury assets, fashion and music. This article is an exploration of how some of these themes may play out over the next several years.
A quick definition of NFTs
In the world of cryptographic assets, there are two fundamental types: crypto-currencies (fungible tokens) and non-fungible tokens. The difference between them is their fungibility, or mutual substitutability, or more simply, their sameness. Assets on a cryptocurrency chain like Bitcoin are fungible in that every Bitcoin is the same (similar to cash). Assets on a non-fungible chain are unique — there is only one copy of each token, so think of these like ID cards or passports.
NFTs have practical, real world utility because they offer a cheap and ubiquitous way to create verification of ownership and transaction history for anything, without needing some type of trusted central authority to act as a trusted intermediary between parties. Example of these intermediaries are government records offices, escrow and title companies, and registries. NFT technology basically replaces these human intermediaries with a digital blockchain (think of it like a public digital record book) that certifies who owns what and can’t be tampered or altered.
The highest price paid for an NFT to date was MetaKovan’s purchase of Beeple’s digital art piece titled Everydays: The First 5000 Days for $69.3 million. This shocked many because as digital art Everydays essentially is nothing more than a JPG image that anybody can freely download. Why would someone pay millions of dollars for a JPG?
The key is that MetaKovan didn’t just buy any JPG copy of Everydays he bought the original JPG copy of Everydays. This original copy is verifiable through the NFT that he purchased which was minted by Christie’s on an Ethereum blockchain. There is only one original Everydays, and MetaKovan owns it. NFT technology enabled this exchange of value.
This type of transaction can happen for any type of asset. NFTs simply make this process easy, cheap, and trusted. Just as the internet made web pages cheap, easy and ubiquitous, NFTs will make marketplaces cheap, easy and ubiquitous.