It’s been more than six years since the first non-fungible token (NFT) was minted and sold – but its only in the past six months that the craze has really taken off. Now there are hundreds of artists and creators taking advantage of what the technology offers, and hundreds of investors snapping them up. So what’s it all about?
At a basic level, NFTs are unique digital tokens that correspond to digital assets like art or music. Even tweets have been registered as NFTs. And while the art itself can still be copied or shared, the token can’t. That means the owners have a rare and irreplicable item. NFTs are created and stored using the same technology as cryptocurrencies, and most of them are stored on the Ethereum blockchain.
Let’s take a look at some of the major benefits of non-fungible tokens to understand why they have become so popular.
Non-fungibility – the rarity factor
One of the fundamental benefits of NFTs is right there in the name: they’re non-fungible, which means that each one is completely unique. This means that ownership of an NFT gives you access to a rare item which nobody else can copy.
This idea of ownership is also very important. An NFT gives proof of ownership to one individual, and assures the authenticity of the item that they own. While it’s true that others are able to replicate a version of the NFT – in much the same way as classic paintings are replicated on websites and posters across the world – only one person owns the original.
It’s also easy to transfer ownership, allowing people to buy and sell non-fungible tokens at will.
Benefits for artists
If a creator wants to make money from their digital art, they’ll usually need somebody to help them – an agent or manager who can get the work out into the marketplace and help to promote it. The use of NFTs have helped to put the power back into the hands of the artists themselves, making it far easier for individuals to market their own work without needing the help of a middleman.
In this way, non-fungible tokens have captured much of the spirit of their crypto cousins, decentralising the system. This has allowed non-mainstream artists to breakout, and given industry veterans such as comic book artist Jose Delbo a way to move away from their more traditional careers. It also means that they are creating economic opportunities for artists who no longer have to pay hefty platform fees.
NFTs are also helping artists on a more fundamental level, letting them prove ownership of their work. Creating a token proves authenticity, and makes it easier for a digital work to be copyrighted.
It doesn’t end after the initial sale, either. Smart contracts are a particularly innovative feature of the blockchain technology, setting out conditions for future sales and allowing artists to take a cut of the profits should the NFT be resold in the future.
A good deal for investors
No wonder digital content creators love NFTs – but there are a bunch of benefits on the buyer’s side, too. Purchasing a non-fungible token means that you become the owner of a totally unique item, a level of exclusivity that few other markets can offer. This makes them the ultimate collector’s item, and has seen crypto fans scrambling to get their hands on particularly rare or desirable tokens.
They also seem to be soaring in value, meaning that they could stand to make investors a lot of money, particularly if held onto for several years. The volatility of crypto and NFT investments means that they’re always risky… but it also means that the value has the potential to skyrocket.
While NFTs are expensive to buy outright, that doesn’t necessarily need to be a barrier to investment. There are now many platforms out there offering a type of microinvestment known as ‘fractioning’. This basically just means that the NFT is split into segments, allowing a larger number of investors to club together and buy into a single item. They then each have control of their own individual token. This makes investment a far more affordable option for people who may be priced out of markets such as traditional art and fine wines.
When you invest into something, you want to know that it’s difficult for others to forge or steal. This is one of the major selling points for NFTs, which are incredibly difficult to replicate and backed by the impressive security of blockchain technology.
This means that they can only have one official owner, and nobody can make malicious changes to the record of ownership. In other words, nobody can make a copy of an NFT that somebody else owns, and they’re very difficult to steal.
The business case for NFTs
We’ve heard about the benefits of NFTs for artists, and now we know why investors are snapping them up. But is there an argument for businesses to get in on the action?
There are actually several benefits for businesses thinking of using NFTs to secure their products. The first goes back to that key point about authenticity. Industries such as the fashion sector have a huge problem with counterfeit items being sold. High end designer brands like Gucci have already been experimenting issuing their own NFTs.
Meanwhile, other fashion houses are considering how matching NFTs to physical items of clothing could be used not only to prove authenticity, but to track a product’s journey through the supply chain – allowing a company to prove that it has been produced in an ethical way.
The events industry is also a natural home for NFTs, since the record of ownership makes it far more difficult for ticket-scalps to sell on tickets at inflated prices. There are already platforms offering to create tokens for event organisers who want the added security – and glamour – of an NFT ticketing system.
Right now, the benefits of NFTs seem to be huge for both the creators and the people buying them. Now is a great time to get into the market. Since the technology is continuing to grow in popularity and gain more public interest, there are a lot of different types of tokens available, and businesses are falling over each other to come up with new and innovative ways to employ the technology.
And while it’s a speculative market at the moment – only time will tell as to whether they continue to hold their value – every indication is that NFTs can stand to make savvy investors a lot of money. It’s a very exciting time to become a part of the blockchain community, and we can’t wait to see where the technology goes from here.