NFTs: Everything You Need to Know about the Non-fungible Token Explosion

Non-fungible tokens (NFTs) are not a new phenomenon. The cryptosphere became aware several years ago when the 'CryptoKitties' phenomenon took over the Ethereum Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Read this Term, causing huge delays in transaction times and skyrocketing transaction fees.

However, while NFTs may not be a new invention, the NFT corner of the crypto universe has once again been in the spotlight of the crypto media. This occurred after reports emerged earlier this week that the NFT universe, which has been quietly growing for years, has grown into an industry worth hundreds of millions of dollars.

Indeed, Finance Magnates reported earlier this week that one NFT marketplace, in particular, the National Basketball Association (NBA) Top Shot shop, has raked in over $230 million worth of sales over the last year. According to CNBC, NBA Top Shot’s sales made up a large percentage of total NFT marketplace sales over the same time period. Data from Nonfungible.com shows that by the end of 2020, the NFT space as a whole was worth $338 million.

And, the NFT universe is expanding: specifically, NFT tech is increasingly intersecting with the art world. CNBC reported this week an NFT tied to a video clip by digital artist 'Beeple' recently sold for $6.6 million.

Additionally, Grimes (aka Claire Elise Boucher), the Canadian musician and visual artist who also happens to be partnered with Mr Elon Musk, sold $5.18 million worth of digital art through an NFT marketplace known as 'Nifty Gateway'. In an article describing the sale, The Verge described NFTs as “the hot new tech thing.”

Tal Elyashiv, Founder and Chief Executive of SPiCE VC, also told Finance Magnates that: “the NFT market grew by almost 300% in 2020.”

“It wasn’t just because of the number and total value of transactions. Major growth can also be seen in the number of dedicated marketplaces, the number of active wallets transacting NFTs and the types of assets using NFTs.”

But, if NFTs have been around for several years already, why is now the moment that they are entering the mainstream conversation? What is next for NFTs? And, first of all, what are NFTs?

What Are NFTs?

Let’s talk for a moment about the word 'fungible'.

If something is fungible, it is mutually interchangeable. Take the US dollar, for example; any one dollar is exactly as valuable as the next, even though it may have some differences in its appearance or age, or it may exist in physical form or as a number on a screen.

However, if something is non-fungible it is not mutually interchangeable. It is unique, and as such, cannot be interchangeably exchanged for something of equal value. Take, for example, 'Starry Night' and 'Almond Blossoms', two paintings by Vincent van Gogh. Though the two paintings are similar (in that they were created by the same artist), they cannot be exchanged interchangeably for one another, even though they may be worth similar amounts of money.

Therefore, non-fungible tokens are unique cryptocurrency tokens that represent something unique. These 'unique' things can be works of art, like Van Gogh’s paintings. They can be videos of specific moments in sports games, original songs, digital kitties, digital works of art and more. The possibilities are virtually endless.

NFTs are particularly interesting because their sale and ownership do not necessarily mean that the owner of the NFT holds the rights to the intellectual property of the work that a particular token represents. Ownership of an NFT does not mean that the owner has exclusive rights to access the content that the token represents. For example, a video called “Death of the Old,” one of the works that Grimes sold in her recent NFT artwork auction, is publicly posted on her Instagram account.

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For Entertainment Companies and Content Creators, "NFTs Unlock a Demand for Experiences That Fans Covet.”

Ben Arnon, Co-Founder and CRO of Curio, told Finance Magnates that: “the growth of the NFT ecosystem is being driven by three main factors.” Curio is an NFT platform that helps entertainment brands and content owners create digital collectibles and “experiences.”

According to Arnon, the first of these three factors is “the huge rally in cryptocurrency prices that has occurred since the second half of 2020.” Indeed, Bitcoin Bitcoin While some may still be wondering what is Bitcoin, who created Bitcoin, or how does Bitcoin work, one thing is certain: Bitcoin has changed the world.No one can remain indifferent to this revolutionary, decentralized, digital asset nor to its blockchain technology.In fact, we’ve gone a long way ever since a Florida resident Laszlo Hanyecz made BTC’s first official commercial transaction with a real company by trading 10,000 Bitcoins for 2 pizzas at his local Papa John’s.One could now argue that While some may still be wondering what is Bitcoin, who created Bitcoin, or how does Bitcoin work, one thing is certain: Bitcoin has changed the world.No one can remain indifferent to this revolutionary, decentralized, digital asset nor to its blockchain technology.In fact, we’ve gone a long way ever since a Florida resident Laszlo Hanyecz made BTC’s first official commercial transaction with a real company by trading 10,000 Bitcoins for 2 pizzas at his local Papa John’s.One could now argue that Read this Term’s rise past $50K and the addition of billions of dollars to crypto’s total market cap has brought much attention to the space.

However, beyond that, the firms that make these digital collectibles have been quietly building the space for years. In addition to the crypto rally, Arnon said that NFTs are becoming popular now because “companies have been delivering them to fans.”

“Household name brands and sports leagues such as the NBA, and TV studios such as Fremantle and STARZ, have been discovering that NFTs unlock a demand for experiences that their fans covet,” he said. In other words, these tokens are becoming more popular because they are more widely available.

Indeed, it seems that many entertainment companies have realized that NFTs are another way to form financial relationships with the consumers of their content.

Though it is not clear exactly how much cash these companies are earning from the NFTs they sell, CNBC cited Tom Richardson, a digital media professor at Columbia University, who said that the NBA can expect to solicit 10 to 15% of sales from any company that leverages its intellectual property, such as the NBA Top Shot marketplace. For artists and independent creators, these figures could be much higher.

COVID May Have Also Had an Impact on the Growth of the Non-fungible Token Marketplace

In addition to increased availability and visibility, Arnon said that the growth of the NFT universe may have been affected by COVID-19. Similar growth trends have also been observed in crypto and stock markets as waves of retail investors have begun exploring the world of online trading for the first time.

“The growth in collectibles markets in general, both online and offline, is also due in large part to the global pandemic,” he said.

Like many analysts have said about cryptocurrency markets more generally, Arnon said that “we are still at the top of the first innings for NFTs; there is explosive growth ahead,” adding that his own company is “focused on exponentially increasing the number of mainstream brands and fans who engage with NFTs.”

For Non-fungible Tokens, “Today Is like the Early Days of Facebook”

If this present moment is “the top of the first innings,” what could the next step in the game look like for NFTs?

“By the end of 2021, sales of NFTs will be in the multiple billions of dollars,” Arnon told Finance Magnates.

Arnon believes that for the NFT space, “today is like the early days of Facebook when no brands had social media marketing teams.”

“One year later, nearly every brand had robust social media marketing teams. The same will occur for the NFT ecosystem. By mid-2022, many brands will have internal teams focused primarily on how to gain long-term value from leveraging non-fungible tokens as a means to engage fans and consumers, and drive both awareness and consideration of their products and content."

Indeed, “NFTs will provide movie and television studios, music companies and other brands with an opportunity to reinvent and reimagine the notion of a fan club,” he said. “NFTs will serve as a passport that unlocks exclusive and VIP fan experiences, both online and offline.”

Additionally, Elyashiv told Finance Magnates that: “we’re seeing a great deal of early signs of mainstream adoption.”

“For example, in Oct 2020, Christie’s included a work by Robert Alice in its post-war and contemporary art sale. The piece sold for $131,250 and was accompanied by an NFT. This was the first time a major auction house had sold one of these digital tokens.” Elyashiv pointed to Grimes’ recent multi-million dollar NFT sale.

“These early signs of mainstream adoption signal one thing: growth acceleration.”

Cashing in on the Non-fungible Token Trend

Because the NFT space is growing at such a rapid pace, investors are looking at NFTs with dollar signs in their eyes. How can NFT buyers cash in on the trend?

Hatem Hachana, COO at Utopia Genesis Foundation, told Finance Magnates that: “investors are noticing [that] digital collectibles are solid investments since they can be bought-and-sold on online marketplaces.” Utopia Genesis Foundation is currently building its own NFT marketplace.

Indeed, a great deal of the more impressive NFT purchases has been executed in secondary marketplaces. For example, the NBA Top Shot tokens, which are sold in ‘packs’ worth $9-$230, have been sold for incredible amounts in secondary markets. Hachana pointed to one instance in which an NBA Top Shot digital collectible card of LeBron James sold for $100K; similar NFTs have sold for as much as $200K.

“Returns alone on digital asset investments add up to be a lucrative market for some,” Hachana explained.

But, buying expensive NFT tokens may be too risky for some investors. Elyashiv told Finance Magnates that: “the safest way to participate in the growth of NFTs (and in fact in the growth of any Blockchain related business) is to invest in the ecosystem.”

“In the case of NFTs, the ecosystem includes among others: the various marketplaces and exchanges dedicated to NFTs, applications and game providers incorporating NFTs, service providers related to NFTs and studios developing NFT items for games.”

However, “investing in specific players requires much research, is not accessible to all, and is fairly risky as all early-stage investments are.”

Therefore, Elyashiv believes that: “the safest way to invest in the ecosystem is through a fund that invests in the ecosystem,” mentioning funds like the one that he founded: “funds like SPiCE invest in the blockchain and tokenization ecosystem, providing investors more diversified exposure to the growth of these ecosystems.”

NFTs Could Have Huge Implications for the Future of Arts and Culture

However, beyond short-term gains, the growth of the NFT world could have huge implications for the ways that content creators are paid for their work.

Hatem Hachana told Finance Magnates that in the cultural field, NFTs “add a layer of authenticity to the object, expressing how artists intended for their [creations] to be published.” Utopia Genesis Foundation is “With the nature of NFTs, it solves the problem of artists getting paid, as creators can be paid royalties each time a collectible is sold,” Hachana explained further. “Purchasing NFTs, like Eva Beylin said, is investing in culture.”

What are your thoughts on the growth of the NFT universe? Let us know in the comments below.