Are NFTs Still Worthwhile In 2022?
In some cases, most likely, but don’t get ahead of yourself.
NFT (non-fungible token), one of the buzzwords of the Internet in 2021; officially the Collins’ Dictionary Word of the Year 2021.
You probably know of at least one friend, relative, acquaintance (under the age of 35) who has dabbled in this modern form of collectibles.
What exactly is an NFT? Why are these useful?
It is a record on a certain blockchain that acknowledges the owner linked to a given digital (or even physical) asset. It predominantly represents digital collectibles such as images, artworks, video snippets, online trading cards and more.
One of the biggest drawcards behind the concept is a proof of ownership, as recorded on a blockchain. This is verified using the unique private key linked to your token.
Third-party services have also sprung up, ensuring accurate NFT record keeping, which also helps verify the identity of various creators.
You can also obtain an item’s digital certificate of authenticity via its smart contract (the code) and the public key. The former usually contains all of the valuable information covering its history: when and who created the work, permissions, royalty payments, transaction history and much more.
Additionally, you can utilise Google’s reverse-check tool, to ascertain how many variants of an original image exist.
With the combination of these instruments, it will become increasingly harder for people to get away with unauthorised use or dissemination of images, videos and other content.
Mind you, NFTs are still not fool proof. Someone forked out ~$336,000 for what they believed was a Banksy NFT, which was advertised via the artist’s official website.
Ultimately, this turned out to be part of an elaborate scam. Fortunately, the hacker returned the funds to the buyer, ironically named ‘Pranksy’.
So, are NFTs still worth buying/investing in? In some cases, yes, they have their merits.
However, if ones chooses to fork out $1.3 million for an image of an animated rock (yes, you read that correctly) as an NFT, then I start questioning their intelligence (or lack thereof).
Ask 10,000 people, would you like an image of a rock (with official ownership the digital pic) or a $1.3 million house, I think I know what the vast majority would select.
To compare apples with apples, if it were a digital piece of abstract and unique artwork, then you could possibly justify a higher price tag.
Nonetheless, you would need to give me a very compelling reason to work out five, six, let alone, seven figures on just one image.
The rise of AI-generated art throws another spanner in the works for artists, though this is something I will expand on future.
Numerous figures exist for the exact amount of money flowing through the space in 2021: Certain sources estimate 22–25 billion, with one reporting $41 billion spent on NFTs in the calendar year.
$69 million for an NFT?
Well, it is worth putting this one into some perspective.
Unlike a plain old rock, digital artist and graphic designer Mike Winkelmann, a.k.a. Beeple, produced a montage of his work over 13.5 years; 5000 days of perseverance to reach this record-breaking piece.
Sold for a whopping $69.3 million via British auction house, Christie’s.
So why do some NFTs sell for astronomical amounts of money, whilst others go for peanuts?
Unlike many cryptocurrencies that are fungible (when an asset’s units can be replaced with another, e.g., 1 BTC is identical to another BTC anywhere around the world), NFTs are unique, hence the name, non-fungible tokens.
Beyond the digital realm, this concept applies to many rare and/or prestigious tangible goods, such as jewellery and fine art; enthusiasts readily spend tens (in some cases, hundreds) of millions of dollars for masterpieces.
The two largest NFT collections at present include the Bored Ape Yacht Club and Cryptopunks, with a combined market cap of 1,494,310.4 ETH (~$2 billion).
Riding the enormous wave of popularity behind NFTs, major platform OpenSea received a valuation of $13.3 billion in January this year. Moreover, there is the possibility that it might offer an IPO, sometime in the next year or two.
NFTs and copyright
Generally speaking, as is the case with physical artwork, the copyright remains with the artist, unless specified otherwise when purchasing the work.
The plethora of NFTs created and their varied range of uses brings about a smorgasbord of conditions (and complications) about copyright.
A high-profile of this is the sale of NFTs comes from the auction of NFTs derived from major films, notably Pulp Fiction.
Last November, Miramax Films, the distributor behind the box-office hit, had a legal dispute (now settled) with Quentin Tarantino over the sale of exclusive scenes” in the movie, in the form of NFTs.
Permissions relating to NFTs come in two forms:
1) Rights to possess the token;
2) Rights to modify and/or distribute the work.
Sometimes both of these are connected with the same NFT, though owners of these works need to double check the permissions and restrictions connected to its usage/distribution.
Creative Commons NFTs: A threat to digital artists?
The matter of copyright also leads to the rules surrounding the use of recommended creative-commons (CC0) NFTs.
Three legal academics with expertise in this space have produced an extensive guide about how courts and legislators in general could interpret the use of copyright with NFTs; something that everyone involved in the space should be aware of.
The crypto division of American venture-capital firm Andreessen Horowitz (a16z) proposed the idea of free licencing options for these tokens, a.k.a. ‘Can’t Be Evil’ licences.
This will definitely help provide some legal clarity and reassurance for the layperson wanting to distribute NFTs for non-commercial, editorial or educational use.
You could apply the same approach to many other forms of paid content that can be available for free, such as Creative Commons images and videos, in comparison to paid alternatives.
Despite the good intentions behind having CC0 NFTs, some perceive this as a threat to the original idea of scarcity associated with these tokens.
However, I believe a balance could be struck, whereby there would still be a market for CC0 and exclusively paid content to co-exist, as I touched on earlier.
Provided that clear and concise conditions of use are stipulated for each piece of work produced, then this would avoid (or at least mitigate) legal problems.
A bright or murky future ahead for NFTs?
I would predict the former, though, perhaps with not as much hype and trading volume in the space in the next 12–18 months.
I anticipate significant growth in the NFT space as smart-contracts platforms (notably Ethereum) start to resolve the issues of scalability/network congestion and high transaction fees; see sharding and rollups for additional details.
At present, Ethereum is one of the most popular blockchains used by NFT marketplaces, although Cardano, Polygon, BNB Chain, Fantom and other ecosystems also host similar platforms.
Besides the leading SC platform, improvements made to other blockchains such as Polygon, BNB Chain, Cardano and Solana (to name a few) will also expand on the range of marketplaces and options for buying and selling collectibles.
Other than the ecosystems involved, I expect some digital collectibles to remain relevant down the track.
Furthermore, I envisage asset tokenisation (a.k.a. fractional ownership) to grow in future, as the deployment of smart contracts continuously becomes better.
I would not paint this entire industry/sub-sector of crypto and blockchain technology as a dying fad.
In short, this involves splitting the ownership of physical assets (such as art and real estate) into small pieces.
This, in turn, would open up opportunities for many retail investors that could not readily obtain the funds to own such goods outright. Thus, having these chances to purchase portions of a given asset also helps boost liquidity.
– None of this is financial and/or legal advice. I am neither a financial advisor nor a lawyer.
– This piece contains a mixture of news and opinions from either myself or from the sources contained herein. Please do your own research prior to investing in any crypto assets, NFTs and any product affiliated with this space.
– I have a handful of NFTs, though they are each worth less than $100.
– I admit that I am not very interested in NFTs compared to any aficionados, though I still recognise their potential worth down the track, and how these could be revolutionary.
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