Mark Twain’s supposed death in 1897 isn’t the only one that was greatly exaggerated. NFTs, an acronym for nonfungible tokens, are today experiencing premature pronouncements of their demise. One source declares the NFT bubble is bursting, another points out that NFT prices are dropping, and yet a third claims that the mocking of NFTs by billionaire Elon Musk was one of the reasons for a collapse. Of course, these reports come in the midst of a broader decline in the stock market and the cryptocurrency markets as well.
Much of this reporting on the downward trend in NFTs (pronounced “niftys” or “nefts” or simply “eN-eF-Tees”) has focused on the number and price of some NFT sales, entirely missing the broader technology trend signified by NFTs. NFTs represent an important new way to think about virtual property and digital ownership, and the innovation it represents won’t disappear just because of current fluctuations in market prices.
The value of NFTs is being recognized in the nonvirtual world. The U.K.’s High Court recently ruled that NFTs are legal property.
Those who underestimate the power of this new technology will end up like those who believed the World Wide Web was dead after the crash of 2000. In reality, the power of the web had really just begun to be realized. Think of all the things that were still years away: Facebook and Twitter and YouTube, Zoom and Fortnite, Netflix’s video streaming service, Musk’s Tesla selling used cars on their website sight unseen!
Why are NFTs another key component of this digital revolution? A nonfungible token represents verified ownership of a distinct piece of digital property, like a digital picture or a piece of virtual real estate in a video game. Like the purchase of any property, to be accepted as valid, ownership needs to be registered somewhere. If you buy a house, that happens in the local registry of deeds. For a car, it’s at your state’s department of motor vehicles.
Similarly, with NFTs, if you buy a digital item that is unique, your ownership gets registered on the internet via a piece of tech magic called a blockchain. Unlike one single physical or digital repository, a blockchain is a new decentralized way to keep track of any kind of information, including ownership of NFTs and cryptocurrencies, without requiring a central server or authority. (Disclaimer: I hold and regularly trade cryptocurrency such as Bitcoin and Ether, and I am an owner of NFTs, as well as an investor in and adviser to multiple companies that create and sell them.)
NFTs started out as collectibles within games (think digital baseball cards), rising to prominence in 2018 with CryptoKitties, which allowed buyers to collect individual “kitties” as part of a new type of video game. When a buyer purchases these pieces of digital property — often a simple JPEG image but increasingly much more complex — they register their ownership on a public blockchain. Purchasing an NFT can also give the owner access to benefits like pre-release or VIP access to movies, music or video games, and in some cases, the copyright of the artwork itself.
Most well-known NFTs today are sold in collections that are variations on a theme, like the apes in the Bored Ape Yacht Club series, which have become so popular they were shown off by host Jimmy Fallon on NBC’s “The Tonight Show” and even have their own set of films coming out soon. Other celebrities to get in on the NFT action include Reese Witherspoon, Katy Perry and even Paris Hilton.
Indeed, mega-sales of one-off NFTs created a gold rush mentality among many artists and celebrities. The highest-priced NFT ever sold to a single owner was by the artist Beeple, which sold for $69.3 million. The highest NFT sale ever, for $91.8 million, showed the ease with which NFTs can provide fractional ownership: The purchase was made collectively by more than 28,000 people who now own a share of this artwork.
It’s a mistake to think of NFTs only as art, however, since they have the potential to do much more in both the virtual and real worlds. One of the most popular uses for NFTs is collecting and outfitting virtual characters in the Metaverse, an increasingly popular science fiction-sounding idea of virtual worlds that we explore with our 3D avatars. Nike last year acquired RTFKT (pronounced “ar-te-fact”), a creator of virtual sneaker NFTs. Leading brands realize that Gen Zers can place as much importance on self-expression with their avatars as they do on their real-world wardrobes.
NFTs are also proving useful in tracking investments in virtual land, the next frontier in real estate, which is fetching millions. One person paid $450,000 in December to buy an NFT that represents ownership of a plot of land next to rap artist Snoop Dog’s Metaverse residence (located in a virtual world called The Sandbox). Even amid all the recent hype about NFTs being over, sale of virtual land for an upcoming video game from the Bored Apes creator pushed NFT sales up to $1.7 billion during the first week of May.
The value of NFTs is also being recognized in the nonvirtual world. The U.K.’s High Court recently ruled that NFTs are legal property. This is a big step because it means that if someone hacks the system and steals your NFTs, they are guilty of theft as much as if they stole “real” artwork from your house or pirated a Hollywood movie.
You can already borrow real-world money using your NFTs as collateral in an emerging area of decentralized finance (or DeFi for short). And there are real estate funds that are now using NFTs to create fractions of real estate that investors can buy.
In short, not only will NFTs become easier to use, but smarter NFTs that have utility beyond simple visuals — which I like to call NFT 2.0 — are only now starting to come online. Just like the internet after the web bubble burst in 2000, blockchain technology and NFTs are still in their infancy. Buying and using NFTs is still cumbersome for the average user, but that will start to change as popular consumer apps like Instagram add support for NFTs, which was just announced this week.
As long as there are assets, real and digital, that people are willing to pay for, NFTs will be an important new technology for tracking ownership and profits across many industries. In a few years, even today’s doomsayers may agree with my invocation of Mark Twain in saying that reports of the demise of NFTs have been greatly exaggerated.