NFT (non-fungible tokens) have been widely discussed in the mainstream media the past month. NFT’s have been around for a while and offer great opportunities for the creative industries, fans and artists. At our department, Creative Business, I teach about on decentralized business models and blockchain in a fantastic team. NFT’s can sound intimidating but it’s really important to consider this trend. I’d love to share an easy explanation of this business model, along with some helpful examples and resources.
What are NFT’s?
NFT are essentially unique digital items certified on blockchain. “Non-fungible” means that these items are special, cannot be interchanged, and can’t be replaced. The NFT itself is best understood as its history and proof of ownership, which is stored on a blockchain, such as Ethereum.
Don’t let the term “token” confuse you. NFT’s are a radically different token than cryptocurrency, which is “fungible”. In other words, each bitcoin is the same, and so is each Ether. These tokens are generally utility tokens, and they are quite different from the NFT. An NFT is not a literal crypto-token or means of exchange, but rather represents the item, assets or commodity on the blockchain.
An NFT is special, authentic and permanently stored on the blockchain. There is no other one item like it. Compare it to a unique Pokémon card or a digital commission / artwork that only you have the rights to. The value comes from how this piece circulates, and if there is a demand for it. Scarcity is the key to success here. When an NFT operates well, it is not a gimmick, but an asset that increases in value.
In other words, an NFT is best understood as an investment.
NFT’s add value to digital art and items
A special comic issue can be an NFT, a unique character, a commission, a song, an in-game item – anything unique really can be certified as an NFT. Quartz made this article an NFT. Paris Hilton made this artwork of her dog into a unique NFT, sold for $17,000. Vlogger Logan Paul sold NFT’s of video clips for up to $20,000.
The NFT ideally adds value to your art and content, but context matters, just like with any traditional art piece or collector’s item. If no one cares or wants to trade, your investment is worthless. This is the digital equivalent of these older collector practices, which makes it interesting from a humanities and art perspective.
Through NFT’s, online content can become valuable again for content creators. That’s great because today it’s the big companies that primarily monetize your content. I personally care deeply about the philosophy behind blockchain, which has the power to disrupt the platform monopolies online and capitalism itself. Blockchain can disrupt the platform economy, and the huge amounts of free and precarious labor many artists, content creators and fans engage in.
NFT’s, specifically, offer artists and designers a way to trade, authenticate and validate digital art. Fans should also care too. This is the next-level in collecting digital items. For the gamers, it can add value to in-game items too, for instance by making an NFT out of a unique in-game outfit that you spend ages hunting down or customizing.
Comics, music, articles, there is no limit to what we can apply an NFT to, technically. Comics companies are experimenting with NFT too. Merchandise company Veve is now collaborating with DC to produce a series of digital Batman statues, certified by NFT. Digital statues as a new investment and collector practice? I like it!
NFT’s and the new virtual economy
CryptoKittie by Dapper Labs is perhaps the best-known market place of NFT’s and has been around since 2017. You breed, buy and sell unique kittens on the Ethereum blockchain. It has sold more than $40 million worth of kitties to date.
Of course this is not new. We had virtual economies in World of Warcraft, Habbo Hotel and Second Life where assets were traded in-game and on other platforms. The NFT allows you to experiment with this more broadly, and pairs this with the security and safety of blockchain. You can even earn income in a game this way. The online community Yield Games Guild already applied this mindset in its “play-to-earn” guild with an investor mentality.
The catch is that these existing virtual economies are fragile. Users of Habbo Hotel, for instance, recently lost tons of money. Their assets were essentially rendered useless when the in-game market collapsed due to an update. NFT’s assure the uniqueness of an item (so a developer can’t suddenly make more) and just as importantly, they can live on beyond the game it’s used in. Your Breath of Wild outfits are not worth much, and can’t even be exchanged from the Wii-U to Switch version. But what if you could use them across Nintendo games, and have them certified? An NFT adds this permanence.
NFT market places are emerging rapidly, and for all kinds of purposes. As a fan scholar, I found the waifu token quite interesting. Artists and fans create their own geeky anime micro-economy here where you buy your “own digital girlfriend”. You trade unique female characters, as you would trade figurines or merchandise, and sell them when your value decreases or you are not interested in that collectible anymore.
As you can see, characters become a digital asset here, a business model. Your character in games or apps is custom, unique, and valuable. Maybe it’s the gamer in me, but I personally really like the idea of owning a certain version of a character, item or outfit.
What’s the catch?
Like any investment, consider carefully if there is enough interest and a market for it. This goes for artists as well as investors or fans. If an app is not that popular, there is no one to trade with. We are in an experimental phase of this new technology still. Don’t overspend, and don’t be too optimistic about this business model just because we have seen some success stories.
The other thing to be mindful of is that blockchain is not a sustainable technology. Bitcoin alone consumes as much energy as Belgium. This is a peer-to-peer technology with a lot of verification, and no transaction is ever removed. It adds up. While NFT’s offer many opportunities, we should be mindful of the very real dangers for our environment and our economy when this technology becomes too popular.
Read more on NFT’s here: