If you're into sports, art, crypto, or the stock market, you've probably been hearing a lot about
NFTs. With all this hype, we're entering into a time that feels oddly reminiscent of the late
90's and early 2000's. Tech is booming, the stock market is going to the moon and Elon Musk is going
to Mars. People are looking for pretty much anywhere to throw their money, and recently
many people have been turning to NFTs. Leaning into that 90's/2000's nostalgia, people are
buying NFTs of Logan Paul's face on Pokemon cards, playing with Crypto Kitties like they're Neopets,
searching for art on sites that look like the days of DeviantART, and paying $750k for pixel art that
looks a lot like those custom cursors that people made in MS Paint and put on every website in
the 2000's. But wait - what the heck is an NFT? NFT stands for non-fungible-token. To understand
what this is, let’s first break down this term. Something that is fungible, in a very simple
sense, is something that can be traded for an equal and pretty much identical exchange of value.
For example, if I have a $1 bill and you have a $1 bill, we can trade dollar bills and neither of
us is going to care. It doesn’t actually matter which of the physical dollar bills either of us
has, it’s still a dollar. We can replace one dollar bill with the other – but it’s still $1.
Things are non-fungible would be things like art, or baseball cards, or your house.
One art piece is not equal to every other art piece, and one house is not equal to every
other house. If we try to trade those, that’s not going to be an equal exchange of value.
Even if we have the same asset, for example the same trading card, It’s unlikely that the value of
those is exactly the same. The value may depend on the condition, the placement of the print,
or when each of our cards were produced. This exchange would not be equal either. With NFTs,
we’re talking about the same thing, but primarily with digital assets. So think
things like digital art, upgrades and accessories in games, and even video clips of sports events.
In the digital world, there hasn’t been an easy way to prove ownership of something.
You can save a JPG off of Google, and the file is just there…but you don’t really “own” it.
This is where the “token” part comes in. Think of
a non-fungible token like a little digital authenticity certificate that verifies:
Where the digital art came from, the past history and ownership,
and yes that it’s real,
and it can include anything else the artist wants to include in that NFT.
With NFTs all transactions take place on the blockchain.
Oh gosh...what's blockchain? There are two main things you
need to know about blockchain when we're talking about NFTs.
1. It’s a way to keep a permanent record.
and 2. It can be added to, but it can’t be altered.
The information about or included with an NFT is going to be part of this chain.
Many copies of this chain of information exists, and they all have to match. We can
add information to this chain every time something happens. Maybe someone buys an NFT and it changes
owners. That information is added across these chains, and if it all matches,
then it’s verified. But if someone tries to back and change information – it doesn’t work.
If someone tries to change a piece of information,
the rest of that chain will change too. When it’s checked, the system will realize “hey,
this one doesn’t match the others, it was hacked/tampered with”.
And because it doesn’t match all of the others, the info in this chain isn’t actually valid.
This lack of alterability is what makes it permanent.
This isn’t exactly how it works, but this is an
overly-simplified 40 second explanation of what's kind of going on behind the scenes.
The Ethereum blockchain is what is primarily used for buying and
selling NFTs. And that’s why you’ll see that little “E” Ether symbol when you're looking
through these marketplaces instead of something like dollars or Bitcoin.
With NBA Topshot, Grimes, and Kings of Leon getting so much attention for their NFT's
you may be wondering - how did we get here?
Well the birth and explosion of NFTs started with colored coins.
Colored Coins were originally created on the Bitcoin Blockchain, With colored coins,
the goal was to create a token that was associated with something in the
real world – stocks, bonds, real estate, other currencies, etc.
There were several flaws with Colored Coins – but the main problem was that the Bitcoin
network wasn’t really prepared to handle developers adding this extra layer yet.
However this did open up more exploration of the concept of NFT’s.
In 2015, Spells of Genesis became the first blockchain based mobile game.
It was a crossover between arcade style games and a trading card game
and really put emphasis on the user accumulating in-game collectibles. It allowed you to buy
their game assets on the blockchain, which really hadn't been seen before.
Soon after, with this idea of “owning” a digital asset, the ability to buy Rare Pepe memes emerged.
Basically you could go onto a marketplace, buy one of these memes, and technically you would own it.
This happened around the time that this whole
NFT space started shifting over to the Ethereum blockchain.
Moving from the Bitcoin blockchain to the Ethereum blockchain provided a more flexible base for
developers to start building off of for people to be able to buy and sell NFT's. In other words,
the Ethereum blockchain was better equipped to handle this extra layer being added on top of it.
As the Rare Pepe craze took off, Cryptopunks emerged which were unique pixel art characters
that you could own. This further expanded the idea of using NFT's for digital art.
Then comes October of 2017. CryptoKitties. CryptoKitties are digital cats that you can buy,
trade, and even breed. And these were the first NFT's to really gain mainstream media attention.
The breeding of CryptoKitties created a new element in the NFT space. Essentially,
if you owned two of these NFT’s, you could “breed” them, and generate a third, one-of-a-kind NFT.
As CryptoKitties gained attention in mainstream media, the volume of
Ethereum transactions skyrocketed, and started majorly congesting the network.
This meant that transactions were extremely slow. At the height of the CryptoKitty bubble, some
people had to wait days for their transactions to go through. This ended up causing this
CryptoKitty bubble to pop, and trading volume eventually did return to more normal levels.
But CryptoKitties are still around today – people are still buying and selling them.
The team behind CryptoKitties – Dapper Labs, is actually the same team that is now behind
NBA Top Shot, where you can buy digital basketball highlights.
And honestly going from selling digital Neopets-esque
cats to getting a business contract with the NBA – that’s a solid move.
So other than buying sports highlights,
what other applications could NFTs have? Well another booming area is digital art.
Traditional art has obviously been around and collected for centuries,
but we’ve really never had a way to own or prove ownership of digital art. With marketplaces like
SuperRare and OpenSea, you can now own art pieces from your favorite digital artists.
Unlike traditional art, when an artist decides to make an NFT, they now have the option to earn
money from future sales. If one collector buys the piece from the artist, and another collector buys
it from them, the artist can set a percentage of that sale that they’ll receive. This allows them
to continue to make money off of their pieces when they're bought and sold by different collectors.
Recently, a piece from the artist Beeple sold for a record-breaking $69 million.
So where's the value in all of this?
If it comes with “unlockables” so for example the source file all of the digital painting’s layers,
I can definitely see the value of that. Some NFT’s come with some copyright or
distribution rights. Others come with a physical limited edition print – again,
makes sense why people might be willing to pay for that.
However, some people are just selling random JPG or video files as NFTs. As it stands I personally
think the value of just selling a JPG as an NFT is still bit questionable…but to each their own.
Other areas where NFTs are gaining traction are the music and film industries.
Grimes has sold over $6m in NFTs – mostly short videos with music.
And Kings of Leon is releasing an album as an NFT which includes a digital album download,
and you can use it to redeem a physical limited edition vinyl.
Piracy and bad deals with record labels and production studios have always been a major
problem in music and film. NFTs could provide a potential way to bypass the middle man (aka
the labels & studios). This could give artists a greater potential to distribute
music and films themselves, but we'll kind of just have to see how this plays out.
Big companies like Nike are also trying to get in on the action.
Nike has patented “CryptoKicks” or basically NFT’s for shoes. They can be associated with
an actual physical pair of shoes, and you’ll have a digital version of it.
Apparently you’ll also be able to breed your shoes?? I guess
someone at Nike was in on the original CryptoKitties craze.
But another potential integration for Nike could be using the shoes in virtual games.
So there are a lot of potential directions that NFTs could go in,
but there are also some problems with NFTs.
People have already written tons of articles on the potential environment
impact of NFTs, but I wanted to focus more on the logistics side.
Owning an NFT essentially means that you own an official version of a digital peice,
but what you can do with that is a little bit limited. The original artists still
own the copyright and the distribution rights.
This definitely not legal advice in any capacity, but for digital art that
means that you can’t buy a bunch of NFTs, then go and open your own physical store
and sell prints of all those NFTs. You don’t have the right to redistribute that art unless
those rights were specifically included in the NFT – which in many cases they’re not.
Same thing with music – you can’t go buy NFTs of songs, have those made into records,
and then go and open a record store. Again, you don’t own the copyright or distribution rights.
That’s nothing new – we’re used to that with physical art and music from other platforms.
But this also leads to some legal questions and issues that aren’t
exactly clear. Especially regarding copyright and intellectual property.
Some marketplaces like SuperRare go through a screening or vetting process of the artists they
allow on their platform. It’s not open to any random person registering anything as an NFT.
However some platforms don’t have a screening process at all,
which is where the problem comes in.
This can apply to any category of NFTs, but let’s stick to digital art.
If you draw digital fan art of Harry Potter or Thor, that’s totally fine if you’re keeping
the art for yourself. But even though you drew it, you’re not actually supposed to resell it.
They’ve copyrighted and trademarked the heck out of the Harry Potter and Marvel universes.
Those characters are most definitely intellectual property of their respective parent companies.
So what do you do if you buy a fan art NFT, and then the original artist gets
in trouble for copyright infringement? How will that effect the NFT you bought?
What happens if a person steals someone else’s art, or someone else's video clip,
and uploads it on a marketplace that doesn’t have any sort of screening or acceptance process?
On top of that, if we’re talking about collectibles in this decentralized global
marketplace, how and who actually enforces copyrights, patents, and things of that nature?
These are things that I actually want to know so if anyone has any thoughts
or articles on this stuff that they can drop in the comments, definitely go for it.
So what do you think? Is this the future of online art, music, and gaming?
Is it completely stupid? Or are we just living in an episode of black mirror?