NFTs are extremely popular right now (source) with hundreds of people rushing to create, sell and buy them. They will probably have a big impact on business and eCommerce in the future. Here is what you need to know about NFTs.
What Are NFTs?
NFT or Non-Fungible Token is a digital file with a unique identity and ownership that is verified and tracked on a blockchain or digital ledger. NFTs are non-interchangeable and unique, unlike fungible goods.
NFTs can include:
- Digital art
- Digital trading cards
- In-game assets (skins, items, clothing…)
- Digital land
- Digital objects
- Domain names
What makes them so appealing to buyers, the fact that they are unique, individual, and rare. The blockchain records the NFTs digital certificate of authenticity that cannot be replicated. Each NFT owner and transfer of ownership is tracked and cannot be deleted. The blockchain ensures there is only one owner at a given time.
NFT Examples (vs Fungible Goods)
Anyone who has played the videogame Fortnite will probably understand what NFTs are since you can purchase in-game items, clothing, and skins, which are like are NFTs (just not based on the blockchain).
A physical store owner may look at this like serialized inventory vs unlimited SKUs. A uniquely serialized item like a custom-built electric scooter is absolutely unique to the owner. Whereas, a white coffee mug with unlimited SKUs would not be a unique serialized item since there are hundreds that look just like it.
The NFT market is expected to exceed $1.3 billion in 2021.(source)
Many people are interested in the unique, scarce, rare, aspect of NFTs, not the thousands of copies you can download from anywhere. NFTs create digital scarcity since each item is unique. This is something that could create FOMO or Fear of Missing Out, which could be a factor in the growth of a possible bubble. We will talk about that more in detail later in this article.
Why Are NFTs Popular?
NFTs are popular because people view them as new, unique, rare digital assets. Some people are buying them because of collectability, others are hoping to make a profit. Some of the most popular NFTs at the moment include CryptoPunks, Hashmasks, and CryptoKitties.
NFTs exploded in popularity in Q1 2021 around the launch of NBA TopShot that has generated over $370M USD in sales when this article was written. These virtual collector items are like interactive collector basketball cards with more features like built-in videos. The NBA is arguably the first major corporation to jump into the NFT space, and slam dunk if I may add.
Mainstream media and celebrities started discussing NFTs and the buzz grew even larger, for example with Twitter CEO Jack Dorsey who auctioned off his first tweet. As of writing, the highest bid is at $2.5 million (source). Elon Musk joined in by auctioning off one of his Tweets which is currently at $3,500 (source). Mark Cuban sold a motivational quote for about $1,700 worth of Cryptocurrency (source).
Where Can You Buy or Sell NFTs?
NFTs are commonly created by uploading files to a blockchain-based auction market or online marketplaces. There are a number of NFT marketplaces that are already thriving:
|OpenSea||Open||Art, Collectibles, Domain Names, Digital Cards||Free Option||ETH|
|Rarible||Open||Art, Collectibles, Domain Names, Digital Cards, Photography, Music, Albums||Free Option||$RARI, ETH|
|Nifty Gateway||Open||“Drops”: Exclusive (Digital Art) items||Paid||Credit Cards, ETH|
|SuperRare||Exclusive||Art (By Curated Artists)||Low cost for BETA||ETH|
Keep in mind this space is evolving quickly so the number of marketplaces and the information in this table will probably change over time. I find the launch of these new platforms fascinating, somewhat like the launch of the very first “eBays” and “Amazons” of the world in the 1990s. But, you have to keep in mind that being the first can come with grave pitfalls, which I will discuss later on in this article.
How Can You Buy or Sell NFTs?
You can buy or sell NFTs by joining one of the marketplaces that provide the ability to acquire or offer NFT assets like OpenSea, Rariable, and SuperRare. You will need a crypto wallet containing a currency that is accepted by the platform.
Some platforms are exclusive where others accept anyone. Once you have created an account, you can list your item much like you would list an item on eBay (source). If you are a seller, in most cases the platform will take a cut and you will be paid in cryptocurrency.
The Ethereum blockchain is the most popular for NFT asset creation and storing, and so many marketplaces are built on the Ethereum blockchain. It has a built-in token management system allowing NFTs to be bought with cryptocurrency and resold.
Keep in mind, some platforms have high gas fees to upload NFTs. Gas fees are costs associated with computing power required to process and validate transactions on the Ethereum blockchain (source). They fluctuate depending on supply and demand and have real-world environmental impacts that I will discuss later on in this article. Some platforms recently started waiving the fees for those who do not create their custom store further enabling platform adoption to explode.
Who is Buying NFTs?
At the moment, many of the people purchasing NFTs are early adopters, collectors, and crypto-fans. There are also people who are buying and selling NFTs hoping to make a profit.
For example, some are buying up prime land in Decentraland hoping to turn a profit in the future. Some parcels of land in Decentraland have already sold for over $100K. Others are betting on the emotional value of the item they bid on, or the future nostalgic factor of owning the very first NFTs ever launched.
How Much Are NFTs Selling For?
This will probably change in the future so you can check the article listed in the description below for all sources and for more recent updates.
Top NFT Sales For Individual Artwork
|Beeple||Everydays: The first 5000 Days||$69M||source|
Some NFTs are selling for high prices because buyers view them as one of a kind, original, and therefore rare and unique items. Although you could download these images from the internet, nobody else but the buyer will have ownership of the original digital object. Therefore, a factor dictating the value of NFTs is based on supply, demand and perceived value.
Top NFT Sales By Seller
|NBA TopShot||Digital Collectables||$370M||source|
|Decentrland||Digital Land (Game)||$1.1M||source|
You can check out this list on Wikipedia to see updates on the highest paid prices for NFTs, or head over to CryptoSlam or NonFungible.com to see sales trends. Keep in mind that some NFTs will never sell and could cost the sellers more money than they make due to gas fees.
If you think buying and selling content that can be viewed by anyone for free on the internet is a fragile business model, well I do too. I will cover the impacts of this emerging market, along with my opinion on how this new technology can be used in other ways at the end of this article.
Negative Impacts of NFTs
NFTs represent a new emerging market for artists, musicians, graphic designers, as well as businesses. But the NFT market is currently the Wild West with some very serious impacts.
The energy and computing power required to run the Ethereum blockchain that hosts the majority of NFTs is high. A single NFT can involve many transactions, for example it’s initial minting, and then the bidding, future sales, commissions and transfer of ownership.
A single NFTs CO2 emissions could be equivalent to an EU resident’s electricity consumption for 1 month, 2h flying or 3 years of laptop use (source). And these impacts are multiplied with the amount of items being bought and traded.
These real world impacts need to be addressed before it is too late, especially among already pre-existing, pressing environmental issues.
Some NFT marketplaces are exclusive and validate sellers before they allow them to sell on their platforms. But other platforms allow anyone to sign up and sell NFTs. As you can imagine, this opened the doors for people to sell copyrighted materials.
Some artists already allegedly have seen their work stolen and resold on these marketplaces without any profit (source). I also noticed adult content on some of these open marketplaces for which I can certainly speculate some of the women in the photos may not even know about. You can report this content on some platforms such as Rariable but you can imagine that with the explosion of interest, these platforms are bogged down with requests.
A new space that is unregulated and involves money will probably open the doors to potential scams and cyber-crimes. Many crypto-scams are already well known such as fake social media posts, phishing emails, fake mobile apps, and imposter websites (source). But NFTs could open the doors to new scams.
Security Breach Risks
Another important thing to keep in mind is that brand new marketplaces could run the risk of having weak security when their servers become overloaded and they are obliged to scale very quickly. As of writing this article I found that people’s accounts were already allegedly being hacked (source).
Are NFT a Bubble?
Physical art has sold for extremely high prices in the past, so this is not a new concept. But, could this be a bubble? Keep in mind, I am not a financial advisor or psychic, and this article is for information purposes only. I could be wrong and this space is evolving quickly so just remember this is only my opinion.
But I think that beyond true collectors and fans, one of the driving factors in the increasing popularity of NFTs could be FOMO or Fear of Missing Out. It looks somewhat like the .com bubble in the late 90s with people wanting to make money quickly. If that is the case, I think this could be a bubble that will grow bigger, and then explode, leaving NFTs with a bad rep due in part to a decline in popularity, environmental and legal impacts, leaving a number of people with financial losses.
However, mainstream companies and uses could emerge sometime after the bubble bursts, somewhat like how eBay and Google gained popularity when other websites declined or disappeared after the .com bubble. Some of the NFT marketplaces may become obsolete, while others or new players who learned from their competitors’ mistakes could emerge and thrive.
People thought that the internet was a fad when the stock market collapsed in 2000, but that clearly was not the case. A crash probably will not eliminate the market, but help it re-adjust, improve and grow further. Let’s look at some ways NFTs could evolve and gain mainstream popularity.
NFT Uses for Businesses
I find this new emerging market very exciting since I have been selling my own digital products for a long time now. After selling hundreds of physical products in my late teens, it was such a relief to have discovered non-tangible goods a few years later. They can be sold and delivered instantaneously at any time of day, making shipping and delivery frictionless.
But of course, what I have been selling all these years is not based on the blockchain. Here are some ways I think blockchain-based NFTs could be used in the future.
Transfers & Proof of Ownership
Many have already covered the possibilities of NFTs being used to simplify legal transactions such as car or home sales. An NFT could help verify ownership and transfer of ownership, cutting costs and overhead.
Big Businesses Offering NFTs
I also see great possibilities for big businesses that jump into this. For example, Decentraland is an incredible project that could offer big brands the ability to interact with their customers, sell digital assets and advertise to them. At the moment of recording $43.5M has been spent in Decentraland (source). We will know if this project is a true success once it becomes mainstream and people who do not care about blockchain technology start playing.
Startups & Creators: NFT Memberships
NFTs could be used for membership or subscription management with limited access to special offers, voting rights, and digital assets. This can be great for entrepreneurs who could use them like shares in a company, or a way to retain and reward loyal customers.
For example, a business could create a limited number of 50 NFT tokens providing voting rights on new products, pre-launch access to new features or products, special loyal customer perks, and more. These tokens could be re-sold to new members for a higher value if the company grows.
NFTs As Investment Vehicles
Some view NFTs as investments that can gain value in the future. They could eventually also be used for Angel investing in startups. Based on what we previously discussed, startups could provide a limited number of NFT to early investors providing them perks in return. And these tokens could be re-sold for a higher value to new investors if the company grows.
New Revenue Streams For Creators
Some platforms allow initial sellers to set a 10% to 30% commission or royalties on future sales. I really think that this ongoing commission structure for artists, musicians, and digital creators is a game-changer and revolutionary concept that will profoundly impact creator’s wallets for generations to come. NFTs can be an amazing way for artists to generate new streams of income and cut out the cost of middlemen.
Custom Items & Collectables
I somewhat view a portion of the NFT boom as the beginning of a modern form of the comic book, stamp and baseball card collecting crazes that took place in the 60s to the 90s. People love collecting physical items, and NFTs could represent the emergence of a new market of collectable digital goods.
Opportunities for New Hardware
I think new hardware could emerge from the NFT space providing new ways to interact with the blockchain or sold items. In this interview, you can see around the 3:50 minute mark that Beeple sent a physical product to those who purchased his art.
All-in-all, coming from the eCommerce world, I view NFTs as digital goods being sold on new marketplaces based on new technology (like the new eBays and Amazons of the blockchain). Therefore, I think new eCommerce opportunities and collaborations will probably emerge from this space.
I do think we are living in a bubble however, and that the environmental and legal implications of decentralized NFT marketplaces will be challenging. I think that much like the structure of the internet did not disappear after the crash in the early 2000s, the structure and existence of NFTs will not disappear if there is a crash. I think that if that happens, it will not eliminate the market, but help it re-adjust, improve and grow further.
Better environmental management needs to be addressed as do legal issues such as copyright infringements and scams. These could hopefully decrease with better community management or thanks to other new means of community regulation.
When Were NFTs Created?
The original idea for NFTs was shared around 2012 in the Colored Coins project. However, technology was not yet ready to accommodate NFTs at the time. NFTs gradually became more popular as technology made it possible for them to exist, and in 2017, CryptoKitties helped them break through to the mainstream.
What are The Most Popular NFTs?
Some of the most popular NFTs at the moment include CryptoPunks, Hashmasks and CryptoKitties. Those who play the game Fortnite may understand NFTs by default since it is already common practice purchase in-game skins and items, which are like NFTs.
What are The Most Expensive NFTs?
The most expensive NFT at the moment is Beeple’s Everydays: The first 5000 Days that sold for just over $69M. Cyberpunk #3100 and Cyberpunk #7804 have both sold for $7.6M each. And NBA TopShot site states they have already made over $370M on digital basketball collectables.
Where Can You Buy NFTs?
There are a number of NFT auction marketplaces where you can buy or sell NFTs including OpenSea, Rarible, SuperRare, Nifty Gateway, Foundation, BakerySwap and NFT ShowRoom. You can buy NFTs in cryptocurrencies accepted by the platforms via a crypto wallet.
What Are Real World Uses of NFTs?
Real world uses of NFTs vary from simplification of contract management to investing vehicles. NFTs could serve as proof and transfer of ownership of physical objects (a car, a home). NFTs can allow businesses to advertise to customers in digital worlds, or offer a new way for startups to obtain and manage early investors.
What Are Negative Impacts of NFTs?
NFTs have some very negative real-world impacts including increasing CO2 emissions, providing a way for opportunists to profit from the copyright of others, and potentially opens the doors to new scams. Being a decentralized space, NFTs have environmental and legal implications that will hopefully be community managed in near future.