What is a non-fungible token?
March 8, 2021
The days of free, unfettered access to digital content may be numbered in the coming years. A new asset class is emerging and it represents a top-to-bottom, 100 point restoration of how individuals publish, distribute, access and monetize content online. According to Coindesk, “Non-fungible tokens (NFTs) are digital assets that represent a wide range of unique tangible and intangible items” from art, music and film to collectible sports cards, virtual real estate or even digital clothing items. NFTs, unlike cryptocurrencies, cannot be exchanged for one another, replicated, or divided into smaller denominates as Bitcoin can. They derive their value from scarcity, uniqueness and authenticity in the same way sports memorabilia operate as an investment or collector’s item. NFTs run on a blockchain network, which is the same underlying structure cryptocurrencies employ, operating on smart contracts.
Since music or art became freely available online, musicians have struggled to directly profit from their work and succeed in the face of contracts with record labels or auction houses and galleries that rake in the vast majority of proceeds. NFTs preclude the necessity of the opportunistic middleman, allowing creators to sell to buyers directly and program royalties to profit from secondary sales. On the platform SuperRare, artists receive 85% of the initial purchase price, and 10% of proceeds whenever their work is resold. While the iTunes store merely lets customers purchase rights to access content, NFTs allow individuals to own content like a digitally autographed MP3. NFTs are easily verifiable and can be traced back to the original owner or creator to protect buyers from being induced to purchasing fake items, such as when a hypebeast drops hundreds of dollars on fake Yeezys, and inhibits creators from not profiting on illegally distributed or pirated content. Since NFTs are cryptographically encrypted and unable to be replicated, fewer incentives exist for people to screenshot, publish or distribute the image because, without ownership, they cannot trade or sell the asset.
Instead of Tai Lopez using YouTube ads to show off his car collection, everyone can display all sorts of collectibles they own on their profile. This potentially adds another dimension to our online personas, creating opportunities for people to signal status or lose their nest egg on speculative investments. The exclusively online marketplace NBA TopShot has amassed over $230 million in transactions since the fall of last year where “users can buy, sell and trade NBA highlights,” or as they are called on the platform, “moments.” Numerous platforms demonstrating the wide array of applications NFTs offer are growing in popularity, but require both purchasing its native token or cryptocurrency in order to trade on it and connecting a support crypto wallet application where funds must already exist.
NFTs will likely serve as a catalyst for more widespread adoption of cryptocurrencies and blockchain tech among the public at large as opposed to the seemingly zealous, outspoken niche of crypto enthusiasts on social media. NFTs will also encourage talented artists to share their work with the world with less fear of it being subject to commercial exploitation and expanding opportunities to monetize the content they create.
Noah is a senior in Business.