What are NFTs and why is everyone excited about it?
While non-fungible tokens (NFTs) have garnered significant attention over the past year, this recognition isn’t without warrant. NFTs are already changing the way we look at art and collectibles, and this trend is predicted to continue. Recently, we have seen NFTs sell for very high prices, like a digital piece of art which recently sold for $69 million. But the impact of this new technology will be felt more broadly than in just the world of art and collectables.
UFC heavyweight champion Francis Ngannou’s NFT created by Bosslogic fetched him an estimated $580,000.
What is an NFT?
A non-fungible token — or NFT — is a unique digital asset secured by blockchain technology. Currently, most NFTs are created on the Ethereum blockchain using the ERC-721 token standard. Regardless of what blockchain it is designed on, all NFTs exhibit similar properties:
- Uniqueness — No two are interchangeable
- Non Divisibility — They cannot be divided into smaller pieces
- Transferrable — They can be bought, sold, or transferred to another party
- Traceable — Ownership and activity can easily be traced on the blockchain
The transparency of NFTs through blockchain networks makes it easy to track the history of an NFT from its previous owners and sale price to its authenticity. It also makes these digital assets easy to exchange or trade.
The economics of scarcity
To understand why NFTs are valuable, it first helps to ask the question: why is art valuable?
In theory, a painting shouldn’t have any more value than the canvas it’s painted on. Yet, artwork is valuable and often grows in value over time. This is thanks to the economic principle of scarcity. Scarcity is the gap between the limited supply of an asset and its theoretically limitless demand. A unique piece of art that’s one-of-a-kind has scarcity, and therefore gains more value as demand for that piece of art grows.
The supply of a unique piece of art does not change. Yet, demand for that art has no limits. It’s this fundamental economic cycle — where supply is stagnant and demand grows — which explains how art can increasingly grow in value. Let’s now apply the same concept of economic scarcity to NFTs in the digital world. Remember that one of the main characteristics of NFTs is that they are unique, and blockchain tracking ensures these digital products cannot be reproduced or counterfeited. This uniqueness generates scarcity, which is one of the main drivers of NFT value.
The Benefits of NFTs
NFTs not only improve on previous methods of tracking and securing real world items, but also open the doors for new, digital markets with infinite possibilities.
Counterfeiting is a serious challenge in both the real and digital worlds. In fact, it’s estimated that the effects of counterfeiting could cost the global economy $2.3 trillion by 2022. NFTs are easily traceable and cannot be counterfeited unless an entire blockchain network is compromised. Owners of these digital assets can then rest assured with the knowledge that their purchases are secured and cannot be altered.
By creating peer-to-peer marketplaces, NFTs eliminate intermediaries and third-parties, providing better market efficiency, more transparency, and cheaper transacting for users. This isn’t just in artwork, but for the supply chain as well. NFTs can be used to track and trace any item across the supply chain, which helps producers identify bottlenecks and track the entire supply chain from start to finish.
Direct connection between creator and audience
Instead of selling art and digital goods through an agent, artists of all kinds can interact directly with audiences who are then able to feel more connected to the artist. This creates a more intimate, authentic relationship between artist and audience. Using NFTs to engage an audience has become more commonplace in the past year. In one recent example, Tesla founder Elon Musk considered selling his techno song about NFTs as an NFT before ultimately deciding against it.
This is exactly what CEEK is doing by allowing artists to perform directly for fans in the virtual world. Artists can not only perform for their fans, but also sell merchandise and fan experiences through NFTs on the platform. The CEEK platform already features high-profile artists like Katy Perry, Bon Jovi, Lady Gaga, and Snoop Dogg.
NFT use cases
While art has been one of the first successful use cases for NFTs, this technology has a much wider range of potential applications.
Tracking real world assets
Any real world asset, from a car to the Mona Lisa, can theoretically be tracked using NFT technology. These assets are tokenized and used in conjunction with tamper-proof QR codes or other physical identifiers to link between the digital and real worlds. Fashion brands like Louis Vuitton are already working on blockchain and NFT solutions to secure products along their supply chain and reduce counterfeiting along the way.
For gaming enthusiasts, digital personas have become just as important as in the real world. Imaging in a VR world like CEEK, our users (Ceekers) can express themselves through the use of clothing, skins, accessories and more. And NFTs can help. This is true for unique artist experiences that can be memorialized in a similar fashion as well. Historically, there was no way to ensure exclusivity of items in digital worlds while also tracking these goods. NFTs allow users to purchase unique goods to enhance their digital persona, and at the same time, blockchain technology ensures these purchases are legitimate and secure.
Imagine your digital persona in the virtual world reflecting your personality and interests. By allowing users to purchase NFTs of digital merchandise and accessories, CEEK allows users to create even more in-depth digital personas that they can show off and share with friends.
Collectables have already made the jump to the digital realm. NFT successes like CryptoKitties and NBA TopShot have proven the market for blockchain-based digital collectibles will thrive in the coming years. But NFTs have their place in the already established eSports and digital gaming industry as well. As the gaming industry continues to grow, companies are looking for more ways to monetize their platforms. One way to do this is through in-game purchases which enhance gameplay for users. This idea is already being implemented by the popular game Minecraft, where users are rewarded with NFTs in-game which can be used to unlock new game features.
Where the digital world and real world come together
Non-fungible tokens are just another way that digital technology is improving upon real world functionality. This is especially relevant in the world of virtual reality, where these two worlds often become one. Utilizing virtual reality to merge these two worlds together, CEEK is proving that NFTs will bring added value to the virtual reality space, and increase user experience and adoption along the way.