Why NFTs might be the highway to the new digital economy.
By: Agata Leliwa Nowicka
Tags: Nft, Smart Contracts, Economy, Blockchain, Creativity

Being a visual creator myself, I have been intrigued by the implications of the raise of NFTs. There is an emerging ecosystem of NFT platforms used as distribution and marketing channels fuelling the interest of seasoned curators and complete novices.

I strongly believe that we are at the beginning of a new exciting era for creatives and that the NFTs will have other, new applications, revolutionizing how we perceive and monetize creativity in the future.

Before we jump into speculations, let’s understand what an NFT is.

What is an NFT?

NFT stands for a Non-Fungible Token. In reality, it is a unique digital asset such as a piece of art, trading card, meme, tweet, audio clip, gif, video clip, ebook, newsletter, or even moment! (Top Shot), basically, anything one can imagine, create, store, and trade on the blockchain. Once tokenized, or in other words “sliced”, such asset can be traded using digital cryptocurrency.

But why non-fungible?

In simple terms, fungibility means interchangeability. $1 bill is a great example of a fungible asset. Its value is universally recognized and accepted. Money, including fiat and any cryptocurrency, is a fungible asset.

On the flip side, let’s think about two exactly the same Jimmy Hendricks’ vinyl albums. Hmm.. maybe not quite. One is an autographed copy. Now you’ve got a non-fungible asset - because the two albums cannot be exchanged based on their unequal value.

Also, you can take a non-fungible token and fractionalize it into fungible tokens, that then can become a social or community token. I won’t be covering this here, but you can read more on applications of the evolving space between non-fungible and fungible tokens here.

NFT hype

Now, look closely - what do you see?

This is an image that Mike Winkelman aka Beeple, a digital artist, sold via Christie’s for a staggering $69m. The image represents a creative evolution of Beeple, through his artworks documented over consecutive 5000 days.

A $69m sale even for Christie’s is way above the norm, as a comparison - considered a very successful sale — Monet’s Nympheas painting, was sold in 2014 for “mere” $55m.

The sale of The First 5000 days marked two creative industry firsts. Christie’s has never offered a new media artwork of this scale or importance before — Christie’s has become the first major auction house to offer an NFT a guarantee of its authenticity and accept cryptocurrency in addition to standard forms of payment.

What’s next?

Over the past 18 months, there has been a boom of new artists showcasing and selling (sometimes for millions) NFTs online. There are currently dozens of platforms that allow an artist to create an NFT, plug it into a decentralized system, and sell it instantaneously and permissionless to anyone in the world through decentralized exchanges. However, in order to imagine the true potential of NFTs, it is important to better understand the technology that supports them.

NFTs, blockchain, and smart contracts

Blockchain (if not familiar read here) provides NFTs with an incredibly efficient architecture orchestrated by rules specified within smart contracts. When an NFT is incepted or “minted”, it is signed by a creator using their cryptographic keys — which enables anyone to openly verify NFTs’ authenticity and track its ownership through the use of smart contracts.

Ownership

Right now, it is very difficult for developers to find all that information on web-2 platforms because the history of media is not tracked architecturally in the way that blockchains track it.

Since being minted, an NFT lives on the blockchain alongside all other transactions, and everyone can see it. The provenance of NFTs allows for tracking the ownership, creator’s data, protocols, and financial benefits that accrue as a result of the built-in secondary market. As a consequence of being registered on the blockchain, every NFT transaction contributes to a very rich history of the interactions people have with any piece of media on the internet.

But ownership history matters also for several other reasons:

The number of times a file has been reproduced on the internet is directly correlated to the value of that file’s NFT — meaning the more times a piece of media gets shared online, the more social value it has. Being able to discover an artist or creator early on, and having an“early adopter” status tracked on the blockchain can have its social benefits. An NFT might also appreciate in value based on who has owned it in the past.

Also, the secondary resale of an NFT can be programmatically constructed, using different protocols and smart contracts, so that, for example, anytime an NFT changes hands, a portion of its resale value can go directly to the original creator.

In a modern world, if we start seeing employees as creators, NFTs also have the potential to serve a wider purpose within a domain of ownership. Currently, in order to be more likely to succeed, startups offer small equity to attract top talent — this model so far has worked very well. But it has not been widely accessible - effectively, restricting the potential talent pool for a company. Cryptocurrencies, however, allow transferring ownership value anywhere in the world instantly, making it possible for everyone aligned with the company’s interests to be awarded some ownership based on the value they contribute to the company.

Where information flows, value can also flow

The rules around monetizing creativity that can be expressed as code by any developer open up new possibilities for both developers and creators. Every piece of creativity could soon be incepted as an NFT resulting in a universal library that’s programmable and where value flow would be embedded into the technology itself.

I believe that this universal, open library will in near future allow for the creation of a whole range of new applications by developers and creators. Consequently, this will increase the competition that, eventually will lead to a new era of online creativity, and the undisrupted-by-middlemen flow of value to the consumers.

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