NFTs (non-fungible tokens) have experienced a pop-culture explosion in 2021 with many celebrities, bands, and artists embracing the trend of selling ownership of digital assets. The NFT market had tripled in size by the end of 2020 and its total value rose to more than $250 million. Now, in the first few months of 2021, we have seen history made in the NFT sphere. A virtual kitten has sold for $172 000, a valuable painting has been set on fire, and art and music creations have generated millions of dollars in as little as 24 hours.
NFTs – a quick breakdown:
What is an NFT?
NFTs are tokens with unique metadata that exist on a blockchain and cannot be replicated or exchanged. A non-fungible token is a form of cryptocurrency that holds ownership of an asset – most commonly music, art, and videos. Although widely used for artistic purposes, NFTs can be applied to any area, including identification and supply chain challenges.
Fungible and non-fungible
A fungible asset is something that can be interchanged or exchanged with other individual goods or assets of the same type. For example, a twenty-dollar note has exactly the same value as any other twenty-dollar note of the same currency.
A non-fungible asset is something that is unique and cannot be readily interchanged, swapped, or exchanged. For example, collectibles like trading cards vary wildly in rarity and desirability, so one cannot be automatically prescribed the same value as another. The same can be said for artwork – you could not trade a child’s painting for the Mona Lisa despite both works being art. The non-fungible part of the name means the token is completely unique and cannot be exchanged or replaced with something else. Basically, they serve as a non-duplicable digital certificate of ownership for any asset.
Why the sudden popularity?
The value of NFTs has steadily increased in the last couple of years with an explosion in February 2021, taking the value from $42 million dollars three years ago to over $250 million now.
NFTs move to mainstream
The National Basketball Association (NBA) could be credited with the sudden surge of mainstream interest in NFTs. The organisation has taken trading cards into the future by making its own digital collectibles. NBA’s Top Shot is a crypto-collectible that buyers can purchase as a non-fungible token and has generated more than $230 million in sales so far. By tying each item to a blockchain, the collectible is given a unique and immutable certificate of authenticity and ownership.
Since the success of Top Shot, many celebrities and creators have turned to NFTs to sell their works.
The music industry has adopted this new technology at a steep rate, with musicians making millions off NFT offerings in recent months. Kings of Leon released their new album at the beginning of March with NFTs that held extra perks such as audio-visual art and front row seats at events. The album, When You See Yourself generated more than $1.45 million in sales in the first five days of release. A DJ named 3lau made close to $12 million in 24 hours when he re-released his 2018 album as an NFT. In an auction-style sale lasting 48 hours, consumers bid on the 33 tokens available. Winners were then able to redeem those tokens for unreleased music, bonus songs, unique experiences, and special-edition vinyls.
The art world has also been turned upside down by the new technology. Artist Beeple made history when Christie’s sold his work Everydays: The First 5,000 Days for $69.4 million. It was the first time a major auction house had offered a purely digital artwork with an NFT as a certificate of authenticity. It is also the first time cryptocurrency has been used to pay for an artwork at auction.
An original Banksy work was bought by a blockchain company for $95 000 and later set on fire to be turned into a digital reproduction. The new work sold at $382,336 – more than four times the original price.
So why are NFTs so popular with creative works and collectibles?
Because NFTs solve three problems that plague the industry:
- Verifying that an asset is an original work.
- Verifying ownership of an original work in a sea full of duplicates.
- Giving creators a chance to profit off their work.
Like anything blockchain-backed, detailed attributes like owner identity and rich meta-data can be added to an NFT. This data is immutable and cannot be changed. The storing of an NFT is also decentralised which means anyone can look up the information of the token and see the verified owner of the original work. For collectors, it is this undeniable and documented ownership that makes the steep price of NFTs worth it.
NFTs appeal to creators because they can sell their work directly to a global audience without the need for auction houses, streaming services, or online stores. This allows artists to avoid fees and keep a larger portion of the profits they make from sales. Royalties can also be programmed into digital work so that the creator can profit each time their works are sold to a new owner.
NFTs in supply chains
While the creative industries have adopted NFTs at a startling rate, we could see other sectors using the technology. Tokenising assets with NFTs could make supply chains more secure, traceable, and efficient whilst providing unique benefits such as:
- Removal of counterfeit material
- Secure traceability
- Ensure uniqueness and maintain provenance
- Verify ownership
From Alexander McQueen goods to gold bars, NFTs can be tweaked to meet any requirement so they can be applied to any high-value product. For example, by assigning an NFT to each gold bar in a supply chain you could ensure each has a unique ID with access to data about its origins and the company that produced it. As the gold is passed from owner to owner, so are the NFTs.
Blockhead Technologies helps companies track their supply chains with our blockchain-backed platform STAMP Supply. You can find out more about STAMP Supply here or contact us here for more information or a demo.