While the hype around digital art and collectibles in the form of non-fungible tokens or NFTs has somewhat subsided after the initial buzz, the new sector of blockchain technologies is certainly here to stay. Empowering artists and giving users control over digital items they purchased in video games are just a couple examples of why NFTs are not going to fade away too quickly.
In this guide we will be taking a look at what NFTs are, how they benefit both artists and users, their drawbacks, and just how big the sector has become over the past year.
What is an NFT?
In simple terms, a non-fungible token or NFT is a token that exists on the blockchain that cannot be replicated or replaced by another because of the underlying data attached to it, whether that is an image, video, song, or an accessory for an in-game avatar. This is in contrast to a fungible token such as Bitcoin, where there is no distinct difference between one Bitcoin and another.
The NFT provides verifiable ownership of the token and therefore whatever is attached to it as well, guaranteeing authenticity, and it is protected from being stolen because it is secured on the blockchain.
What is Crypto Art?
NFTs in the form of digital art, or crypto art, have become one of the biggest aspects of the craze.
Artists who were not able to get anything for art they posted on social media sites, or who were having trouble finding a way to market their art to potential buyers, have suddenly become empowered because of the rise of NFT marketplaces, where they can list and sell their art to buyers around the world. Because the art exists as an NFT, the ownership can be proven and it is always known who has the original, making it a great way to guarantee authenticity.
What is the Benefit for Artists?
There are quite a few benefits for artists who choose to try and sell their works as digital art rather than physical. Having more control over exposure and distribution of their art is one of the biggest advantages for artists. Not only can they choose where to sell it, and how much to charge, but because it is listed on a digital marketplace that operates 24/7, their work can be seen and bought any time, any place. Generally, the only thing it costs artists to sell their art digitally is their time and the commission owed to the marketplace they sell their works.
Speaking of commissions, they are one of the most advantageous parts of selling NFTs for artists. This is because depending on the marketplace they receive not only their initial sale, but royalties from every subsequent sale of their art. This is something that does not exist with physical collectibles, as the sole benefactor of secondary sales is the person who bought it originally. Depending on the scarcity of their art and the desirability this can lead to a ton of extra income they would never be exposed to otherwise.
What is the Benefit for Buyers and Collectors?
The main benefit for buyers and collectors of digital art is that they are guaranteed to be buying an authentic piece, because they can verify that it is on the blockchain. The added bonus is that you can also sell the art you buy on the same marketplace you bought it, or any other NFT marketplace of your choosing and have far more exposure to your listing than through most traditional art marketplaces.
NFTs have also made it extremely easy for collectors to support their favorite artists because there is no need to wait for shipping or production of the art, you own it as soon as the token lands in your wallet.
NFTs in the Gaming Sector
Perhaps an even more intriguing use of NFTs is in the gaming sector. CryptoKitties has taken the world by storm, essentially offering a unique digital pet in the vein of Neopets but with verifiable ownership and a way to sell pets and other in-game items for crypto.
This is where NFTs become very interesting because the purchase of in-game digital items like skins, accessories, weapons, maps or any other add-on which comes out for a video game are massive. The problem with these purchases is that once you buy the item, you are often stuck with it, you may be able to sell it for in-game currency, but it is not very often that you can get your actual money back.
This is where NFTs come in, because video games are more frequently being built on the blockchain it has become possible to buy an in-game item, and then simply sell it on an NFT marketplace for the cryptocurrency of your choosing. By giving users of the video games the rights to the items they purchase, developers are encouraging longer term use of their platforms. In addition, they can set it up so that they receive a piece of the sale as well in order to keep profiting off of their game.
Other Popular NFT Sectors
Crypto art and video games are not the only NFT sectors which have become popular over the past year.
Musicians have released tracks and albums as NFTs, some social media influencers have been able to sell tweets or clips of their videos, and sports highlights like on NBA Top Shot are all other areas of digital collecting that have really come to the spotlight.
What are the Potential Downsides to NFTs?
The most obvious downside to NFTs is their environmental impact. This is because at this time the majority of NFT marketplaces and sales take place on the Ethereum blockchain, which is a proof of work blockchain meaning it uses a lot of electricity, and generating a fairly large carbon footprint for all these sales of digital art work. This may become a moot point if and when Ethereum successfully launches Ethereum 2.0 and moves to a proof of stake system, but until then some artists have chosen not to sell their art as NFTs or are using other blockchains such as Cardano or Binance.
The other potential downside is that because it is all digital, it is easy to download the images and videos being sold as NFTs, though they cannot be considered the originals. While the copy is not the original, technically a user could just mint it as an NFT themselves and sell it on another marketplace to an unsuspecting buyer, so it is important to check who is selling an NFT and to verify its authenticity on the blockchain.
A Look at Big NFT Sales
Here we are just going to highlight some large sales in the NFT sector in order to showcase just how lucrative NFTs have become:
- Beeple sold a piece through Christie’s for $69 million
- A CryptoKittie has been sold for $170k
- An NBA highlight was recently bought by GM Daryl Morey for $4,444
- Logan Paul has sold clips of his YouTube show for up to $20k
- A video by Grimes was sold for $590k
While it remains to be seen whether these large scale purchases will have value over the long term it certainly shows just how large the craze for NFTs has become, and with the world becoming increasingly digital it will be interesting to see how the sector develops over time.
