TL;DR - Watch the video at the end of this article!
NFTs are here to stay, and they are going to completely transform every industry out there (specially the creative ones)! I truly believe that!...but for quite some time now, I’ve been seeing many many people completely dismiss the disruptive potential of NFTs. The immature hype around them, and also the absurdity within the market hasn't helped at all. Now, I get it, you all of a sudden start seeing major news headlines on pixelated cartoons and memes selling for hundreds of thousands of dollars (sometimes even millions), and you immediately think: “This CAN'T be serious!”.
To be fair, the idea behind NFTs is still very new for most, so it’s understandable you will feel skeptical about it. We haven’t even started to scratch the surface of all the possibilities that NFTs could provide.
So let's take a step back and try to make sense of this technology by addressing the following questions:
What are NFTs, how do they work and why do they have value?
What’s their true disruptive potential within creative industries?
Why should you keep a close eye on developments in the NFT space?
This article is an introduction to the “Beyond the Hype” series. In this series, we will investigate the potential of NFTs to disrupt and foster innovation within creative industries. Now let's dive into it! 👇
What are NFTs, how they work and why do they have value?
NFT stands for Non-Fungible Token. By definition, something that is non-fungible holds unique characteristics and cannot be replaced by something else. If you decide to exchange a non-fungible item with someone, you’ll end up with a different item than what you previously owned.
To illustrate, let’s imagine you have a painting made by artist X, and you wanna exchange it for another painting. Since paintings hold unique characteristics, you will end up with a completely different work of art., even if both parties agree, that the paintings hold the same monetary value. This is because the monetary value of both paintings can differ with each other over time. Therefore, we characterize paintings as non-fungible, as opposed to a 1 ounce bar of gold, or a dollar bill, which are considered fungible, and hold equal value over time.
With regard to the word Token in NFT, in general, a token is an object that represents something else. Applied to the crypto world, a crypto token is a representation of an asset that resides on a blockchain.
So we can define NFTs as digital representations of unique, or VERY rare objects that are located in a blockchain.
An NFT can represent real-world items, not only art, but also music, in-game items, videos, collectable cards, real-estate, and so on. The applications of NFTs are really wide. Let us also recognize, that an NFT which represents a digital artistic production, is often referred to as crypto art.
But what exactly do you get, when you buy an NFT?
When you purchase an NFT, you are usually buying a digital record (which often contains a URL or a serial number). The transaction is digitally recorded in a block. The block is then incorporated to the blockchain and verified by multiple computers on the blockchain network.
So how does a digital record have any value?
The value of an object is subjective, it is influenced and determined by the feelings, tastes, and opinions of groups and individuals. A unique or extremely scarce digital file can be perceived to be highly valuable. However, if a unique item does not have proof of authenticity, its value is compromised. Authenticity is a key determinant of value, in this case. NFTs contain a unique signature that comes directly from the person who created that token, serving as a type of certificate of authenticity. Therefore, an authenticated digital file signed by an artist or creator you know and love, for example, could hold significant value.
But still, I could easily download a digital file for free. How can it still have value?
Although everyone can see or download a copy of it, only one person can own the original. Besides, the more people experience and enjoy that artistic work, the more valuable it becomes!
What problems in the creative industries could they possibly solve?
Ok. Now we understand what NFTs are and how they have value...that’s great! But we need to start digging deeper to really assess and grasp their full revolutionary potential. The technology behind NFTs can fundamentally solve some of the main issues we have today in creative sectors, such as:
The high level of centralization of power within the industry (aka the gatekeepers)
The difficulties in monetizing our work
Collecting royalties
Misattribution of art pieces (or errors and omissions in provenance)
As part of this series, in following episodes we will discuss each of these issues in greater detail. If these issues are addressed and eliminated, the business environment will become more efficient, and transparent, not only for artists, but for fans, collectors and investors alike. The power will be in the hands of the creative and his/her audience.
NFTs are also opening up a new market for digital artists, aside from potentially solving current problems in traditional creative industries. Graphic designers, digital designers and artists who create art that lives digitally, are especially exploring this space. Many are being able to realize the value of their work by selling their pieces online. NFTs are finally paving the way for digital artists to connect directly with the collectors, enhancing the value of their creativity. Some are even seeing NFTs become their main source of income.
Another fascinating aspect of the NFT space is that it has enabled an unprecedented level of collaboration between creators. One example is collaborations between music producers and digital artists, who are creating new types of collectables.
Who knows? Maybe this technology will even unlock new ways of creating art that we cannot yet conceive! New ways for artists to create, and deliver value to their audiences...the possibilities are limitless!
Why EVERYONE should pay attention to it
Now, if you are not a creator, and was never really interested in this sector, at this point you might be thinking: “but what do I have to do with this? I’m not an artist, I’ve never been a collector...I don’t see why I should care at all!”
Well...You should pay attention to this space for 2 main reasons:
Traditional art is a $65B market that has had average annual returns of over 7% for the last 35 years. Wealthy investors have been using it to diversify their portfolios for many many years, but it has been largely inaccessible to retail investors due to gatekeepers, which are difficult to navigate. Cryptoart could eventually cement its position as an asset class, and become an even larger market. Early adopters who take the time to gather information, learn about the space and take educated risks, could be the ones seeing better returns in the future.
As I mentioned earlier on in this video, NFTs could represent not only art and music, but also any object (digital or real). By removing the need for multiple layers of middlemen to establish trust in ownership transfers, many sectors and markets could be completely transformed across the board. Again, being aware of these disruptions early on, with enough information to make educated decisions, could put you one step ahead and provide greater future returns.
Conclusion
As I said in the beginning of this article, this is just an introduction to the world of NFTs. Today, very few creators and investors are actively exploring the new possibilities this technology can provide. Although the hype around Cryptoart may be deceiving, we are only beginning to discover its potential.
To illustrate this, Gartner, a leading research and advisory company, annually releases a graph representing the hype cycle for emerging technologies. As illustrated in the Graph, the phases through which emerging technologies evolve with time, can be described as the Innovation Trigger Phase, the Peak of Inflated Expectations Phase, the Trough of Disillusionment Phase, the Slope of Enlightenment Phase, and the Plateau of Productivity Phase.
If we were to ascribe a position for NFTs along the curve of the graph, it would most likely be around the ‘Peak of inflated expectations’; still very far from being in a mature state, along the ‘Plateau of Productivity’.
Also, in a recent interview by CoinDesk with Noah Davis, an executive at Christie's (one of the biggest auction houses in the UK), he stated that NFTs are potentially the art world’s Napster, disrupting the way in which we do business.
I personally believe that if we try to see beyond the dusty fog of absurdity that took over the NFTs and crypto art space lately, we could find their true potential. This does not mean we should ignore the potential negative implications they could have on the creative world. Technology evolves, and we have to ensure that it delivers its promise for the benefit of people; otherwise, its misuse becomes a missed opportunity for progress.
To quote one of my favourite writers and philosophers Albert Camus:
"accepting the absurdity of everything around us is one step, a necessary experience: it should not become a dead end. It arouses a revolt that can become fruitful."
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