The market for non-fungible tokens is evolving

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JOURNALISM IS OVER tell a story instead of living it. But sometimes these two realities collide. When a new technology shows promise, trying it out can help tell the story. In September we wrote that non-fungible tokens (NFTs) and the crypto infrastructure they sit on could over time transform finance and the digital economy. Our cover picture for the article, inspired by “Alice in Wonderland”, shows Alice how she timidly looks over the edge of the rabbit hole into this strange new world.

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Now she is one of them. October 25th The economist auctioned and NFT this cover photo and raised 99.9 ethers (approximately $ 420,000) for charity. The sale not only allowed us to raise money for a good cause, it also allowed us to better exploit the potential of the technology.

A NFT is a data set, typically in the Ethereum blockchain, that represents a digital medium: an image, say, a text or a video. Invented in 2014, NFTs experienced a mini boom in 2017 when “kryptokitties,” collectable images of digital cats, sold for thousands of dollars. But the tokens made headlines this March when Christie’s, an auction house, made one NFT a work by Beeple, a digital artist, for $ 69.3 million.

Today is the total value of NFTs issued on the Ethereum blockchain total $ 14.3 billion, up from around $ 340 million last year, according to DappRadar, a research firm. According to a survey conducted in March by Harris, a market research company, 11% of American adults say they have a NFT (only one percentage point less than those who invest in commodities). Analysts at Jefferies, an investment bank, expect the value of NFTs is set to double next year, to 80 billion by 2025. Over time, they could prove useful for all sorts of activities in both the digital and real world.

NFTs are crypto tokens such as Bitcoin or other crypto currencies. Bitcoin, however, is fungible: one unit is worth just as much as any other, much like a dollar bill or a printed copy of the latest edition of The economist. NFTs, like plane tickets and baseball cards, aren’t. The tokens store some data, often including the name of the NFT and a link to a digital picture. Each token is unique and can only be stored in a single online wallet. However, the image can be viewed, copied, or downloaded by anyone.

More curious and curious

Why should there be such a facility? NFTs were invented by Anil Dash, an entrepreneur, and Kevin McCoy, an artist, to convey that an item is a digital original. They provide evidence that the holder owns that particular token, even if it does not grant them the copyright or exclusive use of that work. Even Mr. Dash seems a little amused by her popularity. “If you liked a work of art, would you pay more for it just because someone put their name on a spreadsheet? I probably wouldn’t, ”he wrote in April. But he added, “Putting works of art on the blockchain is like listing them in an auction catalog. There is some degree of certainty about the work under consideration. ”The ability to separate the artist’s original creation from mere copies adds value.

NFTs have other potentially useful functions. Since they live in an open blockchain system, the history of the transactions in which they are involved can be viewed publicly. This makes it possible to code features into the contracts that govern how they are bought and sold. Digital artists can retain a portion of their work and are entitled to a share of the proceeds if the digital original is resold. This is something that small artists may find difficult to enforce by traditional means.

Theoretically is a NFT could link to text, including a legal contract conferring a certain type of property right or property. In practice, however, nothing is included. The property rights for art NFTInstead, s are usually determined by the specific platform on which they were issued. Some make it clear that the issuer is one NFT must have the copyright in the work that they shape. The terms of the foundation, the platform that The economist used to spell out that the buyer is one NFT has rights similar to a license to restrict the use of an image: you can view and copy the image publicly NFT for personal use, for example, but not use for commercial purposes.

If I had a world of my own

Monthly NFTTrading volume on designated art platforms including Nifty Gateway and Foundation reached $ 205 million this March, with the Beeples Opus sale marking the height of the frenzy. The passion for art has cooled since then. But the wider market for NFTs is evolving. The idea of ​​issuing a unique token that contains information, proves ownership, and includes some ownership rights has caught on for other purposes. Secondary trading on OpenSea and Rarible, platforms all possible NFTs, is stable (see graphic).

Many venture capitalists and developers are trying to build a new breed of digital economy where everything you do online is done through “decentralized” applications that can be owned and operated by their users. The diffusion of all kinds of digital content like pictures, videos, and even articles could begin at some point through something like today NFTS.

Something similar is already happening in gaming. The most valuable categories of tokens include those used in “Axie Infinity”, a game with 250,000 daily active users. Players collect, breed, fight and trade small creatures that act as. to be digitized NFTs and earn other tokens, some of which are involved in the development of the game. Dom Hofmann, a creator of Vine, a now discontinued video sharing app, is launching Supdrive, a video game platform where the games themselves are sold as NFTS. And some of the greatest types of NFTs are those used to trade virtual properties in online immersive worlds known as “metaverse”.

However, the tokens could also be useful for activities in the real world. Some universities are experimenting with using them to fund research. The University of California at Berkeley raised $ 50,000 from the sale of one NFT based on documents on Nobel Prize-winning cancer immunotherapy research as a collector’s item. She is planning another similar auction. The State of San Marino has approved the use of tokens as digital Covid vaccine passports.

The fact that they could signal proof of ownership NFTs useful for financial activities. As much as they allow virtual land transfers, they could be a way to exchange real title deeds or other types of contracts. In June, Michael Arrington, the founder of TechCrunch, a media company, sold an apartment in Kiev this way (the platform listing the property received approval from the Ukrainian government that the sale of the NFT would be registered as a transfer of title deed). NFTIt would also allow buyers and sellers to tap into a growing number of decentralized financial applications based on blockchains that can lend without trustworthy intermediaries.

Like any new technology NFTs have flaws. Technical limitations on initial creation mean they contain a link to the image rather than the image itself. That can be a weakness: Unscrupulous sellers have broken or changed links after a transaction. Blockchain technologies willfully consume electricity; We estimate that our experiment produces emissions similar to those of a seat on a long-haul flight. And the identity of a buyer of one NFT, and the origin of their funds cannot always be known. Some solutions are in the works: a decentralized storage system, for example, is trying to fix the problem of broken links; Some applications try to touch the blockchain as little as possible, which creates fewer emissions. More innovation is required if the promise of technology is to be fully delivered.

Time will tell if crypto kitties will prove to be the start of a revolution in people’s online lives. However, our experiment suggests that the potential for a new breed of digital economy seems at least large enough to warrant closer scrutiny. â– 

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This article appeared in the Finance & Economy section of the print edition under the heading “Through the Mirror”


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