NFTs are all the rage. But we already know that.
By now, many of us will have already come across at least a couple headlines or social media posts that we’ve probably had to scroll back just to read twice. You know, about those stories of virtual paintings, GIFs, cartoons, tweets and pictures of rocks selling for millions and all.
Welcome to 2021 (because one pandemic wasn’t wild enough).
But you might still be wondering what exactly makes virtual art worth that kind of mind boggling price tag, especially when, in theory, anything on the internet can be easily copied and shared. That’s because these pieces are actually NFTs, or non-fungible tokens, meaning they’re one-of-kind and can’t be duplicated.
NFTs are essentially digital representations of everyday, real-life items, whose authenticity, ownership and transaction records are registered on a blockchain. This technology makes it near impossible for NFT-based digital assets to be copied, edited or hacked.
Since all NFTs are:
- Unique: there is always only one NFT per digital item
- Non-fungible: can’t be traded for other tokens as they don’t have the same value
- Scarce: the value of NFTs is tied to how rare they are
They enable a new and more efficient way of commercializing digital assets, especially in industries where it’s particularly difficult to establish ownership or determine authenticity, like the luxury fashion segment. NFTs also open brand new revenue streams and have the potential to fuel the rise of innovative digital products. Many industries are already tokenizing assets including sports highlights, music albums, iconic entertainment moments and memorabilia.
But as NFTs continue to grip the world, much is being asked about whether they’re just a fad and if they hold any long-term promise.
The short version:
The world of digital art might have kicked it all off just a few months ago, but the rise of NFTs is rapidly gathering pace elsewhere:
Fashion: Luxury brands are starting to use digital tokens to safeguard authenticity and ownership rights while also helping solve an age-old problem - counterfeiting.
Music: Proving ownership of original content and tracking its use is made easier with NFTs. Creators can rely on NFTs as a transparent monetisation mechanism, in particular when it comes to royalties.
Patents and intellectual rights protection: Tokenized certifications come with inherent legal safeguards to preserve the authenticity of documents and add transparency to processes.
Collectibles: Tokens offer a unique way of purchasing one-of-a-kind digital collectibles with absolute certainty over their provenance making it a safe value investment for collectors.
Real estate: NFTs can be used as registries that can establish clear property rights and enable ownership to be easily established and transferred
Gaming: NFTs allow sports biggest moments and memorabilia to be tokenized and exchanged between fans, collectors and investors
Virtual Worlds: Users can monetize their creations, including avatars and virtual land, and unleash their creativity in new ways
NFTs are hot and getting the front row treatment. Just ask Louis Vuitton or Gucci.
Not known for ever skipping the trend train, the fashion industry has turned its perfectly coiffed head to all things blockchain, releasing exclusive NFT collections for major digital outlets. Instead of catwalks in Paris and Milano or glossy Vogue covers, fashionistas can now get their fashion fix from popular games like Mythical Games’ Blankos Block Part, Nintendo’s Animal Crossing and Pokemon Go. Yes, a rather unusual turn of events, but the trend is catching on. British fashion house Burberry, for example, has released a much hyped NFT game character named Sharky B, featuring the unmistakable Burberry pattern that's proven to be a hit with Banko's players.
Across the Channel, Louis Vuitton has celebrated its 200th anniversary with a very digital bang by releasing “Louis the Game”, where users of this mobile game can customize their character with a range of classy LV prints and collect 30 free NFTs as they follow the brand’s mascot Vivienne around six virtual worlds. Notably, "Louis: The Game" features 10 NFTs created by renowned digital artist Beeple, better known for kicking off the NFT craze earlier this year by selling a digital collage for an eye-watering $69 million.
Elsewhere, fashion-conscious players might be seen flashing a pair of virtual Gucci sneakers that were released earlier this year as part of a collaboration between the iconic Italian label and Belarus-based fashion technology Wanna. Although not technically an NFT, the collection includes 25 digital-only pairs of sneakers, powered by augmented reality technology, that can be worn either on Gucci's app or on the hugely popular gaming platform, Roblox. And while Gucci and pocket-friendly aren't words usually seen together in the same sentence, fashionistas breathe a sigh of relief at the affordable prices of these virtual designs, with some packages being available for as low as $9. Quite the bargain, even if only for a pair of virtual designer shoes. The Italian fashion house has been among the most proactive in virtual luxury, building on a widely successful partnership with Roblox and more recently with Pokemon Go through its Gucci x North Face costumes.
Also proof that digital fashion doesn't have to break the bank, fashion darling Valentino is taking a shot at the world NFTs via an exclusive drop of avatar accessories on Animal Crossing, as have Marc Jacobs, Anna Sui and Givenchy. Even if not ready to join the NFT frenzy, other major fashion houses like Balenciaga and Moschino have been increasingly exploring virtual activations through gaming with campaigns like Balenciaga x Afterworld and Moschino x Sims (yes, those Sims, they're still around).
Whichever way you look at it, NFTs have opened up new (and often more affordable) ways for customers to access brands and, in turn, brands have also found a renewed incentive to pursue more creative collaborations. Take the example of fashion studio Rtfkt whose sneaker collection collab with up-and-coming teen artist Fewocious saw 621 virtual pairs being sold for over $3.1 million, despite the price of these sneakers being actually well above that of the physical items. Whether to reach a new generation of digital fashion-forward customers, to fight counterfeiting (more on that later) or to make use of a fresh creative medium to deliver the next big trend, it's clear that the fashion industry is keeping up with the times to remain avant-garde as always. And soon enough, maybe, owning luxury fashion NFTs will be the new trés chic for more than just gamers and industry insiders.
Time to change the beat?
Some say the sky's the limit, but for the music industry the moon has literally just become the new frontier after Claude Debussy's classic masterpiece ‘Clair de Lune’ (“Moonlight” in French) was chosen to become the first NFT song to be sent to space. To be clear, this wasn't the first time music has made it into orbit, but it was a first for an NFT.
The hope is that artists will start taking notice of this extraterrestrial niche in the NFT marketplace and eventually be given the opportunity to beam their own creations into space and mint them as NFTs.
Ok, now back to Earth for a moment.
The music and publishing industries have long been involved in contentious issues for musicians, with numerous high profile disputes between artists and labels hitting the headlines over copyrights, royalties and management. This has been particularly painful for independent artists who get paid close to nothing (a third of a cent to be more exact) for their streams and smaller labels striving to get a fair control over their earning opportunities.
NFTs change the power dynamics in favor of artists by removing the middleman. Superstars like Eminem, Steve Aoki, Jay Z, Kings of Leon and The Weeknd are wholeheartedly embracing the digital revolution and have already sold millions worth of NFTs. And have we mentioned Elon ( aka self-proclaimed technoking) Musk’s brief foray into the world of NFT music? Well, yes, you might not want to click on that after all…
Normally, musicians without a Musk-like following would stand little chance to benefit from million dollar sales, but with NFTs the tables are turned. Case in point? Young and Sick, a little known artist who managed to sell an NFT for $865,000 despite only having 27,000 Instagram followers at the time.
This is why NFTs have been dubbed a game-changer: they democratize and safeguard ownership rights and allow artists to have direct access to the profits of their work. When an artist or band creates an NFT, they can set up the percentage of royalties they’d like to get for every token resale. So every time a song is sold or streamed, musicians get automatically paid without having to go through an intermediary like streaming platforms or money hungry labels.
And it goes beyond artists getting their fair share of profits; NFTs democratize and enhance the music experience for fans, too. Through features like ‘unlockable content’, artists can embed additional goodies into an NFT, ranging from a thank you note, to an exclusive video or an autographed image, which allows fans to connect to their favorite performers in new ways. Fans can even become partial owners of songs.
It’s clear that NFTs have the potential to be a win-win solution for the music industry, in rewarding artists, big and small, and bringing them closer to fans in ways not yet seen before.
The good, the bad and the NFTs
Hyped as they may be, NFTs have risen to fame on the back of buzzy headlines about multi-billion art deals as much as they've gained a darker reputation over just how the underlying technology works.
NFTs sit on top of blockchain and the electricity needed to mint new NFTs, process and validate transactions is immense. It’s so energy-intensive in fact that by some estimates minting a single NFT requires the electrical energy that’s equivalent to the power consumption of an average EU citizen for a 1.5 months. Blockchains like Ethereum have come to be seen as bottomless energy pit that produces an environmental footprint so big that many just see it as a trade not worth taking. Some green-minded investors and collectors have started shunning NFTs altogether in favor of greener and more scalable alternatives. In an attempt to adopt a more eco-friendly reputation, Ethereum recently announced that it's undergoing a dramatic upgrade to slash energy consumption by 99%. But overall, carbon emissions derived from the use of blockchain are still a major concern at a time when climate change has entered an alarming new stage and governments worldwide are getting tough on carbon emissions.
Here's the problem: NFTs are minted and exchanged on the Ethereum blockchain and, much like the mining of cryptocurrencies like Ether, all of this often involves complex computational operations that, in turn, require vast amounts of (mostly non-renewable) electricity. Transactions represent the near totality of energy waste; a single Ethereum transaction is roughly equivalent to 74 000 VISA transactions. With large networks of computers left to run day and night just to solve mathematical puzzles and help create NFTs, it's easy to see why many feel like the high carbon footprint is not worth it.
But this crypto carbon crisis has opened a new debate about a more positive role to be played by NFTs. For starters, NFT marketplaces like Nifty Gateway, one of the world's premiere destinations for the sale of NFTs are moving quickly to become 'carbon negative", while there have been growing initiatives like the recent Carbon Drop auction to raise awareness of climate change and donate profits to organizations like the Open Earth Foundation.
The United Nations has too been leading calls for greater climate transparency after jumping on the blockchain bandwagon to kick off DigitalArt4Climate - a non-fungible initiative to help fight climate change and raise awareness of sustainability efforts.
NFT artists have started taking note including Beeple who’s vowed to invest in renewable energy and conservation projects to make all of his future pieces carbon neutral or negative.
The truth is that gauging the real effects on climate caused by the minting NFTs and blockchain use can hardly be based on individual contributions. However, it’s become clear that NFTs do have an environmental impact and that virtual versions of real-life items aren’t that eco-friendly after all. That’s perhaps something worth considering before jumping on the NFT bandwagon. But the good news is that not only virtual tokens are increasingly being used as an important source of investment for large-scale green energy projects and initiatives to offset carbon emissions - the technology itself is undergoing a transition toward a ‘proof-of-stake’ system that would require significantly less energy to create and exchange NFTs.
As the developer of Sensorium Galaxy, Sensorium has understood the impact of using blockchain technology and NFTs to power a metaverse as diverse and dynamic as this one. That is why it will be moving its in-platform currency, SENSO, to a blockchain built on Substrate, which relies on an eco-friendly NPoS consensus mechanism.
All things considered, NFTs can be an important tool in supporting long-term climate transition initiatives, even if for now the grass is still a little bit greener on the other side of technology.
Disrupting ownership models
NFTs have empowered artists and creators to retain a higher degree of control over their work while opening up new monetization opportunities. Embedded in the very architecture of NFTs, they essentially represent a form of virtual certificate of authenticity and ownership of digital assets that can be traced at any time since its recorded on the blockchain. That way, artists are able to rip the benefits of their work, from retaining copyright and reproduction rights to claiming royalties in a more transparent way.
When purchasing an NFT, buyers receive ownership rights of the NFT itself but not over the underlying work of art. For example, the artist retains ownership over their original artwork and can also sell prints or copies of it. Buyers own the print but certainly can't (legally) make further copies and distribute them for their own gain. As all NFTs are unique by default, artists see their work protected.
This has brought on a debate over the opportunities in space of patents. Potentially, NFTs could be used for patenting and transference of patent ownership. With blockchain, records of patent owners can be created, maintained and easily transferred through smart contracts containing legal rights associated with patents. Suddenly, patenting an invention becomes a speedy and affordable process.
Nike has taken an early lead in tokenizing its shoes and has recently secured a patent for “CryptoKicks" - a blockchain-based range of sneakers. Essentially, every time a customer purchases a genuine pair of shoes, they'll be attached to a token, which is a digital representation of the original shoes. That token ensures that the shoes are authentic and identifies their rightful owners. The tokens can be exchanged and sold just like physical items.
Other companies are also taking notice. IBM has begun tokenizing its intellectual property patents citing the advantages of blockchain to easily sell, trade or commercialize patents in an industry notoriously murky when it comes to establishing exactly who owns what or even what the actual patents are about.
NFTs bring trust and validation mechanisms to the table while saving companies and individuals the high legal costs that come with patenting. An NFT marketplace for patents is particularly advantageous for sectors with high volumes of patents being frequently filed, like the technology industry, and large companies such as IBM whose patent portfolio ranks among the largest in the world.
Changing the rules of the game
Suddenly, everyone seems to be into gaming. Even the grandma you never knew has been secretly playing Animal Crossing throughout the pandemic. For somewhat obvious reasons, many of us turned to our phones or consoles to find an escape during the Covid-19 lockdowns and that’s changed the landscape of gaming. Not only are there now more gamers out there, demographics have shifted to include older internet users (55-64), mobile games have overtaken other interfaces and, more crucially, trends are veering toward new consumer models. Gamers are opting to expand their experience, either through subscriptions like the Xbox Game Pass and PSNow, or by playing games based on freemium models where entering the game is free but extra features, like avatar skins, can be separately purchased. Fortnite and Call of Duty are examples of widely successful free-to-play titles.
In traditional gaming ecosystems, players are encouraged to unlock special features, buy in-game items and accessorize their virtual characters through marketplaces within the game. Recently, in-game random prizes in the form of Loot Boxes have become all the rage and this once obscure mechanism is now a money-making machine for developers. The only catch is that players don’t actually own any bit of their virtual collections, no matter how much time and money they’ve spent online; developers own the game (and everything inside it), while players own a license to use it. Basically, it’s pretty much like renting a house. That’s a disappointing realization for even the most loyal gamer. NFTs are quite literally changing the game by allowing players to access a new level of experience, where they can monetize both their time ('play to earn') and creativity.
This is how it works: in NFT-based virtual economies, users can create and own avatars, skins, weapons, collectibles, land, etc. Since an NFT represents a unique item, this adds value to digital content and creates scarcity in the marketplace, where they can freely exchange products just like in real-life. NFTs are a secure way of buying and selling virtual assets because players can verify the ownership and history of items every step of the way.
Moreover, NFTs have an interoperability functionality - players can choose to use the in-game marketplace or potentially exchange their creations through third-party platforms. The sale of NFTs is now so profitable that some are making it their full-time job. Not blown away yet? The NFT millionaire club might soon be ruled by children. Yes, you read that right. Parents might never see child art the same ever again.
So, with players owning in-game content, they’re effectively changing the gaming itself and becoming the platform’s main source of content creation.
More people are spending their time not only gaming but also experiencing a different form of virtual living - the metaverse. As virtual and augmented reality technologies advance, virtual worlds with infinite experiences are slowly maturing and becoming the go-to leisure outlet for more users. And NFTs are playing a crucial role in developing immersive and interactive metaverses like Sensorium Galaxy.
Unlike gaming, metaverses don’t have scripted narratives and predetermined outcomes; they rely on user-generated content as the connector of virtual worlds. Users can decide the limits of their virtual experience every step of the way, from the look of their avatars, to what dance choreographies they’d like to try, who they’d like to communicate with, what music shows to attend, and much more.
In fact, an AI-powered metaverse like Sensorium Galaxy sets the bar even higher; users can coexist with AI avatars or choose to build their own virtual beings, capable of holding intelligent conversations, creating their own dances and DJ-ing original sets. This way, opportunities for content creation through collaboration defy imagination.
NFTs are a tool that supports creativity by rewarding creators for their time and efforts in enhancing virtual worlds through open, fair and decentralized virtual marketplaces.
Within Sensorium Galaxy, users use the in-platform currency SENSO to make transactions and holding these tokens also opens up other critical opportunities, including getting a say in product-related decisions. NFT-based virtual worlds put the power back into the hands of users and content creators.
It’s still all about location, location, location - real or not
Let's face it. Real estate is expensive... and complicated. Even if you can afford to buy a house these days (and who can, really) there's usually a lot of red tape to go through before you're handed the keys.
In most countries, land ownership is established though government registries and a process like buying, selling or even inheriting a real estate asset is often costly and time-consuming, slowed by paper-based administrative work. Everything is still pretty much done the old-fashioned way.
On the other hand, as a digital representation of a real-life asset recorded on blockchain, NFTs can act as a safe and easily verifiable way of transferring ownership. Tokenizing a property makes it easier to settle legal paperwork and manage real estate transactions without the need for intermediaries. There’s also the added benefit of saving buyers the headache of going through banks and lengthy due diligence processes as transactions are settled directly on the blockchain. And while real estate isn’t known for catching up to trends as rapidly as other sectors, we’re seeing the surge of all-digital real estate agencies focused on bringing NFTs to the forefront of the industry. Looking beyond this advancement, there’s also the issue of virtual properties.
Land is a scarce resource and humans have fought over it for millennia. But as we’ve seen, land is becoming outrageously expensive and unattainable. But what about buying a piece of virtual land? Virtual real estate entrepreneurs sure think it’s a great investment and have rushed to Decentraland to prove a point. This virtual reality game where users can build, buy and sell virtual land has sold plots for as much as one million dollars.
Gaming platform Axie Infinity is also smashing records with a virtual property deal closing for roughly $1.5 million earlier this year. In case you’re wondering what could possibly justify a multi-million valuation on a virtual property, it isn’t much different from what we see in the real-word: plots closer to high-value areas like a shopping mall, museums or historical landmarks, are tied to greater amounts of digital “foot traffic”, and valued higher as a consequence.
Decentraland and Axie Infinitive have proven the success of combining virtual reality with blockchain technology to create virtual words (or metaverses) with not just profitable land, but also a wide range of NFT-based digital goods like avatars, wearables and add-ons that make the idea of virtual real estate a very alluring one.
Fancy a few digital crystals to keep you in tune with your inner self (tagline: don't think, feel), no problem because Cryptocrystal have come to the aid. What about some CryptoJingles to liven up your day? Or perhaps a whiff of Cyber Eau de Parfum to impress a potential date? Better yet, why not purchase a couple of digital racehorses to blow away your friends and family? At the end of the day, there’s probably already an NFT collectible to cater for all sorts of tastes, no matter how outlandish they might be.
Looking back at how we even got here, there’s no need to go that far back in time. After all, it was just last April that nine digital collectibles known as CryptoPunks sold for over $11 million at a Christie’s auction. And just like that, the floodgates were open. From the CryptoPunk collectibles suddenly went to the CryptoKitties, the crypto Pringles, the crypto toilet paper and the crypto Coca Cola.
Then the craze got to the sports world with the sale of an NFT of a video clip of LeBron James executing a single-handed dunk attracting viral attention from NBA fans and investors alike.
Basketball collectibles have since become hugely popular in large part thanks to NBA Top Shot, a digital platform dedicated to selling NFT-authenticated collectibles like trading cards and digital packs dubbed “moments”, which include video highlights from NBA games. The rarer these “moments” are, the higher the value of the NFT. Following the success of this venture, Top Shot is now rumoured to be branching out of basketball into soccer with a deal with Spain’s LaLiga to create a new range of NFT collectibles.
But sports leagues aren't the only ones benefiting from the technology; NFTs provide a new monetization avenue for athletes that want to give exclusive content to their fans. NFL legend and Tampa Bay Buccaneers quarterback Tom Brady will soon be releasing his own NFTs as will tennis superstar Naomi Osaka, golf prodigy Tiger Woods and a raft of other high-profile athletes.
From NFT crazyville to everyday reality
NFTs are still largely seen either as a speculative asset, a status symbol or an utterly absurd but passing trend. Granted, the current off the rails frenzy about digital art hasn’t helped much in convincing us of just how valuable NFTs can be. But signs of change are slowly emerging as the technology matures and more gets built upon it. Soon, NFTs might reach mundane realities like grocery shopping, donating blood or applying for a bank loan. After all, technologies we can’t imagine living without today, from electricity to cars and cell phones, were once also met with skepticism. NFTs are perhaps just facing the same scrutiny as the world tries to make sense of the technology beyond the CryptoKitties craze.