Random Musings on Non-Fungible Tokens (NFTs) in 2022

Whilst not intended as a comprehensive primer (happy to think about that if asked), I recently found myself participating in a Zoom call with a Mini-major film studio recently where the concept of NFTs appeared to have passed them by. After a short discussion it became clear that they couldn't really see how NFTs might disrupt the film sector so I though some random musings on NFTs might help!

"This year we will continue to see NFTs grow and eventually become mainstream."

Aleksander Larsen, Sky Mavis

Introduction

For good reason, "non-fungible token" (NFT) was Collins Dictionary's word of 2021. Actually, two really good reasons exist. The first is that NFTs are gaining momentum in a big way lately, and many are rushing to the dictionary to find out what exactly they are. The second reason is that NFTs could be about to change everything!

NFTs are digital content pieces linked to a blockchain. Think dispersed digital databases like the one that undergirds cryptocurrencies, e.g., bitcoin and Ethereum. No two NFTs are alike, so they are not interchangeable. This makes them non-fungible, distinguishing them from digital coins, which are fungible. In the latter case, one can be identically replaced or exchanged with another one of the same value. 

Like these collectible items -- not unlike rare coins or stamps, or maybe Pokémon cards -- NFTs create scarcity in a field of infinitely available assets. The owner even gets a certificate of authenticity to prove they're the unique holder of this special item of value. 

"I spent $2,000 on a pair of sneakers I know I will never wear. I can't wear them, because they exist only as an NFT. It's difficult for me to explain to someone who hasn't fallen down the crypto rabbit hole why I made this purchase, and I realize it probably seems crazy. But is it any less crazy than the money I previously spent on toe-crushing stilettos?"

Prerna Gupta, TechCrunch

Typically, NFTs are being used to buy and sell digital artwork, which might be images of physical objects, GIFs, virtual trading cards, even tweets. Virtual real estate is another big use. Now they threaten to revolutionise the publishing, music, and real-estate industries.

Publishing and NFTs

NFTs could be used by the publishing industry worldwide to fundamentally alter its approach to what it does. As examples consider:

• South China Morning Post, a traditional newspaper based in Hong Kong, recently announced the launch of ARTIFACT, a standardised metadata structure for recording historical assets as NFTs, making tokenised news stories traceable publicly and resistant to censorship.
• Time Magazine, among traditional publishing companies, is pioneering the use of NFTs in digital subscription models with TIMEPieces, which unlocks all content for token holders while granting them access to exclusive digital events and experiences.

Music and NFTs

NFTs may represent the next major technology revolution in the music industry. Some say they could be the new Napster, perhaps replacing record labels and streaming giants. In March 2021, Kings of Leon became the first band to release an album as an NFT. The tokens bestow special features including limited-edition vinyl records and front-row seats to concerts. Other acts are garnering major infusions of funds to their production efforts by selling individual recording NFTs. 

Buyers enjoy listening to music but find it's a whole new experience actually owning it.

 "Before, your fanbase couldn't be in the label meetings with you. But now we all are the label together. It's like being in the auction house window versus going and campaigning for what you believe in."

Haleek Maul, Rapper

Bored Ape, Capetain Trippy, a prominent NFT collector who owns the most well-known Bored Apes NFTs, now manages a next-generation virtual band called "The NFTs," who release music and videos as NFTs.

Other interesting music-related developments include:

• Loud Market: a music NFT marketplace that aims to remove intermediaries between artists and their fans in the music industry, enabling musicians to mint their songs as tokens and sell them directly to fans.
• Audius: a decentralised music streaming platform which takes 10% of sales revenues to fund decentralised node operators securing the network.
• Jack Dorsey: Twitter CEO who recently stepped down to run Block (formerly Square) with the hopes of getting streaming services such as Tidal to adopt music NFTs.

Jace Kay, "Dr. Capers" in The NFTs band, will be supporting his musical group through the StereoheadZ Music Club -- a decentralised music label and community -- whose token holders earn rewards and help develop the band. Stationhead, another Kay project, is a live music and broadcast platform empowering acts to broadcast live shows and stream their music from Apple Music and Spotify. 

Property/Real Estate and NFTs

Blockchain technology could disrupt the property sector. Every real-estate property is unique, its ownership and transfer of deeds requiring transparent record-keeping. NFTs can be leveraged to tokenise tangible assets. This means each token can work as a traceable ownership certificate for any real-estate asset, providing its most important information publicly via blockchain.

Indonesian real estate investment ecosystem LABS, for example, offers fractionalised NFTs of timeshare resorts. Calendar days at each resource are auctioned off as tokens, making real-estate investment more publicly accessible. 

Soon investors could sell and transfer land ownership online through NFTs, allowing for the possibility of touring a property virtually and showcasing collections of tokens in a virtual catalog.

Film and NFTs

As touched on above and much like the Music Industry, NFTs should give producers much more control over the financing of their work. But wait, there are more similarities here with Music in that it should also bring them into closer contact with their audience and the Audience can take a genuine stake in the film rather than the traditional crowdfunding approach of taking rewards. However, NFTs can play a role here also in that the producers or production companies can decide how many NFTs of their film they want to distribute and if they want to package it with exclusive content such as artwork or behind-the-scenes footage.

Examples of this are already out there with some credible players such as Niels Juuls (Producer of "The Irishman"). Juuls hopes to raise between $8 and $10million from NFT sales to public and institutional investors alike.

By way of an example, Quentin Tarantino is one of the first big directors to auction uncut scenes from his classic film "Pulp Fiction" as NFTs. The tokens include original handwritten movie scripts and exclusive director commentary.

Still too niche? Even James Bond got in on the action here with a limited edition NFT ticket stub!

Ethereum 2.0 to the rescue

NFTs were essentially born on Ethereum, the blockchain that still brings most of them to market. But the electricity a single transaction on Ethereum requires could power a conventional household for a day and a half. This is a nightmare for those concerned with the environment, not to mention the cost involved. 

The problem, as prominent Bored Ape Yacht Club member, Jace Kay explains, is that Ethereum is "burning energy, like driving a car with your foot floored on the accelerator with the brakes on." That's because Ethereum's current "pipe" lacks the capacity for a massive number of transactions. This means users pay higher costs to get through. 

Ethereum 2.0, whose full release is expected in 2022, expands the pipe, thereby lowering transaction costs. Lower fees leading to higher output boosts the value of NFTs created on the blockchain.

And to the future?

Well it could be a little like the original dawn of cryptocurrencies so it should always be a case of "buyer beware". If you are outside of the crypto trading ecosystem there are ways in which you can participate safely through proxies like Coinbase or GameStop but there are others on the scene and 2022 should see some interesting developments in this area.

All of this is likely to be nothing compared to what we will see going forward and for crypto native investors, they can either trade NFT collections on one of the leading marketplaces such as SuperRare and Rarible, invest into the tokens of such marketplaces themselves, or even invest in some of the NFT infrastructure providers like Immutable X, Worldwide Asset eXchange, and Loopring (and note... none of this should be viewed as investment advice, formal or otherwise). Welcome back to the Klondike - bring a shovel, it might get muddy!