by Adam Pease
Last week an auction at Christie’s closed for a staggering $69M sum. What was being sold? A digital image. The piece, a montage of a 5,000 smaller digital artworks by a seller named Beeple, is called “Everydays: The First 5000 Days,” and it represents just the start of a new craze for cryptocurrency based non-fungible tokens (NFTs) in the art world and beyond. In this blog, we explain the current NFT craze and explore some potential applications the technology may have in the enterprise down the road.
What Is an NFT?
An NFT is a digital file stored in a blockchain, which is a kind of database that acts as an immutable, distributed ledger for storing information. Like bitcoin, the authenticity and ownership of an NFT is proven through the cryptographic protocol of the blockchain. However, unlike bitcoin NFTs cannot be exchanged with one another, as the name indicates, they are ‘non-fungible,’ meaning they can act as stamps of ownership for digital assets.
To this end, many artists, musicians, and other content creators are ‘minting’ their assets as NFTs and selling them through online exchanges such as rarible.com. And like Beeple’s $69M piece, many of these NFTs are fetching eye-catching prices far and above what similar art would go for in the normal market. This is because the NFT market is currently experiencing a dramatic surge in popularity and demand. With widespread media coverage and some genuinely jaw-dropping sales, many are asking themselves, are NFTs worth the hype?
Is The NFT Market a Bubble?
Since the exciting stories about Reddit, Wall Street, and GameStop earlier this year, investment has been the topic on the tip of everyone’s tongue. Impressive booms in the value of bitcoin have driven this wave, as many amateur investors and institutional players are eager to try and cash in on the cryptocurrency market. Many social media influencers are leveraging their platforms and followers to try and drive up the price of their own NFTs, with some experiencing great success.
However, like any kind of speculation, betting on NFTs can be a dangerous game. Perhaps even more than traditional cryptocurrencies, as it can be easy to make the wrong choice and be left ‘holding the bag’ on a token that will never gain its value back. More importantly, the media hype cycle that is currently driving the NFT boom could run out of steam at any time, leaving the market in a lurch.
It is still hard to say if NFTs are a genuine transformation in the structure of digital ownership, or a passing fad that has been inflated by media and by hungry investors. Clearly, the technology has unique advantages, but will these be enough to permanently displace the tried and true methods of managing asset ownership. Additionally, the fact that many assets that would have performed poorly in other, traditional art markets are fetching such high price tags suggests to us that there may be serious over-valuation throughout the market.
The hype for NFTs may soon die down, which will affect the speculation for these assets.
What Could NFTs Mean for the Enterprise?
While it remains to be seen whether or not the NFT market is a speculative bubble driven by hype, there are exciting possibilities for using this technology in the enterprise. Currently, the primary applications of NFTs are in areas like art markets, decentralized finance, and domain names, however the market is quickly expanding as people explore potential use cases.
For rights management throughout entertainment and media, NFTs certainly may prove to be a disruptive technology. Musical artists may try to take advantage of tokens to monetize their content, and it is not hard to imagine a Spotify competitor that used a blockchain-based token system to manage ownership and royalties. Similar attempts may be made in the film and streaming markets, however it is important to remember that institutional players in these markets—record labels, production companies, etc.—may constrain adoption.
We can expect other enterprise use cases to emerge over time as well. While the most obvious application is in managing rights, NFTs could also be used to support payment models, and could become a component of digital transaction management. A SaaS provider might decide to offer its subscription in the form of an NFT, which could have advantages for users.
Bottom Line
Ultimately, it is too early to tell whether the boom in NFTs is a bubble that will pass, or the sign of a seriously transformative technology. The wild prices many NFTs are fetching does suggest that most assets being minted are probably overvalued, however content creators with established audiences may be able to see high prices. For the enterprise, NFTs have the potential to herald a new approach to rights management, but only time will tell if they can deliver on this promise.