In this article we want to pull the strings on the new buzzword of the moment: NFT.
Born a few years ago as a natural development of the blockchain, in recent months the NFTs have seen a boom both in the market and in the media.
Many things have been said about this technology, both enthusiastically and critically, and often not too objectively. Today we will try to define the real role of NFTs in our everyday lives, especially for tomorrow. But before we get into a long discussion about what the reasons are for the birth of NFTs, and what future prospects we should expect, let us start from the ground up.
What is an NFT?
It is an acronym that stands for "Non-Fungible Token". What does it mean? With respect to fungible goods, such as banknotes (which can be exchanged with other banknotes of the same value), non-expendable goods indicate that these goods are not replicable and replaceable, because they have a specific individuality.
This individuality is given by a digital mark, with a certificate of authenticity and uniqueness. This certificate is issued thanks to blockchain technology. NFTs are therefore associated with digital content, which guarantees the characteristics of uniqueness and authenticity, giving the owner a certificate of authenticity of the digital product in question and owned by the NFT. Each NFT, thanks to the blockchain, is a unique piece and therefore is not fungible, or non-interchangeable. This is - in a nutshell - an NFT.
Are there limits to creating NFTs? Not special: anything that is stored on a digital medium can be transformed into NFT, as long as you have the rights of use (if the purpose is then to sell it).
How NFTs Work Today
Today NFTs are an investment trend that moves billions and billions of dollars. A fashion that is destined to last for a long time, although probably with different implications than current speculation. Just think of the prices at which numerous NFTs were sold: Everydays: The First 5000 Days, Crypto Punks and Bored Ape Yacht Club, respectively at 69 million, 1 billion and 542 million dollars.
Many shouted at the scandal when these figures were made public, and many responded by defending NFT technology. For example, an NFT investor named Matt McNally reminded skeptics - a few weeks ago - that many of the goods that can be purchased today are - at the end of the day - many similar to NFTs: "Sure, you can say that spending money to buy a certificate that says you have an easily copyable image is ridiculous, but this is where I remind you that you can say about the same thing about 99% of everything else," McNally said.
"NFTs can be a lot of speculation, but what isn't? I may have thrown away thousands of dollars buying NFTs, but maybe you're throwing away thousands of dollars playing in the stock market, or buying lottery tickets, or buying products you don't need”
In general, when a market attracts so much money, there is only one meaning: there are needs that are not yet satisfied, and that find relief - in this case - thanks to the NFTs.
And what are these needs? First of all, to give value to what did not previously have any: digital art and the rights of creators on it. Secondly, the need for "recognition" (social, economic) of people also in digital spaces (and thanks to digital assets), currently not satisfied.
Currently, NFT sales skyrocketed to $10.7 billion in the third quarter of 2021. This boom can also be attributed to COVID-19, which has pushed many people to live digital in a different way. In addition, many artists, performers and musicians - among the categories most affected by the pandemic - have found themselves in a position to reinvent themselves, finding in the NFTs a way to earn money from their work.
One thing that surely cannot be said about NFTs is that they were born without a goal. However, a question arises: has the objective been achieved? It depends, above all, on the field of application. For example, one of the limitations of NFTs is that many people ask, “What is their practical utility? How can I make use of it?" A question that can be answered - only partially - by saying that they are financial investments.
But this situation is changing thanks to the birth of metaverses, where users can use and display their NFTs. Facebook's announcement that it wants to launch its own metaverse is a clear signal that the road to virtual worlds in which it can use its NFTs has now been paved.
But what is a metaverse? The canonical definition is: a three-dimensional space within which natural persons can move, share and interact through personalized avatars. In truth, there is no unambiguous definition, but it generally indicates a virtual place where you can hang out with other people, interact, invest and create your own character in the image and likeness of what you want to be.
Today there are about a dozen (depending on which metaverse definition you want to use). Let's see some examples.
An example of a metaverse is the Roblox game. Today the system is also integrated with certain NFTs, through which users can customize their characters.
An example of an NFT initiative is the one made by Gucci, which has tried to reach new consumers within this metaverse by creating an exclusive "Gucci Collection" composed of NFT, which includes bags, glasses and hats that can be used by users' avatars within the game.
Another well-established metaverse is Decentraland. An example of an initiative with NFT in this virtual world is that of Coca-Cola, which has launched branded virtual clothing as NFT, even hosting a Rooftop Party on the platform to celebrate the launch.
The advantages of NFTs: why create and sell them?
For brands and creators, NFTs are a godsend, if you will.
A whole new billionaire market born out of thin air in recent years: the possibilities of profit are practically unlimited, and the costs for companies and individuals are minimal.
The application fields are equally endless: everything can be sold as NFT, just create a digital copy of what you want to sell and the game is done. You can tokenize individual products or digital works of art, or create collections of thousands of objects.
In addition, NFTs incorporate all the classic advantages of blockchain, namely decentralization, disintermediation, registry immutability, traceability and verifiability of its contents, movements and transfers.
Another advantage is the possibility of earning even from second, third, fourth, etc. level sales: in short, every time your NFT is resold to third parties, you are paid for your rights. All thanks to the fact that on the blockchain every transfer of ownership is traceable. A continuous revenue stream, and unlimited in time.
The limits of NFTs
We come now to talk about what are the problems that today risk undermining the success of NFTs. Let us start with the problem of rights of use and sale.
Quentin Tarantino - the well-known film director - recently announced his entry into the world of NFT art by creating seven scanned digital copies of his original handwritten scripts with audio commentary, linked to the script of the film Pulp Fiction. The problem is - in this case - that the film production company, Miramax, decided to send a warning letter to the director, stating that they own and do not want to grant the rights to the film materials, when in fact the script is owned by the director.
Let's see another case: the model and actress Emily Ratajkowski sold a NFT a few months ago that represents a composite image, showing a photograph of herself in front of a print of another artist that contains a photo (of herself) taken (presumably) by another artist. A nice fuss, but basically the objective of this work is precisely to reflect on copyright in the world of digital art.
In general, NFTs empower artists to regain rights to their works, as mentioned before by providing royalties for subsequent sales of the same object: but at the same time, NFTs - if you can say so - are nothing more than links that point to different URLs, and can be anything. They can be a script, or a photo, or a 3D model, or a song, and so on. The medium is unique, but the output is different. NFTs are one of the answers to the copyright problem, not the answer.
A step forward is therefore also needed at the legislative level, which takes into account instruments such as NFTs and finally finds an effective way to protect digital art.
A fashion that does not focus on quality...
Another "problem" linked to the sector, which also risks undermining its success, is the proliferation of very poor quality NFTs: since anyone can create NFT - with a minimum of technical knowledge - the strong growth of the market has encouraged a generalized poor quality of the objects for sale that however - and it must be said - are often purchased equally.
Take for example a collection of NFTs that has had some success: the Neopets.
They are small animals, real and mythological, that the user is encouraged to collect and then use them in a dedicated metaverse.
Well, the quality of the pet models - sold for about $500 each - leaves a lot to be desired. Ears that pass through hats, glasses that rest on the mouths of animals, clothes that eliminate the front legs in the trunk, and whoever has more, put more.
As you can well understand, such an operation has no interest in the NFT itself, but rather in the economic investment behind it. It is the cryptocurrency that interests and counts, and the fact that there is something "attached" - that is, the NFT - no matter, is one more.
If this is the context, then buying NFT is equivalent to buying cryptocurrencies.
Our belief is that this behavior is only given by the initial phase in which this technology is found: inexperienced people can easily get hold of the hand and make wrong investments. Over time, quality will stabilize towards parameters closer to a mature market.
Digital and immortal: two words that do not go hand in hand
When we talk about NFT we must bear in mind that there are also some structural technical criticalities, some specific to blockchains. As we have seen in the first chapter, NFTs are ultimately smart contracts placed on a blockchain that refer to the digital object of which you are the owner.
But what happens if the reference blockchain ceases to be a blockchain, or simply ceases to exist? And what happens when the contents that are linked by a smart contract cease to be reachable - because they are expired or obsolete?
For example, the NFT Hic et Nunc marketplace, after more than $50 million in sales and based on the Tezos blockchain, was closed a few weeks ago without giving an explanation to users. Nothing serious, also because no one has been damaged and no one has seen their NFTs disappear (since the marketplace has the only task of intermediating), but what has happened must sound an alarm bell to fans.
Whenever new technology takes over the market, shaky new companies try to ride the wave of success without having the tools, endangering unsuspecting investors and users. To avoid danger, the only way is to trust the major players in the market: in this case - for example - OpenSea and Ethereum.
NFTs consume a lot of energy (?)
A few months ago Jason Citron, CEO of Discord - one of the most popular messaging applications in the world - made an announcement that he was sure would blow the fanbase: he tweeted a screenshot of the app that shows how Discord would soon be integrated with MetaMask and WalletConnect, the most popular cryptocurrency and NFTs purchasing systems. Unfortunately for him, the users did not take it very well.
Reflecting the feelings of many, one user responded to the tweet: "I can't wait to tell my friends that Discord is encouraging pyramid schemes at great environmental cost. Thanks for the warning!" Citron eventually retracted his statement, and said Discord has no intention of integrating NFTs and cryptocurrencies at the moment.
This teaches us that NFTs can also elicit critical reactions, especially when targeting an audience that is sensitive to environmental issues. In fact, many are aware of the environmental impact of blockchain technology, which in order to exist needs enormous amounts of energy to track and store transaction information.
Having said that, it is not really true that NFTs are a damage to the planet, on the contrary. In truth, they are only a very small part of the energy consumed by the blockchain, and NFTs are often used by non-profit organizations to recover funds for the protection of the planet. For example, the WWF also sells its NFTs to safeguard endangered species...remember, however, that it is always good to mitigate the environmental impact of your operation, either using green and renewable energy for mining, or setting as the purpose of the initiative to recover funds to finance energy transformation and the conservation of the planet to improve your brand reputation.
Too much power for intermediaries
One limit of NFTs is also that of intermediaries. In fact, a brand or a creator who wants to create and sell their NFTs must necessarily turn to two third parties: the blockchain, on which to undermine their token, and a marketplace, where they can put it on sale. A solution marketplaces - which earn thanks to commissions - exists, and is NFT-Commerce, our digital commerce platform dedicated only to NFTs.
How does it work? It is very simple: through our system, we will allow you to create a direct link between your site/app with the reference blockchain, either through a dedicated wallet or directly with a payment gateway through a credit card. The user can then directly buy your NFTs on your digital property, either through their own cryptocurrency or by paying by card.
This system allows you to save yourself the commissions of third parties, as well as to manage the shopping experience, and to recover customer data.
If you want to know more, write to us and we will offer a free assessment!
Conclusions: why selling NFT earns you
NFTs are the future - it is undeniable - because they respond to needs that have long been neglected by institutions and companies. Starting to explore this world right away can bring significant gains, and offers a competitive advantage over others companies.
It is important to consider the benefits but also the challenges that a new technology poses, and not fall into the trap of superficiality when approaching NFTs. For this reason, it is essential to ask for support from those who already live and work in the world of blockchain. Because when a new market arises, relying on those who have already succeeded in creating expertise is essential.