By Matthew Neville, Bdaily.
NFTs or “non-fungible tokens” have risen from their status as a niche investment prospect to being spotlighted in the mainstream in a matter of months. But, what exactly is an NFT and are they worth the investment required to break into the market? Let us explore just that.
First things first, an NFT is a unique and non-interchangeable unit of data stored on a blockchain, a form of digital ledger. Essentially, they act as a digital collectable.
While they are typically associated with individual digital artworks, such as the now-infamous Bored Ape Yacht Club collection, they can come in a range of forms and mediums.
Examples of the Bored Ape Yacht Club Collection of NFTs
For example, photography, art, music, videos, tweets, and even memes can all be used as NFTs. This is because the sole entry requirement for any piece of art or media to become an NFT is that it be a reproducible digital file.
However, this is the point upon which much of the scepticism surrounding the burgeoning market arises, as the media people invest thousands into can easily be downloaded or screenshotted for free. Thus, a divide has been created among investors as to the legitimacy of the medium.
The Car & The Owner
A common analogy made by NFT investors and pundits is that of the car. Those in defence of NFTs often make the following comparison to illustrate the issue of copyright: If one was to take a photograph of someone else’s car, that does not mean that the car is now theirs. They cannot drive the car and they do not hold ownership of it as a result of their taking a photograph.
This is the analogy through which many elect to defend NFT ownership and investment. Much like the car, screenshotting or taking a photograph of an NFT does not give the photographer right of ownership, as this lies solely with the person who paid for it, much like how the car is the sole property of its purchaser.
However, there is a frequently cited counterargument which calls into question, once again, the authenticity of NFTs as purchasable and ownable media. This is that the car from the analogy has intrinsic value beyond its appearance, such as the fact it can be used as a form of transport.
In contrast, an NFT may simply be an image whose value is purely aesthetic, and thus can be enjoyed by anyone for free, regardless of who owns the rights to it. This is the biggest sticking point for many, as owning a piece of media does not ensure that others will not share it amongst themselves and, essentially, sap the value out of ownership.
An Explosive Entrance
Despite the scepticism, NFTs have undeniably exploded in prominence and have their staunch advocates. Here, we will look at the most prominent of NFT success stories and analyse whether this example is possible to repeat or simply part of a flash-in-the-pan investment trend.
Cryptopunk is an NFT collection comprised of 10,000 unique, algorithmically generated pixel art characters whose popularity could arguably be credited with the success of the market now flooded with imitators such as the aforementioned Bored Apes.
There is one example in particular which stands out as monumental in the history of NFT trading. Cryptopunk #7523 was created in 2017 and auctioned starting at $1m (£728,950), which quickly rose as the artwork was sold to Shalom Meckenzie for an eye-watering $11.75m (approximately £8.57m). This transaction established the line of artwork as a commodity worth paying attention to, and remains one of the most expensive NFT transactions to date.
Partially as a result of such headline-worthy sales, NFT prices have spiked significantly. According to Investopedia, the average price of an NFT on Jan 1, 2020, was $24.98 (£18.21). It was $913.48 (£665.88) on Nov 30, 2021.
Sports & Video Games
However, one should not invest their hard-earned cash in something just because it has become popular. After all, look at the current volatility of the cryptocurrency market. What was once seen as a goldrush proposition has become a highly unstable venture, as the market lost $250bn (approximately £182m) of value in 2021.
There is but one saving grace of NFTs over crypto, however, and this is their versatility and adaptability as a medium. While cryptocurrencies are essentially a fixed commodity, NFTs can expand into many territories to avoid a similar nosedive in market value.
For example, many video game publishers such as Ubisoft are currently on track to implement NFT functionality into their upcoming releases, and have already done so in some cases.
One such case is the French game publisher’s “Digits” initiative, retrofitted onto their poorly received 2019 release, Tom Clancy’s Ghost Recon Breakpoint. What this essentially does is take the game’s existing “skins” (cosmetic alterations to the player’s avatar character) and create versions which are individually unique.
While Ubisoft could hypothetically be commended for their forward-thinking approach here, feedback from fans and critics suggests otherwise, with the game’s small community voicing distaste for the system.
in contrast, there are some established developers and publishers in the space who have launched games with accompanying NFT martketplaces to some measure of success .
For example, in December 2021 Pioneer Media Holdings Inc. announced its acquisition of London based NFT gaming developer and publisher Kodoku Studios Limited. The studio’s game, “The Pit”, along with its accompanying marketplace went for a substantial $850k CAD (approximately £500k).
What makes “The Pit” a more unique prospect than Ubisoft’s offering is that the game enables the player to attempt to increase the inherent value of their NFTs through “NFT warfare” in a “player vs. player” (PVP) gaming arena. This may well be the gaming niche where NFTs thrive, though this remains to be seen.
Additionally, the potential of NFTs in sports, primarily football, is enormous. Professional services network Deloitte predicts that NFTs will generate more than £1.5bn in transactions for sports media in 2022, approximately double the value of NFT transactions for sports media in 2021.
Theo Ajadi, consultant in the Sports Business Group at Deloitte, said:
“The 2021–2022 season could be the first in which NFTs start to make a major mark from a revenue perspective and by 2023 it is likely that most major football leagues in Europe will have launched multiple NFT related products.
“NFTs have added rarity to sporting moments and, in the future, every game of every season could generate a new matchday moment solely available to the highest bidder via an NFT.”
But that is just the issue. The word “could” is the key operating term here, with the medium so early in its infancy that it is difficult to predict whether or not this transformation of the commercial space will come to fruition.
Thus, after much back and forth, NFTs prove a tough sell in their current form, what with their status as an emerging market with the potential to enter a downward spiral of volatility like has often been observed in cryptocurrency.
More time is needed in order to see if NFTs can prove their worth in a greater number of mediums, but as things currently stand, in this writer’s opinion, they simply are not worth the headache.
