NFTs: The Drop in a Vast Pool
Expansion of Programmable Money
It’s all the rage. Non-Fungible Tokens, more commonly known as ‘NFTs’. Do they offer value? Of course. Are they here to stay? Absolutely.
There are a multitude of sectors ripe for the picking and the first one gaining traction is digital art. While I personally think the trend is borderline mania, it also solidifies the coming wave of digitalization. The conversion of everyday items into a digital version allows many sectors to advance the methods of record keeping and digital storage.
The whole ecosystem began with the advancement of money. An algorithmically secured ledger that can hold all of the world’s wealth in zero and ones. The resistance to the growth of this sector is fear of change and the loss of the status quo, but it will come eventually.
The beginning of programmable money was the smart contract that allowed this digital money to execute a contract without a middle man; the code allowed for a trustless system. Anyone could view the open source code and decide if they wanted to interact within it’s ecosystem.
This led to the development of NFTs. The definition of fungible, in this sense, is the ability to trade one for another. 1 dollar is equal to any other 1 dollar bill. There is nothing different about it’s value to someone else. The same thing happened with digital assets. 1 ETH is always equal to 1 ETH. They are spent the same way. With NFTs This is not the case. 1 NFT is not equal to another. It is the ability to create something that is digitally scarce.
Any collectible or “one-of-a-kind” item is not fungible. Before the internet this was not a problem, but as technology advances, it becomes more difficult.
One sector that has a rampant issue with fungible items are e-books and digital writing. “I read this and I think you would enjoy it; You should borrow my copy” can’t happen anymore. Currently we have to purchase the book digitally on our e-reader, but an NFT version of the book would allow for transfer of ownership and secondary book stores digitally. School books cost on average 1,298 dollars a year and if you buy them digitally you cannot sell them back. This is only beneficial to the publisher, who has substantially reduced cost from publishing the book digitally. Another great aspect is you can build royalties directly into the NFT contract. Every time the book is sold the author can generate a small portion of the profit. This protects the author from pirated versions of the book as well as from greedy publishers who eat away up to 75% of their profits.
Another is the music industry. Agents and record labels collecting large sums of money from their artists aka products. The music industry generates $43 billion in revenue but only 12% goes to content artists. Also, these artists have minimal control over how their music is distributed and little visibility into the stream metrics.
This is becoming a sector that is filled with minimal reward to the actual content creator. Platforms are developing to combat this issue such as Audius. By creating a community led platform end users can support the artists by allowing them to get a fair distribution of royalties and stream fees.
The use case of public recordkeeping and legal document framework can also see many benefits from this sector. It can standardize contracts and allow for publicly stored validation for transparency. Lawyers can leverage blockchain technology to simplify their transactional work, digitally sign and immutably store legal agreements for their clients. Docusign charges large fees for the ease of use of it’s platform, but similar standards for either public or private blockchain systems can provide similar products for a much cheaper rate.
While we are reaching market mania over NFTs, I believe that this trend is just the start of digitalization. As these platforms become easier to use and current blockchain limitations are outgrown, onboarding users will become exponential. Similar to social platform growth correlating to Metcalfe’s law, Blockchain growth will have it’s day in the spotlight.