A non-fungible token (NFT) is a unique and non-interchangeable unit of data stored on a digital ledger (blockchain).] NFTs can be used to represent easily reproducible items such as photos, videos, audio, and other types of digital files as unique items, and use blockchain technology to establish a verified and public proof of ownership. Copies of the original file are not restricted to the owner of the NFT and can be copied and shared like any file. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin.
The first NFT project was launched in 2015 on the Ethereum blockchain, and interest grew with the rise of interest in crypto currencies. According to NonFungible.com, sales exceeded $2 billion in the first quarter of 2021, more than 20 times the volume of the previous quarter. NFTs have drawn criticism with respect to the energy cost and carbon footprint associated with validating blockchain transactions.
Non-fungible tokens (NFTs) are cryptographic assets on blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions.
The distinct construction of each NFT has the potential for several use cases. For example, they are an ideal vehicle to digitally represent physical assets like real estate and artwork. Because they are based on blockchains, NFTs can also be used to remove intermediaries and connect artists with audiences or for identity management. NFTs can remove intermediaries, simplify transactions, and create new markets.
Understanding Non-Fungible Tokens (NFTs)
Like physical money, cryptocurrencies are fungible i.e., they can be traded or exchanged, one for another. For example, one Bitcoin is always equal in value to another Bitcoin. Similarly, a single unit of Ether is always equal to another unit. This fungibility characteristic makes cryptocurrencies suitable for use as a secure medium of transaction in the digital economy. NFTs can also democratize investing by fractionalizing physical assets like real estate. It is much easier to divide a digital real estate asset among multiple owners than a physical one. That tokenization ethic need not be constrained to real estate; it can be extended to other assets, such as artwork. Thus, a painting need not always a single owner. Its digital equivalent can have multiple owners, each responsible for a fraction of the painting. Such arrangements could increase its worth and revenues.
The most exciting possibility for NF Ts lies in the creation of new investment. Consider a piece of real estate parceled out into multiple divisions, each of which contains distinctive characteristics and property types. One of the divisions might be next to a beach while another is an entertainment complex and, yet another, is a residential district. Depending on its characteristics, each piece of land is unique, priced differently, and represented with an NFT. Real estate trading, a complex and bureaucratic affair, can be simplified by incorporating relevant metadata into each unique NFT. Decentraland, a virtual reality platform on Ethereum’s blockchain, has already implemented such a concept. As NFTs become more sophisticated and are integrated within financial infrastructure, it may become possible to implement the same concept of tokenized pieces of land, differing in value and location, in the physical world.
Furthermore, Non-fungible token (NFT) is a digital asset that is unique – that is, non-fungible. An NFT can represent a number of digital properties, including NBA Top Shot highlight clips, video snippets, an item from a video game or even a music album, among others. Music group Kings of Leon issued its recent album via an NFT that entitles users to download the album and related artwork.
NFTs and Blockchain Technology
NFTs are built on the same kind of infrastructure blockchain that cryptocurrencies are. Because they use blockchain, the transfer of an interest in NFTs is recorded on the blockchain, putting ownership on a permanent record, making it impossible (or at least extremely hard) to falsify.
“Each time an exchange on the blockchain occurs, whether that’s buying and selling an NFT or transacting in Bitcoin, the transaction is made public on the blockchain and marked with a unique digital signature,” says Aubrey Strobel, head of communications at Lolli, a Bitcoin rewards app. “This distinct signature verifies the transfer of ownership of an NFT.”
But would-be buyers should be clear what they’re getting here. An NFT is not a royalty and does not give you an economic interest in, for example, the broadcast of a sports clip. Rather, it’s more akin to a piece of digital art or a digital sports card. Or in the case of an album NFT, it gives you the right to a certain asset, which you can then use and enjoy.
Some businesses, such as those in the music industry, envision the NFT as a future way to track the interest in a specific asset and then quickly pay the artists responsible for it. Similarly, when owners sell the asset to someone else, the original producer may even be able to take a cut of the sales price. Blockchain tech enables the hard-to-falsify record of ownership.
How NFTs Are Exploding in Popularity
While NFTs have seemed to suddenly explode on the scene, interest in them has been building for a while, says
, co-founder of Rarible, an NFT marketplace. But several factors working together may be leading to the recent explosion in interest.
“High-profile investors like Mark Cuban have been talking about them, the NBA is using them in their new Top Shot site, several major artists are jumping on board, and let’s not forget the nosebleed-level surges in cryptocurrency prices such as Bitcoin and Ethereum,” says Anthony Citrano, founder of Acquicent, an NFT marketplace. “It feels like a perfect storm here.” Because NFTs are denominated in cryptocurrencies, their prices have surged as crypto prices have skyrocketed, explains Citrano.
Meanwhile, Salnikov points to the increasing interest in cryptocurrencies such as Bitcoin and Ethereum and the ease of getting started with them. “It’s a whole new non-financial use case for people, not only geeks,” he says. The explosion in interest is also another step in the “analog” world becoming more “digital.”
“The pandemic has increased the amount of time that people are spending online, making digitally native products like NFTs more attractive, as we’re living digitally now more than ever before,” says Strobel.
What is the Risk of Non-Fungible Tokens (NFTs)?
But despite the surge in interest and price, NFTs are no sure investment. In fact, they look much more like a speculative furor. Again, the comparison with sports cards looks apt, though one could consider them like other speculative assets such as sneakers, handbags, or art. They produce no cash flow, and conservative investors such as Warren Buffett won’t touch them.
Naturally, you could also view or digitally save a video clip online for free, but collectors are still paying serious money for the right to own the “authorized” version of the clip or art.
“There’s a lot of room for misunderstanding and mispricing here,” says Smith. “NFTs don’t give you any royalties, and there’s no guarantee how many of one sort are out there.”
Because NFTs don’t produce cash flow, the only way to make money is if someone else comes along and is willing to pay more for them, what’s called the “greater fool” strategy of investing. Smith says it’s “treacherous times” for those buying high-priced collectibles. “There’s a lot of greater fool theory speculation driving the markets right now,” says Smith. “I’m excited about them, but I’m not pulling out my wallet to buy them.” NFTs also suffer from liquidity risk: If no one wants to buy your NFT, you won’t be able to resell it soon or at all. That’s in sharp contrast to the stock market, which provides ready liquidity.
Salnikov also points to counterparty risk, where the original producer of the NFT may not have had rights to the sports clip, for example. Still, many traders are turning to NFTs as a way to turn a quick profit. That kind of market usually turns out poorly for those who mistime when to enter and exit. “I’d urge speculators to be very careful here, and, as with any speculative investment, only invest what you can afford to lose,” says Citrano. “I’m bullish on the space but – like any asset class – they will experience their highs and lows.
“If you’re buying an NFT because you really like it and want to own it, there is very little risk because it will be yours forever, or for as long as you wish to own it,” says Citrano. “If you’re buying NFTs to speculate, that’s another story.”
In other ways, however, NFTs are secure, even if they don’t make a worthwhile investment.
“NFTs actually have an advantage over physical art,” says Strobel. “Whereas a painting can be stolen from a museum in a heist, stealing an NFT would usually involve hacking an individual user’s private key – no easy feat if they’ve secured it offline like most people do or should.”
And NFTs have the other advantages of blockchain technology, says Salnikov: They’re instantly and verifiably transferable, and your ownership is borderless and independent of the platform.
Now, let narrow our discussion on the effect of NFTs on Financial Liberty and it how it can change the face of Africa in the future.
The Effect of Non-Fungible Tokens (NFTs) on Financial Liberty and how It can Change the face of Africa in the Future
NFTs have had a strange first step into the spotlight, bringing wealth to a small group of people and making most people simply perplexed. Before NFTs are written off as a flash in the pan, it might be worth considering that NFTs were never designed to be especially useful in traditional investment frameworks.
It can be hard to imagine how this might all play out, but we are already seeing the outlines of this new economy begin to poke through the dried-out skin of the old model.
An auction house selling a $69 million JPEG is akin to a horse-and-buggy driver strapping a small nuclear reactor to the top of the cab and declaring, “This is an atomic buggy!” as the horse continues to chug along, doing all the work. You’ll get the attention of bystanders, but nothing has fundamentally changed here.
Each of the headline grabbing NFT sales seen recently are instances of exactly this kind of backward thinking. And the bystanders criticizing the buggy driver and saying, “nuclear reactors are hype,” are not really seeing the long-term implications, or they just don’t like horses.
Most famous African crypto artist
Between January and May, NFTs generated around $2.5 billion worth of transactions according to the website NonFungible.com sparking the interest of global auction houses Christie’s and Sotheby’s.
Osinachi’s pieces have done very well on this emerging market and in just a few months the young man has become the most famous African crypto artist.
He was already using Microsoft Word to paint when he was at university but “gallerists didn’t care about digital art” until recently, it was in 2017 that he discovered he could sell his artwork directly to buyers using a blockchain – where a record of NFT ownership can be stored. In the past months, as cryptocurrencies and NFTs have boomed, digital art like Osinachi’s has thrived.
“He has a very positive influence on other African digital artists.” Blockchain, cryptocurrency, NFTs, are terms that are no longer foreign to Osinachi, who spends a lot of time in person and online explaining what they are to other artists. Many creative minds and entrepreneurs in Africa are inspired by his success.
The attraction of NFTs to the Nigerian entertainment industry
During the lockdown in 2020, companies like Facebook, Bytedance, Netflix, YouTube and Spotify were some of the biggest winners from the immobility of people. Their respective monthly active users soared and so did their revenue potential.
The lockdown also offered insights into why the future would be creator centric. Over the past few months alone, big tech has honed onto global entertainment.
TikTok continues to have a stranglehold on influencing global music trends and is set to launch an A&R tool while Instagram Reels and the newly announced Facebook BARS look to disrupt TikTok’s flow. Views on Facebook Watch now count on Billboard charts while YouTube Shorts is about to enter beta testing. All of them are vying for the creator’s attention because streaming platforms operate a pro rata revenue sharing model that doesn’t favour smaller or niche artists. Every major tech platform is now trying to create unique revenue generation alternatives or promotional tools for creators/artists.
This is where NFTs could incredibly impact entertainment-related content and the creative community. As noted earlier, blockchain makes it possible for original creators of NFTs to benefit from subsequent sales of NFTs. The possibilities are endless, and some are.
- Direct monetization of entertainment content
The best thing about NFTs is that the middlemen are cut out and anybody with an internet connection, anywhere in the world can access an NFT, with the right programming. One day, Burna Boy could start releasing his albums as NFT without needing major labels. He can then own the whole cash from the use of his music on FIFA 40.
In an ideal world where MI Abaga’s album was worth a lot of money, he could auction his album off to the highest bidder for a lot of money. It would also be an interesting way to leverage Stan culture and the current music industry practice of bundling through major incentives to the highest bidder.
In movies, Tunde Kelani could sell Saworoide as an NFT to the highest bidder and still make more money when that highest bidder subsequently sells it. The other avenue for revenue generation could be owning moments in movies and even music videos.
Imagine how rich Osita Iheme and Chinedu Ikedieze [Aki and PawPaw] could be if the movies from which they’ve become a global meme sensation were released as NFTs?
Going forward, social media platforms will likely start putting unique ownership signature on memes with NFT roots. That means, social media platforms might review their terms of service to start rewarding memes and their owners, as they contribute to ad revenue.
In the current world, the artist only makes money from the first sale of their music and from samples. Imagine a world where Osagie Alonge’s 500-album strong stash of collector’s item CDs were NFTs, and he wanted to resell them?
- Blockchain-based streaming platforms
Jesse Walden seems to agree. A few days ago, he told Sonal Choski on the A16z podcast that, “It’s important to contrast the way NFTs work to the way traditional web works. With social media works, when you share a file, you upload the file, but what’s happening is that you’re copy-pasting ownership of the file to the [social] platform due to the terms or service you signed, to monetize as they see fit…
“[Social platforms] also get to make the call on a lot of innovation going on there because any developer who tries to innovate has been shut down in the past. Contrast that to NFTs… If you’re uploading a file to the blockchain to become NFTs and they behave like other crypto assets, that means they are permissionlessly accessible to anyone, anywhere with an internet connection.
“The implication is that any third-party developer can then innovate on the way that media is consumed, how the audience sees and how people interact with it or program it. One way to look at NFTs is that we’re building this universal, open media library on top of which any developer can build the next Spotify, Instagram, or the next Facebook.
“When there’s a lot more competition, there’s gonna be a lot more benefit to consumers and creators as well because all these can happen without the traditional middlemen.”
More interestingly, the system of an NFT could abridge music industry practices like streaming and democratize creative industries even further. Imagine a world where 10 artists come together to create a blockchain-based streaming endeavour for their NFT-albums?
Streaming is already proving to be too problematic as the current frontier of music consumption on a global scale, and it’s unlikely to be the final frontier of music consumption because it’s slightly expensive and it offers most artists little revenue.
Blockchain-based NFTs platform could be the home for the next Spotify or Netflix. It’s a safer mode of revenue generation for the artist in a world that’s gradually moving towards a creator-centric reality.
- Content marketing
A few days ago, Gucci started selling $12 NFT sneakers. Guess what, people bought them to show off on the gram. That proves that people would buy attractive commodities that offer the idea of uniqueness. But more importantly, offers unique opportunities into marketing of entertainment content.
Imagine a world where Wizkid sold tickets to his next album as an NFT for a higher price and with incentives like exclusive access to the backstage and dressing rooms? Imagine how effective that could be as part of an album roll-out?
Imagine what it could be like if Burna Boy, as an influencer, could market his NFT monetization viability to a suitor like Nigerian Breweries and make money endorsement/image rights money.
To the entertainment industry, NFTs would just be an aggregator of existent marketing and revenue generation models and increase their potency as part of a unit.
There is also the angle of total disruption for how social media works. Imagine what could happen if Burna Boy releases his next album as an NFT.
Is it too early for Africa?
Sadly, the popular belief is it’s too early for Africa. Internet penetration might have increased to around 63% in 2020, but we’re still some way off the global standards. Global literacy standards are also still low across Africa while poverty is still high.
“I think the timing is perfect for Africa. People are hungry and want financial liberty and the NFT technology paired with mobile devices gives everyone the opportunity to make money. My personal opinion and bet is that blockchain and NFT technology will open up the doors of opportunity in Africa. If celebrities like Burna Boy can partner with Africans, imagine what financial opportunities will be available on a ground level”, Darren Olayan when speaking with worldNFTnews.
Possibilities of NFTs for the real economy
What can NFTs be used for there? NFTs offer companies new opportunities to manage and market goods in digital ecosystems. They can bring benefits wherever goods are shared today or exchanged between different partners as part of a joint value creation process.
Let’s look at a few examples:
- Up-selling into the digital world
For consumer goods in particular, presence in the digital world is crucial. Today’s Instagram, TikTok, etc. will in the future be virtual worlds in which companies are present with their products. NFTs can be used to map the virtual counterparts of real products (e.g., sneakers). The owner of a real sneaker thus also has the right to let his avatar wear it.
- Sharing Economy – Jointly own resources
Companies jointly acquire a machine to use it. The acquisition takes place via an NFT-based business marketplace. All companies that have a share in the machine thereby get the right to use it. In a connected SmartContract, the scope of use can be defined depending on the ownership shares. Similarly, this can also automate the billing of usage to finance operating costs. So instead of having a responsible middleman as the owner of the machine, joint ownership of resources is mapped here.
- New financing options
Combining NFTs with Decentralized Finance (DeFi) results in completely new forms of financing. Real assets such as machines, cars or land can be brought into a digitally native market. The proof of value provided by NFT can be used to tap into forms of financing such as crowdfunding, securing a fundraising, or digital native payments.
So, as we can see, NFT can support business models that connect the analog and digital worlds, as well as help build ecosystems of collaborating partners. Furthermore, in combination with DeFi, new financing options can be opened that simplify and democratize access to capital, especially for small businesses.
So, as we have seen, NFTs already offer new opportunities, especially for creators, to market their content through digital ecosystems and also to participate in secondary trade in the long term. These addresses weaknesses of an economic system based on centralization and lack of digital capabilities. Blockchain technology as infrastructure and Decentralized Finance for economic exchange are fundamental to this. Participants in an ecosystem can rely on the integrity and uniqueness of NFTs for economic exploitation without having to tie themselves to a centralized intermediary or marketplace operator. Away from art, these principles can be applied to all industries that do business with real and digital goods.
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About the Author
Darren Olayan is a blockchain advocate deeply experienced in the development, promotion, and services. Through both positive and negative experiences, Olayan has become proficient in the vague constantly shifting regulation side of blockchain and spent years advising companies on licensing procedures. Darren is adamant that the blockchain, smart contract and NFT technology will change the world of technology and has the potential to level the playing field worldwide. Darren has over 20+ years working internationally specializing in the Pacific Rim from New Zealand, Hong Kong, China, Japan to North, Central and South America. He is currently expanding into Europe and Africa and other parts of Asia.
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