NFTs: Changing Ownership Rights from Corporations to Individuals
Long-held beliefs that data and information is warehoused by untrusted third parties has led to loss of public trust. The solution? NFTs.
Dear readers,
The rollercoaster ride that is crypto investing continues. With crypto hitting all time highs and then pulling back just a week later, new entrants to the crypto community feel worried. However, to HODLers that have stomached this type of volatility over the last several years, this is just a blip.
The beauty in crypto, contrary to popular belief, is its volatility. Back in 2009, when the real estate bubble burst, I saw many individuals, corporations, and investment firms plow money into real estate and investing opportunities that were created because of the volatility in the market. These investments largely paid off, as the economic crash caused the majority of panicked investors to pull back during ‘trying times’ and the minority of risk-takers to seize the opportunity to use volatility as an instrument for long-term success. And, they were rewarded for it.
Since that time, the only other economic downturn that has been experienced was the global pandemic turning the world upside down. This created volatility, and yet again, many of the same attitudes, beliefs, and actions held true as they have in the past: the scared pull back from opportunity, and the risk-seeking seize the opportunity.
I have found that having a view on investing in crypto is much of the same. With volatility in the market, opportunity is created. However, how you analyze, view, approach, and build a thesis around what to invest in during times of volatility is ultimately where a lot of the upside can be captured. This is not investment advice, but just a frame of thinking that we at Harvest use to our advantage when we construct our portfolio and apply our investment experience to decision-making. These investment principles help us stay grounded in how we think about crypto over the long term.
Here’s what’s been happening in crypto this week:
A16z led a $36 million investment in Mysten Labs, a spinout of Facebook’s crypto team to create a Web 3.0 startup,
Adidas partnered with Coinbase to lace up as they run towards the Metaverse,
Visa goes digital with launch of crypto advisory services,
Kickstarter to move crowdfunding project to crypto blockchain Celo,
Nike moves to the Metaverse with launch in Roblox,
WhatsApp announced its crypto payment pilot program, and
Colombia is going crypto.
In this week’s post, we cover NFTs: Changing Ownership Rights from Corporations to Individuals.
Stay winning,
Jimmy
Introduction
We are in the midst of one of the biggest technological transformations in our history. Every industry is going digital. One of the most spectacular digital innovations that is fundamentally changing the way art, music, gaming, shopping, socializing (the list goes on) is done is the invention of NFTs. Sure, we see the hype around people spending millions for a digital rock, a JPEG image of an Ape, or a collection of digital pictures. But, these flashy stories do not capture the full picture of the capabilities that NFTs offer. NFTs are reshaping the long-held, stodgy infrastructure that has, for so long, left content creators powerless and large institutions powerful. We are living in an era where, finally, content creators around the globe can cut out the middleman and claim ownership over their work. Let’s dive in.
What is an NFT?
NFT stands for “non-fungible token”, which, in the simplest terms, means that it is a unique, digital asset that cannot be replaced with anything else. It provides ownership rights to the owner of that NFT. No two NFTs are the same because each NFT is inserted and verified on the blockchain. Let’s use an example: a dollar bill is fungible. There are billions of dollars in circulation that hold the same value to each other and are considered the same. However, if Tom Brady were to put his autograph on a dollar bill that you own, that dollar bill now becomes non-fungible. Only you have that single dollar that is signed by the Hall of Fame quarterback. The beautiful aspect of NFTs is that they are digitally autographed unique assets that are verifiably different from counterfeit copies or non-autographed replicas.
How do NFTs work?
NFTs are stored on a digital ledger that uses blockchain technology to establish proof of ownership. They were first launched on the Ethereum blockchain and have since exploded to other areas of the crypto community, such as Solana and Polkadot. NFTs are created via smart contracts, which are contractual agreements in the form of computer code that are stored in a public database (i.e. the blockchain) and cannot be changed. NFTs are linked to smart contracts, giving the owner rights to that asset and therefore a cut of any future sale of that token.
What are NFTs, and where can I buy and sell them?
An NFT can be anything digital: art, music, voice notes, images, autographs, money, quite literally, any asset that can be converted into code. NFTs can range from as little as a JPEG image to as complex as a machine learning algorithm that regenerates code each time that an NFT is minted. Once the NFT is minted, or, said differently, officially published to the blockchain, the NFT can be bought and sold on the open market. NFTs can be purchased through different platforms, the most popular being OpenSea, SuperRare, Foundation and NFT ShowRoom. To buy one, users must connect their digital wallet to be able to facilitate the transaction, using cryptocurrency as the medium of exchange. Minting and selling NFTs are similar in process: a project is uploaded, specific information is added, and a price is determined by the content creator. Then, just like that, the NFT is available for purchase!
What are current NFT applications for?
The current use-case for NFTs are currently most popular amongst artists and gamers. For artists, NFTs are a significant improvement to the way in which artist economics work. Pre-NFTs, art was created physically, sold to a curator or collector, and that was it for the artist in terms of future income on that piece (that may or may not increase in value over time and as their brand is built). With NFTs, though, that same artists can now collect royalty fees over time and earn a profit for future revenues on their digital art because of the way smart contracts have protected the original content creator. This new passive income stream that was previously never available to them presents a huge shift in the artist economy.
For gamers, up until now, digital assets bought in-game were still property of the gaming-company itself, not property of the gamers buying the digital assets to temporarily use while playing. This power imbalance left gamers with all of their in-game purchases rendered worthless once the game had run its course. With NFTs, though, the ownership of in-game digital assets has shifted to the buyer (i.e the gamer). This means that gamers can buy digital assets that can be taken off the gaming platform and used elsewhere in the metaverse. This is a huge win for gamers’ ownership rights of digital assets. And, as such, games are now being made based arounds NFTs.
What’s next for NFTs?
The future for NFTs does not stop at art and gaming.
The way collectibles are created and held have shifted digitally, with the NBA leading the charge with NBA Top Shot (check out our Vince Carter NFT!). Top Shot sells digital collectables in the form of video highlights of ‘moments’ and is aiming to expand this revenue stream by adding virtual accessories, clothing, and jewelry that can be used in social media. The company has grown quickly, with over one million users and $700 million in sales.
The way communities are built around status and ‘flexing’ has begun to bud with the first NFT collections minted: Cryptopunks and The Bored Ape Yacht Club. These NFTs, comprising 10,000 NFTs in each collection, allow their owners to be part of a broader community that has access to special chatrooms, events, and other exclusive access. These images also allow people to set these NFTs as their avatar profile picture on social media, as a sign to the public that they own these rare NFTs that are worth, on average, $400K for a Cryptopunk and $200K for an Ape.
The way data is aggregated and verified is being flipped on its head because of NFTs. The steady increase in the public’s distrust of the news, COVID data, voting election results, and social media has created a high level of concern for users to know which source is the most reliable. With NFTs, the use case is clear that information can be sourced back to one person who created that content on the blockchain. This source of verification has so many widespread future-case applications that make user adoption of NFTs extremely important not only from a monetization standpoint, but a public community trust perspective.
The future scope of what NFTs can do is boundless. Other functionalities for NFTs include digital verification (licenses, passports, and documentation), medical records, voting, music, fashion, socializing, community experience, real estate, tolls, and so much more. As the physical world around us evolves, so will the digital world. And, with so much innovation occurring at the intersection of technology and the real-world, it only makes more sense to be a part of the change that will likely be the biggest technological disruption of our generation. The shift to the digital economy has largely been provoked by a generational shift towards independence, freedom, and ownership of what users say, do, and think. NFTs are a mechanism that helps accelerate this shift in thinking and ownership away from third parties and towards themselves. After all, the value individuals create should also be rewarded.
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Sources:
https://www.bbc.com/news/technology-56371912
https://www.creativebloq.com/features/what-are-nfts
https://edition.cnn.com/2021/03/17/business/what-is-nft-meaning-fe-series/index.html