As I casually scrolled through my YouTube feed one afternoon, a video with a somewhat clickbait title caught my attention, it was from Justin Kan, the co-founder of Twitch. The video was titled “You can COLLECT my YouTube videos as an NFT?! “and indeed he meant what he said. You can now go to OpenSea, an online marketplace for buying digital collectibles, to buy his videos minted as NFTs. Why is he doing this? Well, he’s not alone. Consider a recent article from Decrypt, reporting that by the end of 2020, over $75k had been made in offers to buy minted NFT tweets. Or Forbes’ article on Dapper Labs new project NBA Top Shot, surpassing $200 million in total sales. NFTs seem to be everywhere, but why? Is tokenizing everything a legitimate future possibility or just some temporary hype?
What are NFTs?
NFTs, or Non-Fungible Tokens, are digital assets stored on blockchain, each NFT is unique and could represent a wide range of digital or even real-world items. It is essentially an abstraction of the underlying asset with “real value” in order to provide verifiability and transferability of ownership. Each NFT token is unique and holds special value, two NFTs cannot be exchanged directly. In comparison, cryptocurrencies like Bitcoin or Ether are Fungible Tokens, meaning that a token has the same value as all the other tokens, and therefore exchanging two fungible tokens wouldn’t make any difference at all in terms of the value they hold. For the better of understanding, FTs are like US Dollars and NFTs are like Pokémon cards.
NFT has many benefits that other forms of digital assets fundamentally can’t provide. For example, publicly provable timestamps and transparent transfer of ownership, which allow the whole ecosystem to be more trustworthy and less vulnerable to hacking. CryptoKitties, one of the earliest NFT projects, was arguably the first to attract major attention to digital collectibles on blockchain, it allows users to collect, breed and sell virtual cats, with each cat being unique in its own way. NBA Top Shots, developed by the same team that created CryptoKitties, Dapper Labs, has been on the spotlight even though it’s still in beta version. It allows people to collect and sell NBA moments, a short clip of a player’s highlight.
That’s not to say there are no downsides. In fact, some of the NFTs today aren’t actually decentralized. As described in a recent article by Coindesk, while the tokens are recorded publicly on the blockchain, the file (image, video,…) that a tokens refers to actually lives somewhere in a centralized server, which could easily disappear once the server owner deletes the file, leaving the token owner nothing but a meaningless token id recorded on blockchain.
The Value of NFTs
Like many people, I struggle to understand the value of NFTs at first glance. Where does the value come from? It’s just not that obvious, but after doing some research, I now have a better understanding and I’ve summarized it into the following:
- NFTs are unique and scarce pieces of digital content that’s digitally autographed by the creator: much like an piece of art in the real world autographed by its creator, or a signed jersey of a NBA player, we now move the same logic into the digital world
- NFTs are cross platform universal digital assets: for the first time on a massive scale, different platforms can be designed to adopt to the same user-owned data. For example, imagine multiple social media platforms that accept your identity as NFT. Your name, profile picture, relationships, etc. are all embedded as part of the NFT that moves with you to the platform of your choice
- NFTs could be a way for the creators to give back to their community and for people to support early creators: getting exclusive experiences or opportunities if you hold one of the NFTs. Issuing tokens, fungible or not, can be a medium much like buying stocks where supporters can invest in the future of the creators
The age of tokenization has begun, for better or worse. Is tokenizing everything the future? Is financializing every piece of digital asset healthy for society in the long run? Perhaps only time can tell. But tokenization represents much more than just digitizing assets, it represents true ownership in a decentralized way, an alternative community building and monetization tool for creators, and the start of a different future of interaction on the Internet. Ultimately, we as a society determine what’s valuable and what isn’t, the NFT market is clearly overhyped right now, it’d be much more interesting and exciting when everyone claims down and sees the true value of NFTs.