NFTs: Fact Or Fantasy
Last year was the "year of DeFi". It was a time when decentralized finance hit the radar of the crypto community.
It is evident, through the first quarter, that NFTs are taking that title for 2021.
From people like Mark Cuban jumping on board to the record $70 million sale by Beeple, things are going nuts.
The question is what is going on here? Is this NFT thing for real or is it a mania? Our answer probably lies in a combination of the two.
There is no doubt we are seeing a frenzy with NFTs. People are out there scooping up whatever they can. Novelty is certainly in action, something that should die down in time.
However, there is a certain legitimacy to what is taking place. We are seeing the opportunity for people to get rewarded for their creativity. This could carry long-term implications.
What we have to wonder if there is long-term value here?
One of the problems with the idea of NFTs is that they are meant to leverage digital scarcity. This is what makes something unique valuable. As we move towards the Metaverse, the exact opposite is taking place. That is a world of abundance.
So how do we reconcile the two?
To start, we have to realize we are at the early stages of this development. Thus, what is being produced now is an "amateurish" run at what will eventually take place. Over time, we will see more businesses erected around this technology which will move things in a different direction; at least providing another pathway.
There is no doubt that NFTs offer a great way for artists, authors, and other personnel involved in creation to get ongoing payments. When a music album is released, there is a revenue stream that can take place for years. To create that product, there were a lot of people involved in the process. NFTs will digitize the payments thus ensuring each person gets his or her compensation.
Another factor is that we have to embrace that value is subjective. As the art world repeatedly proves, one persons treasure is another's trash. Art is completely subjective. Yet, there is a combination of subjectivity that enhances this. Groups of people end up liking the same thing which provides value on the open market.
Certainly death brings the scarcity element into play. When we see the situation where a famous artist is long dead, such as Monet, there is nothing left for him to create. What is produced is all that will exist. Thus, we can see how the value to the fans of his works will appreciate.
That does not apply to most of us, hopefully for a long time. So how can something keep going up in value when one is able to keep producing more?
Obviously, we see that each work is unique. Therefore a NFT is not really capturing scarcity as much as uniqueness. Jack Dorsey can keep sending out Tweets yet there is only one "first Tweet". It is completely unique. In fact, most of his Tweets are unique since it is likely he is putting out different ideas all the time. However, the majority of them most likely have little value to people.
In short, we can see that even in an arena of abundance something can be scarce. This is due to the uniqueness surrounding what the NFT represents.
We have many terms being thrown around for this "new" economy that is being developed. Some call it the Attention Economy while others are starting to point to this as the Creator Economy. Either way, we are seeing tools being generated that allow content creators to monetize their works.
The impact on the digital art world is fairly obvious.
However, there is also an aspect to this that most do not discuss. It is not really on the market yet from a glancing observation yet it does carry the power to revolutionize the NFT arena.
What about a NFT being valuable because of the value it denotes. In other words, the NFT its carries a particular value based upon the utility it carries. However, instead of applying to just one application, it can span many.
This is the idea of "Universal NFTs" and is being worked on by @simplegame and his team. Basically, individuals will have the capability of shifting the NFT from one utility to another. It is all based upon what game or application the NFT is tied to. If the user wants to switch games, the value in the NFT holds since the utility can be swapped from something that is applicable in the second one.
Hence, if one had a value of $100 through purchase and earning in a weapon for a particular game, the NFT will denote that value. After exiting, that value could be applied by opting for a different weapon, likely of similar value, in the next game. Let's say the first game is a battle game and the weapon is a gun. However, the later is a space exploration game and the NFT is swapped to an in-game asset that provides a certain amount of fuel.
Here it is easy to see how the value accumulated in one game is not lost as we enter another. The NFT is unique but what it applies to is actually abundant and changing.
Like most things, when new, there is a lot of experimentation. Nevertheless, we do see in a world of automation how it is possible for trillions of dollars to be generate if machines get involved in the process. The ability to produce an enormous amount of NFTs pertaining to some of the things discussed in this article goes up exponentially. While most will not have a ton of value individually, collectively that can amount to a serious amount of money.
After all, we found out how valuable data can be. What if the world of NFTs was used to monetize data as an individually owned asset?
How does that change the world?
Let me know what you think in the comment section.
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