How NFTs changed our perception of digital value
NFTs – we’ve all heard of them. Many people associate NFTs with JPEGs that sell for millions of dollars. Those who know a little more about the technology can think about GameFi and avatar resources in Metaverse. Those who have followed the Acceleration Economy for a while will know what they are really about – digitizing assets and securing digital property rights, a feature that creates new markets and can be used across all industries.
But what do these different layers of opinion behind NFTs have in common? First, they are about value. How come easily copyable JPEGs cost millions of dollars? Why would NFTs be useful in the Metaverse? And why must assets be digitized? These are all valid questions, and the answer lies in understanding how NFTs have evolved our perception of digital value.
The Twisty History of NFTs
The definition of an NFT has changed dramatically over time. While the modern association with digital art, memes and Ethereum began around 2015, the idea behind NFTs (blockchain tokens representing ownership of unique assets) started on the Bitcoin chain in 2012-2013 with the idea of the “colored coin” representing real assets such as cars or real estate. While the idea was there, the execution was not. There was no clear direction. The colored coins were simply described as a new technology with raw possibilities for the future.
That direction gained clarity in 2015 when Counterparty, a peer-to-peer financial platform, teamed up with Spells of Genesis, a video game creator. Together they issued the first ICO (initial coin offering) and were GameFi’s first issue, distributing in-game tokens that also existed on a blockchain. Soon, Counterparty partnered with Force of Will, a popular trading card game, and launched their trading cards on their platform.
The year 2016 was considered the birth of crypto art with Rare Pepe Wallet’s launch, as creators all over the world started selling their digital art. The rest is history. In 2017, CryptoPunks launched as an ERC721 / ERC20 hybrid token on Ethereum; OpenSea was founded; CryptoKitties started; and so on. Suddenly, digital collectibles had value just like trading cards or physical art.
Interestingly, the vision for NFT came long before digital art. The first “colored coins” of Bitcoin from 2012-13 had much wider applications, from precious metals to cars to stocks and digital collectibles. Of course, that vision could not become reality in 2012. The industry needed easier hooks to grasp and work its way up from. For NFTs, that hook was digital art.
The same unfolded with the Metaverse – the sweeping vision described in Neal Stephenson’s snow crash, published in 1992, was followed in the real world only decades later by low-fidelity, simple applications on large headsets targeting hyper-specific markets such as surgeons in training, air force pilots or high-performance gamers.
But digital art is just the beginning. Now NFTs can tokenize new asset classes and the original vision of the colored coin is finally unfolding.
How digitization underlies NFTs
Since the exponential improvement of internet technology and services, especially post-pandemic, digital has been synonymous with cost-free production and distribution. Social media, emails, AI-generated art – everything seems free. The replicability, portability and low barriers to entry have made it possible for the internet to contain an incredible amount of digital content.
The problem is that in many cases you can no longer distinguish between the creator, owner and distributor of these digital items. You may remember from Economics 101, markets cannot exist without property rights. As NFT skeptics say, “Can’t you just copy and paste NFT for free?” Yes, you can copy and paste the image associated with that NFT, but you can’t gain ownership of the image by doing so, just like you can save an image of the Mona Lisa, but that doesn’t mean it’s yours.
In that way, NFTs can be considered a broadly applicable framework to secure ownership of digital assets through distributed ledger technology (DLT), and become a new vessel to contain value flows in the chaos of the Internet.
And of course digital has value streams. My perspective as a Gen Z digital native may differ from yours here, but I know that most of us work, socialize, shop, have fun and invest as much in our digital environment as our physical one.
You might argue that we already pay for things on the internet. Do they not have values that are effectively captured? Why do we need NFTs?
But think about your purchases on the Internet. Almost all of them arise through organizations – Netflix, Amazon, Google, Meta, etc. NFTs, on the other hand, have made it possible for digital assets to have direct, independent value separately without the need for bundling by these large corporations. Because they are not unified, they can work across organizations and boundaries. NFTs can be traded peer-to-peer, without paying an intermediary, with data records stored immutably on the blockchain.
Use Case Expansion
Beyond just asset transfer, NFTs also provide new vectors for various other business aspects: community building, loyalty programs, membership cards, new revenue models, shareholder schemes for artists and projects (not just companies), governance in digital-first societies, digitization of important documents and so on .
All in all, NFTs add more legitimacy to the digital world. For better or for worse, the direction of history is clear, human life will continue to merge with technology. It’s important to have the right tools in place as we move forward, especially as we enter the Metaverse.
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