In the online world, new products and ways of making money are always being invented. The latest such online innovation is the ‘Non-Fungible Token’, or ‘NFT’.
What is an NFT?
Basically, an item is ‘fungible’ if it can be exchanged for another item. A pound coin can be exchanged for another pound coin, for example. Digital tokens, such as Bitcoin, can likewise be exchanged one for another, and their digital nature doesn’t change this.
A ticket to a specific football match, however, is ‘non-fungible’ because it only lets you into that one stadium on that one day. NFTs are the digital equivalent of this.
People have been trying to make digital NFTs since 2012, but in 2017 a standard called ERC721 was released which makes NFTs much easier to create.
Today, NFTs are used for all sorts of things. Similar to the football ticket example, having the NFT gives you access to some specific item or service. This could be anything from a collectible trading card to a special area in a computer game that you need an NFT to access.
Big brands, NFTs and a trend for nostalgia
The NBA recently started selling NFTs in the form of videos and photographs from baseball games which, if you purchase them, you alone own them. This recalls fond memories of collecting baseball cards when they were younger. William Shatner has been busy producing NFTs, which means a whole new range of Star Trek ephemera for fans to collect.
Unreal real estate
Surprisingly, land which only exists in a computer game can be sold for large amounts of money. The collection of data which constitutes, for example, a CGI house and garden in an online virtual world game, can be an NFT, and obsessive fans have spent millions of dollars on virtual land. This is a development of the trend for people to spend lots of real-world money on in-game purchases.
NFTs perfect for art, fashion, entertainment
Considering that people are willing to pay large amounts for a house in a computer game, untroubled by the fact that the item only exists in digital space, it makes sense that artists, fashion designers and people in the entertainment industry are starting to make a lot of money by selling NFTs.
If you can sell a virtual house for real money, you can also sell the furniture to go in it. A furniture designer can therefore make and sell a digital version of their latest chair or lamp. An artist can sell a painting to go on the walls. In most digital worlds, the player has an avatar who represents them, which can be dressed up in costumes, and so a fashion designer can make and sell a dress for them to wear. The chair, painting, or dress are limited edition products: either only a few people have them or sometimes just one.
People will also buy items for use in digital space that they wouldn’t buy in real life. If you think about the ease of customising a virtual house compared to doing it in real life, you’ll see that a painting you’d never buy for your real house because you don’t have the space for it could be bought for your in-game mansion.
NFTs and celebrities
Celebrities have already started using NFTs to make money, combining their famous name with the ease of making a digital token. Mike Shinoda of Linkin Park and rapper Post Malone have been releasing collectible clips and songs to fans. Meanwhile the actress Lindsay Lohan and the YouTube personality Logan Paul have both released collectible, one-off pieces of art for fans to buy.
There’s a carbon issue
The production of digital currencies, including NFTs, obviously involves computers and these require energy. NFTs require more processing power and thus more energy. This means that the whole system of digital currencies has a high carbon footprint, which will potentially put off investors and businesses.
NFTs and the future
NFTs currently have value as novelty items for which a specialist consumer might be willing to pay a lot of money, and as investments. For example, if a Star Trek fan buys a William Shatner NFT, they might keep hold of it or sell it to another Star Trek fan at auction. In the future, the appeal of NFTs is likely to expand beyond specialist fandoms to the general public and there may be a shift from highly valuable NFTs bought as investments to more functional ones which are bought and traded.
As computer games get ever more immersive with virtual reality headsets and artificially intelligent entities to interact with, proving more popular beyond the stereotypical gamer community, there is likely to be an increasing market for NFTs of all kinds, and a brand can insert its products in all manner of inventive ways.