Over the past year, we have witnessed the explosion of NFTs (Non-Fungible Tokens) with artists and celebrities ranging from Banksy to Snoop Dog and Floyd Mayweather Jr. sparking a swirl of news around this latest crypto trend. As of this writing, the NFTs market value is estimated at $338M and is expected to continue growing given the high demand rates we observe and the enormous potential to drive mainstream crypto adoption.
Let´s dive right in
This article will illustrate the rise of NFTs and the active role these play in advancing the mainstream adoption of crypto. In a nutshell, non-fungible tokens represent provable ownership of scarce and unique art. According to Forbes, NFTs can be used to tokenize anything that has perceived value and is a unique one-of-a-kind crypto asset that is not mutually interchangeable and has unique identifying codes. Essentially, they incarnate the ideal marriage between crypto and digital media when it comes to creating digital scarcity and bringing excitement back to the internet.
The origins of NFTs
The act of counterfeiting has always been a pain point in the world of collectibles. In 2012 Coloured Coins was born paving the way for successful NFTs in the future. The concept was using the blockchain for assets like digital collectibles, coupons, property, company shares, and more with the intention of issuing real-world assets like real estate on the Bitcoin blockchain.
Five years later, CryptoKitties, the Ethereum-based game launched by Axiom Zen that allows people to buy, sell, and breed collectible digital cats came into the picture. The goal was to enhance crypto adoption by introducing new users to the blockchain through a gamified manner, similar to card-based trading games resulting in players spending the equivalent of $6.7 million at its peak in 2017.
How do they work?
Earlier this year, history was made in the art world when the artist Mike “Beeple” Winkelmann sold his digital artwork for $69.3 million at the renowned auction house Christie’s. The NFT represents a collage of 5,000 of Beeple’s earlier artworks, demonstrating his development as an artist over the course of his career.
But how do they actually work? non-fungible tokens represent provable ownership of scarce and unique art. In the process of minting NFTs, the blockchain acts as the decentralized ledger that tracks the ownership and transaction history of each NFT, which is coded to have a unique ID and other metadata that no other token can replicate.
Although most NFTs operate under the Ethereum network, other blockchains can also implement their own versions of NFTs. In fact, there are teams worldwide working on replacements of Ethereum, such as the Burnt Finance NFT auction, due to high gas prices and the overall network congestion from DeFi, on-chain arbitrage, yield farming, the growth of decentralized trading, and new token launches.
- Art: NFTs ensure scarcity and rarity in art by proving ownership of that particular asset. Check out our interview with NFT artist CDK to learn more.
- Collectible NFTs: sometimes, an NFT can be both a collectible and an art piece, while other times, its value is purely collectible.
- Finance NFTs: in this use case, an NFT value derives from the utility and unique financial benefits of a DeFi framework (NFTs staking models).
- Gaming NFTs: valuable, digital items, micro-transactions, and in-game purchases are a huge market expected to grow more than 180 Billion in 2021.
- Music NFTs: blockchain-based streaming platforms and blockchain royalty tracking address the issues many artists face when not getting a fair share of their royalties.
- Real-World Assets: NFTs enable the tokenization of real-world assets and digitize how we prove ownership and provide liquidity to highly illiquid assets such as land or houses. Basically, having an NFT linked to an item, owning the NFT can become just as important as owning the asset.
- Logistics NFTs: implementing NFTs into a supply chain can ensure provenance with the added benefit of representing unique items.
ARYZE and NFTs
As with DeFi, ARYZE is excited to explore the possibilities that the expanding NFTs market might bring in the future. Digital Cash will become the closest thing to a Central Bank Digital Currency without being directly issued and controlled by a government. At this point, it is too early to determine what role NFTs might potentially play in our journey. However, there are interesting opportunities for improving liquidity off people´s assets and a possible use case could take form in the backing of NFTs by government bonds.
The tokenization market is a promising industry with infinite possibilities that we are yet to conceive. We are witnessing a shift and disruption of traditional business models from art to music, gaming, finance, collectibles, logistics, and real-world assets. NFTs are yet another manifestation of the empowering freedom that technology can offer us as individuals. For example, the democratization made possible by decentralization and blockchain might force traditional businesses and even big tech monopolies to change their monetization models, allowing people to get paid for their data.
In the future, we are likely to see a shift to the old barter trading but with a blockchain component resulting in the tokenization of everything, including property and even our own DNA. When it comes to ARYZE, we are thrilled to see this process unfold, and with our MAMA app, we can potentially help bridge the gap at an infrastructure level when exiting the profits of NFTs.
Stay tuned to our ARYZE Linkedin channel as we will soon be speaking to Crypto Analyst and NFTs connoisseur Osman Toplica about the fascinating world of NFTs, gaming, and cross-branding strategies. To learn more about ARYZE, check out the other articles of these series on our blog, or visit our website. If you liked this article, please comment and share it with your network.