NFT Insights Unwrapped: Markets, Trends, and Future Paths
Arya Babaei, PhD, MBA, PMP
Senior Lead UX/UI Design at KPMG | Faculty at Northeastern University, UCW & OPIT: Experience Design & Product Management | 15+ Years Spearheading Design Thinking Initiatives in Product Design and User Research
Foreword
In this article we share our observations of the markets, trends and use cases with an aim of opening the door to further research and analysis in the future. With NFT we have witnessed the very beginning of new markets stemming from cutting edge technologies such as blockchain, the use case of which has huge potential going forward. This article is the first of a series of articles written by myself and other team members from Sia Partners’ Sia Experience business line covering different aspects of NFT from explaining definitions to business cases & market trend analysis to guidelines for NFT creation and sale. We hope you enjoy it. Please contact me within LinkedIn or (my email) if you have any questions or want to discuss NFTs in further detail.
A Deep Dive into NFTs
What Is NFT
Non-Fungible Tokens, which are tokens that exist natively on a blockchain and provide demonstrable digital scarcity, are the future frontier in online lifestyles, communities, commerce, and marketing. They combine virtual worlds, gamification, social media, collectibles, art, money, and culture. In most simple terms NFTs are unique digital assets stored on a blockchain, a form of digital ledger, that can be sold and traded. Types of NFTs can range from photos and GIFs to videos and audio.
The phrase "Non-Fungible Token" (NFT) refers to a special type of digital asset whose ownership is recorded on a blockchain. Non-fungible essentially indicates something that is unique and cannot be duplicated; for instance, the Mona Lisa is an original painting. On the other hand, fungible objects are interchangeable and non-unique, such as a dollar with the ability to exchange it for another in a given currency.
An NFT can be thought of as a digital fingerprint. NFTs are stored on a blockchain, where the information is secured and permanent once it has been approved by a network of servers that check the information is accurate and consistent. An NFT can be thought of as a "one-of-a-kind" digital asset that can be purchased and sold much like any tangible item. There is documentation of the asset's specifics, including its name, description, origin (the maker), seller (if purchased on the secondary market), and owner (the current holder of the asset).?
NFTs are revolutionizing the fields of art, creative material, and intellectual property management. Similar to how cryptocurrencies continue to disrupt the financial markets by eliminating the need for middlemen, NFTs are moving the power equation from middlemen to content providers. This important shift in the market is just getting started, but it will have significant influence.
Many content producers, especially artists and creative businesses, are accustomed to receiving payment upon delivery of their work, only to repeatedly witness subsequent purchasers resell it for amounts higher than the original purchase price. That is no longer necessary with NFTs. Because blockchain technology is included into NFTs, royalties may be readily monitored and paid directly to the artist or a digital campaign indefinitely. This is a fundamental shift in the financial models for the creative content sectors since it means that when a work of art or any piece of content is exploited commercially, the owner or group of owners would continue to profit.
Non-fungible tokens broke into the mainstream in 2021, but they are still shrouded in mystery. Where did NFTs come from, what are NFTs, why do they matter, and what are they used for?
Why do NFTs matter?
Before we look at why NFTs are important, we need to understand that they are part of a cultural shift that could quite possibly change the world forever. The fundamental advantages of NFTs are directly tied to everything that current developments in distributed ledger technology (DLT) have to offer. Blockchain provides direct compensation to content authors and technically secures the NFTs' legitimacy.
NFT and Blockchain
A blockchain is a piece of computer code that serves as a distributed ledger across network nodes. Its immutability sets it apart from other online databases or trading platforms; With Blockchain we can trade digital assets peer to peer, and no one can change or reverse those transactions without the network as a whole agreeing to do so. At one end of the spectrum of digital assets are cryptocurrencies like bitcoin used in payment networks such as the Bitcoin blockchain. Bitcoins are fungible: that is, one bitcoin is equal in value and function to every other bitcoin. So if you have a contract involving bitcoin, you could replace one bitcoin with another bitcoin without breaking the terms of your agreement.
NFTs are at the opposite extreme of the spectrum; each token stands for an object with a unique value. You couldn't substitute Mike Winkelmann artwork for an Andrew Wyeth painting in a contract and expect no one to notice. NFTs cover a variety of distinctive assets, including birth and death certificates, property records, and the identities of Internet of Things things, in addition to collectibles.
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NFT vs. Cryptocurrency
NFTs and cryptocurrencies both have a blockchain foundation and employ comparable innovation and standards. As a result, they frequently attract participants who share similar interests. NFTs can be viewed as a part of the cryptoculture, and trading NFTs typically requires cryptographic forms of payment. But the main difference is indicated in the name. Cryptocurrency is a currency. Like every other currency, it has only economic value and is fungible. That means that, within a particular cryptocurrency, it doesn’t matter which crypto token you have; it has the same value as the next one, 1 $ETH = 1 $ETH. But NFTs are non-fungible, and they have a value that goes way beyond economics.
NFT Marketplaces
NFT marketplace initiates the trading of NFTs in a decentralized manner. There are basically two types of NFT marketplaces; open-type and exclusive-type. The open-type NFT marketplace trades all types of NFTs and the exclusive-type NFT marketplace trades only a certain type of NFTs. NFTs can be bought and traded on marketplaces such as OpenSea, SuperRare, Nifty Gateway, old, HicEtNunc (new TEIA), snark.art and Foundation.?
We have already shown that finite, permanent, ownable digital content has value; thus, NFTs enable ownership of the internet. The majority of NFT exchanges in operation today (often referred to as secondary issuance platforms) bill the user or creator a fee or commission. Indeed, Similar to conventional auction houses, the markets charge commissions for trading NFTs.? The real value, however, in terms of smart contract tokenomics, is in the creator's or artist's ability to outwit the platform and token issuer.
Fractional NFT
Some NFT investors purchase a portion—often referred to as a "shard"—of a pricey NFT or of a sizable NFT collection through fractionalization. The goal of these fractionalized NFTs is to address the age-old issue of affordability. Sharing the costs and ownership rights may be an attractive investment strategy given the millions of dollars that hugely popular NFTs like Bored Apes and CrytpoPunks have sold for. In fact, popular NFTs from companies like CryptoPunks or Bored Ape Yacht Club have high floor prices of 400 Ethereum, making them difficult to purchase. However, the majority of people still want to own some of these NFTs.
Niftex is a decentralized exchange platform for NFTs. Unlike other NFT marketplaces, Niftex was specifically designed to allow the owners of rare and collectible NFTs the opportunity to split digital assets into fractions. Ownership of rare NFTs can then be distributed across multiple investors.
The formal name for fractionalizing NFTs on Niftex is “sharding”. Each fraction of an NFT is called a “shard”. After an NFT has been split into a predefined number of shards, the NFT is then listed for sale. Each shard can be purchased by users, which allows for joint ownership of rare pieces. However, since the complete original NFT is sealed in a smart contract for fragmented NFTs, any fragmented sales won't result in royalties. Artist transaction fee royalties is a new feature that Niftex has developed, part of which will go to the artist.
End of Part1
To Be Continued …
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Contacts: Moh Babaei, Emma CACHOT, Voloe Scott