NFTS: Fading Fad or a Fad with a Future?

I’m gonna tell you something that is gonna change your life. Have you ever heard of NFTs??… Another 30 seconds in that room and you’ll start considering NFTs as a viable investment. (Butter/Vic)

A couple of weeks ago I had the pleasure of watching South Park “defile” the notion of NFTs. They mocked it in a way that spectacularly brought together the pure absurdities that become possible (and probable) when things are taken to the extreme, as well as how with the right chicanery, evangelism, and behavioral manipulation, FOMO outcomes can become a reality making some rich “quick” at the expense of others more na?ve and less timely.

In the last month or so, things have begun to cool off quite a bit from the frenzy that evolved in Q4 last year, and through much of January this year, so in wake of this, I have reflected and reviewed on developments in the last 15mths or so to try to answer my own question about NFTs.

Some Positives

There is a lot to be optimistic on in relation to solutions that assist people who primarily build their IP around a digital or digitized creation. These sorts of people have traditionally lacked strong protection against plagiarism, and thus need a robust certification process that respects and protects prior art to exist. I remember the early days when embedded encryption techniques looked perhaps as the road we might travel (this is 20+ years ago btw, when I was in electronic publishing (is that still a thing?), so the introduction of tokenization, encryption and certification via the blockchain is a far more elegant answer.

Alongside this, it is fair to say that the creative value chain has always rewarded those in production and distribution a lot more than many but the most successful creators. Streaming music solutions have created a platform that can theoretically pave the way for a cleaner and less needy distribution model, but the reality is that the business model that sits behind these solutions isn’t great at rewarding the niche vs. the mainstream. In other words, it remains tough for those that have talent but also serve fringe audiences to thrive in a sea where popularity is still the most valuable metric toward value. NFTs don’t necessarily introduce a solution design that works against the value of people as “brands in their own right” or “brands as influencers”, but it does promise a cleaner way for artists and their fans to build a value mechanism, and for artists to create exclusive renditions of their artistic expression for exchangeable rewards.

The Bridge

The other thing that NFTs do, and perhaps its most exciting aspect is to offer an e-commerce gateway that connects the Metaverse to the physical world and visa versa. Now I don’t know myself whether or not I have any sustainable interest in “living” through my brain in the metaverse (probably not), but what I do recognize is that “ego” “exclusivity” and “status” (like it or not) are things that will travel between RW and VR, and that NFTs create an ideal way for both known and evolving brands and creatives to collaborate for the benefit of both, as well as their virtual avatar clients. Established RW brand leaders of course have a huge advantage early to exploit creating a physical manifestation (where possible) of an NFT, but digital artists also now have a new outlet by which they can get benefit from their talent and create sustainable wealth. This would be expected to spawn the extension of digital agencies into broader metaverse agencies where NFTs, priced in Ether, Solana, and Busd (for example) can become the payment model used to retain and exploit IP.

Gaming

These use cases certainly suggest that, should the security model behind non-fungibles truly live up to their name, that NFTs have a future place in digital e-commerce. This extends of course into the role that NFTs will have in gaming. The presence of tokens is not a new idea at all, and all kinds of digital artefacts are already bought and sold inside of lots of free to play multi-player worlds. However, within both gaming environments built exclusively for creatives (think the Sims), or when the rules of the community allow for “the possibility of authorized modification”, the growth of NFT marketplaces that cater to the needs and wants of gamers, both armed with metamask wallets as well as other means of exchange that can easily be transferred into the gaming world (thus the significant opportunity for cross link interoperability) make perfect sense.

A Reminder

These positives certainly support that non-fungible tokens as a means of establishing, protecting and monetizing IP through a blockchain makes sense, as does the use of digital assets as means of exchange, rather than traditional money. Even so, as was pointed out, just because the means to tokenized is becoming scalable, and many different types of “brands” do indeed have audiences, does that also mean that they can and will be able to exploit value through creating and marketing NFTs.

My answer to this is No. In the same way as brands use “free” loyalty cards and loyalty points as incentives, many will come to realize that NFTs represent another way of achieving this. Digital natives may prefer in fact NFTs perhaps embedded into Digital cards as their preferred form of interacting with incentives, as well as augmenting their VR experience with brands, but this doesn’t necessarily mean that every instance of tokenization will be valued in the same way as Bored Apes, Cyberpunks, Beeple etc. Early marker movers in a time of growing demand (lucky them), with the right messaging can certainly exploit (and have) “scarcity” value, but as one can see if one looks at the level of transaction volume (not the aggregated value), the number of people who could (80ml +) interact with the NFT marketplaces vs. the ones that have (sub <1ml) suggests that attempts at sustaining a FOMO effect to fuel demand across the huge spectrum (2000+ NFTS on coinmarketcap) of available options is not going to work any better than all of the ICO offerings for “unrealistic” or “absurd” projects.

Conclusive Remarks

The technology underpinning use cases I can identify, and the e-commerce bridge across the RW and VR landscapes certainly gives me comfort that NFTs are a Fad with a Future, but that, as is the case with all types of investable assets, it will remain a challenge to identify those “yet undiscovered/under-appreciated) digital artists, and creative musicians and multi-media producers who truly are able to bridge the two worlds, and build sustainable value for themselves and those who invest in them.

As a final point, I would strongly encourage, as I have done with my own son, who is a creative across film, music and art (real and digital), all those with creative talents in the digital sphere to get themselves familiar with the technologies that facilitate and create certifiable non-fungibility and to look at ways of testing the appetite of the market for their talent. There is still a huge gap between the RW and VR in terms of bringing together these two ecosystems, and I do not anticipate those with firm leadership in the Digital world connected to the real world have any type of automatic lock when it comes to taking this presence into the metaverse and back out again. There are lots of very interesting platforms coming on stream that really are there for individuals with a true creative bent (not hobbyists) to showcase their talent in a way that keeps their IP intact, and I would hope that this blog encourages more to follow a path of enlightenment, familiarity and experimentation.