What NFTs tell us about the future of DeFi | Bitvo
It was a full house to the amazement of most of the diehards. The year before, you couldn’t get more than ten people to a crypto event. It was standing room only at this one.
An animated guy in a pink cap was walking back and forth in front of the crowd. Unshaven, excited, in the moment, he was probably the best MC I’ve ever seen.
The event was about trading crypto, and the MC was promoting a new crypto trading product.
Cats. CryptoKitties, to be precise.
It was 2017, and most in the room were new to crypto, and CryptoKitties was just about to be released.
The ICO craze was close to a peak. Bitcoin would reach its first substantial peak before flaming out for the next 12 months. And CryptoKitties was the first big public debut in the non-fungible token space.
Dieter was talking about cats. And cats “mating” with other cats.
We were howling. He was awesome.
And looking back, we can get some perspective on how far all this has come in the last five years.
Tokenization of the economy
At another event, Thomas Power, board member of 9 Spokes, gave a presentation in 2018. His vision was the tokenization of the economy.
His thesis was that tokens would become the dominant reward system for various elements of life. He talked about how he looked around his home and thought about all the products he had.
Every product had a brand. Every brand was looking for ways to build relationships with customers. And tokens were a near-perfect solution for that problem.
Back in early 2018, blockchain was hot, and Power was thinking about the broad application ot tokenization.
There were all kinds of tokens to be explored. There were utility tokens, security tokens, fungible and non-fungible tokens and more.
Then the SEC threw a stick in the spokes of the crypto movement.
CryptoKitties launched and was so popular it slowed down the Ethereum platform.
Prices for Kitties skyrocketed.
The founders raised a ton of money and started a new venture.
Dapper Labs is what happens when CryptoKitties mate with financing.
NFTs are a byproduct of our current virtual existence
2020 has set the stage for rapid development in several areas of crypto. Bitcoin has gained wide institutional acceptance. This is in part due to the government’s evolving attitude to crypto and regulation in western nations.
Stablecoins re-imagine a form of gold standard in a different way.
DeFi has turned into a giant experimentation sandbox for all kinds of new products.
Stuck at home and forced to live more in our own minds, our ability to accept unique digital solutions has blossomed.
The challenge for crypto was always our imagination. Not you and me, but people who aren’t enamoured with technology. It’s hard to accept ideas that are new that challenge our prevailing wisdom. The way it’s always been done is just easier.
But inundated with a virtual world over that year has changed our vision of what’s possible.
And that’s one of the reasons why non-fungible tokens have taken center stage.
Fungible means interchangeable
In crypto, there are different standards for tokens on the Ethereum platform. ERC-20 tokens are fungible tokens, while ERC-721 and ERC-1155 are two non-fungible token standards.
The concept of fungibility is borrowed from the traditional financial space. The concept defines the interchangeability of an asset.
In commodities, every tradable commodity has a contract specification. Any commodity that fits the contract specification is considered the same under the contract.
In stonks, for each company, a class of securities is considered the same or fungible. The same principle can be applied to options contracts as well.
In money terms, the example is often given that every $100 bill is fungible with each other. But 1x$100 or 5X$20 or 10 X $10 are all technically fungible in terms of value.
Money is the ultimate fungible asset. It allows for the measurement, articulation of value and exchange of non-fungible assets.
You might have noticed that in terms of taxation, the CRA (Canada Revenue Agency) treats digital currencies as commodities.
Exchange between the same token is treated as a commodity transaction. However, the exchange of a digital or cryptocurrency for a service or product or another token is considered barter.
That is an expression of the difference between fungible and non-fungible assets.
NFT means there can only be one
Non-fungible tokens are unique and not interchangeable. In commodity terms, oil can’t be substituted for gold. Relative to each other, gold and oil are non-fungible.
Art, music, writing, and other creative pursuits are the perfect articulation of non-fungible assets.
There is only one Black Sabbath, one Banksy and one George Orwell.
Because they are programmable and unique, NFTs can be used in numerous ways. Art, provenance for art, fractional ownership and more. In essence, the expansion of the NFT space is due to vast improvements in smart contract execution.
As the internet developed, it transformed creative work into an easy to a free commodity. Napster opened up the possibilities for a vision of a new music business. But creators were not compensated for this.
As the internet grew and expanded, companies began to treat unique content as their own. A song created for a movie that didn’t get released is stolen and used at a championship basketball game. No compensation is given to the original artist. And no chain of custody exists.
The concept of non-fungible tokens creates a brand new vision of opportunities for individuals. There is a chain of custody, control and an entirely new suite of value creation opportunities.
NFTs are the foundation for a new creative Renaissance
In these pages, we’ve talked about the concept of crypto as a new form of financial literacy. The idea is that crypto creates a landscape for exploration and the ability to produce. And that being able to produce is the ultimate financial skill.
Non-fungible tokens create a foundation for creativity to flourish. As someone recently put it, artists are finally getting paid.
But this market also does something else important.
It opens up entirely new markets and value creation opportunities. It opens up new and exciting possibilities for cross-collaboration and the advancement of learning.
And all of this is possible as a result of cryptocurrency and the flexibility of the technology.
In 2021, NFTs are back in the limelight. They began in maybe 2016, and it took a bunch of feral digital cats in 2018 to show what the space could do. Then it seemed to go quiet.
But things were still being explored and built.
CryptoKitties morphed into Dapper Labs. OpenSea and other NFT specialists developed and grew.
And boom, in 2021, the NFT market is ready for its second act.
We are watching the technology adoption curve moving at an accelerated pace.
Crypto, through tokens and DeFi, has become the ultimate idea and value creation marketplace.
From caveman to crypto through learning
As Thomas Sowell said, “the cavemen had the same natural resources at their disposal as we have today.” The only difference is learning. George Gilder reminds us that wealth is not things or assets.
Wealth is knowledge.
The cryptocurrency space is driving a new era of accelerated learning. Bitcoin provided a foundation. Ethereum has developed a playground to explore new concepts that would never be possible under the old system.
The evolution of NFTs show us how this process works.
There is experimentation and often one seminal event or product. The product space runs into some sort of trouble, usually because it’s early and hasn’t figured it out yet.
It seems to go quiet as the diehards continue to explore, experiment and build.
But one day, out of nowhere, there seems to be an explosion of activity.
Beeple’s NFT recently sold for millions at auction. NBA Top Shot by Dapper Labs, sold an NBA NFT for $200,000. That was part of the $230 million in NFT video highlights and digital artwork they’ve sold.
All kinds of new business models, value creation concepts and opportunities seem to have suddenly appeared.
Five years ago, the NFT concept was just a bit too early. A bit too messy.
But here we are.
Creators are finally getting paid.
Imagine what’s next.
_______________________________
You can buy, sell and trade cryptocurrencies like Ether and Bitcoin on Bitvo.
Bitvo is a fast, secure, easy to use cryptocurrency trading platform for Canadians.
Originally published at https://bitvo.com on March 19, 2021.