Near and far future of NFTs
Potential of NFTs for developers and artists
What is an NFT?
Non Fungible Token.
How do you mint an NFT?
You mint an NFT by uploading a file to a file server, and storing the original location of that file on the blockchain. Blockchain data is public, and your ownership of NFT can be verified the same way your ownership of bitcoin is verified (by tracing the asset to all the way back to when it was created).
Note: Most NFTs right now are artworks that are stored on IPFS. NFTs usually store an IPFS hash, which basically uniquely identifies the file on IPFS. This “hash” is a long string consisting of numbers and letters.
Why does my NFT have this hash instead of the artwork that I want to buy? I don’t want to own a 32 bit long string, I want to own an actual Weeknd song.
The actual Weeknd song is not hosted on the blockchain. It would make no sense to store large media files on a blockchain, at least not right now. That’s just too much weight added on to the blockchain that everybody needs to have a copy of. Imagine a million people adding TBs of data on to a shared blockchain. What a nightmare, right?!
To reduce this burden on the network, we just store the file’s URL (and the file is hosted elsewhere) on the shared blockchain, or in most cases, an IPFS hash (a unique identifier for the file on a decentralised data storage protocol). This hash value is the key to retrieve the original digital asset which is hosted outside of this blockchain. One way to think of it is, the blockchain just stores the URL of the file location instead of hosting the file itself. So when you are buying an NFT, these stakeholders participate in your NFT ownership as follows:
- The blockchain helps you mint the token (which stores the file’s IPFS hash value) which points to the digital media location. This gives you the proof of ownership. If the blockchain is compromised, you might lose access to your NFTs!
- A server hosts the said media content on the internet (IPFS or private server, depending on where the creator/marketplace hosted the media). They are responsible to host the content forever for your NFT to have any value. Yes, forever.
Let’s say the server hosting the media content for my NFT thinks this media is obscene and deletes it, or worse the platform shuts down. Do I lose my asset?
Yes. If you are buying an NFT, your first question should be: “Where is the media hosted?” Platforms that are high on censorship and content moderation are definitely not the best hosts for this content. Imagine you spent a zillion dollars buying an NFT for Trump’s tweet, and Mr. Handsome Dorsey decides to delete the tweet. You just lost all your money.
Let’s say I own an original Beeple. Someone can slightly modify it and mint a new NFT. Does that mean there can be multiple NFTs for what essentially is the same artwork?
Simple answer is yes. However, they can not claim to be the owner of the “original” Beeple. This is similar to how you can own cheap physical replicas of “The Starry Night”, but the original is pretty expensive. You can always create multiple replicas of Mona Lisa, but there will always be a class of ultra wealthy that want to own the original. NFTs are not for everyone, they are for digital collectors. Some people also collect artworks hoping that the value will appreciate over time. For example, you buy an NFT of an obscure artist called Honey Musket for $0.20 and he blows up in the next few years making your NFT worth millions.
How art consumers might respond to ownership of original digital art is a topic for another day, but it looks like people are excited about the concept.
What does NFT enable for artists?
NFTs provide a new way for artists to distribute content and monetize it. Instead of relying on measly ad revenues from Spotify or Youtube, artists can now mint an NFT pointing to their newest composition, and have their fans place a bid to digitally own this composition. Artists can make huge amounts of money from their superfans, something which was previously not possible. They can always choose to distribute their content on current distribution platforms alongside all this.
I am a die hard fan of John Mayer, but all I could do to support him was listen to ads on his songs, and maybe occasionally buy his albums. With NFTs, I can bid for the digital ownership of his newest songs.
On top of this, an NFT can be transferred from peer to peer very similar to how bitcoin is transferred, currently enabled on platforms like OpenSea. If an NFT appreciates in value after the first sale, platforms can provide a cut of the future transaction back to the original creator, the first buyer, etc. so that the artists can make money from the appreciation in value.
So the artist stores the songs on a decentralised server, and stores the hash on a blockchain. So now I have to go to the blockchain, cross reference the hash on IPFS, download the song and then play it on the mp3 player on my device? Fuck all that jazz, I will just use Spotify.
Wait, this is where things get interesting. NFTs are, at the core, a way for creators to decouple their content from the platform. Think about this, you click a photo and post it on instagram. This image is now tied to your instagram profile and stored on the instagram server. With NFTs, you can instead store this media on a blockchain. Why is this better, you ask? There can be multiple frontend interfaces (Instagram, facebook, pinterest, etc.) that retrieve these media files from its original location. The frontend of the content is now effectively decoupled from the actual publisher of the content. The artist no longer needs to upload his content on every individual platform, and the artist can also make money at the source of art creation alongside the traditional sources of revenue.
Different kinds of interfaces can be built on top of this blockchain that choose what and how to present the content on their platform, but artists are no longer tied to the policies that any single platform dictates. For example, platforms can be built that show only “ultra premium” NFTs on their platforms, or other platforms can just show NFTs which are gaming collectibles.
What could the future look like?
In the future, all the content that is created will already be minted as an NFT on the blockchain. Every photo you take, every tweet (or short text) that you want to put out, all of them are minted on a blockchain, and not made on a native content creation platform like Instagram and Twitter. This makes content ownership transparent and sharing will be easier. The content essentially gets decoupled from the platform. Platforms need not host the content, creators will host the content, retain ownership and monetize their work by transferring ownership. Existing platforms will still provide ad based revenues for creators, but the chunk of their earnings will come from selling off the content at the point of creation. No publishers or distributors, and effectively no middlemen. Maybe.
This blog was an attempt to formalise my findings on NFTs through a series of questions. If you are interested in this space and looking to work on an exciting product, do reach out to me. We are now actively hiring!
Drop a comment or reach out to me on my LinkedIn to discuss this further.