NFTs — A New Frontier for Trading
Is the new boom just a speculative bubble, or an actual future for digital goods?
Ownership. Until you think about it too hard, you don’t realize how abstract of a concept it is. We, as a society agree that a certain item belongs to somebody, regardless of where it is, and who is in actual possession of it. This abstract is ingrained in our society though. If you have two identical cars, and you accidentally swap them with the other owner, you’ll still want yours back, even if functionally, there’s no difference.
That tangible feeling of ownership has become further distorted with digital goods. Perfect copies are almost impossible to achieve in real-life, yet, anything digital can be copied, oftentimes with a press of a single button. How do you create ownership in an environment where most things have the potential to be a copy of a copy, of a copy?
Compare the connection you feel to a physical music album with the connection you feel to that same music album when it’s stored on your hard drive. There’s an element of disconnection with property once it enters the digital world. It might not be a coincidence that Vinyls came back hard in the time of widespread digitalization.
A New Gold Rush
NFTs — Non-Fungible Tokens are a new method to include proof of ownership. By using the Ethereum Blockchain, ownership tokens can be assigned to various digital goods, ranging from art to video game items. This does not stop the reproduction of a given digital good (that’s pretty much impossible), but it does give the owner a tangible feeling of ownership of that particular copy.
NFTs rose to prominence through projects such as Cryptopunks, procedurally generated art that was first given away and then auctioned off to Ethereum users. With an average sale price of $26,165 in the last 12 months, the NFT market looks extremely promising at first glance.
This impressive boom is not without its drawbacks, though. NFT markets don’t verify whether you have any legal rights to the item you are posting for the blockchain. With the constant craze surrounding NFTs, a lot of scammers have taken to posting pieces from ArtStation as their own and earning cryptocurrency off the bids of speculating parties.
This raises a lot of questions about the current state of copyright. Its limitations were already shown back when P2P technology allowed quick copying of files across the internet, and it keeps being challenged by new forms of entertainment showing how volatile the current system is. While NFT isn’t strictly tied to copyright (you may purchase an NFT without retaining any copyright to the item in question), it poses a lot of challenges in terms of defining the value of ownership.
What’s the real value in owning an original piece of art? Is it that it’s the first one made? Or is it its uniqueness? In physical art, creating a perfect copy is impossible. In digital art, it’s very much the norm. NFTs do not represent any sort of true value. They’re not even guaranteed to be “the original.” The sole concept of ownership becomes the driver of artificial scarcity, making their price be more speculative than that of traditional art, or even other forms of digital goods.
Is there more to ownership?
As we’ve discussed previously, digital goods have been around for a long time, and different approaches to create a tangible connection between user and digital goods have been made. NFTs attempt to do that by utilizing our natural connection to things we own. However, there are already economies in the gaming world that ensure your item is truly unique, like Valve Co. does with Counter-Strike: Global Offensive. In the world of NFTs, you may be one of a number of owners of Logan Paul’s video. What’s that worth, other than a symbolic plaque, when other people can still watch it.
Meanwhile, in games, items gain tangibility. You are the only one allowed to use your AWP | Asiimov in-game. Nobody can use THAT Asiimov. Copying the png from your inventory won’t let them use that particular item. Every weapon is wholly unique, yet impossible to duplicate.
Of course, this mechanic works, because Valve retains plenty of control over the content they place in their games, and plenty of control over the market, despite its semi-open structure. This of course is totally different from the Wild, Wild West of NFTs.
It’s doubtful whether NFTs can fully emulate a feeling of unique ownership that we have in real-life. Right now, without the baseline of exclusive use, they feel like a forced kind of vanity. A bought trophy, if you will.
The frontier’s still fungible
That is not to say that NFTs are useless. If implemented right in a certain world (card games, anyone?), they can definitely become a big part of the virtual world. Before that happens, however, this new frontier has to be mapped out and discovered, and the virtual gold rush has to end. While NFTs are certainly an interesting tool for speculation, they’re hardly a stable investment. However, if their growing pains (along with their carbon footprint) are solved, it is possible that they will become a valid alternative for physical ownership in certain, very limited contexts.
For now, however, if you want to invest in digital goods, our go-to would still be virtual goods from the gaming world. Their market is much more robust, and the subtlety through which they’re designed allows to create a feeling of true ownership, even if you’re only a licensee.
