NFT Hype: What’s What and What’s to Come
“What’s that?” Anna asked.
“It’s anything you want it to be,” said Ted the Tokenmaker.
“But that’s not a thing,” said Anna.
“That’s the magic of crypto,” said Olly the Optimist, “the more people believe in these, the more they are.”
“What’s that?” said Alex.
“It’s anything you want it to be,” said Anna.
“Sounds like magic beans,” said Alex.
“They are until they’re not, unless they are, but I like them so who cares?” said Anna.
This article responds to the thoughtful piece by Anna Rose, which is recommended pre-reading, as this piece will attempt to respond to the posed questions: What exactly are NFTs for, and what would make me buy an NFT?
What are NFTs for, and Why you might want one
Much of the noise around NFTs stems from the question, “what the hell am I going to do with this?” An NFT is a sufficiently general technology, which in theory means that there are many uses for NFTs. Yet in practice, art and gaming have attracted the greatest share of attention. Looming behind these is the spectre of rampant price speculation, divorcing many NFT products from any semblance of intuitive valuations. At its highest echelons, the NFT investment game is being played by DAOs and whales playing a game of chicken, taking turns in bidding increasingly unbelievable amounts, in turn raising the overall value of their impressive collections (which may then be quietly sold for a tidy profit).
NFTs aren’t just for speculation. They’re also for status signaling, as Nic Carter of Castle Island Ventures points out:
Most likely, I’m betting that newly-rich Ethereum enthusiasts will see the NFTs as a kind of totem of status, signaling membership in an exclusive club (people that had the foresight to buy the first NFTs on Ethereum, or the financial clout to buy them once they got popular.) My best thesis here is that these are effectively a form of resalable social signaling, like a digital Hermes Birkin bag. The actual contents of the NFT is largely irrelevant.
We see this playing out on Crypto Twitter, where CryptoPunks and MoonCats are becoming increasingly common avatars for prominent crypto community members. Paying the exorbitant price to acquire one of these cements one’s identity as a crypto OG, or at least as a community member willing to pay for their status.
Finally though art NFT prices are wild, prices go to supporting artists and artist communities (assuming you’re not being duped into fraudulent art!). Much like any piece of art, if a piece on an NFT marketplace like Mintbase, OpenSea, or Rarible catches your eye enough to warrant purchase, do some research about the artist to verify the piece is non-fraudulent before buying. If you do purchase an art NFT, virtual reality worlds like CryptoVoxels and Somnium Space allow users to show off NFTs inside their virtual property (which of course, you may purchase with an NFT).
It’s worth taking a time-out to address one criticism of NFTs that seems undeserved. Environmentalist critics have accused NFT artists consuming excessive amounts of energy on Proof of Work chains. But as artist Stirling Crispin points out in a well-researched essay, NFTs account for about 3% of gas consumption on Ethereum, which in turn uses 0.02% of the total Earth CO2 footprint. There are greater obstacles to energy neutrality than a small community of talented people exploring ways to monetize their work:
The real problem is the giant 72%…it’s fossil fuel subsidies, its coal power plants, its fracking. If your number one motivation is the environment, and you’re behaving rationally, it makes sense to focus on the big things most and the little things least.
Further, NFT platforms are not married to Proof-of-Work blockchains. Mintbase gives our users the tools to deploy their own NFT contracts. We opted to add support for the Proof-of-Stake chain NEAR, so that our users may minimize their transaction costs and environmental impact.
So we’ve got speculation, status, and support for art and artist communities. I haven’t exactly painted a glamorous picture of NFTs, so you’d be excused for the suspicion that NFTs aren’t actually that cool. But you’d be WRONG. Downstream from the hype cycle, some great projects are taking form, with NFTs at their core.
NFTs are a tool for collaboration and creation. The NFT might be best understood as a Public Key for an item or service, on a public database. The departure from a private database model allows for ease of collaboration, while guaranteeing users to the longevity of their data.
Gaming NFTs, like Dark Forest, Axie Infinity, and Gods Unchained scratch the surface of what’s possible, by tokenizing in-game assets, which are easily exchanged on on-chain marketplaces. Further, gaming NFTs can do more than one thing. Imagine if after spending 100 hours grinding in World of Warcraft, the Sword of Coolness item you earned gave you a rare playing card in Hearthstone, a skin in Fortnite, and a ticket to a League of Legends esports event. Since NFTs live on a public ledger, a single NFT can do as many things as there are services willing to attach value to that NFT.
Storing game data as an NFT, thereby on a public database, is a departure from prior models, where all data is stored privately. Private databases limit not only users’ ability to access and profit from their efforts and data but also limits opportunities for cross-pollination between projects. NFTs can solve both of those problems.
Beyond gaming application NFTs in the decades to come are likely to be a force for standardizing an extensible concept of ownership. Extensible, as the base concept of an NFT is very simple. Simplicity, that can be extended as the use case demands by extending the base contract, or attaching services to the ownership of an NFT. Much like smartphones have simplified the interface to communication, transportation, and social media, NFTs simplify the interface to ownership of access to goods and services.
The NFT-maximal future doesn’t have much in common with the NFT speculation today. But goods and services that can be represented as NFTs will have incentive to do so to take advantage of ease of issuance, verification, integration with other NFT-enabled businesses, and to reap royalty payments for NFT transfers. Users will be able to view, manage, buy, and sell goods and services across domains. Imagine if your gym membership, blog subscriptions, rewards programs, event tickets, and more, could all be managed, bought, and sold within a single application.
In place of the myriad interfaces we use daily to prove our right of access to goods and services, from tickets to titles to coupons to login credentials, the (1) public, uncensorable verifiability of NFTs, (2) ease of transfer of NFTs, and (3) shared interface to each of these application areas mean that the realm of possibilities of NFT-enabled technology is far-reaching.
To recap. What are NFTs for? At the moment, speculation, status signaling, and artwork are the ascendant NFT applications. But NFTs are incredibly flexible as technological tools, and could someday be for lots of things, or at least, much more than what they’re currently used for. NFTs benefit users of gaming applications by allowing them to reap dividends from their play-time, earning in-game assets as NFTs. And an NFT-powered future where many kinds of goods/services (beyond gaming and status symbols) are represented digitally could hold even greater promise (maybe after a hype cycle or two).
The author is a developer at Mintbase, a platform giving users an interface to create their own NFT minting contracts. We’re on Ethereum and have recently launched on NEAR testnet! If you’re exploring what’s possible with NFTs, check us out.