In 2006, Jack Dorsey, the CEO of Twitter, published the first ever tweet: “just setting up my twttr”. Who would have thought that 15 years later, the same tweet was being sold for AUD$3.8 million dollars. How is this possible? Well, non-fungible tokens (NFTs) make it possible.
A non-fungible token (NFT) is the digital illustration of unique assets. By definition, something that is non-fungible means that it is not interchangeable. For example, cars tend to be non-fungible, because if you lent your friend a sports car and they returned with a small hatchback, the value of the car has substantially changed. However, if you lent your friend a $50 note in cash and they returned with two $20 notes and a $10 note, the total value is still $50 regardless of the different notes. Money is a fungible asset and thus the value would not inherently change.
NFTs are a digital certificate of ownership of a piece of digital information that can be bought and sold, but hold an intrinsic unique value. The trading of NFTs operates in the same way as cryptocurrency: secure transactions made between two parties recorded through a blockchain. Trading via blockchain has many advantages for businesses and creators. To see more regarding this, click here.
Digital creators can make NFTs of practically anything digital: from GIFS, videos and JPGS to music and digital arts - the possibilities are limitless.
A major obstacle that has faced digital creators in the past is the fact that digital art has been difficult to ‘own’, and thus it can be easily replicated by other creators. Recognition of an artist’s hard-work, style and talent is somewhat lost when there are millions of copies of the same digital piece with no trace of the original artist. Non-fungible tokens help to combat this issue.
NFTs are designed to give artists something that cannot be copied - ownership of the work. How does this play out in the real world you may ask? Well, anyone can purchase a print of the Mona Lisa, but only one person can own the original. So with non-fungible tokens, artists can still retain the copyright and reproduction rights, as they ordinarily would with physical artwork.
An additional con of the original digital artwork form is that artists cannot obtain their full expected (and deserved!) profit from the on-selling of their artwork. This may be because, as mentioned beforehand, there could be infinite copies of the same artwork with no direct way of tracing the original artist.
NFTs possess a very important sell-on feature incorporated in smart contracts. For example, if an artist were to sell their video as an NFTs, they will then get a percentage every time the NFT is sold to a new buyer. This is an amazing way for artists to truly reap the rewards of their work, akin to royalties in the entertainment industry.
However, this on-selling feature is reliant on whether there are buyers willing to purchase the artwork. The question then arises - is there even a market for NFTs?
This question can be answered simply - yes. In the first three months of 2021, the NFT market continued to expand, with analyses showing between 1,785% and 2,100% growth, totalling more than US$2 billion spent on NFT collectibles. External valuations have forecasted that in 2021, the emerging market will be valued at US$20 billion.
The market, like every other commercial market, consists of sellers (generally the artists) and buyers. Buyers will be benefited through the trading of NFTs, as they obtain some basic usage rights, like being able to post the artwork online or set it as a display picture. But there's more than just sharing the artwork, as NFTs work like any other asset - it can appreciate in value. Collectors of artwork can gather a gallery of different NFTs, and then have the choice to on-sell at a profit or keep it for pure enjoyment.
As of 30 April 2021, the most expensive NFT was sold for US$69 million. The piece was a massive compilation of artworks by the prominent artist Beeple, titled ‘Everydays: The First 5000 Days’.
Although the short run statistics look quite impressive, digital creators want to know if future growth is sustainable. The answer is not so clear.
The current sale of NFTs which have attracted media attention, such as the piece by Beeple, could just be a new fad, funded by collectors and speculators. It is not to say pieces of this nature won’t be sold for large prices again in the future, but digital creators should be aware that it is possible that the craze may die down - the bubble may burst.
However, NFTs do not exist for the sole purpose of certificates of ownership. Some predict that NFTs will become the ‘digital souls of physical objects and toys’ allowing new and improved ways for stakeholders to hold value and creating new entertainment markets (Lila Xu, 2021).
NFTs, much like cryptocurrency, run on and are traded through blockchain technology. Blockchain’s prominence has rocketed in recent years, and an argument stands that NFTs may follow in cryptocurrency’s footsteps and enjoy a long and viable future.
Still unsure how NFTs could benefit you as a digital creator or even as an NFT buyer? Wanting to find out more on this topic or incorporate NFTs into your business? Click here to book a FREE consultation with one of our highly experienced solicitors today or contact us at info@legalkitz.com.au or by calling 1300 988 954.
The above information has been collected from relevant government websites and is subject to change. For the latest information regarding new or amended legislation, please refer to state and federal government websites. The information above is provided for informational purposes only, and does not constitute professional or legal advice.
https://www.information-age.com/what-market-opportunity-nfts-123494763/
https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
