how to bring nfts next level

How To Bring NFTs To The Next Level

Have you noticed a surge in pixelized display pictures on social media? These display pictures are NFTs and they usually depict a head with randomly generated features like background, skin colour and accessories. NFTs are now mainly tied to images or gaming assets. There are two groups of people regarding NFTs. One of them thinks that NFTs are the future, while the other group thinks that it is a scam.

I came across this video of Keanu Reeves laughing at the idea of NFTs and it prompted me to read more and write about NFTs. NFTs in my opinion are still in a nascent stage. In this blog, we will take a look at how NFTs can go to the next level.

Disclaimer: All comments on this blog site are an expression of opinion. You are recommended to consult with a licensed, qualified financial advisor before making any financial decisions.

What Are NFTs

gollum lotr nft meme

Source: Adam Sacks

NFT is the short form for Non-Fungible Token. This token is unique and has an underlying asset (e.g. image, contract, property) tied to it. NFTs first gained attention via CryptoKitties, a game that involves unique digital cats. People can breed and collect rare digital cats. The popularity caused the Ethereum blockchain in the early days to be jammed due to the low transaction speeds. NFTs are now currently a big part of the blockchain ecosystem. The current NFTs climate is focused on digital art but it can be so much more.

Why Do NFTs Have Value?

NFTs have value as they are one of a kind and some of them have certain benefits tied to them. Similar to exclusive art pieces like the Mona Lisa, there are limited pieces of digital art that exist. Similar to exclusivity, art’s value is subjective and is only valuable to people who think they have value.

The biggest difference is that a piece of digital art can be just copied perfectly using “right click + save”. This is the biggest argument that sceptics have when it comes to NFTs. Why does something have value when I can just “right click + save” it and now I will own it?

Some benefits that come with owning an NFT could be that it provides exclusive access to certain content or event. An example would be buying an NFT minted by an artiste and getting access to exclusive events or interactions with the artiste.

NFTs can also have a contract function where a percentage of the proceeds of trading can be predetermined and split amongst the different stakeholders. For example, a content creator can get a cut every time their NFT is traded.

In my opinion, besides being limited in number and the functional portion of an NFT, the biggest factor that is giving most NFTs their value now is FOMO. Buyers think that they can flip the NFTs at a higher price. The demand and buying pressure will bring up the price of the NFTs. Nobody knows how long will this bull market will last and whether it will crash and burn.

Are NFTs A Good Investment?

As of writing this, the total value of all NFTs listed is estimated to be at US$33 billion. It is undeniable that some NFTs when bought at the right time can make you hundreds or even thousand times your initial investment.

If we look at the popular play-to-earn game, Axie Infinity, players can buy NFT as monsters to fight and earn potions which can be traded for money. We can see some people, even Singaporeans, running scholarship programs for players that do not want to come up with initial funding to buy monsters to participate.

I feel that the majority of players are playing to make money with the minority is playing for the fun of it. If you search for Axie Infinity videos, most of them are just talking about making money and not about gameplay. It needs to be something like World of Warcraft where the gold farmers are the minority selling the resource to players that want to save time and outsource the farming of gold. Once the profitability goes down and/or the FOMO ends, will this game still survive since there is little fun associated with the game?

We only see the NFT projects that hit the headlines but ignore those that did not get reported. Do your research and be aware of the risks of buying an NFT. Is there a strong community behind the project? Is there a future road map?

Don’t fall into FOMO and buy the NFTs with the hope of making money guaranteed.

Potential Uses Of NFTs

Although the leading use of NFTs currently is on digital art, there are also other uses that can bring about disruption to the current meta. Here are some of the potential uses of NFTs.

Fund Raising For Content Creators

A contract tied to an NFT can provide a new type of funding for content creators where they can skip any middleman and fundraise from their fans. In exchange, they can set a contract where the owner of the NFT can have a share of the royalties. However, be careful as this can be a money grab as it is basically taking advance payment from their fans, shifting the risk to their fans as the amount of royalties eventually received is uncertain.

Stocks

The current securities system has to be disrupted as a T+2 or T+3 settlement is ridiculous. By trading stocks as NFTs over the blockchain allows for immediate settlement plus accountability. We will be able to see clearly the total shares issued and available, preventing the issue of naked shorting where there are more shares in the market than what is on the books on the company.

Entertainment Tickets

Turning tickets into NFTs can help solve several problems. It can prevent scammers from selling fake tickets as the tickets can be traced back directly to the organizer. Owning a ticket can also provide special benefits like backstage access or fan interactions, which can be sold on the market. The transactions after the primary transaction from organiser to buyer can also provide value to the artiste and their company as a percentage can be cut from every transaction. Without this function, the organizer will only be able to make money from the first transaction.

Supply Chain

NFT supply chain

Source: Foley & Lardner LLP

Individual products can have an NFT tied to them and they can be traced all along the supply chain to check for authenticity and time to arrival.

Metaverse

Your identity as an NFT in the Metaverse can be linked to the various digital assets which can also be NFTs. As there might be many bubbles in the Metaverse, you will be able to bring your “car” from Town A to Town B although both towns are run by different providers.

Why Are NFTs Having A Bad Name?

NFTs might have their uses but they still have a bad reputation, mostly outside the crypto space.

Right Click + Save

Source: Reddit

Some NFTs are just pieces of jpegs or media files and can be just saved on anyone’s computer. It is debatable if there is any value outside the NFT crypto circle.

Saving media files on the blockchains is expensive so the files linked to the NFTs are usually saved off-chain, aka any random centralised server. The NFT in this case is more of a certificate of ownership, with a web address pointing to the piece of digital media in question. To infuriate the NFT community, an Australian programmer created ‘The NFT Bay’ that includes 15 GB of all the NFTs listed on Ethereum and Solana. It is available to download for free for anyone who wants it.

No Utility

A lot of the NFTs out there are just plain images with no utility at all. This student managed to sell his selfies for a million dollars. It is good for him that he managed to monetize his selfies and fund his future education but it will be hard to argue that there is any utility at all besides being a meme or for the lols.

Game Theory

As this game developer explains, it doesn’t make sense for a game to allow weapons for another game to enter an ecosystem. Unless somehow preplanned, it is unfeasible to allow any object to enter your game as there are mapping issues, balance issues and more. Even without any surprise interactions, a plain normal game has already plenty of bugs. Once you add a foreign object into the mix, there are so many possibilities that it will crash your game and destroy the current community’s faith in the game by a foreign player that has nothing to do with your game.

High Fees

There are high fees involved in the different transactions with NFTs like minting, listing, buying and selling. The majority of NFT sales are priced at below US$200 and the various fees take up a big part of the NFT selling price and some creators even make a loss selling their NFTs.

The high fees have encouraged some innovation in the NFT scene and the fees have been brought down significantly by different blockchain technologies like Solana.

Environmental Impact

Similar to fees, there is also a high environmental impact associated with NFTs. As transactions are processed on the blockchain like Ethereum, which uses Proof-Of-Work, a huge amount of electricity is used to run the graphic cards to validate the transactions. A single NFT is estimated to produce greenhouse emissions equivalent to driving for 1,000 KM or flying for 2 hours.

With innovations to new technology and Ethereum’s eventual move to Proof-Of-Stake, the environmental impact can potentially be brought down.

Fan Boys

There are some NFT fanboys spamming on social media, especially on Twitter. They are extremely defensive when criticised and made fun of. They also spam their own projects everywhere to pump and dump their projects.

Derivative Projects

Many projects are a copy of the original projects like CryptoPunks and Bored Apes. These project copycats are usually priced lower than the original projects and targetted at those that missed the boat. If they can’t afford a CryptoPunks NFT, why not buy something similar and hope that it moons, just like CryptoPunks? These copies are mostly a cash grab, provide little to no value and clog up the Ethereum network.

Piracy And Scams

Some projects are just scams. Anyone can mint an NFT collection and start selling them. If we look at this example, someone combined the top two projects, CryptoPunks and Bored Apes, to get ApePunks. The author tried to bet on the project and get rich off it but got rug pulled. The Twitter account linked with the project is gone and they are just left with a bunch of worthless pixels. Remember, not all projects will be successful.

There are also cases where scammers impersonate a prominent content creator and sell NFTs of art that do not belong to them.

How Can We Bring NFTs To The Next Level?

Moving past the FOMO, here are some ways we can bring NFTs to the next level.

Utility

There has to be some utility behind the NFT besides just being a collection. As mentioned above, purchasing an NFT should give some benefits like access to exclusive events or backstage passes. NFTs need to move forward from just being memes.

There also needs to be a proper use case where it cannot be done on a centralized database. There is a lot of money in the crypto space so if you have the words “blockchain” or NFTs” linked to your product, it can bring more users and hype in the short term.

Cheaper Fees

It has to be more accessible to more people or else it will remain as a niche market. Innovation on scaling current blockchains or new technology/blockchains to bring down transaction fees will benefit the entire blockchain sector as a whole.

Regulation

People need to have recourse if they get scammed. Scammers should also be apprehended or else it will be like the wild west. Regulation needs to keep up with the advancement of technology but at the same time not stifle innovation.

It should be easy for the verification of authenticity to prevent scams as anyone can copy and mint an NFT.

NFT Standards

There should be standards for NFTs so that they can be mapped across different platforms without issue. Imagine having a different charging plug across different brands of phones (looking at you Apple).

A consortium of companies needs to come together to allow NFTs to be recognized on different platforms and allow the entire ecosystem to benefit from it. Without a consortium that provides mutual benefits, it will prevent individual platforms to allow cross-platform NFT transactions. Without benefits, individual platforms wouldn’t want value leaving their ecosystem. Imagine a single company like Meta aka Facebook controlling most of the Metaverse and disallowing users to leave their platform.

Recovering Private Keys

If an individual loses their private keys, they lose all their coins, NFTs and digital assets linked to their account. There needs to be a system to allow individuals to recover their accounts if they lose their private keys. It can be difficult if users want to stay anonymous and distrust any central authority to perform this function.

Are there any future applications for NFTs or other ways we can bring NFTs to the next level? Drop a comment below and we can discuss.

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