Entrepreneurs

Council Post: Why NFTs Are One Of The Best Economic Innovations Of 2020

By Tiana Laurence, partner at Laurence Innovation, a pre-seed investment fund focused on early-stage tech companies in the 4IR verticals.

While 2020 will be remembered as a time of Covid-induced economic pain, it was also a year when people started thinking much more creatively about the marriage between technology and economic value. The emergence of vast markets for non-fungible tokens (NFTs) — unique blockchain-based digital assets — is a transformative moment for how we understand digital transactions and stores of value. 

The market for NFTs has exploded over the past two years, and while it’s often referred to as a bubble, it shows no sign of slowing down anytime soon. One of the reasons NFTs are so popular is the fact they can take countless forms — from digital works of art to trading cards, such as video clips of NBA plays. As the markets for NFTs continue to grow, we’re going to see the creation of more platforms to showcase them and manage transactions. This is why the surging interest from venture capital (VC) investors is unlikely to wane. 

Beyond the implications for consumers and investors, NFTs are set to disrupt our notions of copyright and ownership. Because transactions are permanently tracked on a digital ledger, it’s possible to know who made the purchase, when it took place and how much the buyer spent. NFTs are a major economic innovation because they allow creatives anywhere in the world to share and receive payment for their work. This will likely incentivize the development of more NFTs, which consumers everywhere have demonstrated that they’re more than willing to purchase.  

A Rapidly Expanding Market

According to a recent article in Reuters, there were $13.7 million in NFT sales in the first half of 2020 — a number that shot up to $2.5 billion over the same period of this year. Sales on the NFT marketplace OpenSea reached $150 million in June alone. In March, a piece of digital artwork by Mike Winkelmann (known as Beeple) sold for $69.3 million after a Christie’s auction, which was viewed by 22 million people. A month earlier, a 10-second video created by Beeple sold for $6.6 million. 

However, art only accounts for around a quarter of NFT sales. There are NFT fashion products (RTFKT recently sold a digital jacket for $125,000), Jack Dorsey sold his first tweet as an NFT for $2.9 million and an NFT version of a New York Times column sold for $560,000. These are reminders that the possibilities for the creation and sale of NFTs are functionally limitless, which is why it’s no surprise that VC investors are becoming more and more interested in NFT marketplaces.

According to insights compiled by BNY Mellon, Dapper Labs has raised $357 million from investors —including Andreessen Horowitz and Union Square Ventures — NFT avatar developer Genies raised $65 million in its Series B funding round and OpenSea raised $27 million in Series A. A recent PwC report found that blockchain technology has the potential to add $1.76 trillion to the global economy by 2030, and it looks like NFTs will comprise a larger and larger share of that total. 

What NFTs Mean For Creators

According to Beeple, “Without the NFTs, there just legitimately was no way to collect digital art.” This applies to any other digital object as well, from sports collectibles to clothing and even plots of land in virtual worlds. Because they’re tracked on a permanent digital ledger (i.e., blockchain) and they’re limited to each unique purchaser, NFTs introduce scarcity in an online environment where replication has always been harmful to content creators. Beeple will receive 10% of the price every time his NFT is sold. 

When people hear about a “CryptoPunk” NFT called “Covid Alien” selling for $11.7 million at a Sotheby’s auction, they’re inclined to focus on the ostensible absurdity of the whole enterprise. As marketplaces expand, creators fill them with a wider and more diverse array of items and sales continue to soar, we’ll hear plenty of commentary about how NFTs are a “fad” and how the “bubble” is bound to burst. While there may be a correction coming, in my opinion, the technology behind NFTs is too innovative to be dismissed as a short-term phenomenon. 

While the legal and regulatory implications of NFT marketplaces aren’t yet clear (and they will be different from country to country), their popularity among consumers and the advantages they offer creators will likely drive the development of laws and regulations in the coming years. 

NFTs Are Democratizing Digital Assets 

The headlines will continue to be dominated by NFTs with huge price tags, but this coverage obscures the fact that NFT marketplaces are actually democratizing the creation and exchange of digital assets. Independent developers, artists and entrepreneurs now have access to a vast, burgeoning market for a dynamic range of digital assets — as the sale of everything from tweets and essays to artwork and video clips demonstrates, there’s no limit to the creative and commercial applications of NFTs. As the markets expand, we’ll see the creation and sale of innovative assets that we can’t even imagine today. 

Despite all the focus on well-known institutions like Christie’s and Sotheby’s, NFTs also allow creators to sell their work to anyone directly. This is the real promise of NFTs — the facilitation of secure transactions that are recorded on the blockchain no matter how many times an item changes hands. NFTs tear down barriers for creators and collectors alike; they create a whole new universe of digital content that can be bought and sold around the world in an instant. 

While 2020 was an extremely painful year, it also catalyzed a new era of digital content production and exchange. As more investors take notice of NFTs and content creators continue to flock to the blockchain, we expect to see even more substantial growth in digital marketplaces in the years to come.

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