NFTs promise to change digital ownership. What does this mean for both investors and creators?
This article was produced with insights from Teck Ming (Terence) Tan. He holds D.Sc. (Marketing) from the University of Oulu, Oulu Business School (AACSB), Finland, where he is now an Assistant Professor. His current research interests include marketing and blockchain. He is also the city representative of the International Token Standardization Association, a member of the Blockchain Forum Finland, an external advisor to Helsinki Blockchain Center, and has been invited as a speaker at various international seminars. He has been published in the Journal of Business Research, European Journal of Marketing, Journal of Business, Industrial Marketing, and others.
The Internet is well known for its ability to spread and replicate information. The not-so-old adage, ‘once it’s on the internet, it’s there forever’, confirms this. However, blockchain offers to change this replicability, and part of our online interactions, entirely.
This is feasible not only in the form of cryptocurrencies, which are possible because much like physical money, they can’t simply be produced by anyone – and therefore are resistant to double-spending. However, blockchain technology can take this one step further, to enable Non-Fungible Tokens (NFTs).
Fungibility refers to the ability of an object to be reproduced or replaced. A dollar or cryptocurrency, like bitcoin, is fungible – one bitcoin is essentially the exact same as any other bitcoin – even if the creation of these items is controlled. NFTs, though, cannot be replicated. Simply put, one NFT cannot be used in place of any other. Just like how there will always only be one original Mona Lisa, NFTs mint an original and irreproducible token.
In practice, it’s a little more complicated than this, though, as there are three broad classes of fungibility:
While part of the Internet's charm is its ability to reproduce and spread every piece of information fed into it, the creation of NFTs, as they are sometimes called, address some of the greatest hurdles to bridging our digital and physical worlds – fungibility. Already their utility is being explored for proving ownership over:
Based on this, online representations can now be created for offline objects. The utility of this is clear, as now there are often many requirements to have ownership or authenticity appraised and re-appraised by central authorities.
Beyond cutting down on time and fees when dealing with high-priced, unique assets, entirely new iterations of objects and value can be created. Our current Internet functions by content creation and dissemination, but with NFTs, complete and clear ownership of online assets is possible.
This sparks several questions for the future of our digital spaces, such as:
Already, these questions are coming into play in online spaces. Recently, with a spate of large NFT sales, such as the sale of digital artist, Beeple’s, $69 million digital piece, as an NFT. Many people question the utility of owning digital art, when the image can still be widely shared, what does digital ownership mean?
Teck Ming (Terence) Tan, Assistant Professor at Oulu Business School, notes that people working in the space, such as the relationship between Beeple and MetaKovan, the founder of Metapurse, have bigger plans. This particular collaboration is leading to the creation of ‘a virtual world that consists of a set of collectible + valuable digital assets, which as well including the digital art, digital land, etc’. This requires a shift in perspective from investors, and Teck Ming (Terence) Tan further comments that they ‘should have a good strategic plan of how to treat an NFT as an asset for future profit generation’.
But, along with transforming investor practices, large sales like this also obviously impact digital artists, creating a new and unprecedented profitable environment. Of course, this comes with unintended side-effects, with some looking to profit following these massive sales. One such effect is a new form of art theft, with artists who post their work online finding the pieces minted and sold on NFT marketplaces.
All of this is calling into question how digital ownership will look going forward, how digital art theft can be controlled, and how to create an online environment that protects and promotes artists, and ideally, can remunerate them for their cultural labour. Even with these new risks, the possibilities that NFTs present for creators are great, Teck Ming (Terence) Tan continues:
‘blockchain allows the creators to benefit from their loyalty fee for each of the subsequent transactions. For instance, on Opensea, creators can set “commission earned” for any subsequent transactions. For this reason, I think creators such as music artists, movie producers, photographers, influencers, athletes will gradually move to NFTs as it helps them to secure their monetary value in the marketplace’.
Even as the space is both booming and being questioned in relation to art, real-estate is entering the NFT marketplace for the first time, adding a new high price asset to the mix.
Looking forward, liquidity, trading, and ownership could all change, both for purely digital goods and physical goods that have a digital representation. Clear rules and practices need to be established with the communities most impacted by these changes to preserve the utility of these technologies.