Digital art has been around since the internet was created. From emoticons to ASCII art, digital artists have always used computers as their medium of choice to express themselves artistically. These two worlds have collided and given rise to a new form of expression—non-fungible tokens, or simply NFTs.
When digital technology debuted, the value of vast swaths of art, music, and content plummeted to nearly nothing. This new technology allowed us to obtain and consume content nearly instantly, with little to no cost. As a result of the advent of streaming services and digital downloads, most forms of 'intangible' property became almost worthless in monetary terms - who wants to pay for something they can have at the click of a button?
This all changed when NFTs were introduced to the blockchain.
NFTs are a programmatic way of representing anything that can be owned.
Now, instead of simply using files as a medium of expression, we can create pieces of art tied to our own unique wallet addresses - a tokenized representation of things that could otherwise be represented by a simple picture or word.
NFTs are digital certificates of authenticity that, in a sense, represent the real thing since they give you rights over an item. Non-fungibility, perhaps, makes NFTs more easily grokked than standard cryptocurrencies, which are typically hidden, obscured, and misunderstood in the blockchain's tangled web of smart contracts and pre-requisite technical knowledge.
Bitcoin and Ethereum have been rocked by instability and uncertainty that draws on public misconceptions about their intrinsic value, but NFTs are an adaptable and innovative type of token. NFTs are less prone to volatility and doubt. They're linked to more concrete concepts of value through gaming, collectibles, and art.
Are we looking at a bubble?
The media are claiming that NFTs are a bubble - and that bubble has either burst or is about to burst. According to figures recently released, the average price of an NFT fell by 75% from a peak of nearly $4,000 in February and has fluctuated up and down ever since.
This is the result of a combination of factors. For one, many cryptocurrencies have fallen in value this year. Second, tokens are still relatively new compared to other established forms of art - for most investors, they are at best an intermediary step between fiat money and more traditional assets that can be directly traded on exchanges.
The value of NFTs is defined by how much people are interested in a single item. This implies that valuations are presently inflated and could plummet in the opposite direction if individuals lose interest. But this isn't necessarily a negative thing; bubbles can indicate groundbreaking innovation. Bubbles have an essential function in promoting investment and usage.
After the initial interest dies down, NFTs will have to rely on their actual utility instead of just being an interesting aside in a growing industry. This could be seen as a problem - some people might see the death of NFTs, but I see a new beginning.
The possibilities that independently verifiable digital ownership represent extend far beyond the artwork and collectibles that have captured the public imagination. A vast array of NFTs will be invented in the coming years, and their potential uses are only just being explored.
The most fascinating aspect of the NFT frenzy is what may come next. NFTs indicate how online art might make serious money and have a significant impact outside of niche social groups.
The NFT bubble is a temporary state of affairs. In the long run, as the technology matures and use-cases for non-fungible tokens expand, NFT prices will inevitably stabilize.
NFTs can revolutionize how we interact with, own, and transfer digital representations of virtually anything - ideas, rights, identities, even votes. The first stage of their evolution will focus on collecting, media and art - but the long-term impact of NFTs will be far more significant.
The greatest potential, however, is in the smart contracts that are used to construct these tokens. Utilizing ERC-721 compliant computing capabilities allows for genuinely decentralized applications with tremendous value.
The possibilities are endless.
The general sentiment is that NFTs could become a household technology that everyone understands and loves - or they could die out quickly to be replaced by the next big thing in the blockchain. My opinion is set in stone. NFTs are here to stay. They're not going anywhere. The skeptical will be left behind. The skeptical will be asking for the next entry point in a year.
Frisby's law: "A bubble is a bull market in which you do not have a position."
I want to point to Dominic Frisby, writing on Crypto in 2020:
"I don't subscribe to the "bubbles are bad" argument; it's more nuanced than that. Being on the wrong side of a bubble is horrible – I've been there – but bubbles serve a very useful purpose: they accelerate investment. Without the dotcom bubble much of the internet architecture we enjoy today would not have been built. The railway bubbles of the 19th century laid the tracks on which, 150 years later, trains still pass on. Four hundred years on from the Tulip Bubble, Holland remains at the heart of the global flower trade."
The first to declare something a bubble are those who have been left behind. There is an entire industry in the financial world devoted to trying to predict when bubbles will burst.
I don't want to be so bold as to compare this current NFT bubble with previous ones, but I'd like to invite you, dear reader, to do your own research on some of the many articles written about the tulip mania and look beyond the tropes, the cliches, and misconceptions about the bubbles of the past.
Technologies, products, and markets don't catch on because there is a trending interest in them; they catch on because people see how useful they can be as a utility, how engaging they can be as entertainment, and how valuable they can be as an investment.
This is your opportunity to understand the next 10 years of your life online.