NFTs- Boom or Bust?

 

I first heard about NFTs when watching a YouTube video by on of my favorite creators JxmyHighroller, where he discussed the company called Top Shot. Much akin to basketball cards of the past, Top Shot sells cards, but instead of individual players, they sell NBA highlights.

Essentially, Top Shot sells highlights, either as individual moments or packs. Each highlight comes in a set and some sets come in a circulation count with a counter of how many sets are in motion. Some sets are limited edition with a fixed amount minted. All the highlights in a particular set have a serial number, the serial number represents the sequential order in which something was minted. The earlier something is minted, usually the rarer it is, thus the more expensive it is. It should also be noted that there is a tier system for the sets. The whole concept of Top Shot is still quite disorientating to me. What is the difference between a highlight from Top Shot and just the same highlight that can most likely be watched on YouTube for free? It then came to me that Top Shot is essentially just a speculative tool for buyers to make money. By buying more and more highlights, buyers can obtain rare and expensive highlights to sell to a potential buyer. However, in situations like this there will always be one man left behind, as in someone who can’t sell to a potential buyer. More than that though, there is no real intrinsic value for something that is so widely available like basketball highlights & the whole system is essentially built on artificial scarcity.On the other hand, I could just be jumping to conclusions and dismiss something potentially innovative. As a result of this video, I took it upon myself to research NFTs, so that I could learn more about what they are and whether they have any value or are just simply a scam.

An NFT- standing for non-fungible token- is like a certificate of authenticity for an object, physical or digital. The digital file is stored on the block-chain network with any changes in ownership of the file being updated in a a ledger of sorts that is accessible to the public and verified by a worldwide network. As a result, it is nearly impossible to swap in the NFT file for a fake, as millions of people who trade on the block-chain network verify this transaction and the entire history of transactions for this asset. Thus, NFTs stand out among other speculative assets, as all NFTs are linked to a ledger that is very difficult to falsify. Therefore, NFTs in comparison bring a lot more security as an asset. It seems as a collector’s item, the appeal of the NFT is easy to understand: unlike physical speculative assets like trading cards or art, where forensics and half-assed documentation are needed to ascertain value, the authentication is coded into the NFT file, itself.

However, unlike physical collectibles like trading cards, NFTs can be presumably minted an infinite number of times, whereas for example a physical trading card, has a much more sound reason for its scarcity and value, whether the card was part of a historic production run or is the last piece required to finish a collection. At the end of the day, all an NFT does is authenticate and record the origin of the original file used. But, when the art object attached to the NFT is easily accessible, there’s no real inherit reason why it should have any value in the first place.

Moreover, another concern that I have with NFTs, is that essentially anything can become an NFT. You simply have to upload the digital file onto the auction site, then they proceed with the minting process. Because of how easy it is to do, anything and everything can be an NFT. For example, Jack Dorsey, CEO of Twitter, auctioned off an NFT linked to his first tweet. Some people are selling NFTs of other people’s art without consent. In fact, some people are simply selling a color. Sales of NFTs without an artist’s consent or bizarre files like colors, make the whole NFT market seem like a quick cash grab for bad-faith actors. However, it is also reasonable to believe that NFT, as a newly introduced speculative asset, is going to have its fair share of hucksters in the beginning similarly with other speculative markets like gold in its beginning.

A unique problem with NFTs is the longevity of the URL links that make up the NFT file. Like all transactions, there has to be established trust between the buyer and seller, and a confirmation of what the transaction was, but there is a possibility of the owner of the domain redirecting the URL to point to something else. Also, there is the possibility of the owner of the domain forgetting to pay their hosting bill. As the buyer, this is a phenomenon you have no control over, unless you buy the domain and pay to keep it online. There have been attempts to solve that problem with a system called IPFS, or InterPlanetary File System. Instead of identifying a specific domain, IPFS addresses let you find a piece of content as long as someone on the IPFS network is hosting it. Thus, a multitude of hosts could be maintaining the domain instead of a single individual. Also, buyer’s can control the domain themselves, as they can pay to keep their NFT’s online, as long as they keep paying the hosting bill. However, the system still has its own issues. Check My NFT have been checking to see if NFT’s IPFS addresses actually work, and in numerous cases they’ve found files not being able to load. In fact, Check My NFT have found temporarily missing artworks from Grimes, deadmau5, and Steve Aoki. These files come back online after the team addresses the issue. Unlike with a host who has a singular responsibility to maintain the link, there is no single person on the network who has to maintain the NFT.

As a result, two scenarios can occur if the URL linking to the NFT become broken. Either the buyer owns an NFT with a broken link, but the seller and everyone else understands what artwork it used to be. Thus, as long as that image exists somewhere, it is possible the NFT would retain it’s value, as long as the artist, buyer, and prospective buyers all agree on what the token represents, However, if the image has gone missing, and no one can tell what the artwork the NFT was originally linked to, then it is possible the NFT would have little to no value at all.

In conclusion, the technology behind NFT is innovative and will be essential in the future. As a store of value asset i.e. an asset that buyers invest in hoping that it will increase in value in the future like gold, NFT has a good deal of trust behind it. In due part, to how easy it is to buy and sell NFTs on the internet and how mainstream celebrities like Grimes & deadmau5 have placed their trust behind it and sold their own art as NFTs. With any store of value, there are definitely hucksters and scammers, who either sell art without artists’ permission or sell absurd items like a color, in an attempt to make quick gains. But, in my opinion, it seems that NFTs are here to stay and actually cut back a lot of the tedium behind other store of value assets like trading cards, sneakers & retro video games , as they have a clearly defined ledger of it’s purchase history as well as being quite difficult to falsify, unlike other more physical store of value assets.