Single NFT non-fungible token blockchain technology
It wasn’t all that long ago that I remember being inundated with proposals for new music delivery systems based on blockchain. The promise to music artists was, “You can charge whatever you want for your music,” and “Take all the money instead of giving it to a record label.” It got to the point where instead of just labeling blockchain as an underlying technology for their offering, they were labeling it as a feature. After a year of unfulfilled predictions, just the mention of blockchain put the proposal in the “next” file. If the very smart people at record labels weren’t already employing the technology, then perhaps there was no “there” there.
NFT Basics
February 2021 has focused a new light on the technology however, this time in the form of NFTs, or Non-Fungible Tokens. An NFT is simply a record of who owns a unique piece of digital content. That content can be anything from art, music, graphics, tweets, memes, games – you name it. If it’s digital and it was created, it can be an NFT. It’s ‘non-fungible” because it can’t be readily exchanged for a similar good at a similar price.
When someone “mints” an NFT, they create a file that lives on the blockchain. The beauty of this technology is that once that happens it can’t be copy and pasted, edited, deleted or otherwise manipulated. It’s the original creation, and although copies of the work can be made and distributed, they are not the original and therefore, have less value.
When people think of blockchain, they immediately think of Bitcoin, which is also built on the technology. NFTs use a different cryptocurrency called Ethereum though, which means that you must first buy Ether in order to purchase an NFT.
The Promise Fulfilled?
Recently we’ve seen a digital flower NFT sell for $20,000, a looping video clip for $26k, and a sock and a LeBron James clip for over $100k. Even Nike
Electronic music producer 3lau sold 33 NFTs for a total of $11,684,101, which included a platinum-plated vinyl record redeemable for a custom song by the artist as well as access to unreleased music and a bonus physical vinyl disc.
Daft Punk issued several collectible NFTs on the Rarible platform before announcing they broke up. Grimes sold 10 art pieces, one for almost $400,000, while the secondary market (which is thriving) for the works brought in $2.5 million. Linkin Park’s Mike Shinoda sold a digital piece of art for $30,000. Many artists, seeing the potential revenue, are understandably interested in following suit.
One of the big attractions to artists is that NFTs provide continual payment beyond the initial sale. Should the token be sold later in a secondary market, the creator will get paid 10% of the purchase price, and that will continue for any sale of the piece thereafter.
There Are Costs
Most entrepreneurs envisioned blockchain as a way to democratize getting paid, where the average artist could finally make a buck as easily as the superstar. NFTs are proving to be just the opposite however, since it’s only the high-profile artists in any area of entertainment that seem to be cashing in so far.
Not only that, there are costs involved. According to industry analyst Cherie Hu, the cost to mint an NFT a minimum of $70, which means that the price of the token would start somewhere in the $100 neighborhood. This is because the online sales platform will take anywhere between 3 and 15% of the transaction for the initial sale, with a 10% fee being typical for secondary sales.
This initial high price makes the token a no-go for the average fan, who is quickly priced out of the market. NFTs appear to be for super-fans only.
Yet a potentially bigger problem is the fact that minting NFTs, and cryptomedia in general, is incredibly energy intensive, and as a result, pose a significant risk to the environment. For instance, in 2018 it’s been estimated that Ethereum mining alone used more energy than the entire country of Iceland to validate its blockchain. While a new more energy efficient way is promised, for now the process is anything but carbon-neutral.
And There Are Concerns
NFT sales bring up a number of rather common issues that are dealt with easily in the non-crypto world that don’t appear to be thought through here. For one, how are royalties calculated and paid? While the artist benefits from the sale, how are co-writers, publishers, and producers compensated?
Copyright problems are another concern. Right now there’s no platform authentication to verify that the creator of a token actually is the owner. What happens if someone decides to create an NFT of something they don’t own?
NFTs are indeed the hot trend of day and that’s more than likely to continue. It’s a great use for blockchain in that it fulfills its promise to be a revenue generator for creators, but it’s not perfect by a long shot. We’re in for an interesting ride.