This article will give Web3 product designers an understanding of NFTs and their emerging use-cases in cryptomedia, artist royalties, and digital identities/property. Stay tuned for future Web3 Design Courses where we deep-dive into products in the Web3 ecosystem.
Again, let’s start with the concept of fungibility. Fungibility means that an item can be replaced by another equivalent item. Currency is a good example of something that is fungible. One ten dollar bill is the same as another ten dollar bill. Even though the bills were printed at different times, in different locations, on different pieces of paper, we still consider them equivalent to one another, because they are fungible. Fungibility just means that an item can be replaced by an equivalent item.
Most things in the real-world, however, are non-fungible. People are non-fungible. The family heirloom, passed down to you by your grandparents, is non-fungible. The Mona Lisa, hanging in the Louvre in Paris, is non-fungible. And your life memories are non-fungible.
Now, let’s take this concept of “fungibility” back into the digital, Web3 world. Bitcoin is fungible because one bitcoin is equivalent to all other bitcoins. Currently, most digital content is fungible. Think of image, video, and audio files – we can infinitely replicate them, and share with thousands of people, effectively for free, with the click of a button; however, thanks to non-fungible tokens (NFTs) we can now make digital files rare, or “scarce”, for the first time ever. And just like fungible tokens, anyone is free to launch NFTs on public blockchains. This is known as “minting” NFTs. Whereas fungible tokens have a token supply, all NFTs are unique, and distinct from one another. They are 1 of 1.
One of the first major use-cases for NFTs has been one-of-a-kind digital art. Now, patrons can purchase digital art as NFTs, and custody the NFT in their Web3 wallets. 2021 was a big year for NFTs with over $17B worth of NFTs transacted. And some of these NFTs have demanded seemingly outrageous prices for digital art. A collage by a well-known artist Beeple, sold for $69 million dollars – this was the most expensive NFT ever sold, and the third highest price ever paid for work by a living artist. Check out these other popular artists making millions of dollars from their NFT sales.
When first learning about NFTs, most people don’t understand why someone would spend millions of dollars, or any money for that matter, to purchase a jpeg that is publicly accessible. Indeed, the Beeple NFT can be viewed, downloaded, and shared by anyone. This is known as the “right-click save” misconception. The true game-changing power of NFTs is that ownership of the original Beeple NFT can be proven. Whoever purchased this NFT now custodies it in his/her Web3 wallet, and anyone can verify this ownership because it is a public record on the Ethereum blockchain.
Another NFT-related phenomenon is PFP, or profile-picture NFTs. These are collections of NFTs, usually depicting avatars that vary based on attributes like background, jewelry, clothing, and other accessories. The two most popular PFP collections are Crypto Punks and Bored Ape Yacht Club (BAYC). Passionate communities have sprung up around these NFT collections, and membership isn’t cheap. For both collections, a total of 10,000 unique avatars were minted, and the cheapest BAYC NFT is currently selling for 132 ETH (~$370k).
NFT marketplaces are important infrastructure for NFTs, and they will continue to grow in importance as demand for NFTs increases. These marketplaces are like eBay for NFTs. Owners can list their NFTs for sale, either as an auction or buy-it-now. Purchasers come in to bid on NFTs, and the marketplace’s smart contracts send the NFT to the winner’s wallet address. OpenSea is the most popular NFT marketplace for the secondary sale of NFTs. Other marketplaces curate special kinds of NFTs (e.g. Artblocks & AsyncArt), and host the NFT drops of popular artists (e.g. SuperRare & Nifty Gateway).
NFTs are much more than visual art. As I said before, any digital file can be made unique with NFTs, including audio, video, text, code, and more. Web3 music is up-and-coming where patrons can purchase one-of-a-kind, or limited edition songs on platforms like Catalog. Also, you can mint an NFT of your blog post on Mirror, which has been used for fundraising creative projects like documentaries among other things. Finally, some of the internets original source code, discussed in the first section of this article, was sold for $5.4 million dollars as an NFT. The list goes on.
Even digital media in general is just scratching the surface of NFT use-cases. NFTs can be programmed with arbitrary functionality. For example, NFTs can be used to give access to online communities like private Discord servers, or be used to access in-person events. Also, NFTs allow artists to capture royalties on secondary sales of their artwork without any legal contracts. The NFTs can be programmed in such a way that a percentage of secondary sales are automatically sent to the artist’s wallet address. We are just in the beginning stages of NFT experimentation – it’s not hard to imagine future use-cases where NFTs serve as our digital identities, or digital belongings that we carry with us through the Metaverse.
If you enjoy videos over reading when it comes to online learning then checkout the course on YouTube. This is part 7 of 7 in the Crypto Design Trends 2022 series. Also, make sure to stay tuned for future Web3 Design Courses where we will get into more interesting topics about emerging dApps.