Understanding Non Fungible Tokens (NFTs)
By Yossi Hasson, Co-founder of The Runway Fund. Ex Managing Director of @Techstars Blockchain. Co-founder @WeThinkCode & @SYNAQ (exited to @DimensionData)
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When I was a kid I loved collecting basketball cards.
Weird for someone living in South Africa and who actually had never watched a televised or real live basketball game of any of the players that I was collecting their cards for. But that didn’t stop me. I remember fondly going to the flea-market to buy a new pack of cards, eager to see which gems were found inside. At the time, the Chicago Bulls had Michael Jordan and that was enough for me to be a major Bulls fan and follow their team.
I still have that card collection today, stored away, and while I don’t actually watch basketball, I don’t think I’d ever sell any of those cards. It’s a piece of nostalgia that immediately brings me back to that fond time in my life.
Those cards have a problem though. They’re locked away in some storage warehouse in South Africa while I’m here in New York. I can’t access them right now, I have no idea what they are worth and all they can do is be filed away or displayed on a wall. Despite that, these analogue collectibles can be worth tens of thousands of dollars each. Recently, two Michael Jordan rookie cards sold for $738,000 each! And that’s just basketball cards, collectibles is a multi trillion dollar industry.
Today, the modern day version of collecting basket ball cards is being driven by a new improved medium to the analogue approach, namely through NFTs (Non Fungible Tokens) and the industry is exploding.
What are NFTs?
Jesse Walden from Variant Fund describes NFTs as “files that live on the blockchain.” Meaning that they can’t be copy-pasted, edited, deleted, or otherwise manipulated. Jake Brukhman thinks of NFTs as a form of “liquid intellectual property”that “encapsulates intellectual property rights to the assets they describe” and can be assigned to any form of digital content.
The combination of these two descriptions give you the idea that an NFT is in essence, a verifiable proof of an original digital item – something that was previously unprovable. This provability of ownership (provenance) unlocks new types of business models, monetization and liquidity that makes NFTs an entirely new asset class. Creators can, for the first time, claim ownership of their digital work in ways previously unimaginable and assign ownership rights, design new royalty mechanisms and allow others to remix their work while still being able to retain proof of ownership and authenticity. All managed on the blockchain, through smart contracts and without intermediaries or complex legal structures and agreements.
We’re seeing this new asset class starting to take shape and be understood across collectibles, gaming, digital art, music, ticket sales and more. Think of any digital content and NFTs have a use case that can apply. Now think of any analogue IP (like land title registrations for example) and now those can now be digitized with new rights and revenue models. My prediction is that the market for NFT assets will be bigger than Bitcoin. That’s why I’ve invested in companies like Blockade Games, who let you own the in-game assets and characters that you create in their title game, Neon District, and Paperchain, who allow any artist or creator to get paid in realtime for their streaming revenues.
But back to basketball cards. Today NBA Top Shot is the leading the transformation from analogue collectibles to digital collectibles driven by NFTs. With NBA Top Shot, collectors can purchase the best ‘moments’from NBA history. Just today 12,531 collectors spent $6.7m buying those moments and re-trading them. In the past month, over $76m has been traded, with the top 10 moments selling for over $640,000.
If you think this is just a fad and wont transcend into the “real world”, Christie’s, the over 100-year-old auction house is offering their first ever digital NFT art auction by digital artist Beeple.
Not bad for something that didn’t even exist a mere 4 years ago. (NFTs were introduced on the Ethereum blockchain as a standard in 2017).
It’s exciting to see crypto eating the world, one token at a time.