In March, a new buzzword took hold of social media—non-fungible tokens (NFTs). NFTs, assets verified by blockchain, were suddenly everywhere, and artists were trying to figure out how to take advantage of the wave. Some managed to make eye-popping gains from selling their digital art through NFTs, and soon, media outlets, musicians, and even Jack Dorsey, imitated them. Blockchain technology is creating new markets in which to invest and could quickly disrupt sectors like commercial banking, real estate, and, as shown, art. NFTs will not change the nature of the entertainment and media business, but they are certainly adding a new layer of complexity to concepts such as ownership and funding in a sector that is in constant revolution. Maybe the most valuable idea they bring is the pursuit of the collectible, making the internet the perfect hunting ground.
NFTs are units of data that certify the authenticity of an object, which are stored on a blockchain network, making it impossible to swap the file for a fake one. Most NFTs are part of the Ethereum blockchain, a cryptocurrency whose system supports the information stored on NFTs. But, in contrast with bitcoin and other cryptocurrencies, each non-fungible token is unique. The existence of NFTs has given rise to a way to make digital content—which in itself is replicable—unique and thus sellable. And not just digital art, but anything online—from tweets to opinion columns, from paintings to memes.
The NFT craze began slowly at first during the summer of 2020 but became an actual trend in March of this year. In August of 2020, when it was still very under wraps, socialité Paris Hilton was the first celebrity to sell a digital painting through an Ethereum-based auction platform. Hilton has been an early adopter and a staunch supporter of NFTs, as she argues that the blockchain-based system can democratize art and create direct relationships between creators and fans.
Others soon followed. As reported by Variety, Kings of Leon was the first band to release a music album on blockchain as an NFT. DJ Steve Aoki sold its NFT art to former T-Mobile CEO John Legere. Even the NBA started selling NFT highlights. But when artist Mike Winkelmann, known as Beeple, sold a JPG file as an NFT for a record-breaking amount—$69.3 million—the market boomed. Since then, NFTs have been everywhere. And not just in art or video. Twitter CEO Jack Dorsey sold his first tweet from March 2006—“just setting up my twttr”—for $2.9 million. Publishers also got in the game. The Associated Press was the first news outlet to sell a work of art as an NFT, followed by Quartz, which sold the first news article through the blockchain system during a four-day auction. Finally, the New York Times joined the mix, making half a million dollars by selling a column about NFTs as an NFT.
The buzz around NFTs is grounded. A work of digital art, which by its own nature is replicable and the copies indistinguishable from the original, becomes unique and original if NFT-coded as part of blockchain technology. The owner can brag that he or she owns the real “original” of the digital art. It gives artists a way of monetizing their work and investors a new place to store their money. Besides, the boom of NFTs and other blockchain-based products, as well as the cryptocurrencies they are related to—bitcoin and ethereum—has barely begun. Some crypto investors are designing blockchain-based virtual worlds and buying up their virtual real estate, which can be sold as NFTs. This reality is called the metaverse, as explained by Reuters, and would make the digital reality much more real. Still, some industry insiders worry that the NFT market could suffer from speculation and price bubbles, as investors buy up NFTs to drive their prices up. However, it’s becoming increasingly clear that the potential for NFTs and crypto is tremendous.
In terms of entertainment, the NFT market could change how a piece of content is monetized. Digital art, memes, videos, songs, films… they can all be sold as NFTs, creating a new income for the industry. The value of an NFT will be largely related to the perceived value of the object and whether investors want to collect that object. We do not save print newspapers unless they commemorate events or have a perceived value and, although NFTs are not the same as physical copies, of course, the collection-based argument may apply. That’s why a Beeple JPG is sold for millions, while a meme is sold for much less. Still, both can be subject to speculations, with investors throwing in numbers to create hype as it often happens with physical art. But not everything can be collected or has a perceived value for investors. And many NFTs being sold on the OpenSea marketplace are not very valuable.
Moreover, it is not clear whether there will be an appetite to buy all this up—and whether the industry will put it up for sale. Setting up a digital piece for sale as an NFT is costly, and it is hard to think how some film producers, writers, musicians, or painters might want to go through the process of putting their content for sale, paying the corresponding fees, and finding investors ready to purchase their “original” copy. As explained by Kevin Roose for the New York Times, the artist must first create a digital wallet to store the tokens and the cryptocurrency gains. Then, he/she must create an empty wallet for the Ethereum currency, as most NFTs use that one, search for an NFT marketplace, link the token to the digital image, and pay the fees, on many occasions of more than $100, others $50. The NFT has to be sold for more than that to make a profit.
The proceeds of NFTs may generate some pools of cash, but they do not concern or transform the industry itself. What’s unique and incredibly valuable about NFTs is that they allow us to possess something that seemed impossible to own given its nature—who could own an article itself (not its authorship)? Who could trade a meme for value? As those tokens are unique, the principle of scarcity applies—they become valuable as they cannot be replicated and as we can possess them. NFTs appeal to our need of owning, of having a piece—a unique piece—of the world (this time, the digital world.) It’s like owning a Picasso. Even if the owner has it stored away, he/she still owns it, which means it’s tradeable. NFTs, as Picassos, are investments. But instead of investing in physical assets, NFTs bring the same way the online world. In fact, some crypto investors are buying up NFTs so they can sell them in the future, when they believe their value will have shot up.
The downside of NFTs and other blockchain-based systems is their huge power consumption. According to a report from Cambridge University, the network that operates Bitcoin consumes as much energy as Norway. And it will keep increasing as more users jump in. Its effect is still hard to measure, given the decentralized idiosyncrasy of the technology, but the carbon footprint of cryptomining will definitely become an issue once it starts receiving international attention. Creating an NFT token and entering the work in the blockchain network generates as much CO2 as traveling 1.000 km by car.
It’s still early to determine how NFTs will change the media and entertainment business. In terms of production and consumption, they will not shift it in the short term. Once the metaverse is a reality, a portion of consumers will enjoy those NFTs in this virtual reality, and thus, consumption might change. But only for a few. In terms of funding, NFTs could become a new revenue source for anyone who can sell something with perceived value. What’s clear is that blockchain technology is revolutionizing every sector. We still have to see how.