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Recently, Christie’s auction house listed a piece of digital art by the digital artist, Beeple. The bidding started at $100, but within 10 minutes, price had escalated to over $1 million. Though the auction on this item is set to close mid-March, bids have already exceeded the $3 million mark. This may sound crazy given that image could be viewed online by anyone if they choose. But that’s not where the value lies. Instead, these digital assets, or non-fungible tokens, are being highly sought after because of their authenticity and uniqueness. And their values have skyrocketed thanks to blockchain technology.

A non-fungible token, or NFT for short, is any digital asset that cannot be traded in a like-for-like fashion. For example, currencies are regularly traded because every dollar has the same value. In contrast, NFTs guarantee that the item is a one-of-a-kind asset with certifiable ownership and originality. Blockchain technology is simply the mechanism by which this certification occurs. (Read more about how blockchain has been shaping smart cities in this Bold Business story.) Despite the ability to see Beeple’s work online, only the one owning the blockchain-verified NFT version enjoy true ownership. And investors and collectors alike are increasingly making these types of extraordinary purchases.

“You can go in the Louvre and take a picture of the Mona Lisa and you can have it there, but it doesn’t have any value because it doesn’t have the provenance or the history of the work.” – Pablo Rodriguez-Fraile, Digital Asset Investor

The Market for Non-Fungible Tokens

While Christie’s auction house has ventured into the digital assets market, many others have not. Christie’s is one of the few and is actually embracing cryptocurrency and blockchain by accepting Ether digital coin. But they aren’t alone. OpenSea is a much larger marketplace for the exchange of digital assets and non-fungible tokens. A year ago, OpenSea was handling about $1.5 million a month in digital asset transactions. Currently, monthly transactions exceed $86 million. The marketplace deals with a variety of NFTs that range from sports clips to even virtual real estate. For many, this represents the future of property ownership.

In terms of sports videos and digital assets, the NBA has been innovative in dealing with NFTs. Several months ago, it launched its own non-fungible tokens website called “Top Notch.” In essence, the marketplace allows users to buy and trade sports highlights in authenticated video formats. Within a 5-month time period, the NBA reported over 100,000 buyers with over $250 million in sales. While many transactions occurred peer-to-peer, the NBA receives royalties off every individual one. Thus far, the highest price paid involved a video of a dunk by Lebron James that went for $208,000.

“If you spend 10 hours a day on the computer, or eight hours a day in the digital realm, then art in the digital realm makes tons of sense – because it is the world.” – Alex Atallah, Cofounder, OpenSeas

The Appeal of Non-fungible Tokens 

Interestingly, one of the big drivers of popularity of digital assets has been the pandemic. As people are spending more time in lockdown, they are also spending more time online in a virtual world. Social distancing has resulted in a boom in a variety of other retail areas over the last year. So, it’s not surprising that consumers are valuing digital properties to a greater extent. Non-fungible tokens and blockchain technology have simply provided a way to provide authenticity of ownership making this possible. In essence, COVID served as a catalyst for increased attention to these marketplaces.

Someone using a very special computer interface
Blockchain technology is helping creating a new asset class, with non-fungible tokens turning digital art into collectibles.

Many experts argue that an advancing marketplace for digital assets was inevitable. While the pandemic might have accelerated its popularity, shifts toward virtual worlds were already occurring. This has been evident in the sports world where increased spectators now watch drone racing or participate in virtual games. Likewise, augmented reality applications are ever-increasing as well, further promoting adoption of our virtual existence. As these trends have occurred, it’s only natural that virtual and digital trade systems evolve. Non-fungible tokens are the means by which this shift seems to be occurring.

“We’re spending a lot of our time digitally, always online, always plugged in. It makes sense to now add property rights to the mix and suddenly we have the emergence of the metaverse.” – Andrew Steinwold, Founder, Zima Red NFT Investment Firm

Digital Assets Have Risk Too

Naturally, all types of investments and trades carry risks, but non-fungible tokens may carry a bit more. In the last year, sales of digital assets and NFTs have been extraordinary, especially in the art world. Another work by Beeple involving a 10-second video clip initially sold for $67,000. But subsequently, the purchaser turned around and sold it for $6.6 million. While this type of resale of NFTs is not the norm, significant sales prices for many NFTs have been recorded. But the question is whether these sales prices reflect true value or an exaggerated inflationary bubble. Should the bubble burst, the fallout could be tremendous.

Determining real value of these digital assets is challenging to say the least. But currently open marketplaces offer a chance for bidders to bets determine this. Such marketplaces however routinely have buyers and sellers who go by pseudonyms and not their real names. This has the additional risk of potential fraud to occur in some instances. The bigger risk, however, is how such a market will settle out as virtual properties evolve. While experts agree many non-fungible tokens will hold significant value, others may not. But for now, many are hoping to ride the wave for a while and reap its benefits.

Speeding Toward a Virtual World 

As a result of the pandemic, social shifts have been accelerated significantly. People are working from home, global videoconferencing is the norm, and online purchases and delivery services have boomed. The Come-to-Me Economy is rapidly evolving, and as it does, the more time we will spend in our virtual worlds. (Read more about the Come-to-Me Economy in this Bold Business story.) Non-fungible tokens and digital assets as well as blockchain technologies are all key components that will drive this forward. Services, trade, and now property ownership are all part of this equation. And it seems to be happening quickly right before our very eyes.

 

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