Insight Into the Fast-paced World of Web3 and NFTs
By - Liza Horowitz - Head of Marketing at Omnia; early crypto adopter
Did you catch the 2022 SuperBowl? I thought the FTX SuperBowl advertisement starring Larry David humorously illustrated the current crypto sentiment: “Ignore the haters, the naysayers… don’t be a Larry!”
Larry. Yes, that was me back in 2017 at the EthWaterloo hackathon. I was in denial when something called CryptoKitties won first place. CryptoKitties, a series of playful Non-Fungible Tokens (NFTs) soon took the tech and art worlds by storm. These crafty critters made global headlines when their popularity almost broke the Ethereum blockchain. It was a moment in time where art and technology combined to create something new and intensely interesting.
The CryptoKitties win at the ERC721 hackathon should have been my “Ah-Ha” moment, but at the time I just couldn’t get my head around how programming uniqueness into code would fundamentally disrupt the world of art. Fast-forward to 2021 and Bloomberg reports the NFT art marketplace tops $41 billion in sales. By contrast, traditional art sales were $50 billion the previous year.
What is an NFT?
NFT stands for Non-Fungible Token and represents a unique asset or proof of ownership on a blockchain network.
It’s important to note that the actual digital artwork is NOT stored inside the NFT. The NFT is a hyperlink or a pointer to where the digital media is hosted. And it’s not hosted on the blockchain; most blockchains can create Non-Fungible Tokens , but can only store limited data.
Think of an NFT as your digital "Certificate of Authenticity" that lives on your phone or computer;there is no physical or hard copy. One-of-a-kind attributes like proof of ownership can be programmed into this digital certificate. An NFT can take the form of a JPG, PNG, GIF, WEBP, MP4, CLB, OGG, GLTF, WAV or MP3 file.
"NFT is often not the art itself, but rather, as one expert put it, like ‘directions to the museum’ where the art is being held." Y combinator comments
"Ultimately, you're buying a collection of metadata defining what you own. NFTs use links to direct you to somewhere else where the art and any details about it are being stored. But what happens with NFT links break. Expensive 404 error." Y combinator comments
More on mystery of NFTs
So let’s go a little deeper into the - seemingly inexplicable - world of NFTs with these questions:
Why would someone pay $2.9M for an NFT of Jack Dorsey's first tweet which contained the stunning text "just setting up my twttr" when the original tweet is freely shared online?
Why would anyone pay $69M for a Beeple NFT created by a newish artist and sold at the Christie Auction House when you can right-click and download the same one?
Great questions. Well for starters both of those questions are real-life examples of the current value of NFTs.. It appears that NFTs are a nascent market with almost unlimited room for iteration and innovation. NFT “experimentation” is trending, and amidst rapid technological changes currently underway, there is significant opportunity for those curious and adventurous enough to try something new.
Because NFTs are an emerging technology, regulators struggle to stay ahead of the financial innovations associated with blockchain and cryptocurrency - the technologies at the heart of NFTs. The SEC is reportedly targeting NFTs, as they may be deemed securities if they pass the Howey Test. Buzz in the marketplace notes that the SEC has serious concerns about NFTs and how they relate to securities law. Specifically, NFTs may be considered an investment product, (and, therefore a SEC-regulated security) if there is 1) an investment of money; 2) in a common enterprise; 3) with a reasonable expectation of profits; 4) where value is derived from the efforts of others. The SEC investigation is still underway.
Many people think NFTs are nonsense because they are intangible; you can't actually touch them. Yet intangible assets make up 90% of the S&P 500 market value. In the last quarter-century, intellectual capital – another intangible asset – has emerged as the leading asset class. And leading finance experts believe that intangible assets are better tools for making money.
Armed with this information, is it plausible that NFTs will become an entirely new asset class.
Pamela Norton, CEO of Borsetta Labs, is literally banking on it. Her company targets the $31-trillion intangible-asset market to digitize and title assets for the Web3 marketplace. Norton began R&D on TitleChain in 2018 and is commercializing their patent-pending technology to bring intangible asset ownership on the blockchain with NFTs. Borsetta’s NFTt or Non-Fungible Title token and the TitleChain NFT IP platform are gearing up to secure the ownership of patents, trademarks, and copyrights with NFT digital title.
Putting the “Fun” in Fungibility
Core to the concepts of NFT is fungibility. If I lend you $10 and you pay me back $10, I don't need to receive the exact $10 I gave you; I will take any $10 bill (or even two fivers). Money is fungible because it is interchangeable.
Now if I ask you to ARTsit (yes, this is a thing) my priceless Mona Lisa while I'm away. When I return, I want the exact Mona Lisa you watched over because Leonardo da Vinci’s Mona Lisa is non-fungible. It is not interchangeable.
Token Fungibility or Non-Fungibility on the Ethereum network (a blockchain network) is dictated by technical standards. The standards outline specifications that optimize the token function on the blockchain. Ethereum’s main standards include ERC20, ERC721 and ERC1155.
ERC20 standard is used to create and issue token smart-contracts that are fungible or swappable.
ERC721 and ERC1155 standards allow users to “mint” tokens that are non-fungible. That is, no two tokens are the same. Minting is a term used that refers to a user’s with the blockchain to secure information about an NFT, its authenticity and ownership. Minting transforms a digital art file into a digital asset on a blockchain.
The ERC1155 is a newer standard and a hybrid of ERC20 and ERC721. This standard allows users create tokens with non-fungible and fungible benefits. ERC1155 saves developers time and fees as developers can create and batch multiple tokens in a single smart contract. A single contract can be used to mint different types of NFTs, a huge gas savings.
The bottom line
NFTs are disrupting art, media and the intellectual property marketplace. As technology evolves, issues (like asset class and regulation) will be solved and new opportunities will be created. Those who create and innovate early have a first-mover advantage… for a while anyway.
What’s next
If you’re interested in understanding more about blockchain or all things NFT and Web3, take one of our Venusverse Web3 intro sessions.
Launch of the Women of Venusverse exhibit at THEMUSEUM on Friday, June 3rd, 2022.
First Fireside Chat in June on How Web3 has the Potential for Positive Global Transformation (more details will follow).
We will be writing about our Women of Venusverse collection and how we have approached this art collection and its utility very differently than what has typically been prescribed for NFTs.
If you’re a Web3 expert interested in contributing to Venusverse’s Thought Leadership Series please reach out to us at info@venusverse.ca.
"To be a successful creator, you don't need millions. You don't need millions of dollars or millions of customers, millions of clients or millions of fans. To make a living as a craftsperson, photographer, musician, designer, author, animator, app maker, entrepreneur, or inventor you need only thousands of true fans" – Kevin Kelly (2008), 1000 True Fans
