Non-fungible tokens (NFTs) have exploded and stirred significant public interest over the past few months. From art to music, food to toilet paper, these virtual assets sell for millions of dollars. With the initial excitement settling down, it is time to look deeper into the more stable operating reality of NFTs.
For the uninitiated, an NFT is a digital asset representing real-world objects such as art, in-game items, music, collectables, videos, among other things. These assets are purchased and sold online, often with cryptocurrencies. NFTs are typically encoded with the same underlying software as several crypto assets.
Although non-fungible tokens have been around since 2014, they are now garnering worldwide attention because they are becoming increasingly popular to sell and buy digital artwork. Notably, a whopping $174 million has been spent on NFTs since November 2017. While some NFTs are limited and are one-of-a-kind, most digital creations are almost always infinite in supply.
Most NFTs we see now are digital creations that already exist in some form elsewhere. This includes iconic video clips from NBA games, gifs, securitized versions of digital art that are already floating around on Instagram. For example, popular digital artist Mike Winklemann, known as "Beeple," crafted a composite of 5,000 daily drawings to create perhaps the most famous NFT of the moment, "EVERYDAYS: The First 5000 Days," which sold at Christie's for a record-breaking $69.3 million.
NFTs are changing the nature of the conversations around cryptocurrencies and creativity, injecting economic markets and sustainable models that do not rely on advertising but authentic, engaged communities.
Now that we know about NFTs, let us understand the long-term operating NFT progress. What does this scaling sector look like in the next few years? Here are the top five NFT trends to watch.
Best 5 NFT Trends to Watch
1. Emerging media and enterprise IP networks
In 2018, when the token market crashed, a large portion of the crypto space turned to institutional enablement models. This meant delivering private, permissioned protocols and networks to facilitate the use cases of significant commercial, financial, or governmental entities. This led to the creation of digital assets and consulting initiatives such as IBM, R3, IBM, Digital Asset, etc. These initiatives focused on turning the traditional economic activity into a controlled blockchain version.
The outcome of this process is an expedition in the ongoing development of Central Bank Digital Currencies (CBDCs) and blockchain-based supply chains and institutional capital markets.
The same thing is likely to happen with traditional media as well. Many publishers of media properties across film, music, art, etc., are going to explore the NFT space collectively.
Unlike financial enterprises that are subject to regulations and guidelines, media entities are creative by nature. Their involvement with blockchain technology is highly likely to generate new alterations of what NFTs mean and how they can build value in the overall brand experience. Media initiatives will work on broadening the scope of blockchain technology.
2. Blockchain-as-medium and Generative Art
Creative output and art and are reflections of the medium in which they are expressed. The instruments, devices, or palettes determine what the artist can showcase and make.
Blockchain-based digital items today can be seen as economically scarce versions of Web 2.0 image and video files. These digital objects are similar to the skeuomorphic design of the early smartphone, which resembled pictures of bookshelves or paper notepads. These representations were then replaced by flat and easy-to-understand icons that make software applications easier to use.
Essentially, this means that future artistic items on Web3 might relate to the native properties of the current Web3. These attributes may include the digital economic systems, graph shape of its address or nodes, the programmatic nature of time (blocks), etc.
To illustrate, if Ethereum were a giant clock, with the mechanical parts exposed, the community would have ownership over all the new interactive elements.
For instance, consider Async Art (and Async Music), Art Blocks, EthBlock.art, EulerBeats, Hic et Nunc, and the Murat Pak Fungible drop on Nifty Gateway. These are not just translations of videos tied to an encrypted identifier. Instead, the artworks employ the medium as an input.
With Async, the music parts and the visual parts are cut into different layers. Entities can own different layers of Async. Owners can choose various states or elements of the whole artwork and force exchange around it. Communities or investment funds can also look for and purchase a particular permutation of a song or an art piece. This outcome utilizes ownership as part of the medium.
3. DAOs, Digital Museums, and the Metaverse
It is becoming increasingly easier to digitize the communal factors of this economy at the edges. Software-defined investment collectives, known as decentralized autonomous organizations (DAO), can develop in mere days to bid thousands or even millions of dollars on the acquisition of famous creative expressions.
For example, consider the NFT video created by Pplpleasr, built initially to promote the Uniswap exchange. The NFT was sold for the #StandWithAsians drive in response to the Atlanta shootings. The piece earned a $525,000 sale to a DAO self-organized to acquire the artwork.
This is not the only art DAO out there. Other examples include BeetsDAO, Flamingo DAO, $WhaleDAO, etc. Such organizations own gallery collections of culturally important digital objects. Sometimes, these collections are completely tokenized and traded as pseudo-NFTs.
Thanks to Ethereum's interoperability, financial structuring can be done quickly and easily. Users can send NFTs to specific addresses and lock them. New tokens can also be issued and collateralized, which could be redeemable into NFTs. This is quite hard to accomplish in the fiat world. B20, the tokenized Beeple fund from Metakovan, NFTX, the CryptoPunks fund makers, etc., have accomplished this feat in a matter of months.
In addition to the acquisition, the engagement of art is also communal. Once purchased, NFTs can be easily installed and showcased in multiple digital worlds such as Cryptovoxels or Decentraland. These virtual worlds are typically built on platforms like Minecraft or Roblox. However, they are also present in scarce real estate, and such real estate can be purchased and exchanged, highlighting the economic activity around cultural articles.
4. NFT Ownership: IPFS and multi-chain support
It is common to wonder what it is precisely that one would own when they purchase an NFT. In simple words, you would have ownership over a reference to a file stored elsewhere. The reference and the file would be highly secured and decentralized. It appeaars complicated at first glance because each Ethereum-based platform (such as Rarible, Nifty Gateway, Super Rare, Foundation, etc.) may have somewhat different ways of managing minting, burning, and exchange.
These platforms code their smart contracts to comply with standards but will have implementation differences. NFTs typically contain a reference to where the file is stored on IPFS, a protocol used for decentralized file storage. Essentially, this means that if your particular website provider suspends operations, your NFT file will still remain on the internet.
Dealing with NFTs on non-Ethereum platforms can get a bit more complicated because they are not sufficiently decentralized to generate a trusted property rights system. Take, for instance, Flow - the software powering NBA TopShot. It is unclear what would happen to your digital item if Dapper Labs goes out of business and all the privately run Flow nodes go offline.
A similar statement can also be made about Binance Smart Chain. But platforms like Tezos and the Hic et Nunc are also currently using IPFS as the file storage system. So perhaps the answer will be that IPFS secures NFTs even in the multi-chain world.
5. Integration Into Decentralized Finance and Portfolio Management
It is important to remember that virtual objects are also an economic expression of cultural labor. A piece of physical art or the mechanical rights to a music file generate financial returns and plug into financial reporting.
People expect to see both traditional and emerging art plug into emerging financial systems such as blockchain. Currently, the financial world is building bridges to on-ramp customers into crypto assets like Bitcoin. This could be through exchange-traded funds, Paxos-based PayPal accounts, or financial adviser providers like Onramp Invest.
Emerging financial systems would consequently need to integrate NFTs and other assets into portfolio management systems and allocations.
This financial revolution will play a crucial role for crypto investors in the coming generations. Enterprises such as Lobus are exploring this space. They are filling the gap between the current and emerging art as well as its financialization.
One can see similar functionalities in Zapper for NFTs already. The platform provides a mark-to-market price across customers' fungible and non-fungible assets.
It is safe to conclude that these creative digital objects will plug into decentralized finance across various use cases. They will likely be used as collateral for borrowing or fractionalized for investment.
NFTs could also become attached to fixed income instruments or used as participation or governance tokens. This booming class of assets is undoubtedly driving novel user experiences and narratives.
5 NFT Trends to Watch: Final Thoughts
NFTs are very exciting for crypto-natives as well as for people who have not traditionally participated in the crypto world. These emerging assets seem to be having a massive impact on society. That said, NFTs are still in their early stages, and investors are advised to perform due research before investing in them.
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