Crypto in the NFT Space: What is its role and how big is its potential?
Crypto, equally loved and misunderstood in today's society, has become popular in areas other than investing largely due to its significant role in the global NFT trade. As a confused public watches, news articles tell tales about unusual financial exchanges of what some like to call "digital rights". Meanwhile, on social media, crafty entrepreneurs attempt to convince their online audience of their ability to facilitate such exchanges and extraordinary financial gain.
What is behind these new activities in the digital realm? Technical foundations that provide an insight into the opportunities presented by cryptocurrencies in the developing world of NFTs.
In this article, we will take a deep dive into the connection between crypto and NFTs, how the two industries work hand in hand today, and what their union could achieve in the future. So, without further ado, let's jump right into it!
The Purpose of an NFT
For those of you completely new to the concept of Non-Fungible Tokens (NFTs), SwissBorg community member Vincent Rolinat wrote a great article explaining what NFTs are. In the article, along with the basics, he explains the possible usage of NFTs as digital property rights tools.
Why is this important? Historically, there has been a severe lack of content protection offered to digital artists, with it being nearly impossible to trace online art back to its original creator.
The solution? A unique and identifiable token that determines one's ownership of a given piece of digital content - an NFT.
Anil Dash and Kevin McCoy are the two great minds behind the creation of NFTs. One an auction house and media consultant and the other an artist, the two teamed up to create a technology backed by blockchain for claiming ownership over original digital work.
Here’s what Dash had to say about their invention:
"Well, I think they were worried about it. They also want to make sure that collectors who bought their work felt like they got a real value wasn't just something that somebody is just going to reblog this on Tumblr and then the work isn't original anymore. And so it was a real concern. I've long been interested in equity and ownership, especially in digital space, especially for creators and artists. The big deal auction world was not something I knew really much about until the consultancy I worked with had started working with some of the big ones, and I learned how much they very earnestly cared about provenance and title and ownership and whether it was, you know, all the way traceable back to the original creator. They had been thinking about these problems for hundreds of years." - Anil Dash (via WNYC Studios )
The connection between crypto and NFTs
The NFT economy, with its sea of individual buyers and sellers engaged in millions of unique international transactions, is a prime example of a capitalist, globalised and – most importantly – private economic ecosystem.
Overwhelmingly, buyers and sellers are private actors interacting on a private-sector exchange platform. As a result, it makes sense that these buyers and sellers want to use a currency that does not depend on banks and whose value is determined by the diverse range of individual actors deciding to use it.
Cryptocurrencies offer precisely these benefits – independence from state actors and increased monetary freedom for private users. Consequently, any expansion or development in the NFT industry is highly likely to pull cryptocurrency along with it.
The OpenSea example
Dash and McCoy's invention is powered by crypto, but in what sense? Well OpenSea, for example, is the world's largest NFT marketplace at the time of writing. It operates using Ethereum (ETH) and its associated Wrapped Ether (WETH) tokens. The latter are linked 1-to-1 with Ether (ETH) and are deployed for logistical purposes to extend the reach of their parent cryptocurrency, Ethereum.
Across OpenSea, everything from sales volume to floor price is presented in ETH, while individual artwork NFTs can be bought either with ETH or with the linked WETH currency.
But, let's give a more specific example.
Looking for one of the cheapest Cool Pets NFTs? That will set you back between two and three WETH (around 6,000 - 9,000 USD). Want a Bored Ape sailor monkey? That will leave a hole the size of 101 ETH in your wallet (around 300,000 USD).
So on this NFT marketplace, both buyer and seller will execute a crypto transaction, no matter one's budget and taste.
The potential of crypto-powered NFTs
Now that we have looked at how NFTs are designed to expand digital content rights and how cryptocurrencies support this highly lucrative industry, let's explore the potential of this duo in an increasingly digital world.
The most exciting avenue for NFT growth is, without a doubt, the Metaverse and similar projects.
At Meta, they believe that the future will contain more virtual reality replacements for real-life situations. For instance, employees will be able to attend boardroom meetings as virtual characters hovering over a digitally rendered Atacama Desert. At the same time, dating applications will provide their members with access to virtual reality nightclubs filled with online characters of other bachelors and bachelorettes.
What both of these examples have in common is the increased relevance of one's online representation as well as personalised digital imagery.
To be fair, Metaverse-esque environments already exist. Take Minecraft, for instance, a sandbox videogame released in 2011. In Minecraft, players wander around a shared virtual world while communicating over the game's internal chat.
Players represent themselves virtually with customisable, often distinct, digital "skins" for their characters. Skins and personas are freely accessible and often come with so many layers of editing that it is hard – if not impossible – to find the skin's original creator.
This is where NFTs come into play. With them, these skins would become sellable and reservable for a collector's exclusive use, thus allowing creators to get rewarded for their designs and collectors to "own" the designs they like the most.
Both the Metaverse and Minecraft case studies exist in the private, international domain, strengthening the desire for crypto's independent, user-directed currency system. Moreover, with the proposed innovations in virtual reality interaction, the need for a "digital wardrobe" will likely present a major space for expanding the NFT market and the continued rise of the cryptocurrencies that run it.
At their inception, NFTs were seen as a way to give artists more rights over their digital artwork. With the digital world so thoroughly globalised, it is only natural that a more independent currency, in this case, crypto, should be chosen as the bread and butter of the NFT economy.
Whether the current NFT trading trend is temporary or not, the underlying value of traceable digital property rights will only increase with more comprehensive virtual reality technology and one's need for a unique digital presence. At the end of the day, self-expression is very important in the real world, which is also true for its virtual counterpart.
And while we are not sure everyone will agree that a sailor monkey NFT costing 3,000 USD is a wise investment (even though it's pretty cool), we are sure that crypto will power NFT trading and hold a special role in the industry.