It’s OK to roll your eyes at the hype around NFTs. They are the worst combination of something new, technically confusing, and intuitively weird. But there may be more to these confusing and weird things than we think.
What is an NFT?
A non-fungible token (NFT) is a digital file transacted on a blockchain. Think of NFTs as digital trading cards, art, video clips, text or music, each with an unimpeachable certificate of ownership and authenticity. More than $2 billion worth of NFTs were exchanged in Q1 2021.
NFTs are a strange concept, made stranger by the complexity of the technology involved and the oddness of the subject matter. After the press picked up on NFTs, focusing on the more exorbitant purchases, we started to see a backlash that focused on three primary areas.
1. This is a joke, right? Why are people paying millions for a digital file? Why wouldn’t you just go to literally anywhere on the Web and download images and gifs for free like everyone else does?
The sheer ludicrousness of paying seven figures for a piece of glorified clip art seems instinctively stupid. If the question is, “Why would I buy a NFT a video clip that I could watch for free?” the simple answer is “I don’t know.” But we know that collectors find value in ownership that people outside that community don’t always understand.
Why would you pay for a signed vinyl copy of an album you already have access to on Spotify? NFTs feel broken because they place significant value on something that, practically, has no value at all. But until we’re ready to disregard any other art for the same reason, we can’t disregard NFTs for feeling frivolous.
2. NFTs are environmentally unsustainable. NFT transactions have historically required a distressing amount of energy, and the primary currency used for minting NFTs (Ethereum) is an environmental sinkhole. Fortunately, that’s changing. There are already NFTs being minted on much greener currencies as artists shift to more sustainable platforms.
3. The NFT crowd looks…. terrible You don’t have to be a full-on Marxist to wonder if somebody who spends $17 million for a piece of pixel art instead of, say, donating it to keep kids from starving, has maybe lost perspective.
But it isn’t fair to judge early NFT adopters more harshly than the equivalent debauchery seen from any new technology wave, from bitcoin whales to social media influencers to dotcom frat-boy millionaires. We are better served letting the more “intense” participants flame out, without jettisoning the underlying utility of the technology.
So why bother?
Is there underlying utility in NFTs? While some brands have jumped on NFTs as a publicity stunt, there are broader uses emerging. For example, NFTs might give artists more agency in selling their own work and provide a clever mechanism to track provenance. Beyond art, IBM announced its intention to use NFTs to reinvent how patents are verified and distributed. And, speaking of patents, Nike patented a compelling idea to sell NFTs of sneakers, and allow owners to “breed” different designs together. What if selling NFTs were simply another way of connecting with your most zealous customers?
I bet if we give the underlying technology of NFTs a little time to breathe outside the echo chambers of its own hype, we might find it has some fascinating applications beyond that hype.