Concept of The Month: Non-Fungible Tokens ("NFT's")
(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
Welcome to the first installment of Elliott Explains Blockchain, a monthly newsletter of bite-sized educational content to introduce you to the disruptive world of blockchain technology. Each month I will introduce a new concept critical to understanding the potential of blockchain and a collection of articles documenting how blockchain is reshaping the world.
What are NFT's: NFTs are blockchain-based records that enable proof of ownership and verifiable scarcity of digital assets. NFTs create credible claims of ownership on digital content (i.e. (visual art, music albums, sports highlights, etc.). NFTs contain auditable documentation of the origin and ownership history of digital assets. NFTs are secured by the same blockchain technology that enables Bitcoin to be owned by hundreds of millions of people around the world and store approximately $1 Trillion dollars of value.
Why should you care: The rise in NFTs is all about digital scarcity. The fact that something can be both digital and scare is a first for the digital economy. Historically, everything that passes through the internet is effectively a digital copy. For example, when you receive an email you are looking at a digital copy of the original. The limitation of only being able to send digital copies of contents on the internet has thus far limited internet use cases to things that are fine being copied, excluding information that contains “real” value (mortgages, car ownership, digital identities, etc). Further, supply and demand factors influence the price of every asset. The zero-marginal cost of replication of digital assets (infinite supply) undermines the value of digitally native content. NFTs fix this by establishing verifiable claims of ownership on digital media. Anyone can buy a Picasso print. But only one person can own the original. Lastly, and importantly, NFTs create better economics for creators of digital content by removing rent-seeking intermediaries. [MC2]
My "hot take": Broad based blockchain and crypto speculation is certainly a major factor behind soaring NFT values (a digital artist named Beeple recently sold the most expensive NFT ever at $69.3M; article below). However, selling a digital, tokenised piece of art, is merely a digital extension of the collector psychology that has been with humans for generations - put simply, people like to collect things. In the analogue world an artist can sell paper + paint for a $69M markup. Art is art, no matter what the format. As with many technological hype cycles, speculative value often gives way to functional value.
What’s the functional value: NFTs transform how creators retain ownership of and monetize their content. Most importantly, the business model enabled by NFTs is better for every stakeholder involved as creators and their audiences all benefit in a marketplace built around true digital ownership:
Creators make more money by selling directly to their fans and by collecting royalties every time their NFTs are resold.
For consumers, NFTs are a better model because they combine the social and utilitarian benefits of patronage with the possibility of turning a profit or realizing compounding utility (i.e. earning value alongside the creators you support)
What’s worth reading this month?
Beeple NFT Sells For $69.3 Million, Becoming Most-Expensive Ever: https://bit.ly/3u0Ffqx
Kings of Leon to Release New Album as NFT With Tokenized Tickets for Superfans: https://bit.ly/3tUfHep
The highest revenue NFT project to date, NBA Top Shot, has generated $200M in gross sales in just the past month: https://www.nbatopshot.com/about
Who did what this month?
Bain Capital led Series D in BlockFi, one of the leading lenders in the cryptocurrency industry, at $3bn valuation: https://bit.ly/39egTBF
TIGER Global led Series A in TaxBit, a crypto tax automation firm: https://bit.ly/2NQFFA6
PayPal to Buy Crypto Custody Firm Curv, a technology firm that powers the secure storage of cryptocurrency: https://bit.ly/3cmyN7h