If you read the news you may have already heard about the piece of digital art that sold at auction for $69M. The auction was run by the 250-year old auction house Christies, lending it more legitimacy than if it had been auctioned more informally online. It might seem a hefty price to pay, but I believe the NFT trend will run for some time to come.
The $69M is not for one piece of art, but an image (shown above) that contains every piece of art created by the popular artist Beeple during a period dating back to 2007. Every day Beeple created a new piece of art and posted it online. That means each individual image was valued at $13,800. Drastically different from the multimillion-dollar figure news outlets are using to capture readers’ attention.
What Is An NFT?
There isn’t much complexity involved in the explanation of an NFT. NFT stands for non-fungible token. So, this is the only digital asset of its kind and the blockchain allows a public record of all transactions of this asset dating back to the first transaction. Some might argue that digital assets aren’t valuable the way physical assets are. That’s lazy thinking. The cost of a designer handbag doesn’t justify its high price. The brand does. When we consider digital goods as being similar to the normalized value attached to branded physical goods, we understand it quite easily. The person who bought the Beeple art piece knew the piece had value above some other grouping of digital images.
The business case being made for NFTs right now is that they make price discovery easier. With all transactions publicly available on a blockchain, we know that asset 2 will likely sell for a price between asset 1 and asset 3. This should lead to a more efficient market on the whole for anything offered as an NFT.
The other significant NFT related business news lately has been NBA Top Shot. Dapper Labs, based in Vancouver, has partnered with the NBA and the NBA Players Association, to release digital “moments”. Each moment shows a clip of a particular player performing some athletic feat on the court. As with trading cards and other collectibles, a finite number of each moment is available.
What’s most interesting about this space is not the Beeple piece or the NBA Top Shot moments, although it’s worth noting Dapper Labs is currently valued at $2B. So there appears to be belief, at least from Dapper Labs’ investors, that there’s something special going on here. What’s most interesting to me is how this can change existing business models or help create new ones.
Take the multibillion-dollar event ticketing industry. The concerts, sports games, and other shows we all want to attend as soon as it’s safe. The price discovery made possible by selling each ticket as an NFT (your seat and mine aren’t fungible, after all) allows artists and sports clubs to capture more value from the same market. The incentive to build a product that could cut Ticketmaster out of the process is massive. Again, we are talking about billions of dollars of annual revenue up for grabs for a winning product.
A Connection To Your Favorite Artist, Athlete, Or Brand
Shawn Mendes is selling items including a virtual guitar as NFT collectibles. The late rapper MF Doom’s estate has sold NFT AR masks. Fans will never stop wanting to own their own special piece of an artist’s creation. Soccer star Mesut Özil partnered with avatar platform Genies to release a number of NFTs. Gucci even has a $12 pair of AR sneakers you can buy and then apply digitally to your feet in photos and videos. COVID has shown us that we care about the way we represent ourselves online.
Digital Gaming Assets
The gaming industry could also be drastically altered. Millions of people spend hundreds of hours gaming every year. When they grow tired of a game, they stop playing and the digital assets (gear, hats, weapons, characters) are abandoned. Instead of moving on to another game and abandoning their digital assets, what if the player could sell their digital assets to a player just starting the game? A small cut could naturally go to the game developer. People today make a living selling digital assets they earn playing video games. This opens that market up to more casual gamers, who could at least get some cash for their effort.
Like any new technology, these newfangled NFTs will need work their way along the Gartner “hype cycle” (above). The business cases above are only very few of the possibilities that can grow from this idea. The market isn’t going to stop growing now. We’ll be seeing more companies like Dapper Labs getting funding at high valuations before the year is over.
Thank You For Your Loyal Readership
The Financial Star Team.