NFTs
A comprehensive overview of the trends, technologies, important sectors, key players, problems and potential of NFTs. (Note: Data in this section last updated May 28th, 2022)
This section is intended to provide a very thorough introduction to NFTs for beginners. It’s over 20K words (a 1 hour+ read) and is organized into 10 parts, which are summarized below for the tl;dr crowd:
What are NFTs?: An NFT – or “non-fungible token”– is a certificate of ownership for a digital good that is recorded onto a blockchain. Almost any virtual asset can be represented by an NFT: a piece of art, a photograph, a song, a concert ticket, a passport or the deed to your house.
The Problems with Centralized Asset Ownership: A handful of companies – such as Facebook, Amazon, Microsoft, Apple, Google and Netflix – control the majority of digital distribution in several industries. This leads to higher costs for consumers, the major threat of censorship and the inability to use our digital assets as we see fit.
The Benefits of Decentralized Asset Ownership: NFTs remove these “middlemen”, leading to up to 10x more revenue for artists, the potential for consumers to monetize their content, less censorship, more transparency and lower costs.
The History of NFTs: While NFTs experienced a small surge in 2017, the majority of the growth occurred in 2021, where the market exploded from $65 million to over $25 billion today (> 400x growth).
How do NFTs work?: NFTs use a combination of blockchains, digital key cryptography and consensus mining to allow users to create, store and trade digital assets without relying on a centralized third party.
The Main Types of NFT: Digital art (avatars, art and collectibles) are the most popular form of NFT with 78% market share. Virtual worlds and gaming are second with 12% and 8%, respectively. IP, Social and Music are emerging categories with around 1% share each.
NFT Infrastructure: The NFT ecosystem is powered by several key pieces of infrastructure including smart contract platforms, rollups, decentralized storage solutions, marketplaces and digital wallets.
NFT Financialization: In addition to selling NFTs, holders have a variety of ways to make money including 1) using their NFTs as collateral for loans, 2) licensing the intellectual property of their NFTs and 3) “fractionalizing” their NFTs (splitting them up into tokens representing “shares” and selling them).
Criticism of NFTs: While there are several legitimate problems with the current NFT market – such as high fees, rampant fraud and theft and a weak user experience – many of the more popular criticisms fall apart upon closer inspection. Some of the weaker arguments are 1) anyone can take a screenshot of an NFT, 2) they often exist on centralized servers and 3) they are nothing more than a way to show off wealth.
Why NFTs Will Eat Hollywood (and maybe the World…): NFTs are truly a disruptive technology that has the potential to grow 100x to 10,000x by disrupting both the existing entertainment industry as well as the market for physical assets.
Without further ado, let’s jump into the analysis!
Last updated
