NFTs, or non-fungible tokens, are unique and distinct cryptocurrency assets. While one Bitcoin is identical to and interchangeable with another, each NFT is unique, with distinguishing metadata and identification codes. NFTs are certificates of authenticity, using a string of characters to prove ownership and legitimacy.
While they have been around for a while, they’ve exploded in popularity recently as they’ve been embraced by art, music, and entertainment.
NFTs can be anything digital, from the new Kings of Leon album to Jack Dorsey’s first tweet to NBA highlights to digital artist Beeple’s compilation of daily art creations over the course of 13.5 years.
The modern finance system evolved to execute complex loans and trades for various assets. Cryptocurrencies and NFTs reimagine this infrastructure, fully digitizing currencies, transactions, and marketplaces. NFTs streamline the trading process, remove intermediaries, and connect larger audiences of buyers and sellers.
Why are NFTs blowing up?
Beeple, a relatively unknown digital artist, recently paired up with Christie’s, an established and renowned auction house, to sell a digital collage. No one knew how much it would fetch, but people were floored by the top bid of $69.3 million, the third-highest price ever paid for a living artist. This highly publicized event seems to have opened the floodgates for NFTs. Eager to cash in and fearful of missing out on the next big thing, many people are jumping on the NFT bandwagon.
What trends and attributes are propelling NFTs’ success?
Trend #1: Democratization
Just as we’ve seen direct-to-consumer retail businesses such as Warby Parker, Casper, and Dollar Shave Club flourish, democratization is thriving in the financial spectrum. Anyone can buy, sell, and create NFTs, and many artists, musicians, and creatives are eager to join in. NFTs offer a new space and medium for artists to create and share their art.
Just as companies such as Robinhood claim to democratize investing and introduced the ability to buy fractional stocks, NFTs can “democratize investing by fractionalizing physical assets like real estate” through digitized assets.
Trend #2: Digitization
COVID19 has massively accelerated the global shift to digital, compressing ten years of e-commerce adoption into three months. NFTs capitalize on society’s recent digital shift, enabling digital representations of physical assets.
Digital assets are much more portable and transferable, and NFTs combine these conveniences with blockchain’s powerful smart contract functionality.
Trend #3: Decentralization
Because NFTs convert physical assets into digital ones, they increase the market’s efficiency. NFTs allow artists to connect directly with their audiences, instead of relying on agents and intermediaries.
Additionally, blockchain, NFTs’ underlying technology, has been heralded as a decentralizing force. Blockchain is a type of database that stores data in blocks, which are then connected to create a chronological ledger. Control and decision-making are transferred from a centralized individual, organization, or group to the distributed network.
Attribute #1: Scarcity
While units of cryptocurrency are interchangeable with each other, NFTs are decidedly unique. “NFTs shift the crypto paradigm by making each token unique and irreplaceable.”
NFTs allow you to designate a digital asset as the “original”. While there can be many copies of .gifs and .jpegs, there will be a designated NFT version of it. This is akin to an artist selling many prints of a piece of art at a discount, while the original retains much more value.
Attribute #2: Status
As we’ve seen the price of Bitcoin explode from roughly $4,000 in early 2020 to almost $60,000 already in 2021, people are eager to get involved. Bitcoin has an air of coolness to it, which may come from some combination of celebrity association, wild speculation and profits, an air of mystery, and general confusion.
NFTs are riding cryptocurrency’s rapid ascent and are enjoying their novel status. With ties to art, music, and entertainment and increasing celebrity involvement, they’re definitely benefiting from a certain trendy factor, acting as a status symbol, often of the tech elite.
Attribute #3: Speculation
In 2020, we saw retail investors jump headfirst into the market, buoyed by newfound time during lockdown, extra cash on hand, low interests rates, and reduced institutional barriers. With soaring valuations and profits (see Zoom, Netflix, Amazon, GameStop, etc), people were fearful of missing out.
NFTs are the newest fad, and many people want to jump in and ride the wave. That being said, it remains to be seen if the technology will transcend its fad status and have real staying power and long term implications.
Drawbacks
While it feels like there are daily headlines of crazy NFTs profits, there are serious drawbacks to NFTs as they stand today.
Firstly, NFTs are insanely and disastrously energy intensive. One Medium writer calculated that a single NFT’s footprint is roughly equivalent to “an EU resident’s total electric power consumption for more than a month, with emissions equivalent to driving for 1000Km, or flying for 2 hours.”
Additionally, as I’ve mentioned previously, they’re highly speculative. One entrepreneur, author, and speaker calls them a “dangerous trap”. As more and more creators try to jump on the bandwagon and get rich quickly, they’re incentivized to create the illusion of scarcity and convince people that the tokens will only increase in value. Yet in practice, there’s no limit on the overall number of NFTs, and currently the ecosystem is devoid of any meaningful regulation.
So, what can Design learn?
First, we can identify and recognize the underlying trends and attributes (discussed above) at play in propelling NFTs’ explosive growth. Once we understand these factors and their power, we can integrate and capitalize on them in our own work where appropriate.
We can look beyond the superficial fads and initial use cases to better contemplate the underlying technology and attributes. What is the core functionality and what is its potential? How can we use it to solve existing problems, address unmet needs, and power viable business applications?
Design should join the larger conversation around blockchain, crypto, and NFTs. While technical minds developed the technology, we can creatively, thoughtfully, and strategically shape how it might be deployed and applied to solve real problems.
It remains to be seen where cryptocurrencies, blockchain, and NFTs will go from here, but Design should learn what we can from their success and be a guiding voice to help shape their development. Designers can help find relevant and beneficial applications of this technology, while reducing complexity and creating more thoughtful experiences to help these technologies achieve their full potential.
Photo by Viktor Forgacs on Unsplash