There was a time this year when it seemed like everywhere you looked at, there was always something about NFT. From the sale of a US$5 million cartoon image of YouTuber Logan Paul dressed as a Pokémon trainer, to the US$69 million paid for Beeple’s digital artwork at a Christie’s auction, it appeared like NFT was the next-big thing, even eclipsing its cryptocurrency cousin in the mainstream consciousness.

Beeple's 'Everydays: The First 5000 Days'

But then everything went crashing down.

Market tracker NonFungible.com reports that from a peak of US$176 million worth of sales on May 9, the market for NFTs “essentially collapsed” with just US$10 million in sales a month later. But just when it looked like NFT was on its way back to obscurity, the market has rebounded, averaging US$42 million in sales in July, with some long-term stability forecasted.

So does this mean NFT is back? Was it just “market correction” or simple a continuation of a craze that will end up as another round of a boom-bust cycle?

WHAT EXACTLY IS NFT?

To understand it better, we need to understand what NFT is all about, and no…it’s not just a digital artwork. NFT—or Non-Fungible Token—is simply data on a Blockchain, much like other cryptocurrencies such as Bitcoin or Ethereum. What makes it different lies in its name. Where cryptocurrencies are essentially the same as one another (or “fungible”), NFTs are “non-fungible”, meaning these tokens are unique and cannot be replaced with another asset. In physical terms, think of cryptocurrency as real money where the value of your HK$100 bill is the same as the HK$100 bill in my pocket. On the other hand, NFTs can be, for example, the title to your flat—no two persons can own the same flat and the title to your flat would be different from the title to my own flat.

And this is what makes NFT appealing to collectors: its ability to represent something unique—and through the use of Blockchain—make it unquestionably authentic. This led to the creation of a market that allows buyers to easily purchase digital art while maintaining its provenance—just like buying a physical artwork.

But since NFT is just data, anything that can be digitized can be an NFT and subsequently sold. Which is why Twitter founder Jack Dorsey was able to sell the first-ever tweet for US$2.9 million or a New York Times column was sold for US$560,000. It also entered the collectibles market with NBA Top Shot leading the way. People actually spent over US$230 million buying and trading these crypto assets, which are essentially digital basketball trading cards in the form of video highlights!

NBA Top Shot

AND THEN IT ALL CAME TUMBLING DOWN

Amidst all the hype and speculations, similar to the dot-com bubble in the early 2000s, the market for NFTs was short-lived. It started crashing with the nadir on that fateful June day, with a “near-90% collapse” of the market.

Collectors started raising questions about ownership pointing out the fact that digital artwork in the form of NFTs does not necessarily guarantee exclusivity. A less than forthright artist can easily make a copy of his digital artwork, sell it to two different persons who will end up owning two unique copies of the same piece—definitely a no-no in the fine arts world.

Ownership questions were further exacerbated by a market that was akin to the Wild West. Stories abound of lesser-known artists looking to tokenize their work would find out that someone already beat them to the punch and had started to profit from what is essentially a fraudulent artwork.

It also didn’t help that when cryptocurrencies started fluctuating wildly, speculators quickly dismissed NFT as another crypto-fad and promptly exited the market. And just like cryptocurrencies, NFTs also faced the same environmental issue of using so much electricity to verify transactions, turning off potential woke investors.

WHAT DOES THE FUTURE HOLD?

But to say that NFT is dead is an exaggeration. Maybe it was an end of era, but a new one is beginning. The market has picked up and artists continue to believe in the concept, with famed artist Damien Hirst going all in on NFTs. His recent collection called “The Currency” features 10,000 NFTs, each with its own physical equivalent. The catch? Hirst will offer collectors a year to decide which medium to choose, with the one not chosen being destroyed.

Damien Hirst's NFT artwork 'The Currency' | Photo: HENI

People are also finding more uses for NFT. From an artist’s point of view, NFT allows them to monetize on their creations like never before. A simple code inserted to the NFT will allow them to collect royalties every time their artwork changes hands. This model of recurring revenue has led musicians like Kings of Leon to also release their new album as an NFT, to observe if it could be a viable alternative to streaming it on Spotify.

In gaming, NFTs are being explored for ownership of in-game assets, allowing game developers to make their virtual words more profitable. In fact, they could apply the same business model for digital art, in creating say an exclusive map or questing item. While in the real world, NFTs are being used as proof of ownership of an actual object, a digital record of some sort.