What are NFTs?
Before we dive into the mind-boggling concept of the metaverse, let’s start by breaking down NFTs. Nonfungible tokens (NFTs) are a lot simpler to understand than they seem; they are digital assets that contain identifying info recorded using smart contracts on a blockchain. This info makes each NFT unique, so they can’t be directly replaced by another token. Bitcoin is a fungible token; you can exchange one bitcoin with another bitcoin and you still have one bitcoin. It doesn’t work that way for NFTs.
What do NFTs have to do with crypto?
If crypto is the new money, then NFTs are the new digital goods. An NFT can come in any form of a digital asset that you buy with crypto. The first platform to buy NFTs was Ethereum-based, so you needed Ether to buy NFTs; now there are a lot more platforms, some of which even accept fiat currency. They started out in the art world, grabbing mainstream attention when an artist known as Beeple sold his digital artwork for $69M in partnership with Christies, the world’s leading art auction house. Blockchain technology solved a big problem for the art world – an ironclad proof of ownership. As you may remember from our first Crypto Compass post, blockchain technology provides transaction history that is decentralized and nearly impossible to tamper with. A secure network of computer systems records the sale on the blockchain, which gives buyers proof of authenticity and ownership. This is the “identifying info” mentioned above in the definition of NFTs. Some people in the art world think even physical paintings will start to have NFTs attached to them for this reason.
Many people have seen the recent headlines of NFTs selling for millions and scoff. That’s fair; I’m not here to defend NFTs. I don’t collect baseball cards or fine art, but NFTs aren’t much different than any other collectible. And that’s exactly how NFTs started; something that a group of people found common interest in and started collecting, and the pieces have appreciated in value. The main difference is just how the transactions are recorded using blockchain technology and the digital nature of the assets. A big argument is that NFT’s don’t really have any intrinsic value; technically speaking neither does a Picasso painting but you’ll still find people willing to pay enormous sums to own one.
So, just digital art?
That’s how they started. But just like any new developing industry, people are taking this concept and expanding on it. We saw it with people expanding on the Bitcoin idea to develop Ethereum, adding the component of smart contracts and a platform to build applications, and we’re seeing it with NFTs, too.
Companies are taking the concept of NFTs and adding utility to it beyond just digital assets. The popular band Kings of Leon released an album as a series of NFTs. One type of NFT they released could be redeemed for a physical limited-edition vinyl copy of the album, and another for top seats at one of their shows. Another series of NFTs called “VeeFriends” provides NFT holders with tickets to Veecon, where people get coveted spots at the founder’s business conferences. A company called Crypto Baristas is selling NFTs to fund a coffee shop in New York City where NFT holders are entitled to discounts at future café locations, at an online store and on merchandise. Nike, the iconic sneaker and sports apparel giant has started to use NFTs as a way to certify the authenticity of a pair of sneakers (again, this is the blockchain component of NFTs that records identifying info that can’t be tampered with, hence guaranteeing authenticity). There are even companies starting fantasy sports leagues where you can build a fantasy lineup using NFTs of players. Because there are a limited number of NFTs for each player, the value of these NFTs can appreciate or depreciate based on their performance. You can build lineups with your players to win tournaments and buy and sell NFTs of the players and win tournaments.
So while NFTs started as just digital art, they’ve grown into much more.
And the metaverse?
Yes, NFTs and the metaverse are concepts that are closely intertwined. First, let’s start with defining what the metaverse is then I’ll explain why it’s relevant here. And I promise, I’m not here to tell you our future children will be spending their entire lives in the metaverse.
Put most simply, the metaverse is a 3D version of the Internet and computing. When the internet first evolved, it was primarily text-based (e-mails, blogs, news articles). Overtime, the internet became more media-based (photos, videos, livestreams). The next generation brings us to the metaverse, what experts look at as a 3D model of the internet. It’s not a replacement to the physical world, but more so a parallel to it. Right now, there are a few different games and applications where you can sign on as an avatar, interact with other avatars, and even buy and sell goods. In the future, the idea would be to enter the metaverse using smart goggles. There is no one “metaverse” right now, just metaverse-like spaces in the making.
Examples of early versions of the metaverse that already exist are companies like Sandbox and Decentraland, where these big companies and some celebrities are buying, selling and “developing” land. Each platform uses its own cryptocurrency, so if you want to buy land in Sandbox you would use their native token Sand. Using the native currency makes sense; when you buy land in another country you typically expect to use their currency.
The metaverse relates to NFTs in a few different ways. The digital shoes Nike has launched are NFTs that you can see on someone’s avatar in the metaverse – their avatar being another nonfungible asset. NFTs can be clothes for your avatar, tickets to events that you’ll attend in the metaverse, and digital art pieces that you can see in museums in the metaverse. In fact, it’s possible that if you own a popular piece of art in the form of an NFT, there would be museums or art shows in the metaverse that would be willing to pay you to lease or display it.
What’s the point of it?
There are several different implications that serve as use-cases for the metaverse. Imagine living thousands of miles from loved ones but being able to put on a headset and walk through a museum together, go see a movie, or even attend virtual concerts. If there’s one thing the pandemic taught us, it’s that sometimes doing things remotely can be beneficial. Not everyone thrived in virtual learning, but what if they could step into a virtual classroom? What if international companies could all meet in a virtual boardroom rather than traveling to one central location? Kids today can already log in and join their friends playing games together in a virtual world and purchase items to use and clothing to wear in that world (hint: these digital goods are basically NFTs), so when thinking in that context, it’s not a massive leap. Again, because it bears repeating, metaverses aren’t on a mission to replace technology as we know it but rather add to it. Sometimes firing off an email is more efficient than joining a Zoom meeting (as we learned pretty quickly in the WFH environment), so simple technology will remain more efficient in many instances just as meeting in person is better than virtually in many instances.
Why should I care?
You don’t have to, of course, but we are starting to see big companies getting involved and thinking of the metaverse as a frontier economy. Nike recently acquired a company valued at $33 million to create virtual sneakers. PricewaterhouseCoopers, Miller Lite, Samsung and Adidas are among some of the big names that have bought land in the metaverse. This parallel digital economy, in which users can buy and sell goods and services, already has big companies purchasing virtual real estate and building and selling space in virtual reality shopping malls.
Let’s Wrap it Up
You’ve now read about numerous potential benefits of NFTs and the metaverse – new business opportunities, higher levels of security and authenticity in fraud-riddled industries, connecting the world and negating physical distance, improvements across industries, and so on. Maybe you love NFTs now, maybe you hate them. Remember, these aren’t my opinions and I’m not here to form yours. I just want to present the information in an easier-to-understand format so you can form your own opinions and have the foundational knowledge to build upon if it interests you. I didn’t cover it all in this article, as these are vast topics, but I hope I broke down some of the fundamentals for you.