Most of you reading this have never bought an NFT.
According to a study by Chainalysis, while the majority of NFT transactions have been retail purchases less than $10,000, there's still a wide range of wealthy collectors that buy between $10,000-$100,000 and institutional purchases of over $100,000 (such as Beeple's $69 million sale we covered back in March).
The study also notes that a very small group of creators are the beneficiaries of these purchases, where being whitelisted on an NFT marketplace defines success.
This data suggests what many of us assumed: a very small group of people who are either rich, into cryptocurrencies, or a combination of both make up the market. So, why is it all these celebrities, brands, and major sports leagues are asking us to buy in? The average person might pay $5 for a JPEG, but getting into $50,000 is insane. However, it's not the file format that's important, but the token behind it.
2022 will be the year we start to understand why these tokens aren't just digital Beanie Babies. As we're expected to see Ethereum's transition to a proof-of-stake blockchain reduce carbon emissions by 99 percent, adoption by previous skeptics will explode. With an increase in accessibility, more people will be able to see the use cases of what's being built on top of NFTs, which is beneficial to creating new value online and IRL.
There's a lot of potential for everyone to own an NFT, but first, we need to make them stupid simple to trade.
How Do I Even Buy (Or Sell) These Damn Things?
While buying NFTs is as simple as paying with a credit card, the market is still fragmented. An improvement we should see in 2022 is being able to move tokens across different blockchains; for example, in the sports market, the NBA and NFL have partnered with Dapper Labs to mint NFTs on the Flow blockchain, while the MLB's platform Candy uses Ethereum.
This disconnect is also felt amongst digital creators who want to sell NFTs but struggle with the technical and financial aspects of minting and gas fees (the cost to put something on the blockchain). Improvements are being made on this front as well, enabling people to set up NFT stores just like any other eCommerce platform.
“When it comes down to accessibility, we believe you don’t need to be an expert in cryptocurrency or blockchain to participate in the buying, selling, and creation of this digital goods economy.” says Donnie Dinch, CEO of Bitski- a company aiming to become “the Shopify for NFTs.”
Just as Shopify completely changed eCommerce by simplifying the process for anyone to open a webstore, Bitski is trying to do the same with their storefronts launch, which enables anyone to start their own branded NFT store on/off their platform.
Although it’s true that the roadblocks behind buying and selling NFTs will be relieved in 2022, there’s also a strong chance you may never have to purchase one. Instead, you can earn it by playing video games.
Earning Your Own in the Metaverse
For Dinch and many others, their introduction to digital assets wasn’t NFTs, or anything even remotely close.
“In (early) 2018, I saw Crypto Kitties and thought it was a cool project. Then, I was also spending like $200 a month on Fortnite outfits. It immediately just clicked, that I can't sell this and it almost seemed criminal,” he notes on how gaming became an inspiration for Bitski.
Over the past couple of months, gaming has become more of a mainstream focus as what’s to come next. After helping people in the Philippines stay afloat during the pandemic, the story of the Play-To-Earn game Axie Infinity gradually became a global phenomenon as the first NFT project to surpass $1 billion in sales. Inspired by PokémonGo, players raise characters called “Axies,” which they can trade and battle with others.
Following the success of Axie Infinity, the rest of the gaming industry has taken notice. A couple of weeks ago, major publisher Ubisoft announced their entry into NFT gaming, with other notable names on the way.
"I think that you're going to have games that facilitate marketplaces for fashion designers (and) digital fashion designers to create and sell things. The market in that space is going to be absolutely astronomical," explains Dinch.
The leap from Fortnite skins to digital fashion isn’t a far one. With brands like Balenciaga, Louis Vuitton, and Burberry already entering the digital asset space, what we wear in the metaverse might be just as important to our identity as IRL.
It's Called (Virtual) Fashion, Look It Up
Facebook's recent transition to Meta banks on one universal truth: we’re spending more time in digital spaces, and as such, have started to develop a digital identity.
Highsnobiety co-founder Jeff Carvalho recently launched the web3 agency Burrata, which is dropping an NFT project that’s a homage to different eras of internet fashion. The goal is to showcase that people want more than just a Louis Vuitton skin, but rather to mix and match their digital outfit with some Nikes or Supreme.
Carvalho relays that there are two different approaches to digital identities: “those who want to represent themselves realistically in the metaverse versus those who want to represent themselves, literally, as an avatar.”
For the latter, Carvalho notes these identities are the “level 99 versions of their ideal self – cosplay on steroids! Whether that's a regal 14th-century elvish paladin or a Louis Vuitton catwalk model.”
With global powerhouse Nike acquiring virtual sneaker and collectible studio RTFKT, it’s clear the traditional fashion world sees the long-term value of our metaverse identities. And while it might seem like baby steps, exemplifying that digital identities have tangible value is crucial for understanding the real-world importance of NFTs.
Coming Back to IRL
When we last spoke to Michael Karnjanaprakorn, his company Otis was introducing fractional investing into cultural assets like Kehinde Wiley paintings and rare Jordans.
Recently launching Otis House, Karnjanaprakorn's latest product helps people mint their own culturally iconic goods as NFTs for auction. When asking about the importance of tying these items to tokens and how this differs from traditional auction houses, Karnjanaprakorn had this to say:
“By tying these assets to NFTs, the items become significantly more liquid. All the logistics associated with the physical item like shipping, storing, and insurance are already taken care of, so transfer of ownership becomes truly frictionless. Also, there’s no question of provenance as that’s all visible for anyone to see.
With Otis House, since these physical items will be an NFT: (any person or group) can easily bid on them. Collectors can keep the items in our vault which are fully insured and stored, (as well as) plug them into other products built on web3 to take out a loan against them. The possibilities are endless.”
As we saw with billionaire Michael Steinhardt recently having to surrender over $70 million worth of his art collection, having a transparent ledger of provenance is long overdue. Not only does taking this approach of tying real-world items to NFTs keep buyers and sellers honest, but also assists in regaining lost revenue to resellers. As Dinch notes:
"Whether it's ticketing or cultural goods like Supreme or Yeezy, I think there's better optimization around (secondary markets)...making sure that creators can capture the potential upside long-term. What if Rihanna did a tour and every ticket was a dollar? It's going to sell out quick, but then she's able to take a revenue share on all subsequent trades and sales of tickets. Would she make more money than if she had sold 'em at full-price? I have no idea, but I think so."
It's not unrealistic to think Rihanna or Supreme will implement NFTs into their distribution to get a cut of the reseller market. After all, technology moves as fast as those who want to adopt it. And if your favorite artists, brands, and athletes all decide that NFTs are how they want to distribute their goods, how are we supposed to say “no?”