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NFTs should excite everyone – except investors

Ekalavya Hansaj
March 11, 2022

The world is piling into the hype-fuelled, $40 billion NFT market, with Meta announcing its own NFT trading platform. However, the bubble that appears to be emerging around NFTs shouldn't distract us from this technology's earth-shattering potential, writes Ekalavya Hansaj.

There's far more to NFTs than dubious digital art; they present us with a very real opportunity to crack down on fraud, counterfeiting, and corruption. In fact, they may well prove to be the backbone of the next era of the internet.

It is these applications that should excite us, not the promise of a quick buck. History shows us that every generation-defining technology drives sky-high hype before sobriety brings the market crashing back down.

NFTs are no different. Eye-watering amounts of capital is sloshing around the NFT market and leaving many with dollar signs in their eyes. Facebook is leading the charge; their rebrand to 'Meta' is a bid to dominate the Metaverse, of which NFTs will form an integral part. However, when the dust settles and the gold rush ends, NFTs will prove themselves to be far more than the world's latest digital hobby horse.

'NFT' stands for non-fungible token. If something is fungible then it's interchangeable. Think of a £5 note; while what it buys you might change, the note you use doesn't matter. However, if something is non-fungible, then it's unique, with a value to match.

NFTs use cryptography to mark absolute ownership of a piece of digital information. That information is stored on the blockchain's public ledger, and cannot be tampered with, changed, or moved.

This is why NFTs have driven so much interest in the online art world. NFTs allow art to become collectible and scarce, just like real artwork. This sense of scarcity is what allowed Beeple's 'The first 5000 days' to set a new record in 2021 by achieving $69.3 million at auction – instantly making it one of the most expensive works ever sold by a living artist.

Jack Dorsey, founder of Twitter meanwhile, sold the NFT to his first tweet, which simply read, 'setting up my twttr,' for $2.9 million. Yet figures are becoming increasingly untethered from real value, and that's precisely when bubbles emerge. We value the Mona Lisa because of its artistic value, not because of the canvas it was painted on. NFT collectors today seem to be missing that distinction.

Asset bubbles are nothing new and are usually corrected by the market. Take the first-ever recorded financial bubble that occurred in the Netherlands. 'Tulip Mania' gripped the Netherlands by the throat in the 1600s, caused by the recently introduced and suddenly fashionable flower, and proceeded to drive up the price of a single bulb to ten times the annual income of a skilled worker. The bubble popped and took many aristocrats' (not-so) hard-earned cash with it.

The current NFT surge, meanwhile, looks eerily similar to the early stages of the dot-com bubble of the nineties. Massive speculation combined with a genuinely exciting innovation allowed companies to achieve multi-billion-dollar evaluations before companies ever went public. Just like with the dot-com boom and bust, however, the excitement behind NFTs is entirely justified, just not for investors.

NFTs are a fundamentally unbreakable way of establishing ownership online without the need for a middleman. If you want a PlayStation 5 right now, you're in for a long wait, partly due to a global chip shortage, but also fuelled because of the scalpers using bots and underhand tactics to buy them up in bulk. NFT technology would make this impossible, as would buying up tickets for events and then reselling them.

Likewise, NFTs could finally allow artists and creators are fairly paid for their work, whilst preventing piracy and avoiding the need for validating middlemen. Headlines around this have been splashy, with Grimes selling a 50-second video clip as an NFT for $388,938 (or $7778,76 a second), and Kings of Leon releasing an album as an NFT. Spotify artists can make as little as 0.0033 cents per stream; that's a daylight robbery that NFTs are well placed to end.

Perhaps the most important application, however, surrounds the ownership of land. As an indisputable record of who owns what is stored at every link of the chain, NFT land ownership can't be bypassed, forged, or lost. In Brazil, the 'Car Wash' investigation revealed how officials used land registry titles and contracts as backhand favours and deal-making chips. Under a blockchain system, no individual, no matter how powerful they are, could tamper with the ledger and assign land to a new name.

The same can be said of procurement. Governments spend up to a third of their total expenditure on buying and selling services and goods, a system that's historically open to corruption. The OECD estimates that between 10 and 20 per cent of this is lost globally to corruption, but if the money is always trackable and impossible to tamper with there's a greater chance of preventing theft and eliminating backhanders.

For those who want to make the world a fairer, less corrupt, and more equitable place, then NFTs may be the most exciting technologies of the century. However, those who hope their pixelated doodle will go 'to the moon' may come crashing down to earth sooner than they think.

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Ekalavya Hansaj is a serial entrepreneur, crypto commentator and founder of Ekalavya Hansaj Inc., a global marketing and business consulting firm.
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