The moment I heard about NFTs I was both excited and skeptical. Back in 2012, I launched Mad River Entertainment, a virtual goods trading platform (what would now be considered an NFT platform) users could buy, sell, and trade comic books and characters. We had our own currency, “clams” (not tied to the blockchain), to use to barter and trade. Publishers on our platform could set the scarcity level of a virtual good (NFT). For example, issue number one of “Jim Fox Super Hero 1999” could only ever have 50 copies. The idea being that the secondary market would be much more valuable because of the scarcity of the item, much like early comic books. The publisher or copyright holder made money not only on the first sale but every secondary sale or trade of existing copies. Our mission statement was to give creatives the opportunity to benefit every time a version of their original work was bought or sold. You could not only buy comic books but also characters that could be used in messaging, games and marketplace. The use rights associated with a piece of artwork was defined by the publisher/copyright holder.
From the current perspective, I was 10 years too early because what I was trying to do was establish a digital marketplace for creatives (artists, writers, content creators, designers, lyricists, music producers, publishers, etal) to sell their digital work creating intrinsic value for it, exactly what NFTs are today. I’m not so sure how often–or if–the original creative gets paid on the secondary sales. I believe their value may vary depending on the platform, but I still believe in the basic right of creatives to be paid for their work proportionate to market demand.
Today Ethereum is the number one cryptocurrency used for NFTs. Transaction fees for NTFs are notoriously very high with Ethereum. I have even heard arguments from some that the high fees actually attract the *real* collector/investors. Who, they say, are willing to pay the high freight because they believe it underscores the higher value of the NFT. I can tell you from my own experience in the art world (quick plug for my wife Kim Heart Artists), this is simply not true. International, discerning art collectors care just as much about transaction costs and shipping as your typical buyer at the local art fair. No one wants to pay more than they have to pay for anything, even valuable art pieces.
More importantly, high transaction costs prohibit a velocity of transactions necessary for NFTs to take hold in a viable, strong secondary marketplace, which makes the whole endeavor worthwhile. When you think about trading comics, books, game goods (virtual goods), music, tickets, etc. these categories all have a long history of traditional, thriving secondary markets that NFT’s are ideally poised for in my opinion.
Most people think of images and digital art when they think of NFTs. But NFTs generally do not store the data for the creative content on the blockchain. For NFTs of most images (art, illustrations, photographs, etc), that would be much too expensive. Instead of storing the data on-chain, NFTs instead contain a URL that points to the data. That data is stored on platforms that are similar to what Mad River was, in that it hosts the content of the image using old fashion Web2.0 servers managed by the platform or the cloud.
So essentially if you are investing in an NFT with ETH you're really investing in the platform that hosts the NFT, not something that’s on the blockchain. That hosting platform is vulnerable to hacker attacks and can even be gamed by an NFT creative (if they have nefarious intentions) to serve up a different image depending on where the login comes from. The point being that, whether deliberately misled or most likely misunderstood, the investor/buyer of the NFT does not have the security of the blockchain to protect the integrity of their investment. ETH is merely the preferred cryptocurrency of NFTs because of its superior reputation for smart contracts.
However, there is hope for NFTs becoming linked to the Bitcoin blockchain and for associated art that has real value both in the real world and digital world. Two protocols that enable smart contracts and potentially NFT’s linked to Bitcoin make me optimistic that this may happen in the next couple of years.
Taro by Lighting Labs enables smart contracts and developers to mint, send, and receive assets on the Bitcoin blockchain. And, possibly even more interesting to me is Casey Rodarmors Ordinals project, which is a numbering scheme for satoshis that allows tracking and transferring individual sats. At a 10,000 foot level, one bitcoin has 100,000,000 satoshis or 100,000,000 potential NFTs per Bitcoin. - Wow!
Let me shamelessly plug my wife’s artwork again as an example: This time her one of a kind Venetian masks. Collectors from all over the world buy her masks and use them in various media projects and real time events aside from collecting them.
Recently Warner Brothers purchased five of her masks for an upcoming movie starring a very famous basketball player. Now let’s say someone creates an NFT marketplace leveraging the above Bitcoin protocols that her masks can be purchased and used not just for film and tv projects but for games and other virtual identities.
We know the history of her masks including ones that were used in Warner Brothers’ films that will hopefully be a major box office hit. Now her art and history of the art, including changing hands and use, is permanently recorded on the Bitcoin blockchain. That enables her masks and many other NFT art projects to have true secondary market and actual price discovery. Not just a pump and dump which is what Ethereum based NFTs seem to offer. For artists and copyright holders this gives me hope that the true value of their work can be realized, and that they benefit not just on the first sale but possible secondary sales as well.
All the best,