“Blockchain technology and NFTs afford artists and content creators a unique opportunity to monetize their wares,” say Conti and Schmidt.
How to Use NFTs
Instead of having to rely on an art gallery or auction house, an artist can sell their work directly to the consumer as an NFT. This also lets them keep more of the profits. Artists can also program in royalties so they will receive a percentage of the sale when that art is sold to a new owner.
This is a very attractive feature to an artist, as they usually don’t get any future proceeds after the art is first sold. And art isn’t the only way to make money with NFTs. Brands like Taco Bell and Charmin have auctioned off themed NFT art for charity. Taco Bell’s art sold out in minutes, with the highest bids topping $3 million worth of cryptocoins. Charmin dubbed its offering “NFTP” for non-fungible toilet paper.
- A 2011-era GIF of a cat with a pop-tart body, called Nyan Cat, sold for nearly $600,000 in February.
- Sports is a big seller also. NBA Top Shot generated more than $500 million in sales as of March, while a single LeBron James highlight NFT brought in more than $200,000 on its own.
Even celebrities are jumping on the bandwagon. Snoop Dogg and Lindsay Lohan have released unique memories, artwork, and moments as securitized NFTs.
Let’s get back to that imaginary painting that only exists in the digital world. The blockchain, NFTS, and a system of record for ownership would seem to solve all your problems.
But here’s part of that problem you might not have thought about—and its one entrepreneurs need to solve. The markets for physical things like saws are (for the most part) standardized and regulated. “If you want to sell me a piece of your company,” says Joe Procopio, “the SEC will definitely be involved.” The markets for physical collectibles like paintings aren’t as regulated, but are somewhat standardized.
“If you want to sell me your Tom Brady rookie card or your Fantastic Four #1,” says Procopio, “there is at least an agreement of value based on some standard—scarcity, condition, proof of ownership—those are all considered and balanced across the trading card or comic book industry.”
Now think about NFTs. The markets for virtual assets are individually controlled by the smart contract that created that NFT. “Can you really buy a ‘piece’ of a celebrity or their digital equivalent?” asks Procopio. “No. What you’re buying is speculation, and you’re also betting on the integrity of the market maker.” That’s a real problem. There will be scams and lawsuits; there will be chaos around these new markets as they struggle to exist without any connection to a universal marketplace. Right now, the value rules for digital assets like NFTs are being made up on the spot. This might be exciting to some investors, but “maybe not a great idea in terms of risk vs. reward.”
Procopio relates the lesson learned “the hard way” with Gamestop. “There’s no way Gamestop is worth any more than, let’s say $40 a share max.” But lots of investors are still hanging on to $400-a-share bags of that company because they believed that others would be compelled to pay more than that. The lesson, he says, is that we can lose the foundation of a digital asset’s value being tied to a physical standard—"but what we can’t lose is the line between speculation and reality, even if that reality is virtual.”
Here’s where Procopio thinks there is some entrepreneurial opportunity. “Most of the action around NFTs currently swirls around creating the tokens, tying them to a digital asset, and auctioning them off. This is the digital currency ICO-equivalent phase of digital assets, where the quick FOMO money is made.”
The vast majority of these assets, he says, will devalue back into the bits that created them. But organization of digital assets has to happen at some point. Someone is eventually going to make an index like the Dow Jones or the Nasdaq, once the standards of what a digital “asset” actually is gains more definition.
“Let’s call this the Coinbase of digital assets,” says Procopio. And since speculation is already a big part of the picture, someone is going to “white-glove” the brokering of these assets. Let’s call this the Amazon of digital assets.”
Procopio says it’s an exciting time to get involved as an entrepreneur—just avoid the lure of the quick (digital) buck.
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