In May, the oldest commercial art gallery, Gallery Hyundai, started the test operation for its art non-fungible token (NFT) platform. In addition, AIT, a digital art company founded by Gallery Hyundai, announced its plans to create an NFT of White Ox, one of the most famous paintings of the modern Korean artist Lee Jung-seob. Recent trends have shown that NFTs, digital certificates of authenticity, are quickly rising as new digital assests traded in fields including arts, sports, and the games market. Through this article, the Sungkyun Times (SKT) will look into the definition of NFTs, application areas of NFTs, their popularity factors, and the changes they will bring to our future.
A Unique Digital Ownership, NFTs
The Technology Principle and Definition of NFTs
A NFT, or non-fungible token, is a non-interchangeable digital certificate that proves ownership of a particular asset. Here, the token in the NFT refers to a specific property saved as a digital file on the blockchain. Tokenization occurs when an asset is uploaded on the blockchain; it refers to registering a digital file that proves ownership on the blockchain ledger. The blockchain can store all types of assets, including digital images, concert tickets, and even voting rights. On the other hand, an NFT also serves as a certificate of authenticity for an asset. This means that an NFT can verify one’s ownership of any asset, including game items, artworks, or music. For example, imagine that a person named John took a photo of a rose and has an NFT of this image. Even if someone else has an exact copy of the image, the photo on John’s phone will be accepted as the original. This is because blockchain technology, which replicates and stores data blocks on countless computers, serves as a base for NFTs. These data blocks hold the full transaction records of the asset and store an NFT’s transactions in chronological order, allowing the NFT to serve its purpose as proof of ownership. Lastly, NFTs are irreplaceable and unique; they are like fingerprints that do not change in a lifetime and are unique to each person. Like this, NFTs are non-interchangeable, and every NFT has a different title of work, owner name, and media link.
Application Areas of NFTs
With the advent of NFTs, people can buy and sell online digital images and tangible canvas paintings without supervision. The public’s interest in NFTs peaked in 2021 when digital artist Beeple’s NFT work, Everyday: The First 5000 Days, was sold for ₩77.6 billion. This work was a collage of different images uploaded over 5,000 days, and it is, until now, the second most expensive digital work of art. Meanwhile, NFT collectibles is also a large marketplace that accounts for three-quarters of the total NFT trading volume as of June 2021. The CryptoPunks, one of the most valuable NFT collections, are 24×24 pixel images of faces - its trade volume surpasses ₩2.066 trillion. Moreover, an NFT collection of video highlights of NBA players, and NBA Top Shots, is also popular in the sports field. The number of times each collectible NFT can be purchased is limited, and their values differ depending on the characteristics of each NFT. Collectible NFTs are also used to grant membership to an association; one of the most popular social parties for the rich, the Bored Ape Yacht Club (BAYC), only grants access to people who have an NFT of the collection.
Why Do People Pay Attention to NFTs?
NFTs as Investment Assets
NFTs have been attracting attention from cryptocurrency investors, and they have quickly become a new form of investment. According to Statista, a global research institution, the global NFT marketplace volume will be ₩42.5 trillion as of 2022. Furthermore, in 2025, it is expected to grow up to ₩97.2 trillion, more than twice its value, this year. One of the biggest reasons for purchasing NFTs is the potential future profit one can gain from reselling. Hence, NFTs are traded at a much higher value than their actual worth. For example, in February 2021, singer Grimes’s War Nymph collection was sold for ₩6.5 billion. In November 2021, however, a limited edition NFT of her painting, Earth, was resold at ₩9 million, plunging nearly 85% in value. Purchasing an NFT does not mean gaining copyright; buyers are only granted ownership and cannot use the work commercially. Lee Byung-uk, a professor of Digital Finance at Seoul Business School of Integrated Sciences and Technologies (aSSIST), criticized this saying that “An NFT is just a receipt that shows that you bought a painting, not the actual painting itself.”
Exercising Autonomous Ownership
At the same time, NFTs allow individuals to control and clarify the ownership of contents without the supervision of a platform. For instance, by using NFTs, people can trade concert tickets without utilizing platforms that verify their authenticity. The in-game item market is where the interoperability of NFTs is most evident. In the past, game users could only buy items through in-game platforms. Furthermore, even if they purchased items, the actual ownership of the items belonged to the game developers. However, with the introduction of NFTs, users can now actively exercise ownership and trade items autonomously with other users. In Nine Chronicles, a Korean play-to-earn (P2E) game, users can create items and trade freely with other players. Here, full records of the transactions are stored in the blockchain. Soon, the game industry will develop in the direction in which users will be able to carry their game items into other games.
Stable Profit Structure for Artists
For a long time, the inability to distinguish between the original and pirated digital content has been a chronic problem leading to issues with the copyright holders’ earnings. However, NFTs based on blockchain technology might put an end to the situation. NFTs make it easy to notice who has direct ownership, protecting artists from plagiarism and piracy. Plus, artists can receive royalty income automatically without additional applications as all transaction information is stored in the blockchain. Artists can set up a royalty rate of a maximum of 10% when selling an NFT. Here, the royalty rate is automatically measured based on the resale price. For example, Sound.xyz, a music NFT platform, sells songs that artists have uploaded as NFTs and then pays the artists 10% of the sale price at every resale. If the song becomes popular and produces enough resales, artists can receive continuous royalty income.
NFTs Opening a Different Future
The Advent of a Decentralized Era
A new era in which individuals will be able to trade using a currency not controlled by either the government or the central bank is approaching. Individuals will be able to escape government control, as transaction histories will be open to the public. A decentralized finance system using blockchain technology similar to this is called decentralized finance (DeFi). Using DeFi, people can autonomically make decisions when using NFTs as collateral for a loan instead of obliging to the bank’s decisions. For instance, a Korean Defi platform, ELYFI, helps people borrow virtual assets using NFTs as collateral. Moreover, as it is possible to distribute and resell an NFT after dividing it into smaller tokens, this might lead to an increase in NFT demand and value. An organization of people who hold these portioned tokens through joint investment is called a decentralized autonomous organization (DAO). DAOs open the present condition of investment, the way of token distribution, and the operation process based on the blockchain to the public. Each DAO member is given either one vote per person or more votes depending on the number of tokens one holds. All decisions on important issues are made through a closed, collective voting process, and everybody is free to suggest a new operation method. Kim Shi-ho, a professor from the School of Integrated Technology at Yonsei University, said that “DAOs are representative of an ideal form of direct democracy.”
My Alternate Character and Me in Reality
Nowadays, there are cases in which alternate characters online hold more value than the actual person in reality; some examples include Instagram influencers who are average office workers in reality. For this case, their value can be measured through NFTs online. On the other hand, there are also cases in which the alternate character is valued higher than it should be due to the popularity of the actual person. For instance, Yoo San-seul, a trot singer who debuted in 2019, could be hugely successful as he was one of the alternate characters of Yoo Jae-seok, the most popular talk show host in Korea. As such, issuing NFTs on the ownership of alternate characters can be a new profit system. Moreover, in the future, it will be possible to create NFTs based on genetic data and connect alternate characters back to the actual person. Currently, there is no unique certificate that shows someone owns an alternate character online. The need for NFTs will increase as this becomes a more important issue. The case in which George Church, a professor of Genetics at Harvard Medical School, issued an NFT to his genome and auctioned it in April 2021 supports the future that will soon come. This shows that NFTs will help people prove themselves without passports or identity cards, whether online or in the real world.
Changes in Evaluating the Value of Connections
Soon, one’s value will depend on their social connections. This is called social finance (SocialFi), and it is a new type of network with a standardized system that is different from existing social networks such as Twitter, YouTube, and TikTok. These days, influencers with many followers on social media are acknowledged for having high promotion abilities. However, their promotion ability cannot be measured by a standardized unit yet, so it is necessary to evaluate the value of influencers’ accounts by issuing them NFTs. In BitClout, a social platform based on blockchain technology, influencers can create tokens, and their followers can trade those tokens with other users. Unlike Instagram and Twitter, in which influencers must give part of their profit from advertisements to the platform, the SocialFi platform will allow profit creation centered upon the influencers themselves. The best way to increase one’s value in the modern digital era is to stand in the center of a network where easy access to information is granted. Therefore, the closer one gets to an influential person, and the more social networks one is involved in, the higher one’s value. Shortly, social connections will be valued as much as money and the cryptocurrency one holds.
The concept of the NFT is more complex than other cryptocurrencies, and its application fields are much broader. Even now, there is no clear definition of what an NFT is. However, NFTs are developing even now as Kingos are reading this article. Regarding NFTs, some may say that they are just a trend causing vain hope, but some may believe that they are the start of a new economic system. Nonetheless, NFTs are still in the stages of undergoing trial and error. Kingos should pay attention to this newly rising concept.