Rest in peace, profile pictures. Long live NFTs! | Opinion
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NFTs aren’t dead. Their potential is just different from what was originally embodied by the epic rise and crash of the PFP market in 2021. Profile pictures, digital art, and collectibles are just a few basic use cases for nonfungible tokens, a revolutionary form of digital asset in which, unlike cryptocurrency tokens, each item is unique and typically cannot be seamlessly substituted for another.
Unfortunately, the concept of NFTs has been conflated with expensive JPEGs due to the 2021 NFT craze that not only did a terrible disservice to crypto generally and NFTs specifically but, in hindsight, was extremely dumb. Which is why only a year after the initial boom, trading volumes plunged more than 90%.
The runaway speculation on NFTs was a human problem, not a tech problem. The situation was similar to any number of precedents, for example, collecting baseball cards back in the ‘80s. Buying packs or boxes at a time, you’d pay very little for a bunch of cards on a per-unit basis—and only a select few would end up being worth a significant amount of money in the long term.
Generally, collectibles—such as sports cards, music albums, popular memorabilia—begin their lives as “one among many,” all of which are a low cost/value, and no one can really predict which ones will be worth something in the future.
Million-dollar zoo animals
Naturally, in 2021, everyone got caught up in the fever of the bull run, and many lost their sense of proportion—paying an inflated seven figures for digital zoo animals. And, of course, some degens and celebrities sought pricey PFPs precisely because they were expensive and they wanted to flex. NFTs quickly became a status symbol, representing the (alleged) wealth of their owners.
The whole idea of paying huge sums for newly released digital collectibles in hopes that they would increase in value was ludicrous. No wonder now that if you mention to a normie that NFTs are useful and will form an important part of the future digital economy, you’re likely to get laughed at. All they remember is people paying stupid amounts of money for “art” a child could make in MS Paint.
Breaking down the fundamentals
The image of NFTs was badly damaged in the view of the broader public and has not recovered along with the broader portion of the market. This is a real shame because NFTs as a vehicle for digital ownership had real potential to draw in masses of new users into web3.
To appreciate the potentially transformative power of NFTs, it’s important to first ground your thinking in the fundamentals.
An NFT is a data structure for modeling data that has unique properties.
People’s lives are moving increasingly into the digital space, so it shouldn’t be surprising that, ultimately, there will be digitally native goods that people want to own.
Modern ownership
In the web2 world, ownership of anything digital is pointless because it’s so easily copied and/or shared. (Looking at you, memelords wearing out the ‘save-as’ shortcut on your keyboards.) To mitigate this, content owners will often employ common web2 digital rights management barriers such as paywalls, encryption or just restrict access. But in the end, this additional friction only makes it more difficult to share with the creator’s audience and hold their attention.
Here’s where NFTs come in. Their use cases are boundless—not only to create digital representations of physical things (real-world assets) but also to express ownership of digitally native things.
However, it’s important to understand what rights are actually conferred on the owner of an NFT. Is your NFT a digital representation of your ownership of a physical Picasso painting? Does your NFT only give you the right to showcase the digital art itself? How about the right to print T-shirts with the art on them and collect royalties on sales? This is an area that will require a great deal of consideration to get right. If NFTs start coming with ten pages of fine print licensing agreements, that will certainly take the fun out of them.
Utility beyond PFPs
Beyond solving the problem of digital ownership, NFTs can also be imbued with all kinds of utility: exclusive access to members-only events, collateral for loans, DAO voting rights, representations of positions in DEX Liquidity Pools, etc.—making them an incredibly powerful tool for creators. These uses may have absolutely nothing to do with art, and NFTs can operate in the background as vital components powering complex protocols.
Oftentimes, non-crypto natives fail to distinguish the technology from the asset, resulting in blockchain taking blame for the stupidity or nefarious behavior of humans. Regardless of the bottomed-out prices of infamous PFP collections, NFTs aren’t dead at all; their innovation is simply overlooked. In fact, you may be surprised how much NFTs underpin the RWA revolution that is happening right now in the blockchain sector.
