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NFT Craze, So What is it?

 Nowadays, we can easily find ‘NFT’ in many industries or on news reports. Collins, a British dictionary-publishing company, selected ‘NFT’ as the word of the year in 2021. Some artwork was sold for tens of billion of won through NFT and Lee Se-dol’s78th Go try with AlphaGo was also auctioned off as an NFT transaction and sold at a high price. As we have heard about NFT at least once in our society, everyone knows that NFT is a very hot topic. However, only a few people know exactly what it is and why it is popular. In this article, let’s learn everything about the hottest word now, NFT. 

 What is NFT?

 The word NFT refers to a Non-Fungible Token, which means an irreplaceable token. The meaning of irreplaceable here literally means that it has the ‘unique value’ in the world. NFT is a virtual currency using Blockchain technology like Bitcoin, but it differs from Bitcoin in that it is impossible to replace. Blockchain is a data distribution processing technology that distributes and stores data in all transaction details of all users participating in a specific network. For example, A’s one bitcoin and B’s one bitcoin can be exchanged, but NFT cannot be exchanged because each token has its characteristics. It is similar to the context in which two works cannot be exchanged for each other just because they have the same fake work as the original one. As another example, we can think of the ‘Mona Lisa’ painted by Leonardo da Vinci. Many people visit the Louvre Museum in France to see the Mona Lisa paintings in a large crowd. The reason for this is that it is the only genuine painting that has been recognized for its ‘scarcity’ and ‘unique value’. Countless Mona Lisa images that can be found on the internet are less valuable because we can easily find them on the internet. If NFT is applied here, the unique value of Mona Lisa as a genuine work can be recognized in the internet world. In other words, NFT is a technology that gives ‘unique recognition value’ to various digital files such as images or videos and records its ownership. In a nutshell, it can be said that NFT is the same as a certificate of authenticity.

As the scene called ‘Muyaho’ on MBC’s Infinite Challenge became a meme that the capture of this scene was easily found on many SNS and used by many people. ‘Muyaho’ is a buzzword derived from ‘Infinite Challenge’ meaning exciting. MBC issued the ‘Muyaho’ NFT and sold it for 9.5 million won, the highest price NFT released by MBC. In this way, if we publish videos, data, intellectual property, and works that have already been actively used online through NFT, we can earn new profits. It means that this can soon develop into a new economic means. NFT has a great advantage in those intangible contents, which was difficult to price because it could not be copied, forged, or altered, can be recognized for their value. Only NFT contents can be recognized as real among countless replicated contents. 

 Interest in NFT grew in 2017 when ‘cryptopunk’ which expresses face images in 24 pixels, came out. Cryptopunk is from Larva Labs, a development company in New York founded by Matt Hall and John Watkins. The Cryptopunk series consists of five characters: men, women, zombies, apes, and aliens. A total of 10,000 different avatars are possible by randomly adding attributes such as hairstyles, accessories, and costumes to the five basic characters. In 2017 the project began to experiment with NFT and the value of art and finally helped popularize the virtual art asset we know today. Cryptopunk was experimentally published as early NFT when the concept of NFT had just emerged and was traded at a high price in recognition of its historical significance.

Cryptopunk ‘Covid-Alien’, which was auctioned off in June 2021, was sold for $11.7 million to Shalom Mackenzie, who is the largest shareholder and a billionaire of the sports betting game company Draft Kings. Decrypt, a foreign media company specializing in cryptocurrency, analyzed, “The fact that it is the oldest NFT project is creating a strong demand for Cryptopunk.” However, the start of the current NFT boom was the news that Grimes, Elon Musk’s wife, made 6.5 billion Won in 20 minutes through the sale of NFT works in 2021. Grimes put a virtual image on the auction, depicting a baby angel with wings protecting Mars with her song in the background. Elon Musk himself also made music for a NFT at the same time and sold it as a NFT. The British Daily Mail explained, “Grimes’ online auction performance has fueled the virtual asset craze using NFT.” Through Elon Musk, a celebrity who is a hot topic no matter what he does, NFT has also become a hot topic. One of the reasons is that the NFT-related market has grown rapidly due to covid-19, as working from home has become more common for office workers so they spent more time on the internet. As a result, the NFT market rose to $250 million, a quadruple of the previous year. 

 

Several cases and utilization of NFT

 Several cases and utilization of NFT are expected to continue the boom of NFT in 2022. Many industries are already selling and utilizing NFTs. There are countless types of NFT tokens currently being made, including artworks, logos, videos, sound sources, and even game items. Let’s look at examples of NFTs. 

 NFT first showed great popularity in the field of digital works of art. The NFT art market began to grow in earnest amid a dearth of face-to-face exhibitions due to covid-19. In March 2021, when the NFT craze began, the NFT work ‘Everydays: The First 5000 Days,’ created by American artist Beeple, was sold for $69.34 million which is about 78.5 billion in KRW. These paintings are known to have been painted each day since 2007, and by November 2020, about 5,000 creations were published as NFTs. Also in Korea, actor Ha Jung-Woo’s digital artwork was sold for 57.1 million Won through Kakao’s digital wallet ‘Clip.’ So we can see that people investing in digital art are using NFT a lot. 

The entertainment industry-leading K-POP is also entering the NFT market rapidly, which can encompass scarcity and profitability. In July 2021, Korean singer Seven released his new song ‘Monalisa’ as an NFT. His new song could not be found on major music sites and was released as an NFT music source, so only one was available to purchase. The song ‘Monalisa’ was auctioned at a minimum price of 10 million won, and the winning bid was closed and private. The bidder was given the producer’s digital rights to earn music streaming revenue. These characteristics of NFT had a structure suitable for making profits based on fandom in the K-pop industry.

It aimed at the consumer psychology that fans will purchase limited-edition content even if the price is high. An entertainment industry official said, “Since there is no theoretical limit to content that can be made with NFT, not only music but also content related to portrait rights such as photo cards, various records, and traces of celebrities can be made into assets.” He also said, “In particular, fans are weak in limited editions, but when they purchase NFT goods, they can prove their ownership and resell them later, so it is profitable.” NC Universe made photo cards and album packages of K-pop idols, ATEEZ and Cho Yu-ri into NFT goods in September 2021 and presented them to fans. The method of receiving NFT goods was by winning the draw and then both NFT goods and real goods were provided to the winners. 

 The fashion industry, which is more sensitive than anyone else to its ‘unique value,’ is also actively using NFT. In April 2021, three global luxury brands, Louis Vuitton, Cartier, and Prada created the blockchain platform ‘Aura.’ Luxury goods have a unique identification number per product, and consumers can receive their digital code through this platform. This code contains all related information: what country it was produced in, the manufacturing and distribution process, and its ownership. Luxury brands issue certificates here with their unique identification numbers as NFT to prevent the sale of counterfeit products. In this way the NFT can prevent brand forgery with a digital certificate. At the same time, an NFT certificate containing a unique identification number for products can also be sent to friends, with a voucher function that allows gifts. Moreover, Gucci issued a 4min 5sec fashion-related video last year as an NFT and posted it at Christie’s auction, and it was sold for $25,000. Balmain also cooperated with Barbie to issue NFTs. Barbie dolls decorated with Balmain’s clothes and accessories were issued in a total of 3 NFTs. 

 

Advantages and disadvantages of NFT 

 Let’s look at the advantages and disadvantages of NFT, which will occupy a big position in our society in the future. 

 First, there are no restrictions on the production of NFT works compared to existing works. To make a work of art takes a lot of time and money. Also, even if artwork becomes famous, if one or two people start to imitate it, a person must go through a lot of proofs that the person’s work is genuine. However, NFTs make it very simple to post my work, and the unique number will follow my work based on blockchain technology, indicating that my work is genuine. In addition, the restrictions on creating works are significantly reduced because all you have to do is create them as digital files through scanning or taking pictures of existing works. Second, even if you purchase a piece of work, you do not need space to store it. When we purchase a painting at an exhibition, a lot of effort must be made to completely preserve the painting, including proper temperature, humidity, and lighting. However, NFT is a file that exists in a digital format, so if you have a computer, you do not need specific storage space. Also, since it is already a file with a separate unique number, it is easy to manage because it cannot be copied or hacked without permission. 

 In the rapidly growing NFT market in such a short period, there are various advantages that NFTs give to our society, but disadvantages that need to be considered also exist. First of all, there are no policies and laws yet related to NFTs. Even the most basic things such as standards and scope of NFT’s recognition of property rights have no legal status yet. Currently, a NFT is only the ‘original certificate’ of the work and does not include its copyrights. In other words, even if you bought an NFT, it is impossible to exclusively use the content. We should also pay attention to the skeptical view of the indiscriminate expansion of NFTs. NFTs have indeed created a protection system for scarcity by granting ‘original’ certification to digital art that is vulnerable to infinite replication and theft. However, as the introduction of NFTs increases exponentially, it is becoming an issue. For example, many fans question content such as photo cards used as idol goods or music sources that can be easily heard on various streaming sites. It is just the same photo card as previously distributed, but the price of it jumped tremendously just because it is a NFT. What is the meaning of selling music at a high price with an NFT on it that anyone can listen to through streaming sites? These are why many fans were angry when BTS’ agency Hive first revealed its business direction to add NFTs. Fans have raised suspicions that Hive’s entering the NFTs is not for platform reinforcement, but a trick to increase the cost of goods or a ‘money play’ to launch a new means of currency. 

 

Future and Changes of NFT

 According to DappRader, a blockchain data analysis company, the volume of NFT trading, which was only $100 million in 2020, has grown to about $23 billion in just one year. As such, NFT is seen as an asset that will be the axis of future industries. As numerous digital products are currently traded in the Metaverse, NFTs are expected to give scarcity to digital products in the Metaverse and help clarify ownership. Many experts expect harmony between NFTs and the Metaverse, which will create a new economic market. The Metaverse simply refers to the world that can interact with reality or transcendental world that can function as reality. Moreover, Twitter announced that it plans to add a NFT authentication profile function soon, and NFTs are expected to be used on social media in the future. As the MZ generation values scarcity and uniqueness, NFT profiles are expected to become a new means of showing their tastes. Chainalysis, a blockchain data platform company, predicts that the NFT market, estimated to be at least $26.9 billion, will continue to evolve this year. They predicted that continuous growth and evolution will continue as many future artists, creators, celebrities, and game developers are expected to release NFTs. In this way, many experts predict that NFTs will be a means to greatly change our society. However, on the contrary, there is also a growing voice of concerns about the NFT market. Since the NFT market is just beginning, it is unclear how it can be applied to many companies in reality and how consumers will respond overall. Since NFT itself is a technology with high carbon emissions, environmental problems accordingly must also be considered. Digiconomist, a website that studies digital trends, estimated that the carbon footprint of a single Ethereum transaction produces 37.29kg of carbon dioxide (as of February 2021). This is the same as the carbon footprint of 82,648 VISA transactions or 6215 hours of YouTube viewing time. It is said that the mechanism is currently being replaced by a much less energy-intensive equity-proof method for low-carbon NFTs. Through this, it is expected that NFT’s carbon footprint will be greatly reduced. Although the possibility and growth potential are open, investment in NFTs will have to be watched carefully as institutional conditions have not yet been prepared. 

 

 What will be the future of NFTs? Indeed, there are still concerns about NFTs, it may be just a temporary cultural phenomenon of a new concept entering our society. Whether the rapid growth of NFTs will be a bubble controversy that the price is too high compared to its value or whether it will be an opportunity for cultural exchanges with other new worlds. We should probably watch it in the future. 

 

류현지  12200815@inha.edu

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