Puzzled about NFTs? An expert demystifies this digital asset and its marketplace

There's no doubt the buzz around NFTs is growing. Earlier this month, OpenSea, one of the largest Non-Fungible Token (NFT) collection platforms, reached four billion dollars in trading volume for the month of January, a feat that was linked to the sale of ‘Bored Ape Yacht Club', Ethereum-based NFTs of cartoon apes depicting varying emotions. The collection was purchased by celebrities such as Eminem, Britney Spears and Jimmy Fallon. Moreover, by December 2021, the NFT market had generated over 23 billion dollars in trading volume, according to a Forbes.com report.

From art and gaming to the 3D universe of metaverse - all part of an alternate online trading space based on the blockchain technology - digital media and investment companies have been increasingly venturing into various possibilities of the NFTs. Blockchain technology, to be clear, is a digital ledger or system for recording information of transactions, which is distributed to all the computer systems on the blockchain for transparency and in a way that is impossible to hack or change. A number of Indian celebrities, including Kamal Hassan, AR Rahman and Yuvraj Singh have also embraced the NFT marketplace for promoting movie posters, digital art, autographs and audio-visual production. Most recently, Daler Mehndi made news for becoming the first Indian artist to perform in a metaverse concert for his audience on Republic Day.

As NFT advances further and in new directions, Mid-day Online reached out to Dhruv Saxena, the chief strategy officer of Fantico, an Indian company dealing extensively with NFT art auctions, metaverse and gaming, who breaks down the fundamentals of NFTs, their accessibility and future prospects.

Please explain the concept of NFT in simple terms to our readers.

In the simplest terms, Non-Fungible Tokens (NFTs) are digital collectibles that are built on blockchain technology. This can be thought of as a ‘unique access card' - where the access is to a digital collectible or real world item. What's more interesting is why it is important. As more of life happens online, artefacts and pieces of history exist mostly in the digital form; in order for the trade of these artefacts, the assurance of their authenticity is essential. That's why NFTs receive the hype they do.

There are people who are still unaware of the source of NFTs itself, that is the blockchain technology. Could you describe blockchain in layperson terms?

At the risk of over-simplifying: Blockchain can be described as a data recording mechanism done in a chronological manner (aka ledger or 'khata' in Hindi) where this 'record' is held by multiple computers on a network so no one computer can edit the data without the other computers knowing. This attribute is critical as it makes this mechanism very reliable. For e.g. you would want that the certificate that proves you own your house should be uneditable/undestroyable by anyone else.

There's a criticism of NFTs that if a person can easily save or copy the digital collectible (art, memorabilia, etc.), then how are NFTs valuable? What are the safe guards to ensure the uniqueness of the NFT or protect them from being copied?

A few things to unpack here: One, the NFT is the proof of ownership and not necessarily the asset itself. Two, I could print a copy of the Mona Lisa, it won't make the original less valuable. Third, monetary value is not inherent in a picture (or any art) - it is provided only by the creator or by the fans. This means just because I have a look-alike picture, does not mean it is automatically valuable.

How do NFT acquisitions translate to real-life earnings or profits? How does it work?

Once you understand their meaning and function, like described above, it becomes clear that their economic value and functioning resemble everything else as i real world items and services that we already know about. The only difference is that their record of the transaction now exists on the blockchain, so tampering with the records is nearly impossible. This characteristic of it is not so glamorous and is tough to appreciate, unless we are clear on how data is currently stored and managed.

So long story short, NFTs of valuable things (As ascribed by creator or buyer) will appreciate in value over time. The quick profits aspect comes from platforms sowing for quick trading.

For more advanced traders: NFTs can be translated to real-life earnings or profits by adopting the following methods:

a) Rent out NFTs
b) NFT Royalties
c) Stake NFTs
d) Liquidity to earn profits
e) NFT-powered yield farming

How can it be made accessible to regular people or is it specifically for those who have high purchasing power?

It's accessible to anybody, anywhere, anytime to meet on the blockchain. The NFT marketplace is similar to an e-commerce platform available on the internet to purchase and have the best user experience. In addition to this, the NFT Marketplace has embedded buying and selling of NFTs using Fiat currencies like USD.

But everything starts from awareness. We are in year one or two of it currently. Bitcoin came out in Jan 2009, and is only now a household term; so the market will undoubtedly grow.

Please explain the concept of Metaverse and its relation to NFT.

Just to paint a picture: the shape of a cube is a 3D square, similarly, you can think of the metaverse as a 3D world wide web. Except, just as there is no one world wide web, there can be multiple metaverse(s) too.

With that image in mind, if you imagine a WWW where people interact, game, trade, etc. - a lot of it will require a visual representation - that 3D graphic will most likely be an NFT. Again, this is a simplification and not intended to be an exhaustive definition.

Metaverse participants are able to engage in decentralised virtual economies powered by cryptocurrency. This includes marketplaces where users can buy, sell and exchange items such as digital assets like avatars, virtual clothing, monetising games, NFTs, and event tickets.

How do NFTs impact both the sellers and the buyers?

NFTs enable artists to sell their art directly to their fans, in the peer-to-peer fashion envisioned by Bitcoin's whitepaper. These tokens also introduce new monetisation options, like offering fractionalised NFTs, or selling an NFT of a work in progress, which gives fans a stake in the future success of the artwork. Applying smart contracts to NFTs can also create additional revenue sources, enabling artists to reap the profit from royalty payments and secondary sales of their artwork.

NFTs have injected a newfound momentum in gaming, making blockchain-based, crypto-powered play-to-earn games a tangible reality. Applied to in-game assets, NFTs open a new chapter in gaming history, marking the first time that players are truly the owners of their assets that they can sell for a profit on NFT marketplaces.

Gaming has also created significant interest in decentralised finance (DeFi) and dApps, short for decentralised applications. NFTs can help set up charity initiatives in a decentralised, online manner with less overhead compared to classical auctions.

For metaverse-based social clubs, NFTs function similarly to a digital identity, offering holders access to exclusive perks, content, and events. Employing NFTs as the identity layer of metaverse projects will likely become more popular, due to the uniqueness and censorship resistance of each token.

NFTs bring peak programmability to the table, which is one of their most attractive attributes, allowing them to offer a wide range of utility to their users. Hence, they can create new subscription models and online social perks.

Beyond creating non-fungible assets in the metaverse, NFTs can be leveraged to tokenise both tangible and intangible assets. Each NFT can function as a traceable, censorship-resistant ownership certificate for any given asset, revealing the most important information about it publicly via the blockchain ledger.

How is it evolving in India? What among the NFT components is gaining more traction?

For artists, it has been proven to be a lucrative method to monetise their arts. It helps to connect directly with their audiences as it eliminates all the middle players. With the presence of celebrities, leveraging their artworks to the mass audience for digital ownership is the main component in India gaining more traction. NFTs are yet to explore the full potential of the Creators industry in India.

The rise of NFTs has proven their utility, and they are becoming one of the core components of the metaverse. As brands are continuing their metaverse experiments, NFTs will gain more utility in these digital worlds. With big brands buying into NFTs, tokenisation could likely disrupt multiple industries, while gaining traction as the digital ownership certificates of the metaverse. But it's all a function of how many people want it to head in this direction.

What will be the NFT trends for 2022 in India?

Many things will happen, but to varying degrees -- all dependent on the different people building in the space. To name a few:

a) Race to build massive communities
b) Brands building and selling NFTs
c) Metaverse(s) and gaming companies opening up every month or so
d) Tokenisation of expensive items
e) FIAT currency being accepted
f) NFTs of wacky or nostalgia-inducing items
g) People showcasing their NFTs on social media
h) A whole lot of hilarious memes on NFTs