Where next for crypto, the blockchain and NFTs?

Crypto, the blockchain and most recently non-fungible tokens (NFTs) have been at the centre of attention in both technology circles and more widely. Are they a hype bubble that is set to explode ignominiously all over exuberant investors or do they have something interesting to contribute economically or even socially?

In the first of two articles, I’m going to discuss the interlinked world of crypto, the blockchain and NFTs from a non-technical perspective, looking at the benefits and challenges that the sector faces as it moves from infancy into adolescence. It is possible that the technology will wither on the vine, but the sheer range of potential benefits that it looks like it could create mean that it has a strong potential to make a real difference as the decade progresses.

I’ll put a link to the second article here once it is available.

Burn bright

Remember those heady days back in March when everyone was talking about non-fungible tokens (NFTs)? The artist Beeple earned himself a USD69 million payday for a piece of NFT art entitled Everydays: The First 5000 Days. Social media timelines were suddenly crammed with NFT projects. Even the evening news was devoting thirty precious seconds of its schedule to explaining them. It all had the appearance of a hype bubble that was likely to quickly subside.

And at first glance that certainly seems to be the case. According to a broadly supportive article in Forbes [https://www.forbes.com/sites/lawrencewintermeyer/2021/04/29/nfts-combat-bubble-burst-claims-as-real-life-use-cases-push-forward/?sh=1bdc884b6ecb], the average price of an NFT was 60% lower in April than it was in February. Trading volume is also said to have declined.

And yet.

Like most hype bubbles, there could well be something behind NFTs that will have value in the coming years.

Double the bubble, double the fun?

NFTs are built on blockchains, the same technology architecture that underpins cryptocurrencies, that other great world changing technology/alleged bubble of recent years. At its most simple, it is an architecture that provides is a way of proving ownership of something. To put it fractionally more technically, a blockchain is a continuous decentralised data set where each change to the data has to be agreed with the other parts of the chain. To all intents and purposes this makes it prohibitively time consuming, some say impossible to falsify the information.

It is an approach that was developed to support cryptocurrencies, with each unit of currency represented by a unique, tradable block. Since bitcoin, the first of the modern cryptocurrencies, made its debut in 2009, it has been recognised that these unique blocks could be used to validate a far wider range of goods and services that extend beyond the digital world of crypto and out into the real world.

The move into digital art is a logical next step down this road, but many sector enthusiasts argue that it is not the final destination. Crypto, the blockchain and NFTs are a new technology architecture that has the potential to improve the way that several industries work if it can be implemented effectively.

There are a couple of related ways that this could evolve.

NFT art opens the door to the metaverse…

Focusing on NFT art for a moment, it could well become a positive long-term investment, part of a well-balanced portfolio, but art, even digital art, prefers to be displayed. This is particularly true if you are viewing it as an investment piece that you might be willing to sell on if the right offer came your way.

Which brings us neatly to the metaverse, a buzz word that you will potentially be hearing a lot about over the next few months. The metaverse is a potentially vast, interactive virtual reality space where people will be able to get together and interact in a far more immersive way that is currently the case in video conferencing. This could translate into several things. In some cases, it could be used for educational or business experiences, bringing teams or classes together in a virtual reality space. Ideas and knowledge can be shared more easily than is currently the case on the video conferencing sites that we have become so familiar with over the last 18 months.

At the same time, it can also be used to offer virtual spaces where possessions can be displayed. Possessions such as a NFT artwork. The fact that cryptocurrencies are virtually infinitely divisible means that it wouldn’t be too challenging to set a small fee for visiting each gallery. A micro fee might not sound like a large money spinner, but if you multiply it across the billions of people that potentially have access the metaverse via the internet, it could translate into a tidy fee.

There is also the possibility that this fee could be shared between the current owner of the art and the original artist, helping ensure that successful creatives receive reward as well as recognition for their creativity. This gives you a good example of how crypto could augment the current economics of an existing industry.

…while NFTs could also enhance existing ways of working

The other way that this could evolve would be the to augment existing industries. There are already several fascinating projects to use NFTs to tokenise products and services as diverse as educational certificates, oil and gas and even fine wine. A token can be associated with a physical asset at the point it is created and it can stay with that asset as it moves through its journey from production to end consumer. For example, a farm could tokenise a volume of grain, and that token could stay with the product through the refinement process as it is transformed into part of a box of cereal, through the supermarket supply chain right up to the point that the consumer picks it off the shelf.

Traceability has been a growing issue in the supermarket sector over the last few years, and while some projects have come close to making it possible, they tend to add significant administrative costs to the production process. A token can automatically be divided as the volume of grain is divided, meaning that back-office costs can be avoided by taking the NFT route.

Crypto, the blockchain and NFTs have the potential to make all manner of activities significantly more efficient, transparent and, in some cases, fun. These are the reasons why there are so many excited conversations going on around them at the moment and why their bubbles have yet to burst. Their ascendency is not guaranteed however, so in my next article, I will discuss some of the challenges they face.

About Marco Quacken

Marco has a passion for business development that helps projects succeed and businesses flourish. With a global network of contacts, he brings teams together, matching expertise to requirements and implementing strategies that help good ideas grow into sustainable businesses. He has experience across a range of sectors including finance, real estate, technology, advertisement, automotive, consumer goods, energy, retail, sports and telecommunications.