Cryptogram-29JUL2022

WTF to do with NFTs

July 29, 2022

29 July 2022

In this issue

Hello, Looking back, WWE was as silly as it was popular, but remember how crazy we were about those player cards? What many of us often enjoyed more than watching juiced-up men fake-pummeling each other on TV was playing the game with player cards. Hulk Hogan, Rank 1… Yokozuna, 600 pounds… If watching Stone Cold Steve Austin crushing beer cans into his face was one kind of fun, getting into real fights with each other as kids over these card games was another kind of fun. Ah, those memories – they are invaluable.

Today, a lot of these mint condition player cards sell for hundreds if not thousands of dollars. Why? Who is paying so much money for old player cards of a game which is no doubt a sham, and even as entertainment would not interest most of us anymore? The same could be said of the comic universe. Mint-condition comic books often sell for thousands of dollars, and if you aren’t a fan of the hype around MCU or any other such man-made fantasy, you just wouldn’t get why. It is about the value we attach to things. When it comes to media, art and collectibles, our personal experiences with them and the emotions we feel when we look at them, hold them or parade them around claiming them to be our own, drive the value of that piece of art. If we really cherish the memory of playing card games with our friends or reading that first comic book as a child, we wouldn’t mind dropping a couple of hundred dollars in buying cards or comic books if we can afford it. Because those memories and emotions are invaluable, and bonus: bragging about having something no one else has gives us street cred. There is no rationale to why the Mona Lisa should cost hundreds of millions of dollars, and yet it does. If you understand this – how humans value art and the value of “bragging rights” – then it is easy for you to understand NFTs (Non-Fungible Tokens) and why they can cost so much. If you want to understand the technical basics of NFTs, there are a couple of good explainers on YouTube and you can look them up. This week on Cryptogram, however, we are going beyond the basics – and the hype – and see what kind of real value NFTs hold for the future and how you can invest in them. 

The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. You can read all the previous issues of Cryptogram here.

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The big story

Why invest in NFTs 

From Netflix series ‘Stranger Things’ releasing NFTs ahead of the latest season, to Coachella unveiling NFTs as entry passes this year, the entertainment world is exploring what NFTs can do in a big way. An NFT or a Non-Fungible Token is a digital asset that represents real-world objects like art, music, in-game items and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.Although they’ve been around since 2014, NFTs are gaining popularity now because they are becoming an increasingly popular way to buy and sell digital artwork. The main defining feature of NFTs is their creation and management on blockchains. An NFT consists essentially of a short string that is formatted and managed on a blockchain according to one of a few widely embraced technical standards, like ERC-721 [26] (this has been explained in the tech explainer section below.)NFTs are designed to give you something that can’t be copied: ownership of the work (though the artist can still retain the copyright and reproduction rights, just like with physical artwork). To put it in terms of physical art collecting: anyone can buy a Monet print. But only one person can own the original.

The hypeIf you’ve only heard of NFTs and know nothing more, you probably heard it thanks to the hype created from NFTs being sold for millions of dollars. The most hyped sale was from digital artist Mike Winklemann, better known as “Beeple”, who crafted a composite of 5,000 daily drawings to create perhaps the most famous NFT of the moment, “EVERYDAYS: The First 5000 Days,” which sold at Christie’s for a record-breaking $69.3 million. 

Trading in nonfungible tokens hit $17.6 billion last year, an increase of 21,000% from 2020, according to a report from Nonfungible.com. People also got better at making money from NFTs, generating a total $5.4 billion in profits through sales of the tokens in 2021. Over 470 wallets managed to make profits in excess of $1 million, Nonfungible.com said. A number of big brands, including Visa and Nike, jumped on the NFT bandwagon in 2021.Over the last two years, India has witnessed a sharp surge in non-fungible tokens (NFTs) and new start-ups started coming up around this virtual asset class. At present, there are over 86 active NFT-based start-ups in India. Of this, nearly 71 start-ups were launched in 2021 alone, according to data accessed from Tracxn. 

Entertainment and gaming sectors have been the fastest adopters of NFTs in India. Two NFTs of Bachchan’s recent film Jhund, too, were priced at Rs 2.15 lakh each. Earlier this year, NFTs of Ranveer Singh-starrer sports drama 83 were sold for Rs 10 lakh. Southern superstars like Rajinikanth and Kamal Haasan, too, jumped on the NFT bandwagon to have their own tokens.The popularity of NBA Top Shot, Sorare, and other emerging and successful NFT initiatives in other regions highlight the potential of Cricket-based digital assets. Singapore-based Rario currently has the largest share of cricket NFT rights globally through exclusive partnerships with six international cricket leagues and more than 900 cricketers. They recently raised $120 million led by Dream Capital, the VC and M&A arm of Dream Sports. FanCraze is an Indian NFT marketplace for official cricket (the game) collectibles like game clips and historical moments in the sport’s history, similar to NBA Top Shot and So Rare. FanCraze is offering cricket fans the ability to invest in NFTs through a variety of payment options, since adoption of crypto in India has been slow among the vast majority. 

Why invest: hype, and beyond

Sure, it is a lot of hype, but hype has value. Look around – a lot of things in the non-crypto world also run on hype and generate revenue because of that hype. Entertainment, stock markets, politics, retail – all of these things have a hype element. Art is a great example. Whoever is hot at the moment makes a lot of money in the art world, and their “hotness” is created by hype. So, the hype alone is a reason why NFTs are an avenue for investing. But the trick is to be able to discern the future potential of an NFT and gauge its right price at the moment. How much would you pay for an AR Rahman NFT today, and what would it’s price be 20 years from now? How about a smaller artist, who is yet to take off? Perhaps you could buy the artist's NFT for a couple of dollars now, and its value could be much more five years from now. But like we have always told you here on Cryptogram, invest only what you can afford to lose. Just like crypto, NFTs are also a volatile market. One of the key reasons for the quick adoption of NFTs by creators is royalties. Through an NFT, an artist could get a percentage of the profit from the sale of the NFT indefinitely in the future, regardless of who buys and sells, without the need for a middleman. This makes it particularly valuable for the music and art industry. 

It isn’t just about art. NFTs can represent ownership of any asset that takes the form of unique units. NFTs can also in various ways represent real-world objects such as real estate or luxury goods, tickets for events (real or virtual), and characters, items, or “real estate” in online worlds (metaverse). Through tokenization, programmability, collaboration, royalties, and more direct connections between creators and collectors, NFTs may soon be a technology vital to everyday life. As an investor, you may consider investing money not just in tokens, but also in projects and companies which are working in the NFT space. Rario has got a Series A funding of USD 120 million, and FanCraze of USD 100 million. The future of NFTs has endless opportunities as the new space transitions from raw and experimental to exceedingly more useful and mainstream. Despite its growing popularity, along with cryptocurrencies, NFTs too fell under the purview of the 30 percent tax being charged on virtual digital assets from April 1. Sales of NFTs have absolutely slumped since their peak, though like with seemingly everything in crypto there’s always somebody declaring it over and done with right before a big spike. NFTs are still on the rise despite the crypto downturn. But as digital collectibles become even more popular, it is imperative that all creators, even the less known ones, have a shot at success. Despite its many naysayers, NFTs offer promise in the long run. Perhaps their relevance will come to the fore as the metaverse grows and starts playing a prominent role in our everyday lives.

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  THE TOP FIVE 

Stories from this week you cannot miss

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  EXPLAIN, PLEASE 

Demystifying the world of cryptocurrency

This week, we explain ERC-721.ERC stands for Ethereum Request for Comments. It isn’t a technology or a platform, but sort of a guidebook for developers for construction of their dApps (decentralised app) to be run on the Ethereum blockchain. There are many ERCs, and ERC-721 is to do with NFTs.Now, what makes an NFT unique, or “non-fungible”, is a unique ID. But how does a blockchain – Ethereum or any other – validate that the unique ID is indeed unique? It has to go by a certain set of guidelines or shared rules, what we can call a “standard”. ERC-721, also known as the Non-Fungible Token Standard, is that “standard.”So if you want to create an NFT minting dApp on Ethereum blockchain, then you can use the ERC-721 standard to develop that dApp. ERC-721 is a tool for developers, so as an average user it may not be very useful to you. But ERC-721 need not be the only such NFT “standard” on Ethereum, and in the future, knowing which standard has been used for a particular NFT dApp can help you choose if you want to use that dApp or invest in it.

That’s it for this week folks!If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

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