Robert Napoli | December 27th, 2021
Robert Napoli is a nationally recognized business strategist who writes about cybersecurity and digital transformation.
During the first week of November 2021, thousands of attendees, speakers and vendors gathered in Midtown Manhattan for the third annual NFT.NYC conference. The eclectic group of investors, gamers, artists, programmers and crypto enthusiasts attended panel discussions, speeches and after-parties, all centered on the burgeoning and lucrative new trend in the blockchain world: the NFT, or non-fungible token.
Still a relatively new blockchain phenomenon, NFT technology establishes ownership of digital assets and has most famously (or infamously) been applied to digital art. But this year’s conference had a new spin: There was a palpable emphasis on the future of NFTs, which many believe lies in their use as building blocks in the next iteration of the internet, referred to as Web 3.0 or “Web3.” Ultimately, the convergence of this platform with NFTs is expected to give rise to a massive, decentralized virtual world called the “metaverse.”
An NFT is a unique and non-interchangeable unit of data stored on the blockchain that can track a unique digital asset’s transfer, ownership and properties. The term non-fungible distinguishes NFTs from other blockchain entities like cryptocurrencies, which are equal in value and mutually interchangeable or fungible.
For example, if two people each have a U.S. one-dollar bill in their pocket, they could exchange those two bills with each other, and neither would be richer or poorer for it because those two bills are fungible. But if those same two parties were holding the Mona Lisa and the deed to their home, respectively, they’d each have ownership of something with unique utility and value.
In the crypto world, currency units are similarly fungible and interchangeable, but not all digital assets are. That’s where NFTs come in. The digitization of media — including art, music, videos, books and even news or blog posts — has confounded the nature of ownership, copyrights, and intellectual property. This is largely due to the ease with which digital media can be copied and reproduced. Nevertheless, NFTs provide a means for owners of different types of digital content to sell and trade their property using the advantages provided by the decentralized crypto space.
A 12-year-old in the UK made nearly $400,000 this summer coding some digital NFT art (a low-resolution cartoon whale). An NFT representing ownership of a single square pixel went at auction for over $1 million. If those prices seem a bit jarring, consider the $69 million paid for a much more detailed, albeit still digital, NFT work by an American graphic designer.
It’s not unusual to hear about extravagant expenditures in the art world — but millions of dollars for a computer file you can easily copy? What’s going on? The application of NFT technology to the ownership of digital art can be thought of as a dress rehearsal for the expansion of NFTs into other types of assets.
For example, companies like McDonald’s and Burger King are beginning to exploit the growing popularity of NFTs by experimenting with digital “collectibles.” But the sector that might serve has the biggest launching pad for NFTs is gaming.
Online gaming is already big business, recently surpassing movies, music and sports in popularity. Many games even already implement blockchain, including NFTs, into their play. Games like Axie Infinity allow players to create digital NFT creatures with unique characteristics that can be traded for real cryptocurrency to other players. In the property-trading game Upland, users participate in a virtual real estate market where NFTs represent parcels mapped to real-world locations.
These games serve as proving grounds for how NFTs could represent assets in a larger-scale, more dynamic virtual environment like a metaverse.
But what is a metaverse?
In the 1992 science fiction novel Snow Crash, author Neal Stephenson described a virtual world he called the Metaverse — an internet-connected, immersive construct that served as an alternate shared reality for its users. As the internet grew, the metaverse reference gradually made its way into the tech lexicon to describe any large-scale, persistent virtual environment in the online space.
The idea of a metaverse has manifested itself in the gaming world, especially with the recent rise of multiplayer online games and the emergence of affordable virtual reality technology. But these primordial metaverses are limited in scope and self-contained. The vision of the “metaverse of the future” is much more ambitious.
The notion of a metaverse recently hit the news cycle when Facebook CEO Mark Zuckerberg announced his ambitious intention to transform the social media giant into a massive metaverse experience for its users – even going so far as to change the name of Facebook’s parent company to Meta.
Zuckerberg and others see a virtual world that exists in parallel to our own, where people work, buy, sell and interact. In Snow Crash, Stephenson describes the main thoroughfare, called the “Street” off which the inhabitants can build their own neighborhoods, streets, buildings and other features. This prescient description may as well be describing many of the emerging uses of NFTs as well as their potential value in a Web3 metaverse.
Although NFTs have a promising future, they’re not without their challenges. Most NFTs are currently built on the Ethereum blockchain, although this gap is shrinking as competitors like the much faster Solana gain in popularity. Ethereum has scalability, cost and speed problems. Although these will be addressed in the full Ethereum 2.0 upgrade currently anticipated sometime in 2022, this is subject to change given the past delays.
Many of the technologies that will form the basis of the metaverse — including the underlying Web3 network, cryptocurrencies and NFTs — will likely have to grow and evolve together in stages, much like the backbone of the internet in the 1990s.