View profile

How NFTs are Changing Property and Trade

Ademola Adekunbi
Ademola Adekunbi
NFTs are changing how we buy, own and sell property, and there’s still a lot of room for innovation.

The simplest way to think of an NFT is that it’s like an autographed item – a football signed by Cristiano Ronaldo, for instance. There may be millions of other balls of the same make; and even many other balls signed by Ronaldo, but the circumstances (the person for whom it was signed, the match at which it was signed, etc.) of each one of them will set it apart and give it a unique value distinct from all others.
NFT means “non-fungible token”. To be fungible means an item is replaceable with another one that has the same characteristics. Fiat currency is fungible. If you loan someone $10, as long as you’re getting money of the same value, it doesn’t matter whether it’s the same note or even the same denominations. An NFT is the opposite because each one is unique and represents a specific item.
Let’s talk about uniqueness first. An NFT is unique because it’s created on a blockchain with one-of-a-kind code. That code serves as a signature that is then assigned to an asset outside the blockchain, giving the person who holds the NFT a certificate that verifies the authenticity of the off-chain item and their ownership of it. Any subsequent buyer of the NFT would be able to verify that they are getting the original item, thus removing the risk of fraud. 
NFTs and Art
The Mona Lisa is the most popular piece of art around the world, but very few people would be able to distinguish it from a replica or even a high-quality photograph. Nonetheless, no one would pay US$850 million for a reproduction or photograph. That shows that the value of (visual) art is not in the physical form, but in the perceived value of the painting as a result of its provenance and scarcity. Simply put, people want to own the original.
In recent times, many artists have forgone paint and brush in favour of Coreldraw and Photoshop. They have been able to create very high-quality “paintings” but it has been difficult to imbue their work with the same scarcity as physical canvasses since each photo file of the work is identical to any other. NFTs solve that problem by giving artists a way to give one buyer verifiable ownership of that work. Even though the actual asset might be a JPEG file that looks just the same as any other, the token on the blockchain will establish the fact that the one in the buyer’s custody is the original, thus imbuing it with more value as a result.
The most famous NFT artist is Mike Winkelmann, an artist also known as Beeple, who has sold multiple works in the million $ range, with one selling at a Christie’s auction for $69 Million. Even the NBA has entered the game (pun fully intended😉), launching NFT backed collectible video cards which can be traded on its Topshot platform. Everyday artists have also created and sold NFTs, and Nigerian rapper MI Abaga has announced his plan to sell his 5th studio album as an NFT.
NFTs and Smart Contracts
Unlike art NFTs that derive their value from society’s idea of the underlying work’s worth, there’s another category of NFTs known as “actual value” NFTs. They are linked to specific assets that have independent value, and they can automatically execute real-world contracts when there’s an integration between the blockchain where the NFT is located and the system where the asset is.
To use our previous analogy, instead of the balls autographed by Ronaldo being art with their values tied to popular sentiment, he could make each one of them worth 1% of his future earnings as a player. It could also work for investing in music artists, by buying a share of their future revenue and allowing royalty payments to be switched automatically to each new owner’s account. Domain names can also be tokenized to instantly transfer ownership and control to a buyer, and with the right legal framework, NFTs can be used to buy and sell cars, real estate and other physical property.
In an interesting application of the concept, two Coinbase employees recently illustrated another use case for NFTs by creating two tokens with ring animations and exchanging them as part of their wedding ceremony.
Kunbi
Tokenizing physical property like cars is the next logical step for NFTs, especially when combined with the sharing economy and fully digital vehicles. Instead of using Uber in every new city one travels to, why not buy a share in a car or rent one for the duration using an NFT?
NFT Drawbacks
Now that we’ve seen many ways that NFTs can be profitable and even romantic, what are the risks of buying one? The first thing is that there’s no guarantee that the creator of an NFT won’t simply produce another one with the same content. That would be a problem because, unlike physical paintings in which artists typically do not set out to paint the same thing again, there would likely be some minute differences to set the paintings apart even if they tried to. For an NFT, it’s as simple as copy and paste, and it would destroy the illusion of scarcity very quickly, to say the least.
The second issue is people stealing work created by others, tokenizing and then selling them. This has happened with images posted by artists on Twitter and other social media platforms, and even tweets. Many services that offer NFT creation services allow artists to reclaim their works, but it can be an arduous process.
In some instances, artists have had to resort to intellectual property lawsuits to enforce their rights. Because the original files are typically hosted by the startup on which the NFT is sold, if an IP lawsuit requires them to take it down, it would mean the NFT buyer doesn’t have the original file anymore, and the token code would only lead to an empty space on the blockchain. The same thing will happen if the startup goes bust for any reason. 
Fintech Updates
Coinbase's looming IPO is juicing everything cryptocurrency-related | Fortune
The largest crypto exchange in America is scheduled to go public next Wednesday. Coinbase will list its shares (directly) on the Nasdaq, becoming the first publicly-traded crypto exchange in the US. In preparation, the company shared some very impressive numbers, including its user base of 56 million customers and $1.8 billion estimated revenue for Q1 2021. If the stock does as well as is being estimated, it would mark a vote of confidence by the public on cryptocurrencies, and might result in a boost in the crypto market and for startups and financial institutions that provide crypto products and services.
Plaid raises $425M Series D from Altimeter as it charts a post-Visa future – TechCrunch
Plaid has raised a $425 million Series D that values the company at around $13.4 billion. An agreement for Visa to acquire the company last year was opposed by the United States, which argued, through the Department of Justice, that the acquisition would stifle competition, consumer savings and fintech innovation. With the new funds, the company is set to continue growing while exploring other exit options. 
Closing thoughts
Thank you very much for reading this newsletter. Did it help you understand NFTs and would you invest in them now that you know what they’re about? Feel free to reply and let me know your thoughts.
Next week, we’ll discuss why central banks are considering creating their own digital currencies and what that might mean for Bitcoin and other cryptocurrencies.
Be sure to forward this to people who would like to read it.
Till next week. Stay safe!
Did you enjoy this issue? Yes No
Ademola Adekunbi
Ademola Adekunbi @kunbiademola

Fintech is serious business - it's changing how we live and do business all around the world and in every industry. It's also fun and exciting; you know, like a fiesta 😉. In each issue, I'll be analyzing one fintech issue in-depth and also giving you a roundup of interesting resources to learn more about how fintech will shape our future.

If you don't want these updates anymore, please unsubscribe here.
If you were forwarded this newsletter and you like it, you can subscribe here.
Created with Revue by Twitter