By: Ibrahim Kholilul Rohman[1] , Moinul Islam Zaber [2]
The name Ghozali has been on the spotlight during the last few weeks for ushering the rise of innovation by selling his selfie photos in the form of the Non-fungible Tokens (NFT) at some web-based marketplaces such as Open Sea. He took selfie photos during the period of 2017-2021 and sold them with an accumulated trading gone up to 284 Ethereum -a unit of cryptocurrency- equivalent to about US$ 930.000 to date.
What is NFT in a layman’s terms?
Fungibility is the ability of an asset to be interchanged with other individual assets of the same type. For example, If X gives to Y a sum of US$ 50 and in return Y gave back to X with two US$ 20 notes and a US$ 10 note, or any other combination of notes that would make up the exact same value of US$ 50, these assets are called as fungible. On the other hand, if A lend his most favorite book of poetry to B and a few days later B having lost the book, returns the newest edition of the same book to replicate- A may not accept it. The book was not fungible with respect to ownership.
In the case of non-fungibility, the asset is a non-interchangeable unit. This means that an old book is not mutually substitutable with a new edition. The older book may elicit many personal memories that made it unique. If one wants to make sure that this uniqueness and ownership is guaranteed, one way is to ‘certify’ it. In the digital world, this certificate is indicated with the word ‘token’. Thus, with NFTs, we can have a certificate that guarantees the assets’ uniqueness.
Things that move through the digital world nowadays can be in the forms of visuals, sounds, words, or numbers. The internet technology allows us to just one ‘right-click’ to download these digital assets. In many cases, no matter how many times being downloaded, each copy may look exactly the same.
What if we want to certify the ownership of the asset? NFTs allow us to do so using the blockchain technology that provides a public certificate of authenticity and proof of ownership, but do not restrict the sharing or copying of the underlying digital data.
Beyond what is understood by people at large, blockchain transcends cryptocurrencies such as Bitcoin or Ethereum. The blockchain technology is a digital peer-to-peer register which records and stores transactions between parties. Each party on the blockchain has the access to the complete database built upon computational algorithm and models that are leveraged in order to maintain available to each part, permanent and in a chronological order on the ledger. Like other currencies, Bitcoin is not NFT but the very first image showing the Bitcoin can be an NFT asset similar to the collage selfies of Ghozali.
The pandemic has showed us how transaction of information and money in digital world can make ‘work from home’ a reality. Many are now interested in keeping more digital goods than physical ones. With NFTs it is possible, as no matter how many times we share, the original copy of the asset will have its ownership and originality guaranteed. The rests are copies. This means if one creates a digital art, he can sell this art piece to a buyer and the NFT will guarantee that the ownership was transferred to her. Others can copy the art, but they are not the owner. Hence, it is not surprising that during the pandemic, NFTs have been flourishing rapidly.
But how long will the NFT business last?
The world of digital arts embraced NFTs quite rapidly. Readers might visit web platforms like niiftygateway.com, crypto.com, or online auction house like 1stDibs.com, or even shopping site like eBay where many are selling or buying NFTs. Even though bulk of the NFTs are attributed to digital arts, many are making NFTs of their physical assets. This is done by first digitizing the asset and then choosing the provision of making booth the digital and physical forms of the assets as NFTs.
One of the most famous artists is Mike Winkelmann (a.k.a Beeple). One of his work entitled Crossroad (a 10-second video) was sold of US$6.6 million in March 2021. In the same year, he sold his digital work titled ‘Everydays: the First 5000 Days’ for US$69.3 million at Christie’s -a collage of 5000 digital images created by him. With virtual museums and metaverse on the rise, soon many artists will find themselves in the virtual world.
Nevertheless, similar to cryptocurrencies, the most challenging drawback of NFTs assets concerns with stability and sustainability. An early study by David Evans of University of Chicago in 2014 showed how fluctuated a crypto coin was. A crypto coin was 18 times more volatile than Euro. The phenomenon seems to be similar in recent years. Bitcoin was sold about 5000 US$ in March 2020; it went up to 63.000 US$ in April 2021 went down to 32.000 US$ in June 2021 and rose up to 65.000 US$ in November 2021. No other currencies in the world entails the same roller coaster pattern as Bitcoin.
NFT assets will be just quite similar. As the more players enter bringing both artistry and non-artistry NFTs assets, the market value of its assets will tend to bubble. It is a combination of innovation and luck that makes this effort attractive to the young generation nowadays. But focusing on these activities without a clear value generation can also be a huge sunk cost for the society. Young generation should also learn that a bubble business is never sustainable just like the tech-bubble in early 2000’s or the subprime mortgage bubble in 2008.
Note: This article published by Jakarta Post on January 21st,2022. https://www.thejakartapost.com/opinion/2022/01/20/nft-bubble-how-long-will-it-last.html
[1] Senior Research Associate IFG Progress and Lecturer of Digital Economics- FEBUI
[2] Researcher at United Nations University on Policy Driven Electronic Governance (UNU-EGOV), Portugal
