Are NFTs the first killer blockchain apps?

One of the latest hot topics in the crypto world are NFTs or Non Fungible Tokens. NFTs are attempting to become the key identifier for the ownership of digital assets including digital art, music, movies, sports cards, images, even blog posts — just about anything digital.

2 years ago

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This weekend I watched my 8 year old Goddaughter play an online video game called Roblox. If you have never heard of Roblox - I hadn’t - it's one of the most popular digital games out there with a staggering 36 million daily users - most under the age of 13. It's more popular than Minecraft, earned an insane 923 million in revenue last year, and earlier this month Roblox  had a hugely successful IPO on the NYSE - ticker RBLX.

What exactly is Roblox?

Roblox is a vast online platform where kids can create and interact in what its makers describe as "immersive 3D worlds."  Kids basically live in this virtual world, make digital money they can use to buy and trade goods. I watched my Goddaughter ride around on a moped as she delivered pizza to earn digital currency she can then use later to purchase a new dress or other goods in this virtual world. Kids and parents can even program their own worlds inside of Roblox. I can see brands even thinking about promoting and selling their own virtual goods inside of Roblox in order to get to their target audiences very early.

What really struck me as I watched my Goddaughter move around Roblox, is how kids are playing and living in this world where digital currency is already the norm. One of the things I struggle with are my own personal biases against things like Bitcoin and other digital currencies. I wrote about my thoughts here, but I always keep asking myself “what I am missing?". This has particularly been the case the last several weeks as I have watched Dogecoin - which was created as a completely worthless joke skyrocket recently to a $10 billion dollar overall valuation. Following that Mark Cuban announced he would accept the fictional dog based coin in exchange to Dallas mavericks basketball games.

As I look around and see the crazy price swings of Bitcoin and Dogecoin, and wonder what is going on, I start to realize that kids today and for a while now, have already been living in this digital world and have placed value on these digital things and so to them it's natural. So sure, why not buy your tickets to the next basketball game with a ‘worthless’ dog coin?

While I grew up as a kid wanting to be outside playing stick ball, basketball, tennis - just about anything me and my friends could play outside, and that was most fun for me -- kids today are growing up in a digitally immerse world. Is this why so many struggle to understand the point of digital currencies while so many others naturally gravitate to it like the Holy Grail?

NFTs are all the rage right now, blockchain apps.

This leads me to the second part of this story. One of the other things I struggle with is the perceived value of blockchain technology. The blockchain technical revolution has been hyped for 5+ years now, but I still have not seen any killer apps. Aside from bitcoin, I can think of no other blockchain based application or platform that is used on a daily basis by millions of users. Where is the blockchain based Roblox?

Well it looks like there may be some coming potentially. One of the latest hot topics in the crypto world are NFTs or Non Fungible Tokens. NFTs are attempting to become the key identifier for the ownership of digital assets including digital art, music, movies, sports cards, images, even blog posts — just about anything digital.

To understand the purpose of NFTs, let's use baseball cards as an example. Baseball cards are really hot right now. A 1952 Mickey Mantle card recently sold for over 5 million dollars. Let's say I have a Babe Ruth baseball card. If I give you the card, then you have it. I no longer have it. Easy. Now let's take the digital version of that same baseball card - which can be an image or a video highlight. If I now have a digital Babe Ruth baseball card, and I give it to you, we then both have it. You give it to someone else and now all three of us have it. When it comes to digital assets, it's difficult to track who really created it, who owns it, and who has a right to use it. Enter NFTs which act as a certificate of authenticity for digital assets. Via NFTs, we can now track that baseball card so that when I give it to you, it will be recorded on the blockchain as you being the owner. So the blockchain distributed ledger will now record that I had the card, I gave it to you, and so I no longer have it and you are the rightful current owner.

In its simplest form blockchain is just a ledger implemented by a database that is replicated thousands of times. So when data is recorded many times over, not just once or twice which makes it theoretically immutable and un-hackable since you would have to alter and/or hack thousands of databases not just a couple.

In addition to tracking creation and ownership, there is also the scarcity aspect. Just like there are a limited number of actual Babe Ruth baseball cards in the world, there can also be a limited number of digital Babe Ruth cards similar to how there can only be 21 million bitcoins (at least that is the goal anyway). So now you are wondering, Well how much is a digital card really worth? Who wants that? I don’t -- I would much rather have the real thing that I can hold in my hand, but remember this is the Roblox generation so …

Recently a friend of mine was given a digital trading card of an NBA player. The card consists of a digital video highlight. The player is not exactly a household name and he is currently injured. As an experiment my friend offered the card for sale on the NBAs NFT trading platform TopShot and it sold for $400 cash. So far over $300 million dollars has been spent buying and trading NBA player digital highlight cards on TopShot. TopShot was created by the NBA in partnership with Canadian-based Dapper Labs, makers of the CryptoKitties game.

Another key value of NFTs is that the creators of digital assets can get paid as their content is replicated. So as content is resold, creators can get paid royalties. Think of the ramifications for photographers who constantly have their photos reused all over the Internet without payment, or news articles and even blog posts. Digital music rights can be tracked and royalties properly paid to the original artists.

NFTs are taking the digital art, music and collectibles worlds by storm.

NFTs are getting attention in the areas of sports, collectibles, art and music. On the heels of the NBA’s success, the NFL is looking to get into the NFT act. I imagine all major sports leagues are exploring the opportunity.

This month, the digital artist known as Beeple sold an NFT at a Christie’s auction for over $69 million dollars. “Everydays: The First 5000 Days,” as the digital art is called, is the third highest known sale for artwork by a living artist.

The band Kings of Leon is releasing a new limited edition digital album “When You See Yourself” as an NFT for $50. A second token (one of 6 initially for and a total of 18) will count as a lifetime ticket to all of the band's future concerts.

The environmental toll of NFTs

One great irony of this “digital” generation that also cares about climate change as I do, is the environmental cost of things like bitcoin and other crypto based assets. Mining for bitcoin already consumes as much energy as entire countries. Mining of bitcoin uses as much energy as American Airlines does in a year transporting 200 million passengers. As I have written about in the past, blockchain and thus NFTs are notoriously dirty when it comes to the climate due to the amount of power used to mine new coins, and in the case of NFTs, mint new NFTs on all those distributed databases. Recently the artist and musician Grimes sold almost $6m of visual art in an NFT auction. Just one of Grime’s digital NFT artworks produced an estimated 70 tons of CO2 emissions. That's the equivalent of driving the average car for about 175,000 miles!

This environmental expense will only grow as more blockchain based applications such as NFTs become mainstream. How bad will this get if blockchain does go on to mint more killer apps? I suspect most people are unaware of the environmental toll of blockchain tech. Similar to how many were clueless when they signed up for “free” in the early days of Facebook not realizing their data was the product. Will there be a Robinhood level outrage once the environmental cost of bitcoins, NFTs and other crypto assets are realized?

It should be noted that Ehereum, which is the blockchain that NFTs are based on is due for a major architectural overhaul. Eth2 promises to yield better efficiency and less power usage for all Ethereum based applications including NFTs. Time will tell.

Where do NFTs go from here

Some are not sold on NFTs. Michael Burry, famous for his bet “Big Short” on the housing collapse said "NFTs exist so that the crypto grifters can have a new kind of magic bean to sell for actual money, and pretend they're not selling magic beans."

What are your thoughts? Are NFTs here to stay and will they be one of the first killer blockchain apps, or are they the latest passing fad?

As for me, I can see the value in tracking ownership and paying digital royalties on certain content, but I don't think the environmental cost right now is worth it. As for digital assets like art and collectibles, I have little interest right now. I love tech, however my soul is analog which is why I enjoy mechanical watches, vinyl records and manual transmission cars with combustion engines. I get the tech, I just prefer the physical world. The new roblox generation is different however, and this is spurring the move to blockchain, dogecoin, bitcoin, NFTs and digital assets.

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