Threekit Thought Leadership: The Rise and Rise of NFTs
In this first article of two on the topic of NFTs this month, Ben Houston - CTO and founder of Threekit - explains what NFTs are, the next phases, and considers what an NFT-centric future might look like. Please note that this is a thought leadership piece, and the content in this article is not representative of future Threekit features or roadmap.
Written by Ben Houston, CTO/Founder of Threekit
There is a lot of debate right now about the value of NFTs, whether they are a real thing or whether they are just a fad. Just recently, even Keanu Reeves weighed in during an interview for the new Matrix film, where he laughed at the idea. There are clearly those who are NFT believers and then there are legions of NFT detractors. In many ways both of these camps have myoptic views where they are focused on the present rather than where this technology is going. NFTs have a very bright future as they evolve, and that evolution will render most of the current arguments used both for and against NFTs irrelevant. In this essay, we will look at the NFT market as it currently stands as well as where it is likely to evolve to.
What are NFTs?
Any article taking a position on NFTs must first explain what they are. NFT stands for “non-fungible token.” These are basically cryptographic signatures of images or other media, such as 3D glTF files, that are stored on cryptocurrency blockchains. The cryptocurrency blockchain storage of these digital signatures allows for one to have clear providence, and ownership the signed content as well as the ability to transfer it and sell it on secondary markets. In many ways NFTs can be viewed as ownable and transferable digital certificates of media files.
Criticisms of NFTs
There are a lot of arguments for and against NFTs at the moment. It is new technology and one of the ways that society integrates new technologies into our collective understanding is by arguing for and against it until we understand its potential and limitations and how it fits into everything else.
The first and the most serious criticism is that they have an enormous environmental impact. The most successful cryptocurrencies are incredibly inefficient and contribute significantly to CO2 emissions just by their design -- even though cryptocurrencies are intended to be virtual without a physical presence they are estimated to be using roughly 0.2% of the world’s energy consumption. NFT’s are contributing to the popularity of these environmentally unfriendly cryptocurrencies and thus by participating in the NFT market one is contributing to global warming.
The “Right Clicker” Argument
One of the major arguments against NFTs is the “Right Clicker” objection. The “Right Clicker” objection is basically:
“These are just image files and I can just <Right Click> on them and save them to my desktop or smartphone. Because I now have a copy of your precious digital media file, I have just shown that your NFT is worthless or at best useless.”
There is a simplicity to this argument. There is also an immediate truth to this argument on web platforms such as Twitter or even NFT marketplaces like OpenSea.io. On Twitter you can just click on someone’s profile picture of “Bored Ape” and Right-Click to get your own copy of that million dollar NFT, and similarly on any OpenSea marketplace listing.
A second common criticism of NFTs is that people over-state what is owned when one owns an NFT. The key issue is that the main thing in common between all types of NFTs is that their core is just a digital signature of a media file. Whether or not owning that digital signature conveys ownership of the digital media file or to rights one has to that digital media file varies significantly across NFTs. In some cases, the owner of the NFT does have the right to exploit the media and resell its physical versions, and in other cases they do not. In some NFT contracts, if you resell the NFT, you owe the original creator a royalty.
Understanding Technology Maturation
We are currently very early on in the evolution of NFTs -- they are relatively immature and undergoing significant development. They only burst onto the mainstream in 2021, prior to that they were incredibly obscure. This first iteration of NFTs is a bit of a strange one and likely not going to be that similar to where they evolve towards.
Expensive and Useless
The fact that many NFTs are incredibly expensive and they are relatively useless is not a surprise. This is very common in the early phases of technology maturation.
The NFT market right now is very much oriented towards the very rich and mostly selling image collections of characters, each with slightly varying attributes, some of which are much more rare than others. These image collections are currently targeted towards collectors and have very high prices. The images from these collections have very little utility outside of just denoting that the owner is part of an exclusive club -- they are on trend and have significant capital resources.
This pattern of not being super useful while also being a status symbol among the rich is common for new technology -- in fact it is an incredibly useful thing to have occurred for the NFT market. The fact that this has occurred has greatly increased the chances that NFTs will become widely useful because the funding this phase is providing to this early and immature technology is exactly what is needed in order to bring it to the mainstream.
The Tesla Analogy
A similar pattern occurs with Tesla’s electric cars: The first series of Tesla cars were not mainstream cars, but rather very expensive sports cars. These sports cars were more status symbols than they were useful. Rich people could show off that they owned one and were part of that exclusive set. These initial Teslas were not saving anyone money on gas nor were they really being purchased for real environmental concerns. Rather they were new and associated with status. This period was incredibly useful to Tesla though because it gave them the resources in order to further perfect and lower the costs of their technology leading eventually to the mass market Model 3 and future iterations that did have broad usefulness and cost efficiencies.
The Next Phases of NFTs
The next phases of NFTs are likely going to be addressing the main criticism outlined earlier.
Reducing Environmental Impact
There must be a solution to this and many are working on solving this. There are alternative cryptocurrency schemes which have smaller environmental footprints, such as Tezos and Solana. There are NFT management schemes which move away from full decentralization, which can significantly increase efficiency. Some of the major cryptocurrencies, such as Ethereum, are looking to move towards more efficient algorithms and away from proof of work. It is quite likely that in a couple years this will be a solved problem.
Standardization of Ownership Rights
In regards to ambiguous rights, NFTs are incredibly varied and in many ways this is similar to real world contracts. One has to read the fine print to understand what you are getting with an NFT. In many cases, you only get the right to say you have a digital signature of a media file and in some cases you get a lot more. It is likely that as NFTs mature, there will be more and more standard contracts and rights agreements which creators will opt into. These will clarify the current situation.
Going Mainstream via Low-Cost NFTs
NFTs are luxury items right now because they are incredibly expensive to simply create on the blockchain. To create a NFT and transfer it, the costs are often $100 USD or more, simply for transaction fees. This is because of the inefficiencies of the main blockchains as discussed earlier. When these inefficiencies are addressed, either via moving away from proof of work, or towards non-blockchain solutions, costs for NFT creation and ownership will drop. This will consequently expand the market for NFTs outside of just luxury goods. One will be able to use NFTs to denote ownership of any digital good, and it is likely we will use NFTs for denoting all such ownerships. This market for low cost NFTs will likely be 100 to 1000x larger than the current market.
Digital Rights Management is Coming, Whether you Want it Or Not
This is bad news for many people, but DRM (digital rights management) is coming in order to ensure the rights of NFT owners. I don’t make this prediction because I want this to happen, but it is likely to happen because this will be a multi-billion dollar market and those who are creating in it will have copyright rights which they will want to enforce in order to ensure the value of their creations are preserved.
DRM is likely to not appear in the web browser for simple images. Those are an early and immature NFT application. But as NFTs spread throughout online society as representing virtual clothing or in-app purchases or digital twins, copyright holders will force DRM to follow suit.
We’ve seen this pattern playout a few times in the online world. Initially YouTube didn’t police its videos for copyright infringement, but as it became more popular and a major online source of revenue, it was forced to create a system that automatically identified when someone uploaded someone else’s music or video. In those cases, the copyright holder is able to either grab all advertising revenue from the infringing video or to take down that fringing video completely. It is unrealistic to expect for this to play out differently this time.
Yes, you can still share copyrighted music and video privately and the same will be for the images underlying NFTs, but if you share them in major online platforms in the future without asserting that you have ownership rights to them, it is likely that they will start to be demonetized or blocked.
Imagining an NFT-Centric Future
From the above we can start to imagine what an NFT-centric future could look like.
Everyone has an NFT Wallet by Default
Everyone who has a smartphone will have a NFT wallet. This NFT wallet will likely be tied to your Apple or Google account on your phone in some fashion. Eventually NFT capability may be integrated in Google and Apple Pay. It may be that you do not even need to sign up for an NFT wallet, you just have one by default as part of having an Apple or Google account.
NFTs Transactions Costs go to Zero
The current $100 transaction costs for NFTs start to decline and eventually get under a dollar and then under $0.10. Over time they continue the drive towards close to zero. This will happen via lot of different means. This is already the case with PoS currencies like Solana and Tezos.
You will own a lot of virtual goods in the future in your low cost NFT wallet. You may have bought virtual goods in a metaverse-like video game. Maybe you bought a video game via one of the smartphone app stores. Or have digital twins of the various future or clothing you’ve bought for real, digital twins that you can use for planning out redesigns or your wardrobe.
You will see all of this inventory in one place. Probably organized by category or type.
Interoperable Virtual Goods
NFTs, because they denote ownership, allow for one to enter into a new environment or platform and bring your existing purchases with you. While this is subject a bit to platform owners enabling interoperability, if this can be achieved, it will be a refreshing world. Any app purchase you made on iOS, could be restored via its NFT representation on Android. Similarly, if Sony Playstation app purchases were represented as NFTs, you could restore them to your home computer and play them there. Virtual goods, such as character skins, bought in one application, like Roblox could be transferred into Fortnite and used there. Right now platforms are walled gardens, and thus it makes it hard to move between them as you leave all of your owned items behind. NFTs provide an alternative where digital ownership is truly transferable -- and maybe even legislated when it is fought by platform owners who want to keep friction.
Media Creation Platforms for NFTs
There will be more systems designed for media creation for NFTs. We are the enterprizification of the NFT media creation. Look at Figment and take their perspective on it.
The metaverse future is coming at us fast. It is in many ways already here with Roblox, Fortnite, Apex Legends and other similar immersive games. The time to prepare for this future is now. Through the use of multi-domain product visualization platforms, like Threekit, you can create your 3D assets once, and then use them for metaverse virtual products, virtual try-on, virtual photographer and augmented reality.