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Misconception #1: NFTs only apply to art
This is perhaps the most common misconception given the amount of hype and money behind digital art NFTs right now. Fortunately, it takes little research to overcome this farce. This is especially evident given the growth we see in other NFT industries such as gaming and music.
It’s safe to assume that most of the money in NFTs is now in digital art.
It is comparable to DeFi’s share of the cryptocurrency market (~60% excluding Bitcoin). I haven’t seen anyone pay $69 million for a video game skin yet. That could change, of course. We are in the midst of high inflation and rising interest rates that can dramatically change investor sentiment. Digital art NFTs have benefited from a very liquid market. Of course, the market will inevitably change. How will the NFT market adapt?
Digital art NFTs have more to lose because they have gained more (with a high degree of speculation). However, NFTs in other areas are gaining momentum. Games like Axie Infinity have shown that enormous wealth can be channeled into NFT-enabled micro gaming economies. Musicians like Steve Aoki are making millions embracing NFTs to build their own platforms. We are also seeing the emergence of NFT in DeFi. Heck, desktop (and mobile) crypto video games are mixing with DeFi to give birth to GameFi.
Misconception #2: NFTs have no value or utility
Do NFTs have value? The answer is yes and no. Basically, NFTs act as proof of ownership (of an underlying asset) that is stored on a blockchain. As long as the underlying asset has an actual value, the associated NFT is correlated with that value.
Fiat currency works in a similar way. A banknote you hold is assumed to convey the value of its underlying asset, which, broadly speaking, is a function of the economy and political stability of the government issuer. The bill itself has no value, because it is just a piece of paper or plastic. So yes, NFTs can have value as de facto digital representations of an asset with real value. And no, an NFT itself is just a piece of code. Without the underlying asset, it has no value.
Meanwhile for utility it is obvious that being a means for digital proof of ownership is the fundamental utility behind NFTs. Since the underlying asset of an NFT can also be physical, we may use NFTs to keep a digital record of ownership of any asset sold. It could simplify the logistics and accounting of global trade as goods change hands to cross-border intermediaries. In finance, we are witnessing fractional ownership of assets made possible by NFT splitting. We’re also seeing NFTs pre-programmed to collect fees on property transfers that route to original and/or subsequent owners.
In games, we have seen resilience in in-game coin prices, while Bitcoin and the broader cryptocurrency market have moved downwards. While it’s unclear why, it seems that the micro economies of these games may reduce the impact of the moves in the broader market. In theory, it makes sense. NFTs are used repeatedly during active play, and people will likely continue to play during a bear market. If people continue to play, the demand for the NFTs used can be sustained.
Misconception #3: NFTs involve ownership of the underlying asset
Metadata. Metadata is a common term that refers to data that provides information about other data. The metadata of an NFT specifies details about the underlying asset: the asset name, history, or anything else deemed necessary, for example, for a collection.
However, there’s a bit of “fine print” missing from the metadata of most NFTs I’ve seen. What is missing are details on who will take ownership of the underlying asset after a transaction. Buying an NFT does not automatically take ownership of the underlying asset. Unless otherwise specified, everything you have purchased is a permanent link to the underlying asset. Typically, copyright and intellectual property rights (IPR) will also remain with the original artist. If you are interested in ownership of the underlying asset, copyright and/or intellectual property rights, you will need to include them in the terms of the sale before making a purchase.
Fun enough, NFTs are a form of metadata when viewed as code (data) that represents (describes) information (data) about an asset. Therefore, you could practice trying to frame NFTs as blockchain-enabled metadata.
Correcting our conceptions of NFT
There are misconceptions now, and there will be others along the way. NFTs continue to grow and reveal new use cases for people to cover their heads.
NFTs are as young as the rest of the cryptocurrency market, and only now are regulations starting to creep in. Regulations are important, but they will introduce volatility and confusion in the short term. We are seeing such shocks in the broader cryptocurrency market now. Like cryptocurrencies, NFTs represent a technology with the potential to disrupt many industries.
As their relevance grows, so will the importance of correcting our conceptions of what they are. For now, we’re ready for the next wave of development after debunking the top three things people get wrong about NFTs.
