How Non-Fungible Tokens (NFTs) is Affecting the Media Market

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How Non-Fungible Tokens (NFTs) is affecting the Media Market
Introduction
The emergence of new technologies and ideas has always attracted fascination, attention, skepticism, and criticism in different measures. In the past, innovative ideas seldom occurred; although there is quite a long list of technological and innovative ideas from the past that still attract fascination to date. In the recent past, where computer and internet technology have been significantly adopted, innovative technologies have been appearing in the market more often than ever, similarly attracting fascination, skepticism and criticism. The labor industry has increasingly applied innovative technologies to increase personal productivity and even attract more innovations and creativity (Dragunov and Shenshinov 2). To name just but a few, some of the fascinating technologies and innovations of the recent past shaping the lives of many people include the invention of computer technologies and the internet, smartphones, blockchain technologies, Artificial Intelligence and Machine learning, computer-aided design, and manufacturing.
Cryptographic technology, the technology closely associated with the emerging cryptocurrencies that have become a common debate across the globe, is viewed as the most revolutionizing technology of the recent past, particularly in the decentralized financial market (Luntovskyy and Guetter 14). The growing attraction of Bitcoin, one of the leading cryptocurrencies, has sparked a lot of excitement, furry, and even intense criticism from some of the world's top economists owing to its volatility and numerous other vices associated with the cryptocurrency. Closely related to cryptocurrency in the innovative technology space is the idea of a Non-fungible Token (NFT), which is slowly switching the attraction from the cryptocurrency perceived to be fungible to non-fungible products in the store of value. The innovative technologies of the recent past sound more fictional than real when compared to the past innovations, with the concept of NFTs creating more confusion than its predecessors in the technology space. The other futuristic technology slowly picking pace and closely related to NFT is metaverse, a technology that creates a virtual 3D space for human interaction. Before delving into the central concept of NFTs, a brief introduction to blockchain technology, the technology powering both the cryptocurrencies and the NFTs, is of the essence.
What is Blockchain?
Blockchain has attracted immense interest in the recent past due to its recognition as one of the most disruptive technologies of the contemporary era. Blockchain came to the limelight in 2008, courtesy of Nakamoto Satoshi (Gadekallu et al. 3). A blockchain collects digital information in the form of blocks and stores it in computers on a network, often referred to as nodes. The links between blocks on different nodes are established with the help of a hash value. Other useful block metadata that are typical characteristics of blockchain include the timestamp and the consensus protocols used in certifying transactions. Unlike traditional databases, blocks have finite storage spaces that, when filled, are linked to the next available block, forming a blockchain. The decentralization of blockchains has allowed its application to be used the development of popular cryptocurrencies such as bitcoin. Recently, it has supported the development and implementation of NFTs, often closely related to Ethereum cryptocurrency.
A Brief History of NFTs
Any tech-savvy person or any other person with a lot of curiosity about development in the technology world has probably heard of the term NFT. The concept of NFTs became popular following the great attention from the mainstream media and the fascination of some of the most influential people on the planet. Jack Dorsey, Twitter CEO and co-founder, played a pivotal role in popularizing and creating trust in the innovative technology (Okonkwo 297). The history of NFTs can be traced back to 2012 with the idea of colored coins that used blockchain technology inspired by cryptocurrency to act as a store of value for assets such as digital art, properties, and shares, among others (Rosenfeld 1). Then came the idea of a Counterparty that allowed users to create assets and currencies that could be traded digitally. At this level, blockchain technology had proven impossible to crack as it did not allow counterfeiting of assets and collectibles. This created a magnanimous fascination around the technology.
The Cryptopunk project of 2017 also played an important role in the eventual discovery of NFTs, setting the stage for the establishment of NFT standards applicable in the art industry. It is the CryptoKitties project that attracted the full attention of the mainstream media. The idea was to peg a value to domestically reared creatures and implement the traceable and unique concept through the help of blockchain technology (Evans 3). Although the CryptoKitties project stumbled, it set the stage for the eventual discovery of NFTs. It also had some notable successes, including the successful use of the ERC-721 NFT standard. It also headlined as the world’s first gaming kit to be successfully implemented with blockchain technology (Smith 42). The Ethereum team, a group working on an alternative version of cryptocurrency, was also moving towards the development of a technology to digitally store assets acquired as art in a virtual space through their technology, the decentraland. Decentraland is a virtual land marketplace where participants purchase virtual space in NFTs (Dowling par.10).
NFT Goes Public
In 2021, NFTs hit a significant milestone following the endorsement by some of the world's leading celebrities. The ability of blockchain-powered technology to prove the right of ownership in digital assets fueled its attraction in the digital industry and, more precisely, the media market. NFTs are unique, and each has its value, differentiating it from other previously known stores of value, such as Bitcoin, or traditional cash, such as the dollar. Forbes has listed some of the leading marketplaces for NFTs, tagging a market value of $40 billion to NFT as of 2021 (Rodeck par.2). OpenSea, Binance, Raible, and Valuables are some of the leading platforms for selling and buying NFTs.
There are numerous crossovers between crypto and NFTs, often leading to confusion between the two products and their markets. Aside from the marketplace that these two product shares, NFT and crypto also share the technology (blockchain) that powers these products. The products also share the same participants, where NFT buyers often use cryptocurrency in purchasing the products. The values for the two products are directly proportional in that a drop in the value of cryptocurrency significantly leads to a significant fall in the values of NFTs, with just a few inverse relations in some cases. The volatility often witnessed in the crypto market is also replicated in the NFT market.
The revolution brought about by the entry of NFT into the market has mainly impacted the media industry. NFTs can be used to represent anything digitally. However, there is growing excitement around the media and art industry about the application of NFTs. This is fueled by the major concern of piracy in the art and media industry. NFTs, with the help of blockchain technology, have proven to be difficult to replicate. As such, it has come to the rescue of the media and art industry in its application as a store of value and medium of exchange.
Metaverse
The other concept closely related to NFT and the use of blockchain technology is metaverse. By utilizing a variety of applicable technologies, the metaverse strives to provide consumers with 3D immersive and individualized experiences (Gadekallu et al. 1). Although the metaverse has not been fully implemented, there are some applications that offer the virtual experiences anticipated of the platform. The technology gives a virtual representation of the world phenomenon in 3D, with the capability of enabling humans to interact and manipulate the virtual environment with the help of virtual reality (VR) and augmented reality (AR). Just like NFTs, the application areas of the metaverse are in digital art and digital representation of assets such as real estate, save for its application in video conferencing (Gadekallu et al. 5). Three-dimensional representation of digital art has always been a challenge for quite some time, but with the help of metaverse and other related technologies such as AI and blockchain, the expression of artwork creation is now easy and has transitioned from offline to online marketplace.
NFTs, Metaverse, and Media Market
The metaverse and NFTs are emerging technologies revolutionizing the media industry. Media comes in many different forms, including video, picture film, audio, and even physical art. Metaverse provides a virtual space where people can interact and have fun, and the world is already experimenting with it, particularly in the entertainment industry. Some leading media industry players, including Disney, are fascinated by technology and are already trying out the metaverse experiences. In essence, the extent to which the media franchises are all trying to be part of the media revolution through the metaverse is unbelievable. Streaming services such as Hulu and Disney Plus are also on board with the media revolution fronted by the metaverse, with the latter having plans to develop a virtual environment through the establishment of a metaverse theme park (Stanford par.1).
NFTs, on the other hand, powered by blockchain technology, have proven traceable, unique, and valuable, significantly revolutionizing the media industry that has had challenges of counterfeiting and piracy. Some of the existing application of NFTs in the media industry has mainly been on the sale and purchase of digital artwork. NFTs also have the potential to be applied in other areas such as intellectual property management, which is critical in the media and creative industry. Artists benefit significantly through NFT, as it allows them to connect digitally with their fanbase while issuing their collectibles more securely. NFTs and metaverse, therefore, will continue to have a significant influence in shaping the media and entertainment industry since it is apparent that it is one of the most front-running technologies in shaping how consumers interact with media content.
How Media can Create Income through NFTs
In the recent past, sales of NFTs in the media industry have started to surge because they can be used to store value and make exchanges for individually owned assets. Unlike most cryptocurrencies that are fungible, NFTs cannot be exchanged equivalently, making them a suitable element in the unique identification of assets (Wang et al. 2). Although the upsurge is in almost every industry sector, the media industry, has seen particular interest in NFT technology. This can be attested by the growing list of media industry players, including the NBA and a host of Hollywood stars, making major announcements related to NFTs. The staggering figures in the sale of NFT assets by some celebrities and the quoting of the NFT industries to a close to $40 billion industry are a clear indication that the media and the industry players can greatly make immense fortunes in the NFT market. There are numerous ways in which the media industry can generate income through the sale of NFTs, including an exchange in the crypto market, staking, renting, and taking part in a liquidity pool.
Trading NFTs in Marketplaces
NFT marketplaces are avenues that allow participants to sell and buy NFTs with one another. Media industry players need only to be conversant with how the NFT marketplace works, identify the ideal marketplace, and start trading NFTs, bearing in mind the unique features of each marketplace. The mere activity of buying and selling NFTs is one way in which the media can generate revenues, courtesy of the fluctuating values of the NFTs with time. The media industry players can purchase NFTs in the marketplaces during their lowest valuation and wait for a surge in the value of the collectibles. In this case, the difference made in the sale of the collectibles in the form of NFTs forms part of their revenue stream. There is a catch in trading NFTs, given the challenges of trading them in the online marketplace. Some challenges are inherent with the tech used in the development of NFTs, while others come with market vulnerability.
A significant concern in trading NFTs comes with security issues associated with digital assets, both in the marketplace and in their development. Most marketplaces require users to create an account and submit authentication information to access their NFTs and digital wallet. Although the confidence level for authentication in an NFT marketplace is top-notch, owing to the strength of using Ethereum private keys, which is arguably unguessable (Das et al. 3), there are still loopholes where malicious attackers can compromise the authenticity of users in a marketplace and raise havoc. A hostile attacker may utilize authentication flaws or the user's private key to illegally transfer ownership of NFTs when a user interacts to mint or sell them.
Other security issues in NFT trading from a technical standpoint may include spoofing, tampering, repudiation, and information disclosure. Spoofing is an attack mechanism where the malicious actor targets the user authentication key to carry out an attack. On the other hand, tampering occurs on the blockchain used in building NFTs, where the malicious actor targets all the information outside the blockchain technology to carry out an attack. Non-repudiation is a security strategy where the sender and the receiver cannot deny sending or receiving the token. Malicious actors can alter the hashes used in encrypting tokens, thus accomplishing repudiation (Wang et al. 9). Information disclosure is simply the exposure of critical information that compromises the confidentiality of the participants, risking the NFT transactions.
Other non-technical issues associated with NFTs trading can be executed in the form of collusion, often referred to as NFT wash trading. Wash trading is an unethical NFT trading scheme where one person poses as both the buyer and the seller in the marketplace in a bid to influence other participants and, hopefully, the entire market, by making drastic and unrealistic trades (von Wachter et al. 3). The idea has been transferred from the traditional money markets, and although it is illegal in most formal markets, the unregulated nature of the crypto market exposes NFT traders to the malicious trading.
NFT Staking
Another way in which the participants in the media industry who venture into NFTs can create some revenues is through NFT staking or otherwise referred to as NFT farming. NFT farming is a simple investment strategy where the participants stake NFTs in an NFT staking platform where they will be paid for it, just as is the case with bank deposits that earn interest with time (Mazur 7). Before staking NFTs in the hope of making profits, several factors need to be put into consideration: the volatility of cryptocurrencies, the community or the marketplace to stake in, the expected return on the staked NFTs, and also the availability of the collectible for staking, bearing in mind that not all NFTs can be staked.
Renting of NFTs
NFT renting is an alternative option available for creative businesses that want to own digital assets without necessarily buying them. Crytovoxel and Decentraland are some of the NFT solutions with renting capabilities that allow users to rent out NFTs that are later traded in marketplaces such as OpenSea (Musan et al. 69). Media industry players who are aggressive and fairly conversant with the concept of NFT renting can make a whole lot of fortunes as the scarcity of NFTs remains to persist. Some belligerent industry players are already racking up billions of dollars by engaging in NFT renting, such as Vera and reNFT (CoinCarp par 3).
Liquidity Pool
Media industry players can also invoke liquidation of their collectibles in anticipation of price swings. Just like financial assets used in the traditional economy, NFTs can easily be liquidated with the help of liquidity pools supported by smart contracts (John et al. 4). Media industry players possessing NFT collectibles can liquidate their own assets during the peak of the decentralized financial market. The volatility is often viewed from a negative perspective, but the surge can sometimes be of immense benefit to the participants.
How NFT is Affecting the Media Market
The growing interest in NFTs has proven wrong some people who had predicted an unprecedented downfall of the market, terming it a short-term bubble. NFTs have become persistent and, to a surprise, have revolutionized some industry sectors in a manner that was hardly anticipated. The successes of NFTs can be attributed to their capacity to represent both physical and digital assets like artwork, real estate, and video game elements digitally, and powered by blockchain technology. The industry sectors impacted by NFTs are limitless. However, the media market has been greatly impacted by the introduction of NFTs in decentralized financial marketing, having both negative and positive influences on the market.
Positive Impacts of NFTs on the Media Market
NFTs Introduces Scarcity
In the financial market, scarcity is what determines value. This has been replicated in the crypto market and recently in the NFT marketplaces. Scarcity, otherwise known as rarity, is the shortfall in the supply of a particular commodity in the market, thus driving up the prices (Chohan 5). A good example is when the supply of a particular commodity does not complement th...