People from all walks of life were panning for gold in California in 1849, when there was a gold rush there. Businesses and towns grew up to take advantage of the miners. In 2021, there was a new kind of gold rush: the rise of the non-fungible token (NFT). In less than a year, billions of dollars have changed hands as people rushed to buy the booming digital collectibles because they could be used and played with.

How do they work, though? How much do they cost? What are they good for?

Smart contracts, which are like digital certificates of authenticity, protect digital assets and show who owns them. This is where the NFT comes from. The blockchain is what makes them different, because it lets these contracts link the objects to an unchangeable ledger.

Smart contracts and royalties in the digital age

Take a piece of art that has been sold and moved in the real world. If it changes hands four times in a lifetime, it’s likely that the artist only made money on the first sale. The same is true for digital assets: The work of an artist is passed from one user to another and may be copied more than once, but the artist never gets paid for anything after the first transaction. The blockchain, NFTs, and the digital smart contracts that make them unique in an infinite space fill this void. Artists can make money from resales because these contracts allow ownership and a royalty arrangement to be transferred between transferees.

A digital smart contract can say that the artist gets a certain amount of money each time the artwork changes hands after the first sale. If I sold an NFT for $1,000 and the secondary sale made $100,000 10 years later, I would get $10,000 if the smart contract had a 10 percent secondary sale clause. On the blockchain, that contractual obligation is easy to see. There is an unarguable, unchangeable provenance that shows ownership at every stage. This gives creators the ability to protect their intellectual property (IP) and make sure they were paid correctly for subsequent transactions. With this level of openness, you could find places where your photos are being used without your permission and stop it. You can use your smart contract to tell all the people who broke the law, “You’re not allowed to do this because you don’t have the right license.”

NFTs might not have caught on if a LeBron James dunk that sold for $387,600 on the NBA Top Shot NFT marketplace in February 2021 hadn’t done so. Since then, more than $40 billion has been traded in the NFT boom in 2021, and as of late May 2022, $37 billion has been traded in 2022. Only in 2021, more than $13 billion was traded on the OpenSea NFT market, which is the largest NFT market. That’s a huge amount for a business that only made $21.7 million in 2020.

Watch out for “fool’s gold” on the NFT market

People jumped into NFTs because they thought it was a digital gold rush, and for many of them, it was. When iOS and Android apps came out for the first time, the same thing happened. In just one week, a fart app made $1 million. Everyone had an idea for an app all at once. The same thing is happening with NFTs. It’s the new way to make money off of your intellectual property in a much broader way, since they cover digital versions of almost anything. Brands and famous people have jumped into the space, some to stay relevant and others to make money quickly. But the real winners are the people, brands, and creators who build this into their business plans (s).

But if anyone can make an NFT, how do you know if it’s worth anything? You could write something on a piece of paper and try to sell it for $1,000. For the average person, NFTs are just starting to become part of the cultural language, but they aren’t used by everyone yet. When sorting through the huge number of NFTs that are sold every day, there will be a shakeout.

In this way, I think there will be explosive growth until 2022, even though the value of cryptocurrencies is going down. The first NFT boom caused sales to go through the roof, but as the market gets full, the average price will go down. There will be new brands coming in to try to compete. Also, there will be a huge shift in how digital content is sold and how ownership is transferred. Brands want to be a part of commerce wherever it happens, and consumers want to be connected to those brands.

The future of NFT growth and value will depend on how playable and useful they are.

So, what happens now? The Metaverse, the digital world that NFTs connect to, will be a big part of the future. Brands are trying to figure out how to move around in the NFT space, but NFTs live in the Metaverse. As of right now, everything is just sent back and forth over the internet. But the future will depend on how the value of these digital products grows once they are used. Take an exclusive digital Nike sneaker. There may only be 10 of them available as NFTs, but you can show off your pair in Roblox, Fortnight, Decentraland, or any number of other virtual or augmented experiences. How about using NFTs as passes to get special content from your favorite musicians? footage from your favorite movie that you’ve never seen before? Get paid in cryptocurrency for finishing a marathon or meeting your weekly exercise goals? This is just one example of what could happen when the Metaverse helps blockchain and NFTs take off.

In the same way that new businesses popped up along the West Coast to supply the gold miners, a whole ecosystem of designers, producers, programmers, marketplaces, etc. has grown up around NFTs. More and more businesses and jobs are depending on this suddenly profitable landscape. It’s how the internet, how people talk to each other, and how people do business have changed over time. This is what’s to come. Web3 is made with blockchain, non-fungible tokens (NFTs), and cloud-native technology.

To add to what Mark Twain said in his book The American Claimant, “There’s gold in those ‘virtual’ hills!”

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