NFT: What non-fungible tokens can do and where their boundaries lie

Art, music, communication: which of these areas could be transformed by NFTs? Many people believe in digital codes, others are skeptical.

Rapper Kanye West wants nothing to do with them. Colleagues Eminem and Snoop Doog swear by it: NFTs.
Getty Images / Edward Berthelot

“STOP ASKING ME TO DO NFT’s,” American rap star Kanye West wrote recently on his Instagram profile. It’s hard to imagine the hip-hop world without the subject: Berlin rapper Kool Savas, for example, sold the lyrics to his hit “King of Rap” in October last year as an NFT for 30,000 euros. In December, the world’s first SMS was sold as an NFT for 107,000 euros and in the summer of 2021 the first source code for the World Wide Web (WWW) for the equivalent of around 4.8 million euros.

NFT stands for Non-Fungible Token. They are digital certificates of authenticity that refer to tangible objects or virtual goods. Although there can be any number of identical copies of an object, only one NFT can be considered the original and can therefore only be assigned to one owner.

The digital codes are on everyone’s lips. Especially in the art and music industry, many expect new business models from digital certificates. Some experts are also convinced that NFTs can also change the way we communicate. What’s up with the hype? What potential do NFTs have – and what are the risks?

There has been a real NFT boom in the art market since the beginning of 2021. Countless digital images are sold as NFTs on special websites like “OpenSea”. However, Philipp Sandner, professor at the Frankfurt School of Finance & Management, is critical of the market. To him, these “small pictures” are status symbols, but not art – like a clock or a chain in reality.

Which NFTs will be valuable and which will not?

Just as prices and hypes normalize after a boom in other markets, this will ultimately be the case here as well, Sandner says. “At some point, I think it will turn out that a few small pictures develop a value, like an expensive watch; and that others may be of little value. Like a plastic chain. “

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Johanna Neuschäffer and Anne Schwach, founders of the “Office Impart” gallery in Berlin, see things differently: “For some it’s prestige, but for some it’s also the love of digital art,” they say. Above all, they see the benefits of NFTs and refer, for example, to so-called royalties. In a way, it’s license fees through which artists make money with each resale of NFT. It is new in this form in the art world, says Neuschäffer. Additional benefits: NFTs are transparent, trade and prices can be seen at any time and they cannot be counterfeited. All this can also be transferred to other markets.

But how do NFTs get out of it with the conventional art market? “Digital art will not replace painting, but will be taken for granted as a new medium. The art market is simply becoming more diverse, ”say the founders.

Also in the music industry, NFTs have the potential to bring quality back to the music industry, according to Eva Kiltz from the music conference Most Wanted: Music. Because with the advent of MP3 and various streaming platforms, something disappeared: the unique.

Today, any music file can be copied and passed on indefinitely. It is therefore an almost public good. “It may be that this is no longer the exclusive good, ie the music recording – is replaced – at least in part – by a new uniqueness. It is made possible by the digital ownership that I can establish via NFTs,” explains Kiltz.

Something for lovers and collectors

The actual music recording can still be copied and passed on. However, the authorized individual piece has only one owner. “I imagine that the future of the music industry will continue to consist of many different uses geared to the needs of different user groups: streaming is low-threshold and mass-compatible as radio, an NFT drop is more something for lovers and collectors like vinyl,” says Kiltz.

There is still a look at communication. Floris Henning and his company advise other companies on the subject of digitization. From his point of view, NFTs could make digital meetings more secure. Because an NFT acts as a kind of password for a digital space. Unlike a password for ordinary communication platforms, this can not be copied and freely distributed, says Henning.

Another NFT advantage from his point of view: A conventional password belonging to a specific communication platform is also linked to this platform. However, a personal NFT code could be used across platforms, he explains.

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Overall, there is another disadvantage that applies to all industries, and which both Henning and Sandner mention: Due to the many different projects, it is difficult to assess which NFTs have real value and potential, and which are questionable and maybe even just a rip-off. Henning also says: “There is this Wild West phenomenon, which means that the boundaries and rules of use are not yet correct.”

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