What Is an NFT? Messari Report 2021

Messari takes a look at the concept of NFTs and their future on the web in their Crypto Theses for 2021.

Messari describes NFTs as data that is turned into liquid intellectual property. What can this “data” be? Examples given are:

  • Art
  • Virtual goods for games
  • Reputation scores
  • Raw bundled personal and commercial data

NFTs are so powerful for one reason. They change IP ownership of digital materials from the platform to the creator. The Messari report points out the trend of true creator-owned platforms leveraging this technology in the future. Instead of relying on large platforms to store, publish, create, and exchange your digital assets, the power is now in the hands of the creator.

What Forms Can an NFT Take?

The report explains that there are actually three types of NFTs in the current space:

  • ERC-721
    • Unique collectibles with attributes and traits. Individual collectible items (BAYC, CryptoPunks).
  • ERC-1155
    • “‘Semi-fungible’ tokens.” Scarce, digital assets with no real distinguishing factors between them. Messari gives a gaming marketplace with 1000 interchangeable digital swords as an example.
  • ERC-998
    • Maybe fungible, may not be fungible. Could be a packet of fungible and non-fungible items. The report gives the example of a non-fungible VR home with fungible food tokens.

The term NFT is far too broad for all that it covers as a blanket term. While it could be ownership of digital art, it can also be ownership of usable video game assets or, hopefully, even more than that in the future.

The Future of NFTs, According to Messari

The firm also makes a few predictions about the future of the tech in the space. First, digital marketplaces and collections are areas to watch in the NFT market. The equivalent of the Louvre is coming in VR/NFT form. It’s just a matter of time at this point.

Additionally, the idea of actually “winning the internet” might now be possible with NFT technology. Using smart contracts, content that hits certain thresholds on social media could be packaged and distributed as NFTs. A license is created with the creator and user of these NFTs, and profits are actually shared with the creator.

On the other hand, Messari is a little bearish on other aspects of the space. Collateralized NFTs is a space they think will see some pullback in the future. They state these collateralized NFTs:

“haven’t demonstrated any real liquidity or ability to retain value over time, and this is a dead end for theforeseeable future. But you can still take out ETH-denominated loans on platforms like NFTfi, which sounds like liquidations-as-a-service to me.”

while NFTfi may set itself apart, taking out mortgages on a VR casino is probably not advisable right now.

Finally, the tokenization of the NFT space is an area that will see a pullback in the future as well. The idea of staking NFTs for a token is “like pushing on a string,” according to the report. They further explain that “you need people to care about digital cats before you token incentivize those marketplaces.”

NFTs are in for an interesting year, no matter where the market heads if this report is any indicator.

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