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So, What’s the Deal with NFTs?

A look at NFTs and the impact they will have on the world of collectables.

If you’re reading this, you are probably well aware of NFTs (Non-Fungible Tokens) and how much they have been in the news or on Saturday Night Live. Essentially, an NFT is a token that exists on a blockchain (most tokens are built on top of the Ethereum blockchain), that gives the holder “provenance” of ownership of the original piece of art. Think of it like this – there are plenty of copies of Van Gogh’s Starry Night out there, and it has been reprinted on canvasses, shirts, bags, just about everything. But there is only one original Starry Night.  NFTs are digitizing the traditional art model, to a certain degree, and expanding way beyond the realm of art. NFTs have many advantages. But why are NFTs collectable in the first place?

The NFT Markets

There has always been a huge market for collectables. Sports Cards, autographs, Pokémon cards, and vintage toys have all seen their resale prices skyrocket in recent months. At the same time, new collectable marketplaces are rising – the NFT Marketplace. NFT marketplaces like Opensea, Rarible, Foundation, and more have been springing up all over the internet, with major celebrities and artists taking note and joining in the action.

Musical artists, such as The Weeknd and The Kings of Leon, have gotten in on the NFT action by releasing music albums on an NFT. Other musicians are selling NFTs that include lifelong access to shows, behind the scenes footage and access, dinner meet & greets, and more. The creative artists are getting more creative by offering their own “fan experiences” if you choose to buy their NFT album. Even video games are getting in on the action where the game can offer you an NFT of a character skin, let you wear that unique skin while you play the game, and have the ability to later sell the skin to another gamer. The possibilities are endless, and industries are taking note. The more it can be monetized, the more digital art in the form of NFTs will continue to take off. However big you think NFT’s are now, note that this is only the beginning.

Advantage over traditional art and collectibles

But will NFTs replace the traditional collectable market?  There may be two schools of thought here: (1) NFTs are good for physical collecting; or (2) NFTs are very bad for physical collecting. NFTs offers three distinct advantages over physical goods:

  1. They are harder to fake;
  2. They don’t take up physical space; and
  3. They never deteriorate.

Go through anything that can be collected and you will find hundreds, if not thousands of fakes for every genuine article. For every real Picasso; there are endless people out there with a fake on their wall. For every genuine Michael Jordan autograph, there are countless rip-offs out there. With NFT’s that is not so easy to fake. An NFT will give you a digital certificate of ownership on the blockchain, and that record of ownership will exist on the blockchain. If celebrities were previous owners of a specific NFT, then that NFT value may even increase because that record is available on the blockchain. 

NFTs are shaking up the art world with the idea of eliminating forgeries altogether. But perhaps bigger than that, at least in terms of collectables, is that NFT’s don’t deteriorate. Deterioration affects the value of art. If you’ve ever collected sports cards, you know that the slightest imperfection can make or break the value of your card. One tiny bend in the corner, a picture being even a millimetre off-centre, can take the value of a card from thousands of dollars to worthless. Comic books are notorious for this occurring. When most people see that an old Spider-Man comic fetched half a million dollars at auction, they start digging through their attic. What they fail to realize, is that the specific Spider-Man comic was as close to pristine as possible. Not the slightest tear, every staple was in place, the comic was never exposed to sunlight, etc. NFT’s can eliminate this problem altogether, and with it, put grading companies and middlemen on notice.

The NBA was the first Major Sport to see the boost from NFT’s, with some of the Top Shot Moments (digital sports cards and moments of your favourite players) reselling for hundreds of thousands of dollars, even millions like this Lebron James dunk. A Lebron autograph is worth what someone is willing to pay. But over time, that autograph can get destroyed, faded from sunlight, or have a number of things happen to it. But a Lebron NFT that is being backed by the man himself, simply won’t. It never fades, it never deteriorates, its value – the only one of its kind – should remain intact as long as the blockchain platform runs.

Future of NFTs & Collectables

As noted earlier, we will see in the next decade a greater adoption of NFTs, both for new industries and for those existing in them. Other sports leagues are hopping onto the NFT trend, and it’s a matter of time before film, media, literature, comics, and other industries follow suit. Most markets are too saturated these days to collect new things (the comic industry is also known for this). There are too many issues being printed out and too many new titles for someone to collect new comics with the intent of making money down the line. But what if you could get the first NFT of the new Batman line, with a special edition cover? You’d be the only one to own that until you sell it. For a built-in audience like adult comic collectors, they would jump at the chance.

What does this mean for physical collecting? Is that hobby on its way out for most industries? I don’t think so. There will always be people who love the tangible – collectors who want to feel, touch, and experience those items. E-books are more accessible than ever, but plenty of people still prefer a real paper book over a Kindle. Physical collecting will never go away; especially until someone figures out a way to display NFTs in my living room and not on a computer screen.

There will always be a desire for tangible goods, along with the history behind them. But now collectors have a whole new market to explore, and it is growing fast. NFTs will continue to take market share, particularly as they become more affordable and more accessible. But right now, NFTs are just getting started.

NFT Legal Pitfalls

Novel opportunities create novel legal issues and NFTs bring up many legal considerations.  Anyone selling their art, music, or whatever digital asset they create on an NFT will want to discuss at a minimum the following topics with a licensed attorney and other professionals such as CPAs:

  • Contract Review with NFT Marketplaces.
  • Copyright Law
  • Consumer Protection
  • Counterfeiting/Money Laundering
  • Commodities / Securities Laws
  • Entity Formation
  • Insurance
  • IP Licensing
  • Pre-minting costs & Income splits
  • Promotional Responsibilities
  • Publicity laws
  • State digital asset laws
  • Tax Law
Depending on your situation, the issues when selling art on an NFT are vast. NFTs provide additional revenue avenues for artists and creatives. It is important to find an attorney who is familiar with blockchain technology and will be able to suit your needs for your specific area of art.

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