From Static to Dynamic NFTs – Rolling Stone

Despite a decline in popularity compared to the peak of the bull market extravaganza, NFTs remain popular in entertainment today, bringing everything from beloved Marvel superheroes to video game classics to the chain. They help free musicians from oppressive streaming services, and for digital artists they can be the path to independence. Tokens are what make Web3 different from Web2.

Whether fungible or non-fungible, tokens represent owning assets via the web. I am convinced that they are here to transform the very concept of ownership forever, and art is only the first industry to be disrupted.

If only things were that simple.

How this actually works now

For the uninitiated, here’s how NFTs work. A single NFT is a record on the blockchain, a decentralized ledger, that has a link to the underlying asset. This resource can be anything from an image, such as the famous Bored Apes, to a music file, video clip or anything else.

Here’s the catch: An NFT is a token, which by extension means it’s not an image, .mp3 file, or video. It might be if the blockchain record includes the asset itself, but storing a video on the chain isn’t a good idea, since blockchains don’t handle large chunks of data well. Thus, most NFT projects store the underlying assets either on a regular Web2 server or on a peer-to-peer network such as the InterPlanetary File System.

So let’s say we just went ahead and bought an NFT. What did we actually buy? We bought the token, not the image. The exact rights we get for our NFT depend on the terms and conditions set by the specific project. Bored Apes, for example, gives you ownership of the art behind the token and commercial rights to it. Things are scarier with CryptoPunks, where your commercial rights are more limited.

The Rolling Stone Culture Council is an invitation-only community for influencers, innovators and creatives. Am I eligible?

Now, unless we really, really want to go to the exclusive NFT related parties, next time we want to get the best bang for our buck. With most NFTs, this is a matter of flipping them or selling them to someone else at a higher price than you bought them. You might say this sounds very Ponzi. You could also make a case for investing in traditional art, but with the added benefit of being equipped with an arsenal of tax evasion tricks that crypto can hardly ever hope to replicate.

The more crypto-savvy can try other approaches, such as staking NFTs or using them as collateral for a loan that would have been invested elsewhere. Still, the concept of a complex financial operation powered by a valuable link to a .jpeg file doesn’t sound like the best technology can offer. NFTs are just another token type; their ancestry may come from art, but there is no reason whatsoever for them to remain there.

Dynamic Assets: Here We Go

Currently, the vast majority of NFTs represent assets that are fundamentally static. Just like a rose that would smell sweet by any other name, a .jpeg would do little more than sit on a server no matter what you do with the token representing it on the chain. It’s possible to argue that this doesn’t apply to assets like in-game characters, like Axies in Axie Infinity, but with them you run into a different problem. Any character in the game, whether bound to an NFT or not, can only exist within the confines of the game, and if the game is closed, the ownership the NFT brings to the table won’t mean much.

Dynamic assets, those that trade and generate revenue on their own, provide a more interesting use case for NFTs, transforming the entire value proposition and the way society uses them. In the beginning, it could be something as basic as an NFT that entitles the holder to a certain share – perhaps based on the time of purchase – of transaction fees within a specific blockchain network. Such a token will generate passive earnings over time, scaling with the network’s total activity volume.

Moving forward, there are even more exciting prospects to explore – for example, managing ownership over a generative AI, or copyrighting the output. It could of course be images or music, which is what such machine learning models are used for these days, but also trading strategies or computer code.

Furthermore, as the real world becomes more and more digitized – and I’m talking about the spread of the Internet of Things, not the metaverse – we’re likely to own more and more things through NFTs, simply because it makes more sense. Even now, an NFT ticket makes sense because it’s harder to counterfeit and easier to sell if you’ve changed your mind about going to the concert. An NFT magazine subscription makes sense for the same reason – you can sell it at will and get back some of the money you spent on it.

All of this will require a significant amount of research and development as well as creative experimentation with new technologies and platforms. Still, the end result, a future where we actually get to own things in a verifiable and trustless way, is worth all the headaches involved from my perspective. Flipping NFTs is fun, but have you tried flipping the paradigm?