Blockchain, Bitcoin and NFT: Why the Wealth Portfolios of the Rich and Famous Are Changing
_The views and opinions expressed in this article are those of the author. _
There are countless ways people can use money to build wealth, including savings, property, and income-generating assets, to name a few. But as technology advances, the means of creating wealth are continually improving and developing.
This is especially true in our society which demands instant gratification and a seamless experience with everything they do, especially when it comes to money.
The recent rise in popularity of non-fungible tokens (NFTs) – which are unique and verifiable assets digitally secured by blockchains – has rekindled excitement around money and its surrounding innovations.
Finally, a technological breakthrough that enables open and frictionless transfers of value, while providing an additional layer of utility to the owner that is linked to the culture. Continued technological improvements in NFTs will lead to a future where wealth is preserved in culturally relevant articles, while building on the usefulness of those articles.
Decentralized applications allow people to use NFTs for more complex financial use cases and create a new paradigm for hyper-efficient use of people’s most valuable assets. In the years to come, NFTs will become as ubiquitous as goods and other physical assets that preserve wealth.
But, before heading into the future, it is important to visit the past and understand how money and wealth creation have evolved throughout human history.
The story of money
Over 4,000 years ago, the people of the Micronesian Islands used the first immutable silver systems called rai stones. The owners would place their rai stones, which weigh up to 4000 kg, in highly visible areas.
Ownership of these stones has been passed down through history; hence, meaning an early form of money where value was attributed through shared beliefs. Rai stones were mainly used for large transactions and as a sign of wealth. It was impractical to use rai stones for daily expenses.
In 800 BC, the Lydians of ancient Greece introduced physical coins to the market. The divisible and portable currency has improved the ease of daily transactions. Money could now flow faster and in convenient increments. More importantly, money has become more accessible.
To improve the access and usefulness of money, the Dutch East India Company introduced the first publicly traded share in 1611.
Money has now taken a different form, allowing people to participate in the potential benefits of a successful business.
The lack of regulatory oversight has led investors to quickly buy stocks without due diligence. In 1720, fear raged in the markets, leading to a massive crash. Investors lost confidence and, at the time, all hope was predictable in the stock markets.
To regain the confidence of the markets, twenty-four brokers and traders gathered on Wall Street to establish rules according to which the group would only trade with predefined commissions.
In 1792 this became known as the Buttonwood Accord. Confidence was now restored to the markets, and the increased confidence ultimately led to the formation of today’s modern equity markets.
From physical coins to banknotes representing stocks in a business, money has continued to transform into shapes that allow people to create and preserve their wealth in different ways. Property, stocks, and physical currency were some of the primitives that enabled the preservation of wealth. These assets were commonplace before the advent of digital, ushering in new variations in capital.
The internet has accelerated innovation and risk
The earliest primitives of money and other means of accumulating value focused on portability and utility to a small subset of the world. The internet and its widespread adoption have proven that systems can be designed to meet the demands of the world. Built on the Internet, electronic actions brought the work of “Buttonwood Agreement” globally and better access to capital for all.
Although based on open technology, electronically traded stocks still require the facilitation of large companies. These companies continued to innovate on traditional stocks with new investment products like exchange-traded funds (ETFs), options and credit default swaps (CDS).
Each product varied in terms of risk and reward. There were promises in these global markets. But obviously, even one bad actor could compromise the safety and security of the entire system.
In 2008, the US real estate market collapsed due to the default of high-risk âunwantedâ mortgages, which were incorrectly rated âtriple A,â the highest possible rating for mortgages.
These isolated incidents of market failure spilled over into highly speculative and tangled networks of derivatives that fueled a global financial collapse.
Renewing confidence after the financial crisis
In the shadow of the financial crisis, Satoshi Nakamoto, the pseudonym behind Bitcoin, introduced a new global financial layer to reintroduce trust into the system by suppressing its very existence.
Blockchains are distributed ledgers where all participants can see which transactions are verified to be true. In doing so, these systems eliminate the need for intermediaries to facilitate the business. With Bitcoin, money could run freely, providing anyone with internet access with financial services.
People no longer needed to rely on centralized third parties to transfer value. Equally important, transaction settlement times can now be faster than a wire transfer or money order.
If monetary history is any indication of the tenacity of human innovation, blockchain is not where it ends. Bitcoin and subsequent payment-oriented blockchains brought fungible tokens (tokens exchangeable with each other).
While NFTs are possible on these networks, the advent of smart contract-enabled blockchains has made NFTs rich and programmable and supercharged the creation of unique assets that are transferable across open global networks.
Before NFTs, collectibles only existed in smaller ecosystems. Physical baseball cards are difficult to trade and are only of value among other baseball card collectors. Likewise, collectibles issued online before the blockchain could only be used in that specific network.
Now, these collectibles have value for everyone because there is transparent price discovery and value that lingers beyond niches. Blockchain-based baseball collectibles can now be exchanged for digital celebrity collectibles, and vice versa.
Could NFTs be the wealth vehicle of the future?
NFTs have been around for years, but it wasn’t until 2020 that they really started to gain mainstream attention. Emerging corporate brands, celebrities and artists can easily hit and promote their digital collectibles in a thriving global market.
This does not mean that there is no risk in the market. But it does mean that there is a bigger addressable market for these collectibles than ever before. The explosion in popularity of the NFT brands has validated the viability of this new asset class.
Do you remember when common shares were issued? It marked a time when corporations were used as currency. With DTVs, this marks a time when culture replaces business as money.
Bored Ape Yacht Club and CryptoPunks – rare digital collectibles focused on culturally relevant narratives indicate a demand for culture to be used as capital. Many of these collectibles have been bought and sold for millions of dollars.
People define these collectibles as their profile photos on social media, bring them to life with real-life interpretations, and even put them up for sale in the arts space at Christie’s and Sotheby’s. And this space is only just beginning.
NFTs Could Have Additional Use
Today, people are using these digitally verifiable collectibles as a way to preserve value. The more individual NFTs are marketed beyond the blockchain context, the more resilient this asset class becomes.
The next few years will be crucial for NFTs as they must continue to prove their legitimacy, as the asset class demonstrates strength through increased utility.
Early efforts, such as NFTfi, seek to become useful by allowing holders to obtain crypto loans with the value of those assets. This behavior resembles traditional mortgages, where physical assets and other investments are used as collateral.
In the future, many Internet users will have easy access to financial products that will allow them to do more with their money. Fluid digital assets and web assets such as NFTs will further reduce inefficiencies within the financial system.
Those who can identify culturally relevant assets that persist over time will be successful in this evolving market.
- _Jay Kurahashi-Sofue is Vice President of Marketing at Ava Labs. _