Non-Fungible Tokens (NFTs) are unique digital assets where ownership, including transfers of ownership, is all recorded and managed publicly using blockchain technology.
The blockchain allows developers to add an extra layer to their digital assets that effectively hands ownership and management permission to the end-user. This process is known as tokenisation, where an ERC-721 standard are used to create unique NFTs, making assets rare and desirable. So, how does this fit in with the music industry, I hear you ask?
Firstly, music fans have always been interested in collectibles. These can include including signed albums, limited edition posters, concert T-shirts and programmes and signature music equipment such as guitars or drums.
Some music collectibles are famous for being valuable due to their rarity, and fanatical fans can often pay vast amounts of money to secure their prized possessions. Music is often used to express feelings and find friends with similar interests. I’m sure most people at some time in their lives have decorated their walls with limited edition posters and photos, or had shelves stacked with their favourite albums.
The reason why people do this is because they love the artists. They want to support and collect their work and capture a memorable part of history. Collecting can make people happy in this sense. Many people share this interest but few can capture the most prized possessions. Demand clearly outweighs supply and in time the assets can appreciate massive amounts in value.
For example:
“At auction in 1984 a Beatles drumhead could be had for $6,550. In 1994 the drumhead seen when The Beatles appeared on the Ed Sullivan show sold at Sotheby’s for $44,000. Fast-forward to November 2015, that same Ed Sullivan drumhead sold for $2,050,000 at Julien’s.” (Journal Of Antiques)
Non-fungible tokens have, at this stage, an unrealised potential, as we are so early in the cycle. In years to come there is potential for the NFT space to grow into a multi-trillion-dollar market. Collectibles can be a focal piece of that, with impending growth as NFTs enter the mainstream.
Music collectors have an average hold on items for 7 – 10 years before trading them on secondary markets. The numbers on music merchandise on market has tripled over the last two years and further growth is expected as more collectibles are produced.
NFT markets can unlock demand further for music collectibles. The digital network can bring together buyers, sellers, and collectors to provide a verifiable process that is seamlessly manageable.
Owners become greatly interested in assets that built on experiences related to them. This is particularly relevant for specific limited editions, where value can added. Digital assets do not deteriorate over time like physical goods. Digital assets can strengthen over time, driving price to outstrip physical counterparts.
It is easy at this early stage to doubt the potential of NFTs. The early stages of any cycle is where people are sceptical, check out the automobile, check out bitcoin! NFTs have great potential to make an important change of social behaviour, allowing greater efficiency and a secure store of value.