NFTs were all the rage in the years before. Companies like Bored Ape Yacht Club and Crypto Punks sold his images by the thousands. Even institutions like Visa bought a Crypto Punk NFT. Graphic designer, Beeple, sold a piece of art for a whopping $69 million. Artists and meme makers were finally able to cash in on his work.
Then the market crashed $12 billion in 2022. People who had been saying all along that NFTs were useless laughed it off.
But is there still a good use for NFTs? Some people have suggested that they might reflect the current purpose of the actions.
NFTs, or non-fungible tokens, are unique digital content that uses the blockchain to certify ownership and originality. They can be transferred by the owners, making them purchasable and sellable.
NFTs have a certain similarity to stocks. Their digital nature means they can be highly liquid, bought and sold at the click of a button. “Non-fungible” means that the asset is unique.
Shares can also be sold and traded. The difference is that a share represents ownership of a company. Every action is called action. You get voting rights with shares, and if you own a lot of them, you can control the company.
Companies sell shares at investors to raise money. Buyers are typically a mix of hedge funds, conglomerates, and retail investors.
However, the average non-wealthy investor can only buy shares in a company after it goes public, and most companies don’t. It’s difficult because they have to be approved by the Securities and Exchange Commission, which is a long and expensive process.
Private companies, on the other hand, are generally not open to average investors, only accredited ones. To earn accreditation, an investor must have income greater than $200,000 a year or have a net worth greater than $1 million. These rules prevent most normal people from getting a piece of valuable private companies.
Also, even for accredited investors, the process of buying shares can be complicated. Often requires changing corporate bylaws, which can be legally onerous.
NFTs could disrupt all of this. It is easy for anyone, even with low technical skills, to create an NFT. They can then sell them on a marketplace like OpenSea.
NFTs wouldn’t just be a way for large private companies to go “public” and issue shares in a way that circumnavigates the typical IPO process. But it would also be a way to do this for small businesses that don’t normally attract investors.
For example, someone with a food cart is unlikely to get investment from anywhere and have to borrow money to start and grow the business. But if the owner sold NFTs, anyone could go online and buy shares. If the cart is successful, the value of each NFT share will increase and could even pay dividends.
This same “NFT as stock” model could also be applied to a local organic farm, cafe, or restaurant. It would create a radically new way of investing (how often do everyday residents of a city finance such things?), amounting to the “initial public offering of everything.”
A Youtuber who calls herself Megan.CPA has i drew this connection between the issuance of NFTs and IPOs, and believes that there is now a huge legal gray area.
“When [are NFTs a] crossover crowdsourcing, venture capital? I have a feeling this is going to become a hot topic in the near future. And the regulations are going to start falling on these NFT collection releases because the sums of money are so large.”
However, in the absence of those regulations, NFTs could be a more simplified form of crowdfunding and share distribution than traditional methods. Right now they’re mostly used for digital art, causing people to dismiss them as glorified JPGs of apes. But people envision using them and the accompanying blockchain technology for many purposes, from more transparent elections to smarter contracts. Add “IPO even for the smallest companies” to that list of possible uses.
This article presented additional reports of Market Urbanism Report content staff member Rebecca Lau.