2020 has seen economic contraction on an unprecedented scale. Collectively we have been plunged into unchartered waters by events outside of our control with little insight as to how to right the ship.
The one thing that economists and experts across the board seem to be unanimous on regarding this crisis is that it will serve to accelerate processes that were taking shape before things went haywire.
In a recent report centered on China and how the coronavirus pandemic was likely to reshape the Chinese economy moving forward, consulting firm Mckinsey & Company concluded that events that were set to play out over the course of the next several years have been put on a fast track and are happening in front of our eyes. As a result, when the virus does subside, it is unlikely that, economically speaking, there will be a return to pre-virus norms.
Mckinsey identified 5 trends that have accelerated during the pandemic that range from new consumers coming of age and playing a more active role in the economy, to focus shifting from the global market to competitive national stages.
The report was centered on China, but the trends identified are taking place on a global scale, and while these things were happening prior to the Covid-19 outbreak, as could be seen in the influx of advertisers and consumers to streaming platforms popular with younger people and the geopolitical fractions that had flared up with Brexit and the election of Donald Trump, they were not expected to take precedence so quickly. The pandemic has seen them flourish.
The number one trend, however, identified by Mckinsey — and just about every other analyst looking at the market — as emerging as the most significant vector of financial development in the post-Covid reality is digital transformation.
The digital transformation is happening across entire economies right now. From the same report, according to surveys, about 55 percent of Chinese consumers are likely to continue buying their groceries online after the peak of the crisis. That’s a remarkable figure. Granted, China was already at the forefront of digital advancement, so the rest of the world may not be at the same level, but it is not far behind.
With the economy in a full bore digital transformation, the sector that many have circled as most likely to benefit from the shift is that of cryptocurrency and blockchain. With China testing out its own digital yuan cryptocurrency, and what is being termed a ‘DeFi renaissance” happening in the Ethereum community and beyond, there is a good deal of evidence suggesting that crypto is set for big things in the post-Covid future.
The NFT Economy
If acceleration is the rule of the day, of all the sectors in the blockchain industry, the non-fungible token (NFT) economy is perhaps most poised to take center stage in DeFi and make significant inroads into mainstream channels. NFTs can be understood as cryptocollectibles, each provably unique and suitable for a number of different applications like digital art, gaming pieces and virtual reality property.
Back in 2017, the market cap for NFT projects was measured at just over $30 million. 2018 was a huge down year for the crypto industry as a whole, yet, despite contractions across the industry, the NFT market cap rose by 480%, weighing in at $180 million. The following year the market cap rose steadily, ending up around $220 million.
The factors driving the consistent growth here are varied. The first major breakthrough for an NFT project came when CryptoKitties exploded onto the scene back in late 2017. While it had been theorized about earlier, CryptoKitties was one of the first projects that brought blockchain technology to the gaming sphere. The premise of the game is that each player can own their unique cryptokitty, which is locked into the blockchain as an NFT and can appreciate or depreciate in value over time. The game quickly gained popularity, and a great deal of it too, threatening at one point to overwhelm the Ethereum platform after taking up over 10% of the platform’s network traffic. The runaway popularity inspired a swath of other similar games, some of which rose to prominence in their own right, like Blockchain Cuties.
The most appealing aspect of CryptoKitties was the extra dimension it added to the gaming experience. Gaming is one of the most profitable sectors of the entertainment industry, but its existing operational paradigm is no longer suited to our evolving economic realities. Somewhere around $140 billion is spent by consumers on gaming products each year, and it all goes to the development companies. If just a fraction of that were diverted into assets that were then owned and controlled by players and consumers, a dynamic new sphere of activity would be added to that of gaming.
The Artworld Goes Digital
CryptoKitties showed that that was possible to the tune of millions of dollars from in game purchases and subsequent outside investments. While the furor over the game has subsided, at one point, the game had over 1.5 million users responsible for over $40 million dollars worth of transactions on the platform. In the platform’s heyday, individual cryptokitties sold for over the equivalent of $300,000 and transactions were covered with awe by mainstream media outlets, including the New York Times.
As evidenced by the piece in the Times, which covered the first-ever live auction of cryptocurrency-themed art, while CryptoKitties was a gaming experience, the NFT’s involved transcended the framework of the game and caused waves in the art world. The first crypto art auction was for an artwork called “Celestial Cyber Dimension,” which was created by Guilherme Twardowski and contained digital and analog elements along with an embedded cryptokitty. The piece, which prior to the auction had been displayed in a Christie’s auction house next to a Basquiat, ended up going for $140,000.
Now, some years later, the intersection of NFTs and the artworld is one of the most fascinating fields in terms of development and investment activity. With the prices of Ethereum and ERC tokens rising rapidly in recent days, and Forbes declaring that Ethereum has started its “DeFi moonshot,” there is a great deal of excitement in the industry and much of it is centered around NFTs.
Speaking with Insider Monkey, the entrepreneurs behind the Rarible digital art platform, Ivan Starinin and Alexander Salnikov, shared that, the way they see it, this is only the beginning of the NFT boom. Starinin, pointing to the potential of the token technology as the reason for its increasing appeal, said, “This type of a token is not yet fully integrated into the blockchain finance system, however, it is extremely useful. For example, you can enclose a whole portfolio, consisting of ERC20 tokens, in a single NFT, which can operate like a stock investment fund. Using Rarible, it is also easy to invest in several works of art at once. In addition, NFT tokens are one option for adding liquidity to illiquid assets. And there are many more use cases that make the NFT market very promising moving forward.”
Some of that vast potential can be seen on the Rarible platform itself, where, in addition to the token art, users who make transactions on the platform are rewarded with RARI, the platform’s governance token. With RARI, users can vote on potential changes to the platform and take part in the curation and moderation processes. This kind of democratic, user-based approach is a far cry from the fustiness of the traditional art world, and a showcase of how this technology can reshape power structures.
While the Rarible platform is one of the older digital art platforms out there, it has been joined by others, flush with institutional money and looking to take advantage of the influx of new users and funds. Among the newcomers are Tyler and Cameron Winklevoss who opened up their own NFT art marketplace, featuring works by Jon Burgerman and Kenny Scharf, in March of this year.
With traditional avenues of art collection and investment suffering due to the difficulties brought on by the Covid-19 outbreak, the stars, it seems, have aligned for the NFT world. If industry insiders like Starinin are to be believed, we are currently only scratching the surface in terms of what this technology can be used for. Given the current economic situation, and the openness and ease of access of the industry, if the DeFi renaissance continues to progress, the repercussions may be felt way beyond the blockchain space.