Economic activities in the virtual world, such as buying items to design one’s virtual character or producing and selling items for other users, sometimes involve astronomical figures that are not common in the real world. However, what if these transactions are no longer hypothetical? What if the ownership of items can be protected by blockchain technology? Non-fungible tokens (NFTs) make this possible and are becoming the key component of sustaining the economy of virtual reality.

NFTs are a unique and non-interchangeable assets exchanged through Ethereum, a cryptocurrency platform. They are stored in a blockchain, a decentralized and distributed ledger that records transactions of digital assets. Data recorded in the blockchain, such as ownership information of digital content, is difficult to change and hack; thus, NFTs that have their basis in blockchain technology cannot be copied or destroyed. With the recent increase of virtual markets and activities, minting NFTs — making digital content a part of the Ethereum blockchain — has become a social trend among creators to store and protect the ownership of their original works.

The Rise of NFT in the Art Industry

With the expansion of online activities and cryptocurrencies usage, NFTs have become the center of the metaverse: a three-dimensional virtual world where social, economic, and cultural activities take place just as they do in the real world. Social Network Services (SNS), online communities, and avatar games are typical examples. Inside the digital world, individuals entertain and interact in diverse ways that involve transactions of virtual money provided by each platform. For example, in a blockchain-based game called CryptoKitties created by Dapperlaps, players can purchase, collect, breed, and sell virtual CryptoKitty cats through Ethereum. Utilizing the blockchain system, the ownership of each CryptoKitty can be tracked and sold to players at a high price in auctions.

Given this, NFTs are an attraction to many individual creators, organizations, and companies that create unique digital products and content in the metaverse. According to Reuters, statistics show the rapid growth of the NFT market with its sales reaching 2.5 billion United States Dollars (USD) in July 2021, which is considerably larger than the 13.7 million USD reached in the first half of 2020. With this expansion, the value of NFTs will continue to rise, particularly in the art industry as NFTs effectively secure the originality of artworks and prevent related frauds and copyright issues.

Han Seyoung, an industrial designer and mechanical engineer in South Korea, recognized the value of NFTs and launched several NFT collections of her digital artwork. With her partner developer Ryan Kulp, an American musician and entrepreneur who has helped create Korea’s first crypto mining course, Han released her first NFT project, “Gimbap.” As a collection of hand-drawn pieces of the Korean traditional food gimbap, the artwork is currently being sold on OpenSea, the largest NFT marketplace.

Regarding the value of NFT art, Han emphasizes, “I believe that NFT art is an opportunity to expand the existing art market. Artworks that are combined with NFTs can be owned by multiple users, expanding the chances and means of art appreciation and communication. With the intervention of diverse interactive elements such as community activities, content production, and Play to Earn (p2e) games combined with artworks, we can move away from passivity and engage in various directions to actively communicate with art.”

Han has recently launched the “K-goding” project, a collection of NFT characters in the concept of Korean high schoolers, which can be freely customized and designed by users. “K-goding” captures the unique characters of individuals and the memories they wish to cherish, increasing consumer desires to create and own their avatars. Moreover, Han’s newest “Sugar Maple podcast NFT” mints imaginary characters from the American story podcasts called “Sugar Maple” into NFTs. This project is a new marketing element for existing podcast fans and is currently sharing 500 characters for free, which is to be expanded following the release of each episode. As Han’s collections demonstrate, NFTs are bringing innovative changes to the entertainment industry.

Current Risks and Future Prospects of NFT Markets

However, NFT transactions can create confusion between ownership and copyright; for example, selling NFTs is an act of handing over the ownership, not the copyright. According to Professor Kim Seungjoo (Graduate School of Information Security), “If an offline work is digitized and stored in an external storage medium without the author’s permission, it is an infringement of the right to reproduce and transmit.” To avoid this risk, consumers should carefully review the related terms and conditions provided by the sales website, as Professor Kim advises: “Usually, large auction sites such as Christie’s help review the precautions of ownership and copyright issues. However, for sites operated on smaller scales, users will have to be aware of the possible risks and make proper judgments on their own.”

In addition, protecting the original content of NFT is important because NFTs lose their value if the original content is destroyed. “While NFTs are comparatively safe from getting hacked or deleted as they are stored in a blockchain, the original content on the internet is exposed to possible dangers of poor management and destruction. Considering this weakness, the original content of NFTs is nowadays stored in a distributed storage medium, such as InterPlanetary File System (IPFS) and Swarm,” explains Professor Kim.

Yet, the biggest and the most common problem is ignoring the precautions of NFTs and impetuously buying the products. Understanding the concept of NFTs and deciding whether to invest in them may be challenging for those who are not familiar with cryptocurrency. With the price bubble still prevalent in NFT markets, it is important to always estimate the value of the original content before making any investment. As Professor Kim emphasizes, it is important to have a basic understanding of NFT technology and develop an appreciation for the original content to avoid speculation and seek safe investment opportunities.

The growing influence of NFT markets cannot be overlooked as more industries are starting to incorporate NFTs into their products. With the blurring line between real and virtual worlds, the value of digital assets is on the rise. However, at this moment, there is no direct answer as to whether investing in NFTs is the right choice or not. Nonetheless, the NFT market is expected to become easily accessible in the near future; thus, it is important to understand the properties of NFTs take the necessary precautions in the preparation of safe investments.