The fanfare surrounding non-fungible tokens (NFTs) emerged after a digital artist, known as Beeple, sold a piece of digital art for a record-breaking $69 million earlier this year.
The sale of these valuable digital assets has generated a staggering $2.5bn in the first half of 2021 alone. And the trend is no longer limited to just works of art, with domain name NFTs also being brought into the fold.
With increasing value attached to website domain names, threats like URL hijacking and other related cyber-attacks are becoming more commonplace. This leaves experts wondering whether the NFT craze is nothing more than a bubble waiting to burst.
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With an understanding of NFTs seemingly limited across the board, Mark Franks, Head of User Interface and Experience at names.co.uk explores the complex topic of NFTs and what it could potentially mean for company domain names.
What are NFTs?
A non-fungible token – or NFT as it’s more commonly known – is a way of tracking and attaching value to a unique piece of digital media. It’s essentially a digital version of a tangible collector’s item typically stored in a digital wallet or blockchain.
In the same way, you’d collect physical art, a buyer might collect the requisite digital files of online content.
Non-fungible simply means one of a kind. For example, money is inherently fungible. You can exchange money in different forms, and it maintains the same value. Products that are one of a kind or with only limited numbers – like arts and collectibles in circulation are by definition non-fungible.
Despite being a booming marketplace, the volatile nature of NFT valuation lends itself to an increase in risk for content creators and sellers alike.
The surge of NFT domain names
The concept of NFT trading on the blockchain to transfer ownership of digital art is beginning to gain a foothold in other areas of digital life.
Domain names are increasingly being considered high value and are rapidly becoming commodities found on the NFT marketplace.
For example, the domain ‘win.crypto’ recently broke the blockchain domain sale record – selling for $100,000.
Because domain names are the digital foundation of a business – and a clean, professional and recognisable domain inherently boosts reputability from the get-go – they can sell for significant sums.
Websites are the gateway to content that billions of internet users can access at the click of a button, so memorable and relevant domain names on the NFT market will no doubt spur long-term business growth.
The rise of blockchain domains
The sudden growth in the value of assets hosted on the blockchain gives rise to some new issues regarding websites and may even fundamentally shift the way we approach website building.
There’s a growing concern that blockchain domains and the development of decentralised websites pose threats to personal and business security.
Because of their growing popularity, these channels are being used for malicious purposes – namely, developing and disseminating malware. What’s more, blockchain domains inherently lend themselves to anonymity and censorship by design, meaning they’re the ideal breeding grounds to commit malicious acts .
However, because NFTs and blockchain domains and their URLs all operate through the blockchain, it could mean that NFTs become the de facto way to engage in domain-related transactions – increasing the risk for online operators.
The risks NFT culture poses to domain names
Because domain names – and blockchain domain names – are proven to have long-standing value, there are always opportunist cybercriminals looking to get their hands on the most popular assets.
Domain names commonly fall victim to a phenomenon known as ’drop catching’. This is where people (either manually or with software) track the desired domains and buy them at the exact moment the registration period ends – effectively denying the company access to its own material.
A famous example of drop catching was Nicolas Kurona, who accidentally owned the rights to ‘google.com.ar’ – or Google Argentina – temporarily in April this year.
Although not technically a crime under select circumstances, drop catching or typo squatting has the potential to financially ruin companies. For smaller businesses without the cash assets to buy back a domain or the legal wherewithal to counteract a URL hijacking, the results can be devastating.
Businesses need to be vigilant by keeping tabs on their domain expiry dates. Most domain providers monitor the condition of your domain and automatically reminds and renews for them. Make sure you check with your domain provider so you’re not running the risk of having your company domain name snatched.
Are NFTs the future?
The debate around NFTs is ongoing. Proponents of the emerging trend suggest that it has scope for broader purposes, like turning financial documents into NFTs for example. On the other hand, critics slam it for being nothing more than a fad – and that the NFT bubble will inevitably burst.
Data suggests that the bubble is already collapsing. Activity in the NFT sphere has suffered a marked decline in recent months. Transaction volume on NFT markets was down 95 per cent since early May – collapsing from a staggering $170 million to a comparatively paltry $19.4 million.
One of the emerging questions regarding NFTs and their survival is whether they can hold their long-term value.
Limited to the artistic and creative spheres, NFTs appear to only hold their value if the buzz around the NFT remains high – as their value is driven by speculation and the perception of low supply.
This is no more evident than in the price of the NFT ‘CryptoKitty no.18’, which leapt drastically in value in just three days in 2017, showing that creating a buzz around any digital asset can cause a bump in value.
However, industry sceptics argue that dictating the price of an NFT based on speculation undermines market traditions and that you essentially own an asset that you have no control over.
Despite having the potential to dramatically change how we make digital transactions, the recent rocky performance of NFTs in the investment market signifies that it may be more of a bubble than a concrete investment strategy.
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