Then I joined Fidelity’s Center for Applied Technology (FCAT) – where blockchain is not only an area of deep expertise and exploration, but emerging trends such as NFT use in gaming were being researched and discussed. The team put a question out there: Given these trends, what should we experiment with next? Talk about being a kid in a candy store.
Zoom forward a few chats and calls and I had banded together with a small team of enthusiasts with interests across the technical, cultural, and artistic spectrums. Our common denominator was an ever-growing interest in the secure digital ownership promised by NFTs, a passion for innovation, and a desire to propel Fidelity into the future.
The Explosion of NFTs
NFTs date back to 2014, but they exploded onto the scene in 2021. Artists, celebrities, and established companies alike have gotten involved, driving NFT trade volume from $33M in 2020 to $13B in 2021, a 43,000% year-over-year increase, according to theblockcrypto.com. And, while roughly only 2-3% of Americans own NFTs, they seem to have had an outsized impact culturally.
NFTs have enticed many large brands and institutions to make their first foray into the crypto ecosystem, serving as a powerful onboarding tool to blockchains. The NBA partnered with Dapper Labs to create NBA Top Shots, driving over $800M in sales since its launch in October 2020. Visa purchased a Cryptopunk for $150,000 in August 2021. They even turned up at the Macy’s Thanksgiving Day Parade. The list goes on: Nike, Pepsi, Shopify, even GameStop have announced plans to get involved.
NFTs have also spurred the “play-to-earn” revolution in gaming, allowing people to own unique digital assets in-game and to earn incomes through time invested and performance achievement in-game. (Not all gamers are happy about the NFT encroachment into gaming, and a backlash has been brewing.)
The sudden rise of NFTs may sound like mania to some, with speculation and FOMO driving momentum, but others see them as core to the emerging digital landscape. People are witnessing the ability of blockchain structures to permit a trustless, immutable record of who owns what uniquely – not interchangeably as with currency – on the internet. This brings clarity on authenticity, ownership and provenance to the digital realm – a crucial breakthrough in digital ownership. Additionally, smart contracts enable royalties to be encoded into NFTs, entitling creators to a portion of future sales, and helping to bring the concept of the “ownership economy” more clearly into view. As the next iteration of the internet known as Web3 evolves, NFTs could be poised to represent a wide variety of assets issued natively on blockchains or represented in tokenized format.
An Environment for Experimentation
Given the growth of NFTs, we wanted to find a way to engage with our associates on the topic and the technology. We wanted to experiment, and fortunately we worked in a firm with a rich history of crypto experimentation. Bitcoin for payment in the cafeteria anyone? We tried that in 2017 (and yes, those were some costly fries). Starting a mining operation in a supply room? Check. Helping Fidelity Charitable accept bitcoin and spinning off a new business, Fidelity Digital AssetsSM, with a commercial focus on bitcoin custody and trading, were definite high-water marks. We’ve tinkered with purpose and some of those efforts have turned into analytical products such as SherlockSM, or apps for management of digital assets, represented by our Digital Asset Tracker, both launched in 2021. Internally as well, FCAT had grown a lively 3,000+ person “Bits and Blocks” community of associates that followed the latest developments in blockchain; they even tested a token for social rewards way before they were mainstream. The team kept the bar for learning high, although none so much as our Chairman and CEO, Abby Johnson.
One idea that we felt would drive more associate education and involvement was to conduct our own version of a “Play-to-Earn” meets “Learn-to-Earn” experiment – essentially to incentivize readership of FCAT’s Priorities Report 2022, an internal document on emerging technologies and sociocultural trends FCAT believes may impact the future of the firm and that of its customers. Winners of the “game” would earn NFTs for their proof of knowledge. Our dual goals would be to drive awareness of the report content, while seeking to spark more interest and understanding of crypto wallets and tokenization, both fungible and non-fungible.
Scanning and Trying
Our mantra was “let’s start simply.” That said, we were excited to push the envelope. Next thing you know our team was devouring books on generative art, getting deeper into new programming languages, and assessing the latest wallets and offerings on the market. At one point I checked in with one of our team members who seemed a bit out of sorts. His text back “just up super late last night playing with some Gen Art.”
From a technical perspective, we were encouraged to build in a way that would be scalable and extensible. With a talented team that included hands-on-keyboard developers, as well as risk, compliance, and tax experts, we were able to pivot and shape our experiment to address various concerns. Why all the support? FCAT’s mission is to ignite emerging ideas and propel Fidelity into the future. Clearly, we’re all pretty well aligned around that mission. And more than that, there’s passion for it.
The outcome of our collective effort was a basic quest gaming structure tied to the report, with leaderboard winners receiving NFTs of the Report’s digital art created by the artists and design team within FCAT. The art takes inspiration from the blurring of boundaries between the physical and digital worlds.
We decided to use Solana as the protocol for our experiment. Solana is an emerging Layer 1 blockchain with a growing developer community. We considered several options (Ethereum, Polygon, and Algorand to name a few) and selected Solana as most fit for our purposes. As Dave Hill, our technical lead on the project, explains, “On Solana you can easily create your own custom token from the Solana Program Library (SPL) that can become your NFT.” In addition, it brought the transaction speed and price features that worked for what we wanted to do.
Our developer team found an open-source solution called Metaplex, that allowed us to quickly and efficiently build an entire NFT ecosystem using four smart contracts. With these building blocks, we were able to create a platform for NFT minting and transfer that could be used by anyone, not just those with technical expertise. In our view, a simpler user experience is key to democratizing access.
The use of NFTs in gaming and the broader marketplace/metaverse – where your digital presence increasingly becomes an asset worth investing in – is likely to stimulate more interest in NFTs and other tokenized assets. As tokenization grows, NFTs might someday facilitate a range of financial transactions, as they are already starting to in the parallel universe of decentralized finance. Increased demand for digital assets such as NFTs may require financial firms to adopt new systems and infrastructure.
FCAT’s experiments with minting digital art as an NFT can help us better understand and innovate in areas such as purchasing, interacting with, and leveraging these modern instruments. FCAT teams are looking forward to further exploration of this brave new tokenized world. Stay tuned!