What does the purchase of CryptoPunk 7160 mean for Visa?
Research Partner — Akshat Tenneti
Earlier this year in August, Visa purchased a digital-artefact, the “CryptoPunk #7610” NFT for $150,000. In a blog-post following the purchase, Visa’s Head of Crypto - Cuy Sheffield mentioned that the pixelated, mohawk donning “punk”, was a part of a historic art collection which sat on the bridge of commerce and culture.
Visa’s purchase of the 7160 marks its foray into a new kind of FinTech driven commerce called “NFT Commerce”. Visa’s commitment to carve out a niche for itself in this space can also seen from a white paper it has published to help brands and businesses better understand NFTs and how they may be used to engage customers and fans.
Visa has always been a pioneer of leveraging emerging trends and technologies; be it with the introduction of the world’s first Point-Of-Sale System in 1979 which sped up transactions, or its acquisition of Authorize.Net which created the first online -payment processing gateway in 1996, or more recently, introducing mVisa in India and other African countries which allowed instantaneous payments using a QR code on smartphones. These proactive approaches towards potentially disruptive payment and other commerce solutions stand as testimony to Visa’s position as an “industry-leader”.
The recent NFT purchase by Visa is to be seen as a page out of the same tried and tested playbook — Obtaining a first movers’ advantage in the world of NFT Commerce.
But, Why NFT?
NFT is an abbreviation for non-fungible token. “Non-fungible” is an economic word that could be applied to your chair, a video file, or your computer. These products are not interchangeable with other items due to their distinct qualities. Similarly, by allowing each token to carry a little quantity of arbitrary data, NFTs are transformed into a unique medium for expression as well as a unit of commerce.
These tokens can be best understood as a one-stop-shop solution for granting any digital good, the ultimate stamp of authenticity and ownership at the same time. This is particularly important for the digital economy for two reasons -
1. “Very” Unique, literally:
A number of digital entities, many by design, have multiple copies of them available for owning by the public at large. While these copies may have similar or same attributes as the “original”, they aren’t fully unique. This wouldn’t pose a huge problem for an entity such as a free-to-play game. But if something that existed in real-time like a piece of real-estate, had to be stored and transacted over the internet, an absolutely unique identifier would be necessary to ensure credible and trustworthy transactions surrounding the piece of real-estate. A “land-token” NFT of sorts would adequately solve this problem as authenticity and ownership can be ascertained right at the get-go, as the token would exist on a blockchain that is geared to specifically facilitate this.
2. Ensuring Trustworthiness :
NFTs are powered by a technology called “smart-contracts”. Similar to how contracts in real life are backed by agents of institutional trust such as law-firms, courts, tribunals, banks and the government, “smart-contracts” are self-executing contracts backed by simple “if-then-else” algorithms, thereby replacing subjective institutional trust with objective algorithmic trust.
But, What is in it for Visa?
In the blog-post, Sheffield further stated that the purchase was intended to be a firsthand approach to learn about NFTs, as well as purchasing, storing, and owning them, thereby removing the need for merchants to conduct their own research in the space.
NFTs enable businesses to use a public blockchain to manufacture digital commodities that can be quickly delivered to a crypto wallet anywhere on the planet. NFTs can virtually digitize and tokenize any and all assets — fiat money, stocks, insurance policies, commodities, loans; legal agreements such as those for employment, purchase orders etc. With such a vast TAM or total addressable market, we begin to see that NFT art is nothing more than its opening act and that Visa is in it for the long-haul.
With its recent partnerships with cryptocurrency companies such as Coinbase and FTX to settle digital transactions using stable coins and other tokens, while it aims to retain its position as the leading transaction facilitator, with its venture into the NFT space, it plans to capture the nascent tokenization market it has discovered.
