Non-fungible tokens (NFTs) blew up the internet at the end of 2021 but very few people are aware of what they really are. So this begs the question – what the f are NFTs?
In simple terms, a NFT can be described as a unique digital ‘label’ that is attached to an item. This label can represent a variety of digital assets such as digital art, or even tangible assets such as cars or property. Due to the digital nature of these ‘labels’, a platform has to exist that caters for the trading, selling and payment of NFTs – otherwise known as a blockchain. A blockchain is technology that allows for the existence of cryptocurrency and NFTs, as it is designed to function as a digital database that verifies the existence of a NFT or cryptocurrency and tracks the transactions that occur with regard to these “digital assets”.
Therefore, NFTs form part of a blockchain – the most common blockchain being the Ethereum blockchain. Due to this blockchain, NFTs can allow for trading, buying, and selling to take place. However, like real-world assets, no two NFTs are exactly the same (as they can represent different assets or assets with differing attributed values).
NFTs vs Bitcoin
Therefore, as The Verge points out there is a notable contrast between Bitcoin, another form of cryptocurrency, and NFTs. In contrast to NFTs, Bitcoin is fungible, which means that you can trade one for another and you will be in possession of the same item. However, due to the uniqueness of each NFT, you will never receive the same item when trading. Essentially, although you can trade one NFT for another, it is impossible for the NFT that you receive to be the same as the one you traded, due to the non-fungible nature of NFTs.
You may be wondering why people are spending millions of dollars on a digital file that can be copied as many times as you would like. This is where the uniqueness of NFTs come in. NFTs are designed to provide you with a right of ownership over the item in question, something that cannot be copied. According to Forbes, each NFT has a unique identifying code that forms part of it and makes it one of a kind. This code includes built-in authentication that can be used as proof of ownership. In simpler terms, anyone can own a print of Van Gogh’s Starry Night, but only one person can own the original artwork.
Digital art and NFTs
NFTs allow for the transformation of digital works of art and other collectibles such as music, tweets, articles, and drawings into unique, one-of-a-kind, verifiable assets that are easy to trade on the blockchain. According to The Verge, this has allowed digital artists to sell their one-of-a-kind pieces as NFTs and monetise their work. In addition to this, NFTs also have a unique feature, that can be enabled, that allows the creator of the work to earn a percentage every time the NFT is sold or traded. This ultimately allows the creators to see some financial benefit even after their work has been sold for the first time – something that is unheard of in the art industry.
Since the creator gets financially benefited through selling their work as NFTs, what do the buyers and collectors get? The Verge mentions that as the buyer of an NFT, you gain certain usage rights, such as the ability to post it online or use it as your profile picture. As a collector of NFTs, it essentially works the same way as being an everyday art collector. You buy the NFT, and you hope that its value will increase over time, allowing you to eventually sell it for a profit.
For those of you who want to invest in NFTs, Forbes explains that you will need a digital wallet that allows you to store both NFTs and cryptocurrency, as well as go through the process of purchasing some cryptocurrency (such as Ethereum). According to CNN, as a creator, the process is fairly similar. You will need a digital wallet, a small purchase of Ethereum or another cryptocurrency, and a connection to an NFT marketplace that will allow you to turn your work into an NFT.
While NFTs and cryptocurrencies are fascinating concepts, no conversation about them would be complete without discussing their environmental impact. According to The Verge, NFTs use the same form of blockchain technology as many other “energy-hungry” currencies that require a large amount of energy. Consequently, this emits a large amount of greenhouse gases. So much so that, according to CNN, many platforms will charge a gas fee for the energy needed to complete the required transaction.
NFTs have come a long way since its first use in the game CryptoKitties. You are now able to buy and sell them on various platforms such as OpenSea, Rarible, and Nifty Gateway. The evolution of cryptocurrencies and the transformation of the digital art world to include NFTs is just the beginning of a new form of monetary transactions. While it may be easy to get swept up in the excitement of what this could mean for the future of digital art and crypto, it is important to remain sceptical. Many people question how long NFTs will/can really last when you consider its environmental impact.
Image: Jaime Lamb