Non-Fungible Tokens (NFTs) Explained
People are becoming more and more curious about NFTs as they become increasingly popular. They’re looking for more information about NFTs: what they are, how they work, and who can buy or sell them, which brings us to the purpose of this article. Are you one of these people looking for more information about NFTs? We’re here to help. So, let’s delve right into it.
What are NFTs?
NFT stands for non-fungible token. Being non-fungible basically means the asset cannot be exchanged or interchanged with something else. It’s one of a kind. So, think of an NFT as a digital collectible or asset.
Some Notable Examples of NFTs
In February 2021, a digital version of the 2011 Nyan Cat meme sold for $590,000 in Ethereum as a unique piece of crypto art. During the next month, a digital artist called Beeple sold an NFT of his work for $69.3 million. Jack Dorsey, the co-founder of Twitter, also sold his first-ever tweet for $2.9 million, also in Ethereum. Since then, the sale of NFTs is increasing. Other digital items have been sold and bought for significant value, mostly by celebrities and tech moguls. For example, some iconic video clips from NBA games have been sold as NFTs. Just recently, in April, a GIF of a Lebron James slam dunk honouring Kobe Bryant sold for $387,000.
How NFTs Work
In real life, classic works of art, antiques, and other historical items are sold at auctions with certificates of authentication. NFTs serve the same purpose but for digital items. They allow people to certify JPEGs, GIFs, videos, MP3s, and just about any other digital file format as one of a kind. In the process, it enables a new kind of ownership for digital files.
At this point, you might be thinking, “But where’s the value in NFTs really? Can’t anyone just download or copy the JPEG, meme, GIF, or video to their phone?” Well, the answer is yes. You could go online, right-click and save a GIF of a Lebron James slam dunk that she sold for $6 million, but that won’t give you the ownership of the piece of art and make you a millionaire. Why? Because NFTs basically authenticate the original items. Therefore, your downloaded files won’t have the data that makes them part of the blockchain. The creator can even make copies of the item and sell it, but they won’t be able to sell the original item.
These are some key benefits of NFTs:
- They can’t be modified. Since NFT data is stored on a blockchain, the tokens can’t be removed, changed, replaced, copied, or destroyed. Also, total ownership transfers to the owners once they’ve bought an NFT. It doesn’t remain with the sellers.
- Since they are stored on the blockchain, they can be easily verified. It’s easy to trace the digital art to the original creator since the data is well stored.
- Unlike digital currency like bitcoin and other cryptocurrencies, they cannot be divided into smaller tokens. One NFT is a whole by itself.
So, what makes them so valuable?
We learn from Economics 101 that supply and demand determine price and value. There’s the scarcity value factor, whereby the price of an item increases because of its low supply. We can apply this principle to NFTs. It’s reasonable to assume that they’re valuable because the digital art being sold is one of a kind. Therefore, the price goes up as buyers bid on a single, unique item.
Who Can Sell or Buy NFTs?
Anyone can buy and sell NFTs. They aren’t just for celebrities or tech gurus and other rich people.
NFTs, give all content creators and artists the chance to earn from their work.
Why be a starving artist whose work isn’t being showcased in physical galleries when you can sell your art as an NFT? Even when it’s showcased, gallery owners or brokers would still take a percentage of your earnings. If you sold the art as an NFT, all the earnings would be yours.
Buyers and collectors can also own unique digital art. Once they have ownership, buyers can use the image as they wish. For example, if it’s a piece of music, they can use it online without worrying about copyright strikes. On the other hand, collectors can hold onto the art as an investment, wait for the value to increase, then sell it at a higher price in the future.
We believe that the NFT craze has just started. We should expect the NFT market to even grow to over $1 billion by the end of 2021 as more celebrities and major brands are jumping on the bandwagon to create their own unique tokes.
As they grow in popularity, the discussion of their effect on the environment will definitely come up. Since NFTs are mainly part of the Ethereum blockchain, will their increase in trading volumes increase the carbon footprint of Ethereum? For now, all cryptocurrencies are energy-intensive. We can only hope that they’re working on a greener future, and if they haven’t started, they will start soon.
Written by The Original PC Doctor on 4/06/2021.