An NFT is a unique digital asset bought using cryptocurrency that exists (mostly) on the Ethereum (ETH) blockchain. The NFT craze is currently booming - in February 2021 alone over $86 million was spent in said market. NFT stands for “Non-Fungible Token”. This is a special type of cryptographic token which represents ownership of something unique and scarce.
To understand “Non-Fungible” let’s first take a look at what “Fungible” means. Bitcoin is an example of a commodity that is fungible. Fungible refers to anything that is easily traded for another version of itself of the same condition and value. Two seperate Bitcoins have identical value and can be easily swapped and exchanged. They cannot be uniquely identified from one another and essentially it makes no difference if you swapped your Bitcoin for somebody else's’. In the offline world, mass-produced books/artwork or physical currency follow the same principles. They represent things that are plentiful, easily distributed and of equal value to their equivalent (1 dollar = 1 dollar). There are countless examples of fungible items.
Non-fungible items are things that are not easily interchangeable as they are unique or scarce. Take the Mona Lisa for example. There is no way to swap one Mona Lisa for another. If you do swap it for another one of a kind painting, you’ll end up with something completely different. Only one true version exists.
Non Fungible Tokens bring this concept into the digital world.
NFTs can be created for any digital asset (images, gifs, videos, music, video game items etc…) through a process called minting or tokenizing. This process allows an NFT to become traceably authentic.
Let’s use digital-visual art as an example. Any particular image can be replicated, shared and copied infinitely thanks to the power of the internet. However, when such an image is tokenized (made into an NFT) only one true version of it exists. A specific data signature is attached to the token (who created it, how much it was sold for and who the owner is). The token now represents a certificate of ownership. Blockchain technology keeps this information safe by allowing each individual token to have their ownership irrevocably transferred or resold in a way that can be publicly and cryptographically verified. It is important to know that anybody can create an NFT.
This process is comparable to the Mona Lisa example. It is very easy to obtain a print version of the painting. However, this is not the same as hanging the original Da Vinci work in your living room. NFTs are a certificate of authenticity.Modern Day Trading Cards, Bit-Art and Virtual Real Estate:
There are many types of NFTs, currently the most popular come in the form of digital art and collectibles. The NFT space began with the introduction of CryptoPunks on the Ethereum Blockchain in 2017.
10,000 computer generated characters, with no two exactly alike, were originally distributed for free but due to their rarity have seen massive price tags (upwards of Ethereum equivalent to $1 million) attached in recent times. Many collectors purchase with the intention of selling for a profit in the future.
CryptoKitties is a game based on the Ethereum blockchain that allows players to purchase, breed and sell virtual cats. The dollar equivalent of Ethereum that has changed hands within this marketplace is in the millions
In early 2021, online artist Beeple sold a 10 second video clip entitled “Crossroads” as an NFT for $6.6 million. Musician and visual artist Grimes recently auctioned a digital artwork collection online earning her around $6 million.
Large scale franchises have been getting in on the action too. NBA Topshots is an NFT marketplace where users can buy, sell and trade highlights of NBA basketball games. Most notably a bidder paid over $200,000 for a clip of LeBron James slam-dunking. Total sales in the market is estimated to be over $230 million as of February 2021.
Nike currently holds a patent for the CryptoKicks. Users will be able to purchase physical pairs of sneakers that come with a unique digital version too. Different sneakers can be ‘bred’ together online to create a brand new pair of kicks. Users will be able to contact Nike to get this new pair manufactured.
Decentraland is a blockchain based, virtual reality landscape where players can purchase in-game land. Users have already spent in the 10s of millions of dollars within the video games virtual real-estate economy. The NFT (digital land in this instance) contains the certificate of ownership, similar to land deeds in the offline world.
A large portion of NFTs perceived value lies in owning the “original” copy of a given artist's work. NFTs have a feature that can allow the initial creator to receive a percentage every time a particular NFT is sold or changes hands. This has massive implications for artists, especially in the current global economic climate. Super-fans can also keep such tokens with verifiable proof that they supported their favourite artists in the early days. Purchasing an NFT also usually comes with some basic usage rights for the buyer (permission to post the image online, use as a profile photo etc.). Plus, of course there are the bragging rights that the art is rightfully yours, with a blockchain entry to back it up.
Like all crypto related topics there are some hurdles NFTs will have to overcome. There has been some controversy regarding ethical questions as to what should be permitted for sale when a hacker auctioned a seemingly harmless (for now) video game exploit NFT (Hacker Selling Cyber Security Exploit NFT). Environmental questions have also been raised due to the energy heavy, proof of work verification process related to the Ethereum blockchain (The Unreasonable Ecological Cost of #CryptoArt).
What are your thoughts on the future of NFTs? How else can it be utilised for Art, Functionality, Gaming and most interestingly Profit?
How will Ireland embrace NFTs? What opportunities are out there for artists, developers and investors, alike?
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