Confused about NFTs? Here's all you need to know
“An NFT is, in essence, a collectible digital asset, which holds value as a form of cryptocurrency. Much like art is seen as a value-holding investment, now so are NFTs. But how?
First, let's break down the term. NFT stands for non-fungible token – a digital token that's a type of cryptocurrency, much like Bitcoin or Ethereum. But unlike a standard coin in the Bitcoin blockchain, an NFT is unique and can't be exchanged like-for-like (hence, non-fungible).
So what makes an NFT more special than a run-of-the-mill crypto coin? Well, the file stores extra information, which elevates it above pure currency and brings it into the realm of, well, anything, really. The types of NFTs are super-varied, but they could take the form of a piece of digital art or a music file – anything unique that could be stored digitally and be thought of to hold value. Essentially, they are like any other physical collector's item, but instead of receiving an oil painting on canvas to hang on your wall, for example, you get a JPG file. (Coggan, Creativebloq)“
How do NFTs work?
“One of the main benefits of owning a digital collectible versus a physical collectible like a Pokemon card or rare minted coin is that each NFT contains distinguishing information that makes it both distinct from any other NFT and easily verifiable. This makes the creation and circulation of fake collectibles pointless because each item can be traced back to the original issuer.
Unlike regular cryptocurrencies, NFTs cannot be directly exchanged with one another. This is because no two NFTs are identical – even those that exist on the same platform, game or in the same collection. Think of them as festival tickets. Each ticket contains specific information including the purchaser’s name, the date of the event and the venue. This data makes it impossible for festival tickets to be traded with one another.
The key characteristics of NFTs include:
- Non-interoperable: A CryptoPunk cannot be used as a character on the CryptoKitties game or vice versa. This goes for collectibles such as trading cards, too; a Blockchain Heroes card cannot be played in the Gods Unchained trading-card game.
- Indivisible: NFTs cannot be divided into smaller denominations like bitcoin satoshis. They exist exclusively as a whole item.
- Indestructible: Because all NFT data is stored on the blockchain via smart contracts, each token cannot be destroyed, removed or replicated. Ownership of these tokens is also immutable, which means gamers and collectors actually possess their NFTs, not the companies that create them. This contrasts with buying things like music from the iTunes store where users don't actually own what they’re buying, they just purchase the license to listen to the music.
- Verifiable: Another benefit of storing historical ownership data on the blockchain is that items such as digital artwork can be traced back to the original creator, which allows pieces to be authenticated without the need for third-party verification. (Leech, Coin desk)”
Who's been using NFTs
“Although that may be far from simple for the uninitiated to understand, the payoff has been huge for many artists, musicians, influencers and the like, with investors spending top dollar to own NFT versions of digital images. For example, Jack Dorsey's first tweet is now bidding for $2.5 million, a video clip of a LeBron James slam dunk sold for over $200,000 and a decade-old "Nyan Cat" GIF went for $600,000. (CNN)“
"In February 2021, the musician Grimes sold around $6 million worth of tokens representing digital art on Nifty Gateway. Later in February of 2021, an NFT representing the meme animation Nyan Cat was sold in an internet marketplace for just under US$600,000.
The American digital artist Beeple's work Everydays: The First 5000 Days was the first NFT of an artwork to be listed at prominent auction house Christie's and sold for 69.3 million USD on 11 March 2021. The day before the auction, Beeple said, "I actually do think there will be a bubble, to be quite honest. And I think we could be in that bubble right now." The speculative market for NFTs soared in the year leading up to early 2021 when the same investors who had speculated on cryptocurrencies traded greatly increasing volumes of NFTs.
In a race for the publicity, the first full album represented by an NFT to enter auction was Whale Shark by Canadian electronic artist Clarian, which was released on March 4, 2021. Kings of Leon's album When You See Yourself, released on March 5, 2021, had been planned to be the first musical album sold with NFT tokens. (Contributors to Wikimedia projects)”
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Why are NFTs controversial?
"An NFT is a unique cryptocurrency token that can take the form of pretty much anything digital — art, a GIF, or even Twitter CEO Jack Dorsey’s first tweet. (For a more detailed look at what an NFT actually is, check out this breakdown.) There have been some initial estimates of how much power an NFT uses up and, consequently, how much planet-heating pollution that generates.
I’m a buyer or collector. Are they all truly unique?
“If all of this sounds bizarre, that’s because it is. The idea of paying for the symbolic ownership of a digital image that lives somewhere on the web and can be captured on a screenshot or right-click-download within seconds, is so alien it seems either idiotic or ironic. Yet NFT proponents purport to be solving exactly that problem: the near-impossibility of monetizing digital artworks. “As a mechanism, NFTs make it possible to assign value to digital art, which opens the door to a sea of possibility for a medium that is unbridled by physical limitations,” says Noah Davis, a specialist in postwar and contemporary art at Christie’s.
Currencies and cryptocurrencies (like the US dollar or bitcoin) are by nature made up of fungible—that is to say, interchangable—units: My two bitcoins are worth the same as your two bitcoins, and if we exchanged them, neither of us would feel stiffed. Currency and cryptocurrency units are also, usually, fractionable into smaller units—dollars can be broken down to cents, bitcoins to particles called satoshis—which can be spent separately. On the contrary, NFTs—cryptocurrency assets developed according to special Ethereum standards ERC-721 and ERC-1155—are unique and indivisible. Where a bitcoin is comparable to a dollar bill, an NFT can be likened to a cat, a sculpture, or a painting: You can’t sell part of it without spoiling the whole, and its value is rather subjective. Those characteristics render NFTs a good metaphor for art. Now, the crypterati and a waxing portion of the art world are asking us to take a leap of faith and believe that by buying an NFT we should feel like the owners of whatever artwork an artist has decided to link with it. (Wired)"
References and Links
Coggan, Georgia. “Confused about NFTs? Here’s All You Need to Know | Creative Bloq.” Creative Bloq, Creative Bloq, 16 Mar. 2021, https://www.creativebloq.com/features/what-are-nfts.
Leech, Ollie. “What Are NFTs and How Do They Work? - CoinDesk.” CoinDesk, CoinDesk, 1 Feb. 2021, https://www.coindesk.com/what-are-nfts.
Business, Jazmin Goodwin, CNN. “What Is NFT? Non-Fungible Tokens Explained - CNN.” CNN, CNN, 17 Mar. 2021, https://www.cnn.com/2021/03/17/business/what-is-nft-meaning-fe-series/index.html.
Wired, Gian Volpicell. “NFTs Boom as Collectors Shell Out to ‘Own’ Digital Art | WIRED.” Wired, Wired, 27 Feb. 2021, https://www.wired.com/story/nfts-boom-collectors-shell-out-crypto/
Contributors to Wikimedia projects. “Non-Fungible Token - Wikipedia.” Wikipedia, the Free Encyclopedia, Wikimedia Foundation, Inc., 2 May 2018, https://en.wikipedia.org/wiki/Non-fungible_token.
Calma, Justine “The Climate Controversy Swirling Around NFTs - The Verge.” The Verge, The Verge, 15 Mar. 2021. https://www.theverge.com/2021/3/15/22328203/nft-cryptoart-ethereum-blockchain-climate-change