For some, cryptocurrency is hard to get their head around (hopefully not if you’re a TVI member). However, just when you thought it couldn’t get more confusing, along came NFTs. Everyone is talking about them and some are making really good money off them. So, WTF is an NFT?
What are NFTs?
First things first, WTF does NFT stand for? Answer: Non-fungible tokens. Duh…
But seriously, Non-Fungible Tokens (NFTs) are digital assets that contain identifying information recorded in smart contacts. Put even more simply, they are tokens that represent ownership of unique items. This information, which is stored in the blockchain, is what makes it valuable and unique. They can be bought or sold like any other piece of property through online marketplaces, such as Rarible or Opensea. More on these marketplaces later.
Through NFTs we can tokenise art, videos, music, collectibles, tickets or even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence (a really big benefit).
Fungible VS Non-Fungible Assets
Traditional currency (and even Bitcoin) are considered ‘fungible’, meaning they can be readily interchanged / traded like-for-like. For example, I can trade my $10 note for 2 x $5 notes or my 1 BTC for someone else’s BTC. As their name suggests, NFTs are non-fungible and cannot be duplicated or traded like-for-like. For example, trading my Trillionaire Thug NFT for your CryptoPunk NFT is not like-for-life.
History of NFTs
It goes back to mediaeval times. No, only joking mum, however they have been around for a bit longer than you think.
Whilst they really gained traction in 2021, NFTs actually came onto the scene in early 2014, with Kevin McCoy minting his first NFT, ‘Quantum’. This NFT is on sale today for several million dollars.
Whilst there were other projects floating around, the NFT space really picked up in 2017 with the release of CryptoPunks by Larva Labs, 10,000 unique characters on the Ethereum blockchain.
CryptoKitties were next to pop, a blockchain-based virtual game where players adopt, breed, and trade virtual cats using Ethereum. Each blockchain-based digital kittie is unique; collecting different digital kittens is the aim of the game.
After this, NFTs were relatively quiet before exploding in 2020 to the point where my auntie was texting me asking about them. This was due to projects such as Beeple’s The First 5000 Days, who sold the most expensive NFT for $69 million.
How do NFTs work?
NFT’s are part of the Ethereum blockchain network which is also the second biggest coin by market capitalization (it was first described in a 2013 whitepaper by Vitalik Buterin). These blockchains (e.g. Ethereum) also have their own cryptocurrency coins (e.g. ETH) that supports these NFTs, allowing them to be created on the network. NFTs store extra information that makes them work differently from, say, an ETH coin. Other blockchains can implement their own NFTs and replicate the ‘Ethereum’s way of the NFT’.
But what actually are they?
NFTs can really be anything digital such as drawings, music, in game items. For example, rock band Kings of Leon (yes they’ve been making music since ‘Sex on Fire’) released their album “When You See Yourself” as an NFT, unlocking special perks like front row seats at future concerts for owners.
We’re now seeing brands like Taco Bill create NFTs of their famous Tacos, we’re seeing famous Youtube Videos such as ‘Charlie Bit My Finger’ or memes such as the Disaster girl tokenised as an NFT and selling for $750k and $500k respectively. We’ve even seen one of the biggest NBA teams, the Golden State Warriors, become the first professional sports team to launch an NFT collection commemorating the team’s 6 NBA championships in the form of NFT rings.
However, a lot of the current excitement is around using the tech to sell digital art.
Can’t I just right click and save the image?
Yes, you absolutely can. I did it here with a Trillionaire Thugs image. However, this doesn’t give you ownership of the image via ownership of the smart contract. It’s like taking a photo of the Mona Lisa, it doesn’t mean you own the Mona Lisa, and good luck trying to find someone who would buy that picture.
The benefits of NFTs
Alright, so we know NFTs are unique digital files that by being stored on the blockchain, give you complete ownership of the file via a smart contract. But what are some benefits of NFTs?
- Relative to NFTs, physical assets face several challenges in holding their value:
- Physical items are easier to be forged / replicated, stolen or event lost
- It is much harder to track or prove the ownership history of physical objects
- As NFTs sit on the blockchain, they have a verifiable public record that cannot be lost and verifies both the owner and item
The above is what makes them so unique and rare, hence why they can be very expensive!
A financial benefit for NFT creators is that they can receive royalties whenever their NFT is sold. This is all automated too, meaning NFT creators can receive passive income everytime their NFT is sold on to someone else.
Challenges of NFTs
While Crypto and NFT enthusiasts are insistent that changes in POS (proof of stake) technology will reduce the impact, many wonder if the “juice is worth the squeeze”:
NFTs are typically bought and sold in marketplaces that use Ethereum, with a fee “gas” required to complete the transaction. A study backed up by independent researchers, the creation of an average NFT has a whopping environmental footprint of over 200 kilograms of carbon.
How Can I purchase an NFT?
OpenSea & Rarible are the main places to buy NFTs. These are marketplaces that work like an auction, where users bid for NFTs they want to purchase.
Who can create NFTs?
That’s the best part, anyone can! You don’t need to be some blockchain expert. As long as you can prove you own the content in the NFT, you can create one today. Check our step by step guide here on how to create an NFT here.
Future Use Cases
- Identity management
- Event tickets (Mark Cuban is big on this)
- Ownership (Property, art)
- Intellectual property
Are NFTs here to stay?
With the explosion in popularity of NBA Top Shot and jaw-dropping purchase numbers from artist NFTs in early 2021, everyone started making NFTs, leading many to ask if NFTs had “jumped the shark” or if regulations will lead to more than just dips.
Dapper is already facing legal challenges and being accused of deceptive practices for NBA Top Shot. The sales peak for Top Shot coincided with US stimulus checks and heightened lockdowns, leaving consumers with disposable income and less ways to spend it.
It remains to be seen if people will have a frenzied purchase of NFTs if they don’t think they will get rich.
Our opinion? It really depends on the utility behind the NFT. Those that have no real purpose/incentive, such as just an image, will probably phase out. However, the technology behind it is so unique and has so many use cases (as seen above), that we really see these being implemented into so many areas of life moving forward. In that regard, we believe they are here to stay.