Let’s start from the beginning—“Cryptocurrency.”
The crypto universe has grown a great deal since 2009 and has become the trillion dollar behemoth of an industry that it is today. With its trajectory over the decade and the pace of technological advancements, it’s safe to say that the so-called ‘digital dollars’ is the future of money.
From the single original cryptocurrency, Bitcoin, the crypto universe has expanded to accommodate Ethereum, Litecoin, Dogecoin, among the 10,000+ others. Pretty mind blowing, right? But that’s not all there is. Other token kinds like the recently popularized NFTs have been birthed as well. At this rate, who knows what’s next?
But while we can expect a lot more in forethought, the majority of the global population is still running behind on taking hold of the concept—let alone NFTs among other related subjects. In a survey created by YouGov, it has been revealed that 98% of the participants from the US, Mexico, and Brazil still do not understand enough basic concepts related to bitcoin, stablecoins, and NFTs. In terms of NFTs, it proved that only four out of ten of the surveyed could define it.
If you think you’re represented in the former figure, this might just be the guide for you.
What does NFT stand for?
Non-fungible Token.
“Non-fungible” means unique, one of a kind, or cannot be replaced. But I doubt that makes it any clearer. Let’s look at some examples.
In crypto, an example of a FUNGIBLE token is a bitcoin. If you traded a bitcoin with another, you would have the exact same thing. Similar to a dollar bill—traded with another and you would have just another dollar bill.
A one-of-a-kind trading card, however, is NON-FUNGIBLE. Exchange it for another and you would have a completely different card. Like Diamonds! Because no two diamonds are the same, trading one for another would mean having another with unique qualities that add or subtract value.
NFTs are actually likened to digital passports because each token contains a unique, non-transferable identity to distinguish it from other tokens.
Starting to get it now? Let’s keep going.
What exactly are NFTs?
NFTs are digital assets that represent real-world objects like music, art, digital avatars, images, videos, or any other unexplored art forms and collectible items. As its name suggests, these ‘digital representations’ cannot be duplicated.
In theory, anybody can tokenize their work to sell as an NFT but interest has been fuelled by recent headlines of multi-million-dollar sales.
You can expect big money in the NFT sphere. In fact, some NFTs are worth millions. In mid February, an animated GIF of Nyan Cat—a 2011 meme of a flying pop-tart cat—sold for more than $500,000. A few weeks later, musician Grimes sold some of her digital art for more than $6M. The most expensive NFT to date is by Beeple and is priced at a whopping $69.3M.
It is not just art that is tokenized and sold. Twitter’s founder Jack Dorsey has promoted an NFT of the first-ever tweet, with bids hitting $2.5M.
If all that an NFT signifies is a digital asset, meaning intangible, why are people spending millions on it? They spend so much because an NFT allows the buyer to own the original item.
Now, you might wonder, “Can I screenshot the NFT without purchasing and then sell it?” This is true, but you would not be able to sell it at the value of the original. Likewise, if you took a photo of Van Gogh’s The Starry Night, it would be challenging to find a collector.
And technically, buying the NFT means buying the artwork’s “digital rights.” These rights include built-in authentication which serves as proof of ownership for the buyer. Even if the artwork is visibly accessible to the public and can be copied and pasted, no one can take hold of the piece’s digital rights without purchasing it.
Fun fact: Most collectors value the digital rights more than the item itself.
How do NFTs work?
The NFTs are sold online, frequently for crypto coins, and are encoded.
NFTs are token built and managed on a blockchain (most frequently on Ethereum) that represents ownership of the asset. So, most NFTs require payment in Ethereum or other crypto blockchains where they are built. Every time an NFT moves to the secondary market, the new owner and the price paid is automatically recorded on the blockchain, which is a digital archive of transactions that everyone can see but cannot be altered.
NFTs are backed by blockchain technology. The idea is that by having these certificates of authenticity be publicly available for everyone to view online, NFTs can guarantee the provenance of any asset they are connected to.
As with cryptocurrency, a record of who owns what is stored on a shared ledger known as the blockchain. The records cannot be forged because the ledger is maintained by thousands of computers around the world. NFTs can also contain smart contracts that may give the artist, for example, a cut of any future sale of the token.
What makes it so important?
NFTs can represent any digital asset on the Ethereum blockchain and others, thus making it scarce, provable, and valuable. The advent of NFTs have created a new medium for artists and creators to showcase their creations or collections.
In turn, a revolution is paving the way for artists to create and monetize their work while collectors have full transparency into the authenticity and provenance of their purchases. Creators continue to push the boundaries of creativity using NFTs, adapting them in new and innovative ways.
The Future
There have been several cases that prove the new generations are taking interest in NFTs. An 18 year-old who goes by the name FEWOCiOUS says that his NFT drops have netted over $17 million—though obviously most haven’t had the same success. The New York Times talked to a few teens in the NFC space, and some said they used NFTs as a way to get used to working on a project with a team, or to just earn some spending money. Crypto has revolutionized and disrupted global financial systems. It would be no surprise if NFTs completely reformed the ways of creating and collecting art.
Phew! I hope your brain is alright. BRB, gonna make me some NFTs to sell.
Sources:
- https://www.cfr.org/backgrounder/cryptocurrencies-digital-dollars-and-future-money
- https://blog.portion.io/the-history-of-nfts-how-they-got-started/#:~:text=The%20idea%20of%20NFTs%20emerged,%2C%20even%20equities%2C%20and%20bonds.
- https://blockworks.co/survey-says-most-people-still-dont-understand-crypto/
- https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
- https://www.investopedia.com/terms/f/fungibles.asp
- https://www.ndtv.com/business/nft-the-new-rage-in-the-crypto-world-key-things-to-know-2543136
- https://www.rollingstone.com/pro/features/crypto-nft-gaming-ticketing-royalties-1197979/
- https://www.dexerto.com/tech/top-10-most-expensive-nfts-ever-sold-1670505/
- https://www.investopedia.com/non-fungible-tokens-nft-5115211#:~:text=They%20are%20digital%20representations%20of,distinguish%20it%20from%20other%20tokens.&text=Just%20like%20Bitcoin%2C%20NFTs%20also,and%20transfer%20between%20token%20holders.
- https://www.bbc.com/news/technology-56371912
