What is an NFT? Why should you care?
What Satoshi Nakamoto and Vitalik Buterin know about the future of digital currency is counterintuitive.
You might be familiar with the concept of fungible tokens, or cryptocurrencies (like Bitcoin). Non-fungible tokens are very similar. Non-Fungible Tokens or NFT’s is the term given to any digital asset that is unique and can’t be duplicated.
Web 3.0 Reinvents the Internet
Web 3.0 is the new phase of the evolution of the internet. Before this, we’ve had Web 2.0, which was a modification of its predecessor. This time around, the internet is undergoing a complete evolution. According to Shermin Voshmgir, very soon, applications like smart contracts, DAOs & tokens would form the basis for the future digital economy.
Non-fungible tokens (NFTs) are one of the best examples of how blockchain technology can be used to improve a product or service. They have grown in popularity this year. NFT artworks sell for millions of Dollars and musicians like the Kings of Leon rock group have used them for their albums.
This pattern is unbelievable for those who might wonder why a lot of money is being spent on items that are not tangible. They only exist in digital form and can be viewed by anyone for free.
Beeple’s First 5000 Days digital artwork was by far the most expensive non-fungible token (NFT) sold in 2021, with most other projects stemming from gaming and collectibles.
Mike Winkelmann’s piece was also significantly more expensive than other art pieces, being sold for roughly 550 ETH (or 1,000 U.S. dollars) on March 14, 2021.
Indeed, the NFT market capitalization grew nearly ten times between 2018 and 2020.
Let’s examine some facts about NFTs:
WHAT IS AN NFT?
An NFT is a digital asset that exists on a blockchain. The blockchain is a public ledger that allows anyone to ascertain the authenticity of an asset and verify ownership.
So, unlike most digital items which can be endlessly reproduced, each NFT has a unique digital signature, meaning it is one of a kind.
NFTs are usually bought with the cryptocurrency Ether or in dollars and the blockchain keeps a record of transactions. While anyone can view the NFTs, the buyer has the status of being the official owner — a kind of digital bragging rights.
What does Vitalik Buterin Think about NFTs?
Vitalik Buterin, author of the Ethereum whitepaper thinks that although there is little social value in helping Elon Musk gain another $1 million by selling NFTs, they could have considerable social impact. He also warns that the NFT market is influenced by the forces of mass public perception.
WHAT KIND OF NFTS EXIST
Various kinds of objects can be made into NFTs — images, videos, music, text, and even tweets — can be turned into an NFT.
There have been high-profile sales of digital art. In sports, fans can collect and trade NFTs involving a particular player or team. For instance, the Golden States Warriors launched its own NFT collection.
Furthermore, enthusiasts can purchase collectible NFTs in form of video highlights of games on the NBA’s platform.
While these highlights can be seen for free on other platforms such as YouTube, people are buying the status as the owner of a particular NFT, which is unique due to the digital signature.
NFTs can also be patches of land in virtual world environments or exclusive use of a cryptocurrency wallet name.
HOW HAS THE MARKET GROWN?
Traded since around 2017, NFTs have surged in 2021. Monthly sales on NFT marketplace OpenSea hit $95.2 million in February, up from $8 million in January.
Total NFT trading volumes on the Ethereum blockchain amount to over $400 million, nearly half of which were in the last 30 days, according to NonFungible.com, which aggregates data from NFT marketplaces.
NBA Top Shot, which is not included in NonFungible.com data, has 683,000 users and has seen $396 million in sales, $232 million of which were in February.
Some attribute it to lockdowns forcing people to spend more time at home on the internet. But NFTs are also a way to have possessions that can be viewed by owners’ online friends.
For others, the lure lies in rapidly rising prices and the prospect of big returns. Recent years have also created a lot of crypto millionaires with Ethereum to spend.
WHY ARE THEY IMPORTANT?
Enthusiasts see NFTs as the future of ownership. All kinds of property — from event tickets to houses — will eventually have their own status tokenized in this way, they believe.
For artists, NFTs could solve the problem of how they can monetize digital artworks. They can receive more income from NFTs, as they can get a royalty each time the NFT changes hands after the initial sale.
NFTs could also transform music. Kings of Leon’s NFT allows buyers access to limited-edition vinyl or seats at future concerts.
WHAT ARE THE RISKS?
Given that anybody can create NFTs, the scarcity of each piece does not guarantee value. Losses can stack up if the hype dies down.
In a market where many participants use pseudonyms, fraud is also a risk.