NFT is the new buzzword all of the sudden, & this new blockchain term after cryptocurrency might have left you thinking Um… what’s going on here? Especially after Twitter CEO, Jack Dorsey put up his first tweet for sale as a non-fungible token for a whopping over $2.9 million.
The first tweet was made by Dorsey on March 21, 2006, and goes like “just setting up my twttr”.
What exactly is an NFT?
NFT stands for non-fungible token. Well, this doesn’t make it any clearer. Let’s get into the nitty-gritty.
In economics, the term fungible asset is something that can be interchanged promptly, for example, money. If you have one £10 bill, you can exchange it for two £5 bills and the value will remain the same.
However, in non-fungible assets, the properties are unique and hence cannot be interchanged with anything else.
NFTs are one-of-its-kind digital assets that can be bought and sold but they do not have any tangible form.
Recently, a digital artwork has been sold for a whopping $69m - but guess what? The winning bidder will not receive a sculpture, painting, or even a print. Instead, they'll get a unique digital token known as an NFT!
How do NFTs work?
The technology backing NFT is the Ethereum blockchain. Ethereum is a cryptocurrency just like bitcoin or dogecoin, but the individual tokens, as we call them NFTs, have some extra information stored in them which allows them to take the form of art, music, video, etc in the form of JPG, MP3s, GIFs and more.
In traditional art, the originality of an artwork is easy to verify but with digital artwork, chances of duplication are very common. Let’s take the example of the Mona Lisa, there are thousands of prints that people can buy of it. But the original one is preserved in the museum. In the world of digital artwork, proof of originality and verified ownership for digital artwork is endorsed by NFT.
Why NFTs are crazy expensive?
Here comes the economic principle of supply and demand that drives the price determination in the market. NFTs are all the rage these days, they’re in high demand from gamers, collectors, and investors.
They also have the potential to make their owners a lot of money. For example, an investor purchased a digital Monaco track in the F1 Delta Time game. Now all the races that take place on the Monaco track, the owner receives 5% dividends from it.
If a creator creates an NFT for their unique content and let's say price it at $10,000 on an NFT marketplace, the creator gets 85% of it i.e $8500. After a month, if someone resells this NFT for $15,000. Creator will still earn 10% royalty on it for the rest of their life.
Why people are going bananas for it?
Yes. They are as wild as they sound.
People are treating NFTs like they are the future of fine art collectibles. According to the CEO of an NFT site, people are buying NFTs because it provides a unique connection to the creator that does not exist with any other art form.
How it stops people from copying digital art?
It doesn't. So many people have seen the most expensive NFT artwork by Beeple that is recently sold for $69m, and the copies of the image are floating on social media and have been shared multiple times.
The buyer of the NFT just owns a "token" that proves they have the "original" work.
What exactly you get when you buy an NFT?
When someone buys an NFT, they get unique ownership right for the token on the blockchain. If someone buys an image, music file, or other artwork, they can own it on the blockchain but they don't have control over its distribution. The token just acts as a connection to associate the owner’s name with the creator's art on the blockchain.
Please tell me more about its characteristics.
Here are some characteristics of NFTs that make them stand out:
- They are non-interoperable. NFTs can't be used in different interfaces. A CryptoPunk cannot be used as a character on the CryptoKitties game or vice versa.
- They are verifiable. The proof of ownership is stored on the blockchain and items such as digital artwork can be traced back to the original creator.
- They are indivisible. NFTs act as one whole unit. They cant be divided into smaller denominations.
- They are indestructible. The token cannot be destroyed, replicated, or duplicated.
What are some of the most expensive NFTs?
Here is a list of some of the highest prices paid for NFTs:
- Everyday’s: the First 5000 Days by Beeple, sold for $69.3 million in March 2021.
- Cryptopunk#3100, one of the nine aliens on offer, originally created by Larva Labs sold for $7.6 million in March 2021.
- Cryptopunk#6965, one of the nine aliens on offer, originally created by Larva Labs sold for $1.6 million in February 2021.
Future prospects: Hope or just a hype?
The monthly volume of NFTs traded has exploded since September 2020 and has grown from a few million to $241 million. So right now, the craze is wild! But are NFTs likely to fade away quickly? Or they could become a game-changer in digital assets and rights?
Well, the craze around NFTs, especially in the art sector will likely be short-lived. But it represents a massive shift in the big picture of the digital economy and where it is headed.