WTF is an NFT?
In our last article, we covered an intro to web3 and how it differs from the previous generations of the web and its potential impact on changing the landscape of technology and communication.
Today we will talk a bit more about NFTs what they are and why are they all the hype of the news recently:
- Nearly $41 billion worth of crypto was spent on the NFT marketplaces in 2021.?
- NFT market place OpenSea had its highest trading monthly volume of $4.21 billion in January
- KPMG Buys World of Women NFT for $73,000
- Crypto & NFT donations to Ukraine surpass USD $56.8M more than double that of the UN support
- CryptoPunk sale for more than USD $23M in February
- Bored Ape Yacht Club valuation estimated at USD $5B
And so many more headlines around NFTs. But before we understand why let's get a basic understanding of the meaning of the word NFT.
A few definitions that might help:
Blockchain - Blockchain is?a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.
Smart Contract - Smart contracts are simply?programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary's involvement or time loss.
Cryptocurrency - A cryptocurrency is?an encrypted data string that denotes a unit of currency. It is monitored and organized by a peer-to-peer network called a blockchain, which also serves as a secure ledger of transactions, e.g., buying, selling, and transferring.
Hopefully having a basic understanding of those three definition will help in understanding what is an NFT (Non Fungible Token):
NFT = ?a digital asset that represents real-world objects like art, music, in-game items and videos that contain identifying information recorded in?smart contracts on the blockchain. They are bought and sold online, frequently with?cryptocurrency, and they are generally encoded with the same underlying software as cryptocurrency.
Here are some examples of NFTs that exist today, to help you get the idea:
- A unique digital artwork
- A unique sneaker in a limited-run fashion line
- An in-game item
- An essay, novel, poem or short story
- A digital collectible
- A domain name
- A ticket that gives you access to an event or a coupon
- A movie, video, short film
- A song or music of any digital form
We are not limited to the above examples, any digital asset or digital representation of a digital asset that can be minted on the blockchain can be considered an NFT.
What are some of the benefits of NFTs and why are they so valuable?
- Verification, Validation and Authenticity
- Transformation of the digital assets market
- Decentralization and Transparency
- Creator empowerment
- Clear ownership rights of intellectual property
- Evolution of the concept of investment and shareholding
So what does this mean? Owning an NFT effectively makes you an investor, a member of a club (digital tribe e.g. Bored Apes, CryptoPunks), a brand shareholder, and a participant in a loyalty program all at once.
Because of the idea of decentralization the main ethos on which the blockchain founded, NFTs are the primary drivers and enablers of the "Creator Economy". In this new creator economy artists no longer need to be represented by famous art galleries, fashion designers no longer are dependent on big brands to give their designs representation, game developers don't need to be part of a game development giant to produce their work, and musicians do not need to lock themselves into long term off balanced record labels to share and distribute their work to the world. In simple terms NFTs and the "Creator Economy" creates freedom for the community of creators, developers, sellers and buyers that are no longer restricted, dependent on these large centralized conglomerates that control the marketplace.
Other than empowerment of the creator big brands and organizations still have a role to play but this role now needs to adjust and adapt to a more transparent, fair and more balanced relationship that favors a win win situation for both.
The word fungible means substitutable and non fungible clears means you cannot substitute it meaning it is unique. So if we look today at the "Mona Lisa" there is only one unique authentic and original piece in the world. When you visit the Louvre Museum in France you can see the original piece of art housed behind bulletproof glass and under surveillance of the most advanced security systems in the world to protect one of the most valuable physical paintings in the world estimated at USD $860M. After viewing the original painting by Leonardo Da Vinci you can go to the gift shop and pick up an identical print for less than $100 to frame and put up on a wall in your home.
Does that make you an owner of the "Mona Lisa"?
What would the reaction be if you claimed to own the original painting?
How much value would someone be willing to pay for that $100 print?
There are many that belong to a group of skeptics we refer to in the NFT space as the "right click savers" that think it is absurd to buy a digital asset for so much money when you can just right click and save that image. The answer to them is the same answer to the "Mona Lisa" story just because you buy a print or right click save an image of the original painting does not make you the owner of the painting. Owning the NFT means that there is a verified transaction that exists on a public ledger on the blockchain for all to see that is indisputable in its proof of ownership.
Why is the value so high? Well without going into too much details about value except that value is the willingness of a consumer to pay for a certain good and service. So if someone is willing to buy the painting of the "Mona Lisa" for $1B then that is the value of it.
In this article, I touched only on a few facets of the NFT world related to value, impact on the digital art space and the creator economy. But one article is not enough to cover all aspects surrounding NFTs so I will break it down into short snack-able pieces to offer the best value that I can.
To follow me in the NFT Space or check out my work, you can find links to my social media platforms and NFT marketplaces below