NFT (Non-Fungible Tokens) made headlines recently when an artist named Beeple sold a digital photo collage for $69 million. Depending on your taste in art, you may find Beeple’s image attractive, but would you pay millions for it? After all, you can “own” a copy every day. The First 5000 Days by downloading the material images (although you may be violating copyright laws).
This is the problem that NFTs aims to solve. The Mona Lisa is worth nearly a billion dollars, but an exact digital copy is worth nothing. What does the original on canvas and oil have that the digital copy doesn’t? It’s not data; Modern cameras collect more data than your eyes can handle. It is not the physical element of the painting; You can create similar colors and canvases with a little research and a few hundred dollars.
The Mona Lisa is valuable, in part, because it is unique. Economically, it is a scarce resource. Scarcity alone does not make something valuable: rocks are also unique. But a scarce item that many people want to own, such as a well-respected piece of art, generates sky-high values.
Digital art is the opposite of unique. It is infinitely reproducible. It is impossible to tell the original from a copy of a copy over millions of repetitions. This is a problem for artists, musicians, and other creatives – not to mention collectors and investors who want to create a market in digital assets.
NFTs make digital art unique and economically valuable. Or, more accurately, by pairing it with something unique: a non-fungible token, allowing creators to sell ownership of an item that can be easily replicated. Creativity dominates our lives online, but until NFTs, a digital Mona Lisa was impossible.
What does non-fungible mean?
Fungibility is a term of art from economics. An asset is fungible if it is exchangeable for another of the same kind. Money is fungible. A $20 bill in my wallet equals a $20 bill in yours. We can swap bills, and nothing will change. We will have the same amount. Non-fungible assets cannot be exchanged in this way. A room is non-fungal; We could swap houses, but we’d each have something different. The same goes for cars and furniture and many other items. If I borrow your car and return another one, you have something to say about it—even if the car I lent you was worth the same as the one I borrowed.
What is an NFT?
An NFT is a non-fungible token, a piece of data that includes a unique identifier and ownership record underwritten by public-key cryptography. They cannot be copied or manipulated and each token is unique, so it cannot be exchanged for another token like money. However, NFTs can be bought and sold. So far, NFTs sound as interesting as rocks: unique but not particularly desirable But NFTs have other, more exciting features. They can be used to certify ownership of digital assets, such as works of art. An NFT represents ownership. When someone buys an NFT linked to the artwork, they are in a sense buying the artwork. The work itself may be copied, but the token and its resource are unique.
With NFTs, it is possible to create a market for digital assets. People can support their favorite artists by buying NFTs linked to their work. Collectors and speculators can buy NFTs as investments. And it’s not just industry: any digital asset can be linked to an NFT. Do you want to be the owner of your favorite meme? Meme stars like EmmaGuard Girl (Maggie Goldenberger) and Scumbag Steve (Blake Boston) have turned internet fame into money by creating and auctioning NFTs.
How do NFTs work?
If you are familiar with Bitcoin and other cryptocurrencies, you may recognize our description of NFTs. They share the same qualities as cryptocurrencies as they are both based on blockchain technology. A blockchain is a digital ledger, which records transactions as a series of blocks. Each block contains a cryptographic hash linking it to the previous block. The result is a cumulative list of cryptographically linked records.
Blockchains are distributed over thousands of computers, each with its own copy. Because blockchains are distributed and cryptographically linked, it is impossible to change the data within them, making them a reliable way to store transactions without a central authority. Blockchain was initially developed for fungible assets like cryptocurrencies. But the Ethereum blockchain, among others, supports tokens that include information about digital assets.
When Vignesh Sundaresan — also known as Metacovan — paid $69 million for Beeple’s digital art, he bought the right to transfer the relevant NFT to his digital wallet to prove he “owned” it daily – the first 5000 days.
What are NFTs used for?
We’ve already seen two uses for NFTs, digital art, and memes, but there’s more, from crypto kitty to crypto kix, Nike’s virtual collectibles. Game companies use NFTs for in-game assets. Musician Grimes has sold a 50-second video for $388,000. Perhaps most famously, Twitter CEO Jack Dorsey used an NFT to sell his first tweet for around $3 million. How, as a creator, can you get into NFT? First, you need to figure out how to create one and connect it to a digital asset. Then, you will need to choose a blockchain to store your NFT.
Ethereum the most popular, and easiest way to create an Ethereum wallet is on one of the major cryptocurrency exchange platforms like Coinbase. Finally, you connect your wallet to an Ethereum marketplace such as OpenSea or Rarible and upload the asset. Most NFTs are sold via auction, but there is nothing stopping you from selling directly to buyers.
NFTs are an interesting evolution of both blockchain and markets in digital arts and collectibles. Currently, the focus is on multi-million dollar headline sales, but NFTs create a sustainable economy for artists, writers, videographers, and musicians who struggle to monetize their work.
