The world of NFT explored
Author: Daniël Asselbergs
April 28, 2021
The increasing demand for cryptocurrencies has bolstered the use of blockchain technology. The blockchain is a common public ledger which is the foundation for cryptocurrencies. All confirmed transactions are recorded in the blockchain. It allows cryptocurrency wallets to calculate their spendable balance, so new transactions can be verified to ensure they are actually owned by the bestower. The integrity and chronological order of the blockchain are enforced with cryptography. Blockchain thus provides anonymity and security. A new product has emerged from this technology, non-fungible tokens (or NFT). This product was created in 2015, being part of the Ethereum blockchain. The NFT market value tripled in 2020, reaching more than $250 million. The rise of NFT transactions has also led to increased environmental criticism.
The computation-heavy processes associated with proof-of-work blockchains, the type primarily used for the tokens, require high energy inputs that are contributing to global warming. The carbon emissions produced by the energy needed to maintain these blockchains has forced some in the NFT market to rethink their carbon footprint. The popularity of these non-fungible tokens can also be attributed to influential people using the technology. Twitter founder, Jack Dorsey, actioned his autographed first ever tweet for $2.9 millions USD.
Non-fungible means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible, trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you would have something completely different. At a very high level, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin, but its blockchain also supports these NFTs, which store extra information that makes them work differently from an ETH coin for example. It is worth noting that other blockchains can implement their own versions of these tokens. These digital products can be anything, such as drawings or music. A lot of the current excitement is around using the technology to sell digital art. This new form of selling art provides collectors with a unique opportunity. These NFTs are digital and can not be damaged through weather and bad maintenance like rare baseball or pokemon cards.
There is however a flip side. These tokens are allowed to be copied and downloaded by other people. NFTs are designed to give you something that cannot be copied, ownership of the work. (although the original artist can still retain the copyright and reproduction rights, much like physical artwork) The copy is exactly the same but not the original, and thus worthless.
Why is the use of this technology beneficial to the seller? For multiple reasons, for instance the NFT market gives you a way to sell your work that otherwise would be quite difficult to sell. Also, the seller is also given the opportunity to receive a percentage every time the product is sold. This makes sure that if your work gets immensely popular and balloons in value, you’ll see some of that benefit. What is in it for the buyer? One of the obvious benefits of buying art is it lets you financially support artists you like, and that’s true with NFTs. Buying an NFT also usually gets you some basic usage rights, like being able to post the image online or set it as your profile picture. Plus, of course, there are bragging rights that you own the art, with a blockchain entry to back it up. Next to that these digital artworks also provide the opportunity for speculative buys. When the demand increases, for this unique product, the value dramatically increases. When demand is low the value quickly drops.
Will this new product be around for many years to come? The product can be easily stored. Losing the password, websites that go down or file formats can’t be opened anymore are definitely potential problems. The relatively new NFT market however does provide creators a unique opportunity to reach a very wide audience.
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