NFTs: What Are They and How Do They Work?
NFTs have been making quite a wave in 2021. Multiple digital artworks and weird items on the Internet have been sold as NFTs for astounding figures. Particularly, a piece called Everyday: The First 5000 Days was sold for $69 million. So, big numbers aside, what do NFTs really mean?
Defining NFTs
NFTs stand for ‘non-fungible tokens’, which mean they are unique and irreplaceable. In contrast, most currencies and cryptocurrencies are fungible: 1 dollar equals 1 dollar, 1 ETC equals 1 ETC…
Because every digital artefact can be replicated with Copy+Paste, NFTs are there to prove that you have ownership of it, whether ‘it’ be a clip, an image or a tweet. So NFTs buyers purchase the token to represent the original artwork, but the art itself can be copied and saved on the computer of an average Joe.
Although each NFT is unique on the blockchain, the art they represent may not be. An artist can make 50 NFTs of the same artwork.
The Inner Working of NFTs
The Ethereum blockchain, or blockchain technology in general, enables the creation of NFTs. Anyone can save the information of anything digital onto a unique token on the blockchain for a little ‘gas’ fee, a process called ‘minting’. When you sell an NFT, the token is then transferred into the buyers’ crypto wallet.
Because you need to have both the creator’s public key and the NFT owner’s private key to verify the NFTs, they are very hard to be hacked. But crypto has been stolen before so it also depends on how much you are willing to do to take it back.
NFTs and Digital Art Collection
Since the boom of NFTs, countless artists have minted their artworks to sell. As for buyers, it would be natural to think that people won’t pay their hard-earned money just to buy a ‘representation’ of an artwork, yet people are buying tweets, virtual kitties, Logan Paul’s Pokemon cards and all kinds of things.
This is, of course, amazing for digital artists to have a newfound market. But the art collection business also benefits greatly from NFTs. Many NFT purchases will probably be for the purposes of reselling it later for more value.
If you’re interested in buying or selling NFTs, the most popular marketplaces for it are OpenSea, Rarible, Superfarm, SuperRare,… You can purchase them with FIAT currencies or crypto, although many sites only accept Ethereum.
NFTs Beyond Digital Art
Far more than one-dimensional, NFTs are being used for other purposes, which might just unveil new lucrative businesses in the future.
Blockchain Games
The mainstream gaming industry may consider adopting NFT into its ecosystem because current blockchain games are proving to be very promising. Particularly, a virtual kitten from CryptoKitties, a game where players breed unique, original kitties, was sold for $170,000.
Virtual Real Estate
Axie Infinity is similar to CryptoKitties, but there is also the factor of ‘land’ involved in the game. Nobody could have guessed that these digital patches of land were sold for a record $1.5 million, but they did. What’s more, other games are so ambitious that they want to recreate the physical world into their digital universe, with cars, buildings, roads, humans — all of which can be bought and traded.
Virtual Fashion
Special ‘skins’ in video games already have to be bought with real money, but when a piece of digital clothing that is unique like an NFT, virtual fashion might just be accelerated. Also, Nike plans to release ‘CryptoKicks’, which are sneakers that come with a special NFT to represent it.
Controversies With NFTs Regarding The Environment
Beside the shower of praises, NFTs also face heavy criticisms for the effect they have on the environment. The creation of an NFT exhausts a good amount of energy, sometimes equal to the consumption of an EU resident for 2 weeks.
