The wildest crypto innovation sweeping the digital currency can be summed up in three words: Non-Fungible Tokens (NFTs). In early 2021, Mike Winkelmann, the digital artist Beeple, sold an NFT for a whopping $69 million. Yes, you heard it right. Until October, the most Beeple had ever sold a print for was $100.
The NFT sale of “Everydays – The First 5000 Days” at Christie’s made him one of the most valuable living artists. The same month, Twitter CEO Jack Dorsey’s first tweet was sold at auction for $2.9 million. Grimes sold, god knows what, for $6 million. Clips of NBA superstar LeBron James dunking are sold for $220 Thousands.
What is an NFT?
A non-fungible token (NFT) is a new digital asset whose ownership is stored in the blockchain – a digital ledger. These digital assets include art, audio, videos, real estate, trading cards, GIFs, and characters in video games, among others. As the name suggests, these assets have a particularly unique value. Unlike other virtual & fiat currencies, these NFTs cannot be replaced with anything else.
Can anyone copy NFTs?
The answer to this can be “yes” and “no.” Every non-fungible token is unique and acts as a digital collectable whose ownership is stored on the blockchain network. One way of looking at them is that anyone can own a copy of the Mona Lisa painting, but the real value lies in the 1503 Da Vinci painting of the Mona Lisa.
Therefore, anyone can access and use digital art. However, the actual value of such art lies with an individual (or group of individuals) whose claim of ownership has been stored on an Ethereum blockchain network.
A brief history of NFT
Non-fungible tokens have been around for a while now. In early 2012, Yoni Assia first conceptualised issuing assets onto the blockchain. However, the wave of NFTs began in 2017 with the release of CryptoPunks on the Ethereum blockchain, allowing users to trade unique cartoon characters.
Another project, CryptoKitties, where players adopt and trade virtual cats, gained popularity. These colourful cats on the web have generated over $40 million in revenue. In 2021, interest in the NFT market spiked to its all-time high.
How does an NFT make money?
One of the most extensive uses of NFTs today is that content creators can now take the profits from their digital content. When the creators sell their content, funds are directly transferred to them. If the new owner then wishes to sell the NFT, the original creator is still paid a specific royalty. In the age of copy and paste, these NFTs provide the value of ownership to digital content holders. Game developers can earn a royalty on every item sold and resold.
How much is the NFT market worth?
According to the 2020 year-end report on NFTs by NonFungible.com, the leading data provider for the non-fungible token market, the NFT market tripled in size last year, and its value rose to more than $250 million. The report further revealed that the total number of active wallets grew by 97% in the previous year.
2020 has seen a significant boom in interest in non-fungible tokens. However, the crypto boom in 2021 has proved to be wild for NFT lovers. To put this into perspective, the first three months of 2021 alone have accounted for more than $200 million spent on NFTs. It has been forecasted that the NFT market will reach $710 million in 2021.
What does NFT mean for digital content?
At face value, the NFT innuendo seems absurd: intensely rich crypto whales buying worthless digital art for millions of dollars. Many have dismissed the NFT craze as the latest get-rich-quick scheme for the crypto space. At the heart of NFT is the “idea of ownership.”
Over the years, the Big Tech companies (popularly known as FAANG) have exploited artists of all kinds – authors, musicians, video creators, photographers, and painters – into creating content that generates visits and engagement, and gets almost nothing in return. For the first time, these artists can transfer their digital content ownership to an enthusiast and earn a substantial income.
You can now own your content and reap its benefits. When you transfer an NFT to a buyer, you certify that the digital file copy is original. If you buy an NFT, your private crypto key will hold the proof of ownership of the original. Even when digital content is accessible to anyone with internet access, the sole ownership of the content remains yours.
NFTs, aside from the visual pleasure they offer, also establish a unique social contract. In a world of NFTs, the buyer and the seller agree that what one is buying from the other is unique. The artist transfers the right to ownership of the token to the buyer. No one else can own the same – at least explicitly.
What are the ecological effects of the NFT market?
Aside from the hype surrounding NFTs, there are serious concerns about their ecological implications. Several climate activists have pointed out that NFTs are not eco-friendly because they are built on blockchain technology that consumes a significant amount of energy.
Blockchain is intrinsically designed to solve complex mathematical puzzles as proof of work. The miner who solves the mathematical problem first is rewarded with crypto coins. This process requires a significant amount of computational power, which in turn drives electricity consumption.
Some estimates suggest that a single Ethereum transaction consumes approximately 48.14 kWh. That is over half a month of energy consumption within an Indian household.
Cover Photo by Andrey Metelev on Unsplash