With every passing day, technological advancements are growing at a great pace. Just when you have got your head around one technology, another one is ready to pop up. One of the modern hottest trends buzzing since 2021 is NFT (Non-Fungible Token) that is not astounding to consider seriously when a young Indonesian boy makes $1million by just selling his selfies.
An NFT is a digital asset that is transforming the mode we share and consume everything. Let’s look back and recall the era of the 2010s or even before when Snapshot, Instagram, Twitter, Facebook, and LinkedIn were phasing in, and folks were ambivalent about their usage. It was pretty hard for the masses to understand why others would bother where someone is going for dinner or what he/she is sipping before lunch. But today, all these have so prevailed in our lives that we can’t imagine a single day without getting such updates on social media.
At present, NFTs (Non-Fungible Tokens) are all in vogue; however, their true potential is hard to understand by everyone. Being at its nascent phase, masses are yet confused about NFTs and consider them as just an open market for digital art and a thing of concern just for the wealthy. That’s not necessarily true. In this blog, we will walk through this emerging trend in-depth.
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What are NFTs?
An NFT is a distinctive “Non-Fungible” digital token such as art, video or audio clips, digital collectible items, gifts, memes, trading cards, eBooks, or even this article. In simple words, an NFT is anything that can be created, stored, sold, or traded through cryptocurrency. An NFT is not just limited to a creative or artistic digital asset; rather it can even be a digital contract allowing special perks like accessibility to exclusive parties, podcast interviews, a private conference, and many more. According to Investopedia, NFT can also be a real asset such as real estate. Other examples of NFTs include domain names, in-game items such as avatars, and event tickets. These digital tokens are stored in a blockchain that keeps the record of the ownership of those tokens. There is a misunderstanding among people that by taking screenshots of NFTs, they could get ownership of those NFTs. In reality, this is not the case, as according to the blockchain, this digital asset just belongs to its owner regardless of the number of screenshots one might take. The copyright for NFT would remain with the creator, but the buyer who purchases that asset would become the owner of it. He could further sell it to anyone. One thing to remember is that this digital asset can be replicated, but the certificate of ownership would be held by one official owner at a time. Once an NFT is sold, its ownership is changed.
What Does it Mean by “Non-Fungible”?
Fungibility refers to interchangeability. Money is a fungible asset as it is evenly exchangeable. Suppose I have $20. I can exchange with you even if you give me two notes of $10 each as in total they are equal in value. On the other hand, an NFT is an individualized digital asset having a single unit of value, and carries a digital signature, making it impossible to get exchanged for one another. That is why they are called “Non-Fungible” or “Non-Exchangeable”. For instance, we can’t exchange a painting with another even created by the same artist because both would be having their individuality. So both are not evenly exchangeable, and will be called “non-fungible”.
How an NFT Differs from Cryptocurrency?
The core technology behind NFT is the same as that of Cryptocurrency, such as Bitcoin. However, cryptocurrency is “fungible” just like physical money which means they are equal in value and can be exchanged for one another. My Bitcoin would be equal to your Bitcoin. If you give someone a Bitcoin, and he returns you a Bitcoin, it’s not essential to be the same Bitcoin. Inversely, NFTs are “non-fungible” which makes them impossible to trade or exchange for one another as they are unequal in value. For instance, my first Twitter post can never be equal to Jack Dorsey’s first Twitter post as both are NFTs.
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How to Create and Sell an NFT?
NFT can be a meme, a drawing, doodle, a picture, video clip, piece of music, etc., created by you. You, being the owner of that digital file can convert it into an NFT. So, an NFT is your digital asset with your intellectual property rights. Here, one important thing to remember is that people don’t need to always create an NFT for investment perspective. There are a lot of people who consider collectibles as some sort of emotional memory that they want to cherish throughout their life. For instance, one can create an NFT of an image of his game completion (e.g., Red Dead Redemption2) capturing everything he did in the game following his unique path. He can keep that NFT to memorialize his game completion, show it to people and recount it with pride.
Before creating an NFT, you have to “encode” your digital asset. For encoding, you need a blockchain platform. NFTs are stored in the blockchain as distinctive units of data that recognize them. It is your own choice to decide on which blockchain platform you want to store your NFT. At present, Ethereum is one of the most preferable blockchain services for NFT creators. However, creating an NFT is not free of cost. Just like you pay a fee to get your copyright license, you have to pay a certain fee (depending on your NFT platform) to get your NFT data registered in the blockchain (through a process called “Minting”), and to present it for sale on your selected NFT marketplace such as OpenSea. In simple words, minting is the process by which your work is turned into an NFT. During the minting process, the payment is done using Cryptocurrency, therefore, an NFT creator must be having a crypto wallet to pay the fee. After minting, NFT is ready for sale.
Say, for example, you created a marvelous painting. Now to secure your creation, you would have to employ open-source code and create its “digital certificate of ownership”. As soon as the code is written, your creation is “minted” or perpetually stored as NFT on a blockchain ledger. This NFT is encrypted on the blockchain where it exists as a sequence of letters and numbers. Anyone can copy or download your digital work, but the original deed belongs to you.
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NFT investors and buyers can buy it as an original digital commodity to get ownership of that NFT. However, it does not mean that just the owner can view that digital file; rather anybody can view it for free. For instance, the buyer of Jack Dorsey’s tweet NFT paid for its digital certificate, having digital signatures and verification by the creator. But his tweet is open to view by anyone on Twitter.
Top 5 Valuable NFTs Sold to Date
There are numerous NFTs that the buyers have garnered extensive valuations. For instance, Beeple’s Crossroad was sold worth 6.6 million USD on Nifty. The first-ever tweet by Jack Dorsey “just setting up my twtrr” was purchased by people in 2.9 million USD. Let’s have a brief look at the top 5 most valuable NFTs sold so far:
1. Everydays – the First 5000 Days”
Sale Price: $69.3 million
NFTs became all in rage when the digital artist Winklemann known as Beeple, sold his painting on 11th March 2021, at Christie’s auction. It was a collage of daily images dated back to 2007. It is the most popular NFT created by Beeple and bought by the co-founder of BitAccess and cryptocurrency investor from Singapore, Vignesh Sundaresan, who paid for this digital artifact in Ether (ETH). This valuable sale positioned Beeple among the top three highly-valued living artists. However, it doesn’t mean that NFTs are just meant to sell digital art. Some other valuable NFTs are discussed below:
2. VeeFriends
Sale Price: $59 million
VeeFriends is a group of 10,255 tokens comprising drawings and doodles by Gary Vaynerchuck. This collection of tokens also serves as redeemable vouchers. In November 2021, Gary Vaynerchuk, during the Dutch auction, sold his collection of NFTs called “VeeFriends” for a whopping $59 million. NFT holders of VeeFriends can get a three-year access pass to VeeCon, which is a multi-day super conference focusing on business, creativity, entrepreneurship, marketing ideas, and of course, fun. Moreover, with this valuable token, one can get some incredible redemption offers like “face time with GaryVee”, podcast interviews, etc.
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3. Clock
Sale Price: 52.7 million
Clock, created by WikiLeaks founder Julian Assange and digital artist Pak, virtually acts just like a “clock”, calculating the days that Assange has been imprisoned. The objective behind “Clock” was to collect funds for his legal defense. This NFT was bought by AssangeDAO – an organization of above 10,000 people fighting for the freedom of Assange. The group was collecting money to buy this NFT and support Assange, and finally, on February 09, 2021, it purchased this NFT. With its sale price of around $53 million, it is ranked as the second-largest single NFT sold to date, after Beeple’s Everydays.
4. Human One
Sale Price: $28.9 million
It was another hybrid digital and physical creation by Winklemann. It was sold to Ryan Zurrer on 9thNovember 2021 at the Christie’s auction. “Human One sculpture” represents a human born in the metaverse. This artwork called “kinetic video sculpture” is a life-sized 3D artwork having four video screens on the smoothly polished surface of aluminum, and a mahogany wood frame. The interesting thing about this NFT is that Beeple aims to change and improve the displayed sculpture during his lifetime.
5. Cryptopunks # 5822
Sale Price: $23.7 million
Cryptopunks are the most ancient Ethereum-based NFTs that are unique pixel art characters. These NFTs were launched in 2017 by developer Duo at Larva Lab Studio. Cryptopunk # 5822 is an “alien” style crypto punk that shattered all expectations when sold as super-expensive NFT on Feb 12, 2022. The CryptoPunks Bot has verified on Twitter that the sale of CryptoPunk # 5822 is the highest-valued CryptoPunks NFT in history. This digital asset was bought by Deepak Thapliyal – the CEO of Chain.
How to Buy an NFT?
To buy an NFT, you can use numerous currencies. NBA Top Shot, for instance, lets you buy NFTs using a credit card. However, to buy NFTs from all other platforms, you must have to use cryptocurrency. Before going to purchase an NFT, you must know at which blockchain your NFT was created and stored. Blockchain is a decentralized ledger using encryption to confirm each transaction and has a record of all transactions occurring in a network. With blockchain technology, there is no need for any central clearing institute like a bank for the confirmation of the digital transaction. At present, to start buying NFT, you have to create a cryptocurrency wallet (preferably non-custodial)and an account on any NFT marketplace such as OpenSea. Now you are all set to purchase an NFT. Just go back to your marketplace, say, for example, OpenSea and start browsing an NFT by tapping “Explore”. You would come across various images, rotating objects, or texts for sale. Eventually, you would find an NFT you want. From there, you can buy an NFT after confirming the “gas fee”. Numerous blockchain services are offering NFTs. Ethereum (ETH) is at present, the leading blockchain service to issue them. Ethereum blockchain is holding some of the most innovative NFT projects like:
- VeeFriends
- Beeple
- CryptoPunks
- BAYC
- The Doge Pound
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What’s the logic behind paying millions of dollars for an NFT?
From “A Coin for the Ferryman” to Jack Dorsey’s first-ever tweet, non-fungible tokens have been bought for millions of dollars. Celebrities in social media, music, and sports are also jumping on the bandwagon to earn millions of dollars. NFT assets were just worth $40.9 million in 2018. This market witnessed a huge upsurge by hitting $338 million in 2020. According to a report by Global Market Estimates, the market for Global NFTs is predicted to rise at a CAGR of 185.0% from 2021-to 2026.
The concept behind NFT isn’t new. For example, a normal basketball jersey would cost $30 but the worth of that one worn by “LeBron James” was $512,000. It’s all that for the buyer of that jersey, it was worth that value. The same is the case with NFT. The buyers who pay millions of dollars see value in them. NFT is just about bits and bytes, but the value that the potential buyer associates with it determine its price. Moreover, it also gets social status and “bragging rights” for them. Twitter is introducing a new feature to allow its users to attach certified NFT owner badges with their profiles.
NFT Apprehensions
As nothing in this world is completely pleasant, NFTs have their concerns. Let’s discuss some major concerns of the researchers and common people that need to be addressed before going far beyond in NFT space:
Highly Volatile Assets
Based on cryptocurrency, these digital tokens are speculative and highly volatile. They are highly risky and there is no guarantee that you would always succeed. Once, you get indulged in the realm of NFT, there are equal chances for you to lose money if not done after proper research.
Easy to Imitate
In the case of blockchain, it is more convenient to make imitations of an NFT Art as compared to the traditional art world. NFT crooks can “scrape” the entire gallery of artists’ works with the help of automated bots and offer the pieces on the NFT marketplace for sale. Based on the anonymous nature of blockchain, it is really hard for artists to locate their hijacked work and get reimbursement.
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Environmental Concerns
A climate debate is buzzing regarding massive electricity consumption during NFT minting. Some NFT creators are receiving huge backlashes on account of emissions produced in the minting process. Taking this backlash seriously, Beeple has promised to make his future NFTs carbon neutral or negative. As per statistics, the electricity consumed by just one Ethereum transaction of NFT is equal to that consumed by an American household within 9 days.
Wrapping Up
NFT is making waves while giving strength to content creators beyond the limits and revolutionizing the entire industry at the same time. The general myth about NFTs relating it to just “At Collectibles” is changing rapidly. These are much beyond that and the creators can do a lot with NFTs to deliver value to their buyers. The time is not far when financial statements, coaching sessions, and even real estate contracts would start getting stored on the blockchain through NFTs. However, NFTs are at their nascent phase of evolution. So, one must carry out appropriate research before investing in them as it might be highly risky. If invested smartly, it could be an extremely lucrative investment. At the same time, you must ensure to invest only that much you can easily afford to lose.
Despite the associated apprehensions, the emerging prospect of NFTs is hard to ignore. Whether you are a future-savvy investor or a digital artist struggling to make ends meet, NFTs have great potential!
According to the former CEO of Machine Zone, Gabe Leydon:
“In a few years, if Bitcoins failed and went to zero, I don’t think it would have any effect on it. NFTs are going to explode. This is going to be big. It’s going to end up being bigger than crypto just because it’s going to affect all software”.
Cutting to the chase, the third internet generation Web 3.0 is the new buzzword. If everything turns out all right, NFTs would be all-pervading.