What are NFTs
What are NFTs, and how do they work?
An NFT simply stands for a non-fungible token. But, what does that mean in reality?
To explain this, we need to start from the beginning.
A fungible asset is an asset with easily interchangeable units. Let's use money as an example. Imagine, you have a $10 bill that can be exchanged for two $5 bills... maintaining its value.
However, if something is non-fungible, this is not the case. Take, for example, a painting such as the Mona Lisa. You can take a photo or buy a print of it but, there will only be one original painting. The same applies to an NFT, which has unique properties, making it impossible to interchange it with something else.
Simply put, you can think of NFTs as certificates of ownership for virtual (or physical) assets. These certificates can be bought and sold on marketplaces such as OpenSea.
How do NFTs work?
Remember the example we used of the Mona Lisa? Well, one of the reasons traditional paintings are so valuable is because they are one of a kind. However, in the digital world, artwork can easily be duplicated. This has already shown to be a nightmare for digital artists.
With NFTs, artwork can be "tokenized" to create a digital certificate of ownership, which can then be bought on a secondary marketplace (OpenSea).
Records of NFT owners are stored on a blockchain, where they are maintained by thousands of computers around the world, preventing tampering. If one was to falsify the ownership of an NFT, they would have to change ALL records on the computers.
How much are NFTs worth?
So, now you have a general idea of what NFTs are and how they work. Let's dive a bit deeper into the worth. This is a tricky one, the simple answer would be that the value an NFT carries lies in the eye of the beholder.
For example, the co-founder of Twitter, Jack Dorsey, listed an NFT of his first-ever tweet with bids reaching $2.5m.
just setting up my twttr— jack⚡️ (@jack) March 21, 2006
Shockingly, this isn't the most expensive NFT sold. 'The First 5.000 Days', which is an NFT by the artist Beeple, represents the first 13 years of his life's work and was sold at an auction for $69m.
The dark side
As with most fun things, there's also a downside to NFTs. Because of their increasing popularity, NFTs offer new opportunities for scammers. Even though some say NFT in its entirety is a scam, scammers are taking advantage of buyers who are not as well informed.
One of the most common scams is when a close replica of the most used marketplaces for NFTs is created. These sites look almost identical to the original and can trick a buyer into spending money on fake NFTs. These replicas can be subtle, like "openseas.io" instead of "opensea.io".
Make sure to always double-check this, to avoid falling prey to scammers.
Additionally, there have also been cases where digital art is downloaded from sites and turned into NFTs without the artist's permission. Allowing others to profit from someone else's hard work.
And that is not all, as there is also the speculation of NFTs causing environmental concerns.
You may be thinking how, as these are all online transactions.
But, as I mentioned before, they run on a blockchain, and maintaining a blockchain requires a lot of processing power.
Several experts have expressed concerns surrounding the efficiency of transactions on a blockchain. Bitcoin, for example, uses more electricity per transaction compared to any other system.
The silver lining
Although there's a negative side to NFTs, there's also a silver lining.
For starters, the environmental impact of blockchains can be offset by using clean energy powering computers through natural sources of electricity.
The rise in popularity of NFTs has also provided countless artists with a platform to sell their work online without the fear of plagiarism. This, not only applies to digital illustrations, but also to art in the form of music, photography, and more.
Another silver lining worth mentioning is that some NFT projects offer benefits to their investors. For example, the Bored Ape Yacht Club has built a community around the collection, organizing meetups in New York, California, Hong Kong, and the UK. Recently, there have also been festivities for owners featuring an actual yacht party with appearances from Chris Rock and other celebrities.
For the food lovers out there, there is even an NFT restaurant. Yup, you read that right. Flyfish Club is a private dining club where membership is purchased as an NFT, granting you access to their restaurant and various culinary experiences.
All-in-all, as with everything in life there are pros and cons to this hype. As it continues to establish itself in the world, it will naturally get more credibility.
Now, go on my young ones and explore the world of NFTs with this newly acquired knowledge.