There’s currently a huge buzz around the acronym “NFT”. But what is it? And why do I see an NFT digital painting that sold for $69 million!?
Here, we are going to try and break down the how’s, what’s, and why’s of the NFT phenomenon. So pull up a seat, grab some popcorn, and enjoy the ride.
Ok, explain it to me like I’m five
NFT stands for non-fungible token: This basically means that one NFT cannot be simply exchanged or replaced by another.
Let me give you an example:
Let’s say you purchase a house. Over several years, you have customized that house with specific hand-picked paint colors, selective furniture, and novel keepsakes. Even though every house essentially serves the same purpose, “there’s no place like home”. You cannot easily just swap one home for another and view them exactly the same; thus, homes would be considered “non-fungible“.
On the flip-side, money would be what is considered “fungible“. Whether it’s a $5 bill from Texas, or five $1 bills from Indiana, they intrinsically hold the same value and are interchangeable.
But why does it matter?
(jk – Original artwork by the artist known as “Beeple” that sold for $69 million – image from Christie’s)
When someone purchases an exclusive item like a Van Gogh painting or a piece of Cartier jewelry, those items are one-of-a-kind and cannot be easily replicated or copied. Sure, you can acquire reprints or knockoffs. But there are experts in the respective fields that have the ability to validate the authenticity of the items.
Digital work is a little bit harder to identify the origin of a piece. Just about everything on the internet can be copied in one way or another. For instance, it’s easy for someone to simply copy and paste a photo found on the internet and call it their own.
This is where NFTs come in. NFTs do not prohibit copying of digital property; but, they make it nigh impossible to sell knockoffs and pass them off as originals.
Explain the “Token” part
NFTs function in a very similar way to cryptocurrencies like Bitcoin (BTC) and Ether (ETH): using blockchain technology to verify the authenticity and origin of a given token.
Non-fungible tokens exist and are validated on the Ethereum blockchain network. Blockchain networks consist of thousands of individual computers globally. Each computer, at any given point in time, can act as the validation device for the token. Because of this, it makes it almost impossible for tokens to be forged or falsified.
Where NFTs differ from Bitcoin is BTC trades as a digital currency. NFTs, on the other hand, simply act as unique identifiers assigned to digital pieces of property.
Almost anything digital can be “minted” into an NFT: a digital painting, a voice memo, or a videogame character’s custom article of clothing.
What this means, specifically for artists and content creators, is that there is now a way to bring exclusivity to their work. On top of that, it’s also a little easier to monetize their work since authenticity is instantly validated on the blockchain from anywhere at any given moment. “Why would I pay for a fake if I can get the real deal at the same price?”
Additionally, NFTs can be written with “smart contracts”. For instance, an artist can add a smart contract to their piece of artwork that lets them receive an additional 1% of the profits every time their NFT is resold. (Now you’re starting to see some benefits to this right?)
What does this all mean for the future?
NFTs are hot right now. But how this differs from something like the “Bitcoin boom” is that individuals and corporations alike are now starting to see the real potentials blockchain technology offers. We’ve only seen the tip of the iceberg; the possibilities are starting to become endless.
OpenSea one of the largest digital marketplaces allowing individuals to monetize their user-owned digital goods.
Facebook has already started launching their own blockchain payment system governed by the Diem Association. The cryptocurrency intends to be backed by physical assets dollar-for-dollar to reduce volatility.
JPMorgan launched their own JPM Coin and uses the technology to facilitate instantaneous business-to-business and international transactions.
Spotify acquired Mediachain Labs – a company that uses smart-contracts to help musicians receive higher, direct royalties utilizing decentralized payment methods.
SMARTRealty wants to eliminate all of the middlemen and allow peer-to-peer real estate purchases.
I think you get the point. Blockchain technology for the most part is largely untapped. As we progress into the future, I’m excited to see things like the craze around NFTs. Even when the craze dies down, which it inevitably will (remember fidget spinners?), the technology is still exposed. And with new technology comes new possibilities just over the horizon; for better or for worse.
