What are Non-Fungible Tokens (NFTs)?
There’s been a TON of hype around Non-Fungible Tokens (NFTs) lately. But what is an NFT? Is it a platform? Is it art? Is it money? A technology? Seriously though, what is it? And also, why are they so expensive?
Not to worry, here’s a quick run-down for you!
NFTs are a type of cryptocurrency but instead of holding money, they hold assets like art, music, etc. While NFTs can be pretty much anything, most of the craze today centres around digital artwork. Just like traditional art, the value of NFTs are subjective and can fluctuate quite a bit. Finally, NFTs operate on a blockchain making the asset secure and transparent.
Now that you know the basics of NFTs, let’s dive a little deeper.
What does “Non-Fungible Tokens” (NFTs) stand for?
Non-fungible: means it is unique and cannot be replaced. For example, the Mona Lisa painting is a non-fungible item. However, the Canadian dollar is fungible. You can trade one dollar for another dollar because they are exactly the same thing.
A token: is an object that represents something else.
Like mentioned earlier, NFTs can really be anything digital like drawings, virtual land, music, concert tickets, collectibles, or even a tweet by Jack Dorsey (which by the way, sold for $2.6 million USD as an NFT). Some people see NFTs as the future of fine art collecting. They hope the value will go up so they can eventually sell for a profit. In a way, NFTs have proven to be a rich person’s game (which I suppose is not that dissimilar to traditional art).
Why are NFTs Appealing for Artists?
NFTs were flying under the radar for a little while. That was until the COVID-19 pandemic forced many artists and musicians to look for alternative revenue streams. This is why Paris Hilton is releasing an NFT piece soon, and why the NBA, Kings of Leon, Grimes, Banksy (to name a few) have gotten in on the NFT action.
How do NFTs Benefit Artists?
The fact that it’s a cryptocurrency asset that lives on the blockchain means that they can bypass middleman fees and transact directly with their fans. Plus, an NFT artist can still hold the copyright and reproduction rights of their digital artwork and they can set the terms of the sale through code.
For example, an artist can choose to get paid once the original piece is sold and also get paid 10% every time the piece gets resold simply by entering these rules into the code (on the blockchain). In this example, they are making money every time the artwork changes hands and essentially opens up a whole new revenue stream for them.
Fair Enough, But Why Do NFT Pieces Look So…Umm… ‘Basic’?
To quote Marshall McLuhan:
“The medium is the message.”
In a way, it’s almost irrelevant what the NFT artwork is because the artwork itself pays homage to the cryptocurrency industry and its journey. The fact that a lot of the NFT pieces are so pixelated is part of the appeal. It’s a symbolism of the beginning of a new era; the monetization of digital artwork.
Is That Why NFTs Are So Expensive?
Well, what drives the value of traditional artwork? Scarcity. What drives the value of a digital scarce asset? Again, scarcity. NFTs are pretty expensive because of their perceived value and scarcity.
When you have a scarce, digital artwork that lives on this new technology called the blockchain that can also track ownership of art and compensate artists accordingly, it seems to create high demand and higher asset prices.
On Feb 28, 2021, Canadian musician Grimes, put her digital art collection on auction as an NFT. Within 20 minutes, her collection earned her a whopping $6 million USD. (I know, my head was spinning too.)
Why is Ownership Such a Big Deal?
Ownership is a big deal for artists and creators. We just need to look at Taylor Swift to understand that. She got into a public dispute with Scooter Braun because he bought her entire backlog and prevented her from performing her older music (this is why she’s now re-recording all her older albums).
Ownership is also the reason concert stadiums want to sell their tickets as NFTs. That way scammers don’t buy a bunch of tickets upfront and resell them at higher prices.
In a digital world where things can be replicated and stolen faster than these words are typed, ownership has come to bear a lot of significance. So the fact that NFTs live on the Ethereum blockchain means that the blockchain contains a track record of ownership for all digital artwork. That ownership cannot be tampered with.
Here’s the Catch…
Although you’re the owner of the NFT, your digital file can still be downloaded. What a plot twist.
But thanks to the blockchain, the world knows you alone are the real owner of the original piece. And that’s great! Because while people can download your file they cannot monetize from it.
We know the Eiffel Tower is in Paris, France. Although Las Vegas has replicated the Eiffel Tower, and there have been t-shirts, memorabilia, and other items copying the Eiffel Tower, you know that to see the original tower you’ll have to visit Paris. The many replicas don’t take away value from seeing the original masterpiece.
How are NFTs Like Other Cryptocurrencies?
You can buy NFTs from online marketplaces that sell NFTs like OpenSea, Rarible, Nifty Gateway. These marketplaces accept Ether (ETH) as payment (because NFTs are built on the Ethereum blockchain). NFTs are also stored in digital wallets that are specifically NFT compatible, so learning how to safely store your NFTs is really important.
Given the fact NFTs are stored on the blockchain, it makes them harder to steal than let’s say… a painting in a museum. Of course, digital files can get degraded but hopefully in the future there is technology that can better preserve scarce, digital artwork.
Last Thoughts…
The internet made it impossible for digital artists and creators to prove they created the digital work (let alone monetize it). Now, NFTs are opening the doors for many artists to be identified, compensated and protected by blockchain technology. Finally, they can own the full rights and wealth from their artwork and that’s a pretty big deal.
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