If you were on the internet in 2011, you probably spent at least some time watching the mesmerizing Nyan Cat video. Last February, a special version of this gif was sold for more than $600,000. But how does this happen and what does it really mean? Welcome to the world of NFTs.
What is an NFT?
Non-fungible tokens, also known as NFT, are tokens that are linked to specific objects and are therefore one of a kind. NFTs are used like tickets that represent the ownership or possession of items that are out of the blockchain, such as music, videos, images, and more. Each NFT is protected by its contract. It contains data and ID codes that make it unique, indivisible, and impossible to modify or duplicate.
NFTs are Used to Prove Authenticity
To understand how this works, let’s talk about The Last Supper by Leonardo da Vinci. The Last Supper is one of the most well-known works of art in the world, with replicas available to view in museums, private households, and even on t-shirts and coffee mugs. However, the original painting is still incredibly valuable, thanks to the signature on the painting itself. The original work’s value is derived from its scarcity; though there are thousands of replicas, there is only one original.
This is true in other fields as well. For example, if you and Jimmy Hendrix use identical guitars, the value of your guitars will start out the same. However, if he signs his guitar, it suddenly increases the value exponentially, because it is now a scarce commodity. Though the quality of the guitar hasn’t changed, the value of the guitar has.
The examples above are only viable if the validity of the original or signed copies can be proven. If, for example, Leonardo da Vinci’s works weren’t signed and identical replicas could be easily created, the value of his paintings would immediately diminish.
So how can you, as an artist, prove the validity of your original pieces, especially if they are available across the internet? One such way might be to attach a sealed pdf document that guarantees authenticity so that it can be distinguished from other copies. However, how can you guarantee that the pdf has not been modified or duplicated?
It was this very problem that led to the creation of the NFT.
How do NFTs Work?
Blockchain is a decentralized network in which the information is spread in blocks among all the nodes that make it up. Each block is encrypted and contains the information of a transaction, it contains a key from the it’s past block and it’s own key. This creates a system that is resistant to failures and falsifications because the information is protected and validated by all the network members.
One of the applications of this technology is the management of the accounting of a currency, such as Bitcoin. However, this technology has other applications as well. For example, by using this blockchain technology, we can provide documents, such as the authenticity of da Vinci’s artwork, that cannot be manipulated. It can also keep an authentic record of prior owners and authors, and the prices for which the work has been sold. This is more than a simple file; it is software that is automatic, secure, and autonomous.
Within cryptography, there are fungible tokens and non fungible tokens. Fungible tokens, such as Bitcoin, are tokens that can be replaced by another token and retain the same value.
With this system, you are able to tokenize artwork, thereby giving the buyers of your artwork the guarantee of an authentic and exclusive copy that no one else can have. For example, the token associated with da Vinci’s Last Supper would be a unique NFT that could be purchased or auctioned.
Though tokenizing an item is an extremely secure process, it is a relatively simple one. There are several platforms available, including Super Rare, Mintable.app, and OpenSea, that allow anyone, not just programmers, to tokenize their items for free.
Notable NFT Purchases
In addition to Nyan Cat, there have been several other notable NFT purchases made in recent months, including:
- Crytokitties virtual cats were sold for almost $200,000
- The NBA is selling videos of the top plays for more than $100,000
- The very first tweet was sold for almost $3 million.
- Beeple sold a collage for $69 million.
Like the owners of Jimmy Hendrix’s guitar and Leonardo da Vinci’s Last Supper, the owners of the original Nyan Cat or the first Tweet are investing money into owning the original versions of influential online media.
Most people assume that once these items are sold they become private property and are no longer available to the public. However, that is not the case. All of these items are still public on YouTube and other media sources.
The Pitfalls of NFTs
While NFTs represent one of the most promising technologies in the blockchain world, they are not without their faults. Some of the largest concerns with NFTs include:
1. NFT is not protected against piracy: Like most technologies, NFTs are susceptible to piracy.
2. Bad Practices by the Authors: What is to stop an author from tokenizing someone else’s work or from creating several NFT’s for the same work and selling them? Unfortunately, nothing. This would be like selling the same artwork many times. Mainstream artists, critics, and galleries are skeptical about this movement for this reason.
3. Eco-footprint: The eco-footprint of NFT transactions is far larger than most.
- 1 Ethereum transaction consumes more than 70.32 kWh = power for a household for 2.5 days
- Ethereum consumes more energy per year than all of Denmark
- Has a footprint similar in size to that of Lithuania
4. NFTs computation requirements are higher due to the stages involved: The states involved include:
The Application of NFT Technology
It may seem crazy to pay a lot of money for the crypto file of something you can download for free on the internet. However, it is nonetheless a movement that is picking up momentum. The majority of participants in the NFT network are millionaire personalities that participate in ADHive, or ADH, cryptocurrency. These individuals look for increased prices for high-profile pieces to shine a spotlight on this emerging technology. As NFT trading gains popularity, the number of platforms on which you can exchange NFTs will continue to grow.
The potential applications for NFTs are endless. They can be used to certify the authenticity of musical licenses, to protect the digital identity of an individual or object, or to verify an insurance policy, among other things. It will be fascinating to see how this technology grows and expands in the upcoming years.