What exactly is NFT? Is it a Gold Rush of the 21st century? The boom of digital collectibles? How have people managed to make a fortune out of it? Let’s find out.
What is NFT and how does it work?
NFT is a non-fungible token, a digital asset linked to real objects like music, art, videos, GIFs, or anything else. In some ways, NFT resembles cryptocurrency: it’s based on blockchain (Ethereum blockchain, to be precise) and stores value. But, unlike cryptocurrency, NFT cannot be exchanged for another NFT. It’s called non-fungible for a reason. Every NFT has a unique digital signature that makes it impossible to be traded. You can only buy this digital asset with cryptocurrency, similarly to how you can purchase products at Exeno.
So, NFT is not a currency. What makes it valuable then? Because of their nature, NFTs are used as identification for digital artwork. NFT technology has made digital art’s value match that of physical pieces by storing information about a particular work’s authenticity. Thus, digital art can now be traded just like any painting in a physical art gallery. NFT took digital creations to a new level. Previously underestimated, digital artists now can cash in, and often become wealthy overnight. During the first quarter of 2021, $2 billion was spent on NFTs.
Sceptics may point out that anyone can simply download a picture or take a screenshot, thus avoiding paying the exorbitant prices. Of course, the image can be replicated, but the token can’t. NFT offers a built-in authentication that proves the ownership of an original art piece. And, thanks to blockchain technology, this token can’t be changed. NFT may be owned by only one person at given a time. This uniqueness implies scarcity and invites the soaring prices (which can shoot up from just a few bucks to millions of dollars), auctions, digital art collectors, and sites specializing in NFT sales. Everything like in the physical world, where owning a copy of a painting is so very different from sporting the original.
Examples of NFT use
Here are some extraordinary examples of NFT deals.
- “EVERYDAYS: The First 5000 Days”, Beeple
The most expensive NFT purchase to date is the sale of Mike Winklemann’s (Beeple’s) piece titled “EVERYDAYS: The First 5000 Days”. Sold at Christie’s auction house for $69.3 million, the composition consists of thousands of different images representing the artist’s 13-year-long journey of creating art.
- Twitter’s co-founder Jack Dorsey’s first tweet
Can you believe that a tweet can be sold for $2.9 million? Jack Dorsey, the CEO of Twitter, sold his very first tweet reading “just setting up my twttr” as an NFT on the “Valuables’ platform. The tweet will remain publicly available on Twitter and is not outright owned by the winning bidder. What was sold is the NFT verified by Jack Dorsey. Isn’t it exciting that the tweet of 21 March 2006 can now be sold?
- CryptoPunks by Matt Hall and John Watkinson
In 2017, software developers Matt Hall and John Watkinson from the Larva Labs studio created 10,000 digital art pieces, named CryptoPunks. They were initially released as free collectibles, using the Ethereum blockchain. The creators gave away 9000 of them. Now, CryptoPunks are on sale for hundreds of thousands of dollars. A set of nine was recently sold for $16.9 million.
Pros and Cons of NFT
NFT is a new technology with obvious advantages. However, like every innovation, it has its drawbacks.
- NFTs allow artists to monetize their work and make a living off their art. Thanks to it, artists have started earning big money by selling their work with NFTs, no longer depending solely on dealers and galleries. Digital platforms helping them make a sale charge commissions far lower than any gallery.
- Artists receive a percentage of any resales of their works. They benefit from the future increases in their art’s value: as the resale price rises so does their commission. Thus, digital creators gain access to what may be considered a source of passive income.
- To use NFTs, artists need to pay a so-called gas fee, a commission for blockchain usage, paid in ETH. Due to the nature of cryptocurrency, its value fluctuates a lot. Thus, it can be quite costly, and unpredictably so. This can be a major issue, especially for beginner artists.
- Not all artists can make money out of NFTs. As previously, big-name artists with a solid fanbase are more likely to capitalise on their work. It’s difficult for emerging creators to get noticed, especially given the recent NFTs boom in the digital art industry.
In our digitalized world, the emergence of solutions like NFT was only a matter of time. In parallel to cryptocurrency, NFT is a future happening now. It may be the next influential societal advancement, and certainly is a fascinating development worth keeping tabs on.