- 4 days ago
First things first, what is an NFT? What does it stand for?
NFT stands for non-fungible token. The term ‘non-fungible’ refers to an item that is unique and cannot be replaced. Take a Picasso art piece for example… this is considered a ‘non-fungible’ asset as it is one-of-a-kind and can only be bought, sold and traded for something else. Cryptocurrencies on the other hand are considered ‘fungible’ items; all Bitcoins are the same, one Bitcoin can be traded for another Bitcoin and thus each Bitcoin doesn’t have a singular or unique value. The pool of Bitcoin is like a big jar of pennies, each penny has the same value and no penny is different or special from another.
As mentioned, NFT is a non-fungible token and therefore unlike Bitcoin, each NFT is unique and singular. An NFT itself is a type of certification of ownership over some particular content. For instance, if we take the Picasso painting again as an example, the NFT would be two things: firstly, a digital copy of the painting and secondly, proof of ownership and authenticity.
How do NFTs work?
NFTs contain identification codes that the blockchain, a public decentralized ledger, stores. These codes trace the ownership and transaction record of each NFT. This allows them to take the form of music, art, videos and much more. Because some NFTs have a considered value, people can buy and sell them, just like any other valuable art. The value of a non-fungible token of course determines its collectability, as well as its potential future sale value.
Beyond the concepts of ownership and transmission, NFTs have other functions; for example they can be part of smart contracts that manage transactions on the blockchain network.
First Major ERC-721 NFT Collectible Project- CryptoKitties:
Although CryptoPunks came first, the ERC-721 NFT game, CryptoKitties, is one of the factors that blew up NFTs in the media. CryptoKitties, launched in 2017, are digital representations of cats; each CryptoKitty possessing unique attributes, with the possibility of only one person owning it. Smart contracts on the Ethereum network track the identification of ownership over CryptoKittes. Users have the ability to buy, sell, breed and exchange them with one another. As of March 2 2021, the total number of sales of CryptoKitties stand at just over $97 million.
Well-known cases of NFT sales:
- Beeple sold his artwork as an NFT- “Everyday’s – The First 5000 Days” for $69 million
- Jack Dorsey, Twitter CEO, sold his first tweet “just setting up my twttr.” for over $2.9 million.
- Cryptopunk 7523 ( a digital p sold for $11.8 million.
- ‘Charlie bit me’- a youtube hit sold for $761,000.
Why are Non-Fungible tokens significant?
The evolution of NFTs has contributed to market efficiency. The trading of digital items removes the need for a middle man, which makes trading more speedy and more cost-effective.
In addition, digital artwork represented as NFTs allows artists to connect directly with their audience and also allows them to benefit financially by gaining royalties from each sale.
It is also important to note, although anyone can view and sometimes download a copy of the NFT, only the owner has the original file and the ability to sell it in the future.
NFTs also allow people to fractionalize physical objects through a digital representation. They can then sell there as different portions to multiple owners. Consequently, multiple owners can benefit financially from the trade of an asset and such an arrangement can also increase the worth of an asset and its revenues.
In 2021, sales of NFTs are reaching new highs, mainly thanks to sales by well known, respected artists such as Beeple, Kings of Leon and Grimes. This new world is booming right now, but is it just a bubble or a short lasting phenomenon?