Let’s talk a moment about NFTs. What exactly is this thing which gives artists an opportunity of making thousands if not millions of dollars from selling them?
Let’s learn what they are, what you can do with them and what the future holds.
What is an NFT
An NFT is a digital token which represents a real world asset. They represent ownership of real world things, like images, videos, games. They can even extend to tangible objects like cars and shoes.
Think of an NFT as Proof of Ownership of the underlying asset. Each NFT can only have one owner at a time (much like your car can only really have one owner at a time, but with thousands of models in production owned by different people).
Proof of Ownership is secured by the Blockchain – most commonly ethereum, providing an immutable proof of ownership.
What makes NFTs unique is that they are Non-Fungible (NFT = Non-Fungible Token) which means it can’t be traded like for like with another token.
What’s a Non-Fungible Token
Let’s simplify – a unit of Currency, say 1 British Pound, is equivalent to another 1 British Pound. It’s fungible, meaning it can be replaced. Two $10 bills can replace one $20 bill – they have the same value. The same goes for 1 bitcoin or 1 ether, too.
An NFT on the other hand, can’t be replaced. NFTs are one of a kind digital tokens which represent real world assets – be it photos, videos, characters and can theoretically support houses, cars and household products.
Each token has its own unique signature and is secured on the Blockchain. If you want to own the underlying asset represented by the NFT, there will need to be an agreement on price and terms before the owner accepts. It’s essentially bringing the real world barter, contract and asset ownership into the virtual world.
How does an NFT work
NFTs are minted and exist on the blockchain with a unique identifiable code.
So if you own an NFT, you can:
- Prove you own it (blockchain records are public)
- You can sell it (as you own this, it’s your right to sell)
- You can transfer it
- You can rest knowing it can’t be “stolen”
An NFT can represent anything, including:
- Written Work
- Virtual Characters
- In-Game Purchases
Once an NFT is minted – that’s it. Your work can still be put on your site or social media for people to view. Difference being, you can sell the rights to the work if you choose. You can also prove copyright ownership (though this is a little more contentious – as you still need to prove you created the underlying work or had the rights to claim ownership).
Why would I Create an NFT
To help support the virtual economy, of course!
While you can easily obtain a digital image just by copy and pasting, it’s not the same as owning. Ownership (whether created or purchased) of an NFT entitles you to any of the benefits associated with the underlying asset.
For instance, you can only enjoy the benefit of the house you’re living in if you buy it and it’s recorded on the land registry, right? Or if you have a contract proving you’re renting it from the landlord.
As a Creator, NFTs can bring you long term value. You can choose to make a really unique 1 of 1 piece – and if you’re lucky, sell this for tremendous value (see – Beeple) or mint a handful of copies to create scarcity.
NFTs also have the ability to create long term income – through Royalties. While still novel, the essence of this is if you sell an NFT, you can earn a % of all future sales of this NFT long into the future.
So say if Kanye created a Yeezy NFT with a 10% royalty term, and you bought it for $10k… If you chose to sell this in the future for say $100k because, hey, it’s Kanye – he’d earn $10k (10%). And so on if the new owner decided to sell it on. This way, original creators are still supported after their work is created and sold.
Why would I Buy an NFT
As I’ve said a couple of times in this piece, ownership. Ownership of an asset entitles you to modify, resell, collateralise and earn on the work.
You’re also helping to support the creators who make this work.
Maybe you shouldn’t have mocked that art or philosophy degree after all…?
The Future of NFTs
My personal opinion: NFTs are a game-changer.
The inevitable future we’re moving toward of a Ready Player One world (virtual worlds, digital beings), creating immutability and decentralisation is supported by the new Web3 framework – of which Blockchains and thus NFTs are integral.
There are naysayers who argue that they can grab the digital file by copy and pasting it; but to this – the obvious counter we’ve discussed above is it’s not the same as owning the real thing. You wouldn’t get the same monetary value of screenshotting the Mona Lisa vs owning the real thing. If DaVinci had stamped his creations as NFTs, his estate could have still been earning residual income from the sales of his work.
NFTs help support creators and their families. NFTs can help streamline the house buying process (which is antiquated and stuck in old societal norms with tremendous friction). More readily, NFTs open the way for us to become cybernetic systems – enabling our digital self to own and prove ownership in the digi-verse.
Imagine the use case in eSports. I’m a fan of Formula 1 and play the games on PlayStation. I nerd out at playing around with the car configurations to get that extra millisecond on the track more than I race. We can open up the opportunity for the technical guys to configure cars and sell them as packs for each track/ city location. While this can be done via a traditional eCommerce store – what stops anyone from hacking and downloading the files, or buying them freely and uploading them – scarcity (there really are only 2 Ferrari’s on the track, so ….. food for thought).