DIGITAL ART | BLOCKCHAIN | CRYPTOCURRENCY
What is an NFT?
NFTs solve the problem surrounding owning an original piece of digital item
IT WASN’T UNTIL last year that “NON-FUNGIBLE TOKENS” (NFTs) got firmly established into the mainstream. Though first invented in 2014, NFTs really took off when Beeple, a digital artist, sold an NFT of his work for $69m at Christie’s, a British auction house, in March 2021.
Since then tweets, music and even documents relating to Nobel-prize winning research on cancer immunotherapy have been sold as NFTs for thousands—sometimes millions of dollars. What exactly is an NFT, and how might one be created?
An NFT, or non-fungible token, is a digital token stored on a blockchain, the immutable ledger that underlies bitcoin and other cryptocurrencies, that can be sold and traded. But unlike bitcoin, which is fungible (one bitcoin is worth the same as another bitcoin), NFTs are “non-fungible” — each NFT represents a different underlying asset and thus one-of-a-kind digital item. NFTs represent from basketball highlight videos to bits of code to anything digital or real.
Christie's is proud to offer "Everydays - The First 5000 Days" by @beeple as the first purely digital work of art ever offered by a major auction house. Bidding will be open from Feb 25-Mar 11.— Christie's (@ChristiesInc) February 16, 2021
Learn more here https://t.co/srx95HCE0o | NFT issued in partnership w/ @makersplaceco pic.twitter.com/zymq2DSjy7
Though digital artworks as NFTs can be viewed or downloaded by anyone, the person holding the “token” (stamped with a unique code) owns the original digital artwork and can resell later. But the creator can still retain copyright or exclusive use of that work. The token serves as its authenticity, may also include the name of the NFT, has a link to the artwork and can be held only in one digital wallet.
The first step to minting an NFT is deciding on what unique digital item to turn into an NFT. Then placing it on a blockchain, which charges a transaction fee known as “gas” (the most used is Ethereum’s). This transaction ensures the authentication of the digital item by providing a private encryption key that tracks NFT ownership at any moment in time. Now the artist can sell their digital work as an NFT.
For its promoters, NFTs allow creators to sell original versions of digital works—music, tweets, photos—that used to be easily replicated, as well as monetize their work in a new way. But like any new technology, there are plenty of drawbacks to the rise of the NFT market. The high energy usage of blockchain technologies is fueling concern regarding NFTs’ contribution to climate change. Some use them as a speculative asset, and there are already cases where artists’ works are sold by others as NFTs.
Yet NFTs hold the promise of transforming finance and the digital economy. The fact that the tokens create a system of verifiable digital ownership could make them useful for new types of transactions. Last year the founder of a media company, Michael Arrington, sold an apartment in NFT form. NFTs also remove the need for middlemen between buyers and sellers to engage in financial activities, such as making loans. Since blockchains are programmable, new features can be added to NFTs to expand its uses in other areas too, like NFTs serving as membership cards that provide access to events or products. This all means that NFTs can gain traction quickly by creating value among a small community of potential owners relative to cryptocurrencies, which need a wide acceptance in order to function as money.
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