WHAT ARE NFTS AND WHY ARE THEY SO POPULAR RIGHT NOW?
NFT is an acronym that stands for Non-Fungible Token… So what are Non-Fungible Tokens???
In economics, fungible assets are assets that can be exchanged for another of the same value: as an example, a N1000 note is the same value as 2x N500 notes or 5x N200 notes, this makes them fungible.
Non-fungible assets on the other hand are assets that cannot be exchanged for another because they do not have the exact same value. For example, two cars, while being the same model and serving the same function cannot be exchanged for each other because of possible differences in maintenance condition, mileage, etc. Cars as in this example are therefore considered Non-Fungible.
NFTs are unique, non-replicable, blockchain encrypted digital assets. NFTs may be digital artwork, digital real estate, videos, music, novelty, and rarity items. NFTs are encrypted on a blockchain –a decentralised network encrypted across multiple computers– and because of this, they cannot be tampered with, replicated, destroyed, or altered without authorisation from the blockchain network.
Most NFTs available to the general public today are artworks, trading cards, short animations, and memes that can be bought and sold on multiple online marketplaces with prices ranging from between $30 and $10000.
The vast majority of NFTs are part of the Ethereum blockchain, specifically ERC-721 and ERC-1155 which are the two most secure and efficient token standards on the Ethereum blockchain that allow rapid and efficient transfers of multiple tokens at once, and at a much faster speed than other token standards on the Ethereum blockchain. ERC-721 and ERC-1155 were developed to allow software developers to create NFTs that are compatible with the broader blockchain ecosystem. However, other blockchain networks such as TRON have implemented NFT support, with Bitcoin soon to support NFTs as well.
VALUE OF NFTs
NFTs have grown to encompass a $250 million market size according to a 2020 report from tech-tracking company L’Atelier BNP Paribas and data from nonfungible.com
The most valuable NFTs have been valued upwards of $70m with a record-breaking sale by the artist Beeple who sold a digital image of a collage he created for $69m. This represents an unprecedented sale and instantly ranks him as one of the most valuable artists alive. This sale will only draw more interest in NFTs and set the stage for larger sales in the future.
Great entrepreneurs such as Jack Dorsey and Mark Cuban, established brands such as the National Basket Association (NBA) and the National Football League (NFL) have all keyed into the opportunities offered by NFTs to sell digital collectibles –video clips of matches, images of players and novelty trading cards– at very lucrative prices at minimal expense to them.
Twitter CEO Jack Dorsey announced that he was auctioning his very first tweet, the site’s first-ever tweet as an NFT. The tweet sold for $2.9 million at auction.
Sales of digital real-estates have also garnered a great deal of interest with the sale of a 12,600sqm plot of digital land for $916,000 in the popular sandbox game Decentraland, which is an Ethereum-based blockchain platform where users can purchase, build and monetise virtual reality applications. Users can purchase virtual land in the platform’s world that gives them ownership and control over the environment and applications they create within their land.
These plots of land can be developed into lounges, game venues, and meeting rooms where gamers can pay to use – something of this nature was only science fiction a decade ago!
Some NFTs carry a large price tag due to their scarcity and exclusivity. The most famous is the case of “Dragon the CryptoKitty”, which is simply an NFT digital image of a cartoon cat. It was sold for 600ETH (Ethereum coins) currently valued at $1,069,929.7146.
HOW CAN YOU GET INVOLVED WITH NFTs
NFTs are actually very easy to create and purchase. If you are an artist, you can easily convert your art into a digital NFT and offer it for sale on one of the online NFT marketplaces: Opensea.io, rarible, and mintable. If you are looking to purchase NFTs, there are several platforms and websites to purchase them from, such as nbatopshot, rarible, opensea, and decentraland marketplace.
RISKS POSED BY NFTs
While it is easy to get excited about NFTs and the opportunities they present, they also have their associated risks and disadvantages:
- Money laundering – with the large price tags attached to owning some particular NFTs, criminals and other unscrupulous entities seeking to legalise their money may purchase NFTs simply as a way of laundering their ill-gotten wealth;
- Possibly Passing Trend – many have proposed that the unprecedented interest garnered by NFTs over the last few months is unsustainable and will ultimately result in a crash, not unlike the crash in cryptocurrencies earlier this year;
- Consumerism – most NFTs can be downloaded on your computer and viewed at your leisure, they are available for download on the Internet. This makes the act of buying and owning an NFT with no real intrinsic value simple consumerism.
All in all, in our opinion we’re very open-minded on the future and the many possibilities of NFTs. We will continue to study and share our thoughts on this and many exciting technology innovations that are coming our way as part of the Fourth Industrial Revolution.