Non-fungible Tokens or NFTs have been around since 2012 and bitcoins have been around since 2009, but NFTs’ latest acclaim came, when Twitter founder sold his first tweet as a NFT. It perplexed many and the first thing that came to the common public’s mind was what is the value in holding a digital asset or a virtual artifact, that too sometimes only for a limited period of time.
Well, the story goes like this: The Twitter CEO’s first tweet was sold for USD 2.9 million as an NFT in 1630.5825601 ethers. The first tweet ever, “Just setting up my twttr” was put up for sale on ‘Valuables by Cent’ and was sold to Sina Etavi for a whopping amount on March 21st, the tweet’s 15th anniversary. Twitter CEO converted the entire amount earned into bitcoin and donated it to GiveDirectly, a charitable organization that aids poverty-stricken people for its Africa Response programme.
If the story concludes that all NFTs are for humanity’s good, then it will be false, as a whole lot of monetary exchange is done digitally, with sometimes no creation of goods or art and not always for altruistic purposes. The exchange of huge sums of digital money for NFTs made it come into huge prominence. At the time of writing this article, one etherium’s value was USD 1,703.26.
Understanding Non-fungible Tokens
NFTs are like securing a valuable item in the records of a digital ledger known as blockchain that authenticates someone as the original owner. Blockchain is a distributed ledger that allows participants in a network to record transactions. NFT is part of the Ethereum blockchain and each NFT token holds information about the unique digital item. We have been hearing about the potential of blockchain to change and disrupt every industry in the near future. Many industries are creating use cases to make it become tangible and practical, although its potential is yet to be fully explored, while the value of cryptocurrencies, which are based on blockchain technology is increasing day by day.
When talking about NFTs, the use of the word fungible is confusing here, as NFTs can be traded on a digital platform, because fungible means commodity replaceable by another identical item; mutually interchangeable. Currencies and cryptocurrencies are fungible items, so when it comes to non-fungible items, which are unique, it can be anything from a painting, a video, a meme, a trading card, a virtual jewellery, virtual clothing and virtual furniture to a virtual cat! Even digital plots have been sold as NFTs. NFTs are unique, but they can be traded using cryptoexchange Uniswap.
NTS are blockchain assets that can be traded with ethers or Etherium, a kind of cryptocurrency, second only in popularity to bitcoins. Other cryptocurrencies include Litecoin (LTC), Zcash (ZEC), Dash, Ripple (XRP) and Monero (XMR). Ethereum Request for Comments 721 (ERC721) is a standard used for non-fungible tokens. Each ERC721 token is unique.
When you buy an NFT, you get a key to the digital asset. It gives the security that only you own it and are able to access it. The private key that the owner has is the encrypted password that lets them lay claim on the asset, so it should never be lost, as there is no central authority to sort any dispute in the digital realm. It will be interesting to see how it can be held in a court of law when legal cases arise.
Ownership or bragging rights
Ownership rights in NFTs’ case are bragging rights to showcase to the world that one has access and control of a property, which is largely digital.
NFTs prominence will impact artists, gamers and brands in a big way, if the trend continues. It eliminates middlemen like auction houses or art dealers.
The downside of NFTs
The value of cryptocurrencies is highly volatile and fluctuate often, so the value of the NFT is set based on the cryptocurrency’s value at the time of sale. There is a big risk, as the value can go substantially down.
The backlash NFTs are receiving are also due to the amount of energy it requires to complete this transaction on a digital platform.
In 2020, the trade volume of the non-fungible token (NFT) market surpassed $250 million, a four times increase from 2019, while the market capitalization of the nascent industry of tokens, reached $338 million, according to a recent report.
The person or firm, which is buying an NFT is also looking at its traded value in future. In a digital economy, newer technologies and trends will always come to the fore and much of it will be based on high monetary value, which perhaps is the crux of it all, but those who value art or digital assets in the digital world may continue to believe that the value lies inherent in the asset itself.