Although NFTs have been a thing since 2014, 2021 was really the year that they took off, sold for millions of dollars and caught the attention of many people across the world – creators and collectors alike.
Because of this surging interest in NFTs (and particularly the fact that people have been able to sell their NFTs for millions of dollars), many people have become more curious and everyday, someone new is trying to get a hang of what the hype is all about.
If you spend a couple of days on NFT Twitter, your first impression of NFTs will be digitally designed JPEGs which are bought and sold for thousands or millions of dollars.
While this may be true (in part), NFTs encompass a lot more than JPEGs of Apes, robot-like humans and cats. They are a means for individuals to proudly and exclusively own valuable digital assets.
The term NFT isn’t a buzzword. It stands for non-fungible token. NFTs are digital tokens/assets that contain a unique identifier which confers ownership on an individual. This makes the digital asset unique and not interchangeable.
In order to grasp what NFTs are about, understanding what fungible and non-fungible assets are, is the first step.
Assets (whether physical or digital), can either be fungible or non-fungible. Fungible assets are assets that can be replaced, interchanged, and swapped with one another because they have the same value.
A clear example of this is Money. Physical currencies such as the US Dollars, Japanese Yen are fungible. A $100 bill in the United States has the same value as a $100 bill in Uganda, Africa. A $100 bill with Suzie can be replaced by a $100 bill with Kim and it would still retain its value irrespective of whoever holds it. The same applies to digital currencies(cryptocurrencies) like Bitcoin, Ethereum, etc. The value of 1 Bitcoin is the same everywhere. This is why cryptocurrencies can be easily exchanged and traded.
Another feature of fungible assets is that they’re divisible – to facilitate smaller transactions – yet retain the same value. For example, a $100 bill can be split into five $20 bills. When added together, these $20 bills will still have the same value as the single $100 bill. Cryptocurrencies are also divisible. One Bitcoin can be split into smaller units called satoshi which is the equivalent of 100 millionth of a Bitcoin.
Non-fungible assets on the other hand, are not interchangeable, replaceable, swappable, or divisible. An example of a physical non-fungible asset is an artwork.
Above is a picture of Salvatore Mundi, a painting by Leonardo da Vinci. In the whole world, only one of this painting exists which was sold on 15th November 2017 for $450.3 million. The Salvatore Mundi cannot be interchanged or replaced with any other painting even by the Mona Lisa because its value is unique. Also, even if a random painter copies the Salvatore Mundi in such a way that the copy looks exactly the same as the original to the average person, the value of the fake painting will never be up to hundreds of millions of dollars. So just like every other artwork, the Salvatore Mundi is a non-fungible asset.
For a digital asset to be non-fungible, they have to be NFTs. This is because the characteristic which serves as proof of uniqueness, originality and ownership is contained in the token that embodies the digital asset/file.
Generally, a picture online is just that. It retains no value as anyone can copy and post the same picture. When this picture is however contained in a token with unique information that proves its originality and distinctiveness from any other picture on the internet(whether they look the same or not), the picture becomes non-fungible, that is, an NFT.
Here’s an instance – If Mr Smith ( a talented photographer) takes a picture and posts on his Instagram page, several of his followers can just copy the picture, post on their own social media platforms without giving credit to him, and nobody would be able to know that Mr Smith was really the owner of the picture. When Mr Smith however makes the picture an NFT, he gets verifiable and exclusive ownership right of the picture. Anybody can confirm on the Blockchain that the picture is his, and because of its uniqueness and originality, the picture becomes valuable.
Just like the Salvatore Mundi and the Mona Lisa paintings are special and valuable because they’re unique, irreplaceable, rare and have a verifiable owner, a NFTs is special because the digital file contained in the token is unique and has verifiable and trackable ownership. This sets it apart from any other digital file, making it irreplaceable and not interchangeable with any other digital file(whether or not they look alike).
Although anyone can right click and save a JPEG or video online, doing this doesn’t grant such a person the right of ownership of the JPEG or video. When this JPEG or video becomes an NFT however, a unique identity which has unique properties is created. This unique identity which cannot be replaced by any other identity in the whole world confers ownership of the digital file on the owner and then to subsequent buyers.
Because of the uniqueness and rarity of these NFTs, they can become very valuable and can be sold for millions of dollars. Examples of NFTs that have been sold for millions of dollars are Everydays: The First 5000 Days by Beeple, The Merge by an anonymous digital artist nicknamed Pak, CryptoPunk #7523 by Larva Labs.
Simply put, anything can be an NFT. While most people think of only art or JPEGs when they refer to NFTs, many more things can be NFTs.
Some digital assets that have been turned to NFTs in the past few years are:
- Music
- Static photos
- Gifs
- Art
- Gaming items
- Collectibles
- Videos
The above isn’t an exhaustive list. As the years progress and NFTs become increasingly popular and more widely used, many more types of digital assets will be turned into NFTs.
NFTs are stored on a decentralized technology called the Blockchain. Once stored on the Blockchain, their unique properties cannot be changed or altered. The Ethereum Blockchain is where most NFTs are stored. Other Blockchains where NFTs are stored are Solana, Binance Smart Chain, etc.
In order to create an NFT, a digital asset has to first be minted. Minting refers to the act of tokenizing a digital asset(artworks,photos, music etc). This is done by uploading the digital asset to a NFT marketplace and issuing a token that proves ownership.
A NFT marketplace is a digital market where creators can create(mint) and sell NFTs and where buyers can purchase NFTs that interest them. There are different NFT marketplaces Opensea, Superrare, Nifty gateway, etc.
NFTs have come to stay and as the world gets rapidly more digital, NFTs will become increasingly integral to not only identifying ownership of digital assets, but they’ll also open up opportunities for creators and owners of digital assets to reap the benefits of their talent, skills and hard work.
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