The past year has seen an explosion of the term NFT on to the digital art scene. But what exactly are NFTs and how to they work? We may have the simplest explanation on the planet.....
What is a token?
Imagine I draw this beautiful fairy on my computer:
What makes my drawing unique?
Me the artist
Date drawn
Medium used
Name given
Etc...
To protect and promote my drawing online, I can create a virtual ID card for it, and log the ID in a big book on the internet - a virtual register known as Blockchain.
The ink on this register is indelible. Anyone can add to this register but no one can delete anything.
To easily locate this drawing in the virtual register, I will assign it a number. This is my token. My way to access my drawing will be through this token, which will give me all the information on the drawing and where the image is hosted, mainly on a website.
What is 'non fungible'?
Something fungible has the ability to be interchanged with other individual goods or assets of the same type. E.g. A 10 Dirham note can be exchanged for another 10 Dirham note, while they are two different notes, they hold exactly the same value and will afford you the same purchasing power. Therefore, a non fungible item is one which is unique and cannot be replaced with another item e.g. The Mona Lisa.
So what is a non fungible token?
NFTs (or non-fungible tokens) are unique digital tokens that serve as proof of ownership of an asset, and cannot be replicated.
Can the underlying asset be copied?
Yes they can. In fact, a lot of times the artist retains the copyright of the original asset, which allows them to legally reproduce it.
NFTs represent ownership of the “original ” asset, even if copies are made in the future.
How much does an NFT cost?
Since there is only one of each NFT, the scarcity, combined with the trend towards digital collectibles, is resulting in some of them being sold for a lot of money.
Interesting Fact: Artist Beeple's digital art was sold in the form of an NFT for $69.3 million, becoming the most expensive piece of digital art to go under the hammer.
How do you create an NFT?
Firstly you need to choose a blockchain technology, and upload your content to that blockchain. Then, you select the NFT marketplace to list your NFT on, since NFTs can only be bought and sold on specialized NFT marketplaces. You can even add a royalty or commission to your NFT, which would result in a payment to you every time your NFT changes hands.
How are NFTs bought & sold?
In order to buy or sell an NFT, you need a digital wallet specific to that marketplace, which needs to be loaded with the cryptocurrency accepted at that marketplace.
Are NFTs a good investment?
That is up for debate! But a few things to keep in mind when investing in NFT's:
- The NFT asset could simply vanish
- Non Fungible Tokens could suddenly become worthless
- You don’t really own anything
- There is a high possibility of fraud
- There is a lot of volatility
- There is very little liquidity
- NFTs have a huge impact on the environment, due to the way Blockchain technology works, the amount of energy consumed for every single transaction leads to a lot of greenhouse gas emissions that hurt the environment significantly and expedite global warming.
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