NFTs are encrypted works that are authenticated using blockchain technology and tagged with a unique digital signature. They are digital assets, including paintings, jpegs, and video clips, that can be bought and sold, just like physical assets.
If you are not on the non-fungible token (NFT) craze yet, you could be missing out on millions of dollars.
That is if you can create something that people will perceive as having unique value, i.e. you are creating scarcity.
A Beeple NFT sold for $69.3 million at Christie’s, according to ARTnews.com
Christie’s announcement of their plans to auction off their first NFT (non-fungible token) by Beeple’s ‘The First 5,000 Days’ in an online sale has drawn widespread attention among audiences both in and beyond the art world.
The winning buyer of the piece was a Singapore-based crypto investor and co-founder of NFT fund Metapurse, who goes by the pseudonym Metakovan. He put in a bid of $250,000 over the underbidder, Chinese multimillionaire Justin Sun, founder of cryptocurrency platform Tron.
Over the course of the 10-day online sale, 33 bidders competed for Beeple’s digital work comprising 5,000 images that the artist, a graphic designer based in North Carolina, made over 13 years.
At the end of February, another work by Beeple sold for $6.6 mn through Nifty Gateway, an online cryptocurrency marketplace for digital art.
Tweets worth millions
Recently, Twitter CEO Jack Dorsey offered the first tweet on the NFT platform Valuables and sold it for over $2.9 mn. Oracle CEO Sina Estavi won the bid. Estavi also bid $1.1 mn to own the NFT of a recent tweet by Elon Musk, CEO of SpaceX and Tesla, which was also listed on Valuables.
Use extreme caution with NFTs
Like most traps, they’re mysterious, then appealing, and then it’s too late, according to Author and blogger Seth Godin.
An NFT is a digital treasure chest, a status symbol, and an apparent item of value.
Like a Pokemon card or an original Picasso drawing, NFTs are designed to be the one and only.
There’s a 3,000-year cultural history of owning priceless works of art as high-status luxury goods.
An NFT is a digital token (the same way a Bitcoin is a digital token) except there’s just one.
And so the trap.
Creators may rush to start minting NFTs as a way to get paid for what they’ve created. Unlike alternative digital currencies which are relatively complicated to invent and sell, it’s recently become super easy to ‘mint’ an NFT.
“I could, for example, turn each of the 8,500 posts on this blog into a token and sell them on the open market,” says Seth.
The more time and passion that creators devote to chasing the NFT, the more time they’ll spend trying to create the appearance of scarcity and hustling people to believe that the tokens will go up in value.
They’ll become promoters of digital tokens more than they are creators. Once bought, NFTs, unlike stocks, don’t pay dividends or come with any other rights. And unlike actual works of art, NFTs aren’t usually aesthetically beautiful on their own, they simply represent something that is.
Buyers of NFTs may be blind to the fact that there’s no limit on the supply of new NFTs. In the case of art, there’s a limited number of famous paintings and a limited amount of shelf space at Sotheby’s.
It’s an unregulated, non-transparent hustle with ‘bubble’ written all over it.
Nyan the cat NFT
In 2011, a video featuring an animated cartoon with a Pop-Tart for a body, flying through space, leaving a rainbow trail behind it took the internet by storm. Nyan cat became an instant meme and one of the top viewed videos in 2011.
In February of this year, a one-of-a-kind digital rendition of the Nyan Cat meme was sold for 300 Etherum or about $590,000.
How could someone own the video/GIF that has been copied and shared across the internet for nearly a decade?
This was possible because Nyan cat was sold as an NFT.
According to the Wall Street Journal, the NFT market ballooned $338 million in 2021 from a market cap of about $41 million back in 2018.
By selling an NFT, you are selling the original rights.
In the case of Nyan Cat GIF, the purchaser of its NFT now officially owns the original pop-tart animation.
Explaining fungible and non-fungible
In economics, a fungible asset is something with units that can be readily interchanged. This can include money.
Imagine you have 20 $1 bills. You can exchange those 20 $1 bills for one $20 bill. The value remains the same even though it is in a different form.
Common cryptocurrencies like Bitcoin and Ethererum are considered fungible tokens. If you send somebody a Bitcoin and they send you one back, it doesn’t have to be the same Bitcoin.
If something is non-fungible, this is impossible. One NFT does not equal another NFT. Each NFT is unique and cannot be exchanged with something else. Think of it as a digital signature or official certificate of ownership.
People can copy and download a digital art existing on the NFT, but they don’t have the original deed to the artwork which thanks to the power of blockchain, it can verify who originally owns the digital asset, any digital asset, who sold it, and when it was sold.
Blockchain-based CryptoKitties allows players to collect and breed unique digital cats by tokenizing them into NFTs.
Ethereum, Dapper Lab’s Flow, and Polkadot are three of the leading blockchains where NFTs are built.
Commonly run on Etherum, these NFT marketplaces acts as an “eBay” for NFTs. People can place bids on these assets or outright buy them. Some of the most popular marketplaces include Rarible, Nifty Gateway, and OpenSea.
Electric power mongers
Cryptocurrency and NFT transactions are highly unsustainable. One cryptocurrency transaction consumes as much energy as 700,000 Visa transactions. This can be attributed to the fact that blockchain and cryptocurrency utilize an algorithm called Proof of Work. Also known as PoW, this algorithm was intentionally created to be computationally inefficient to increase security.
NFTs are allegedly worse. A single NFT requires multiple transactions, the creation, buying, selling, and reselling. These all require energy. “The average NFT has a footprint of around 340 kWh, 211 KgCO2. This single NFT’s footprint is equivalent to an EU resident’s total electric power consumption for more than a month, with emissions equivalent to driving for 1000 km, or flying for 2 hours,” says crypto researcher Memo Atken.