Have you ever heard of NFTs? With news circulating about millionaire auctions of images, videos, gifs, songs and even a tweet, you may have already seen this acronym. But if you have no idea what we’re talking about, or if you simply want to understand it better, just continue with this post. Here, we’ll tell you more about this new technology that promises to change the digital art and collectibles market!
What are NFTs anyway?
Well, the letters stand for Non-Fungible Token. When something is non-fungible (or infungible), it means that it cannot be replaced by another one just like it.
For example, if I paint a picture, there won’t be any exactly identical to it. On the other hand, money – which is fungible – doesn’t have specific qualities that make it unique: if a 10-real note is replaced by two 5-real notes or even another 10-real note, there will be the same amount as before. This is also true of most cryptocurrencies, which can easily be exchanged for other cryptocurrencies of the same kind.
NFTs are encrypted digital tokens that carry exclusive and unique items. In fact, these tokens symbolize a certificate of ownership of a digital asset and of its authenticity and uniqueness, demonstrating that a given item is original and legitimate. They are therefore essentially digital collectibles.
They can be bought and sold like any other property, but they only exist in the digital world, which means that if you buy an image in NFT format, you won’t get a painting or a poster. The aim is to keep it virtually – there’s nothing to stop you printing it, of course, but that’s up to you.
Another question is the value of an NFT. Like all infungible things and even cryptocurrencies in general, the price is subjective and can vary according to appreciation and demand. Just think of real-world collectibles and how they can change value abruptly depending on the market.
What can be sold as NFT?
Basically, anything that you consider to have some value and that can be stored digitally can be an NFT. The most common is images, videos or music, but, incredible as it may seem, a tweet was sold for 2.9 million dollars (more or less 15 million reais). That’s right, you didn’t read that wrong: someone shelled out that amount to buy the first tweet in the platform’s history, made by its CEO, Jack Dorsey.
One of the internet’s most famous memes is another example: the NyanCat was sold for 300 ETH, equivalent to almost 600 thousand dollars. Even articles from Quartz and the New York Times have been transformed into NFTs and bought for between 1,800 and 560 thousand dollars.
But the most expensive artwork to date is The First 5000 Days by Beeple. A staggering 69 million dollars was bid for this work. Can you believe that?
Image: Trevor Andrew
And who can sell?
In the same way, anyone can sell an NFT. It’s even an interesting way for artists to sell their art and have their work encouraged. Trevor Andrew, a Canadian snowboarder, musician and artist, drew a Gucci ghost, which sold for 3,600 dollars.
Even the band Kings of Lions got in on the act. They sold albums with exclusive versions – it was possible to access a privileged location at concerts and artwork made especially for those who obtained this NFT. Singer Grimes even received more than 6 million dollars for a digital artwork she made.
The gaming world has also seen NFTs as an opportunity to create items that can be bought and used within games. It has long been possible to buy items to make the experience more fun and personalized, but with NFTs, the player becomes the owner of that item. The game Cryptokitties is one of the most famous examples: users can create, then trade and sell virtual kittens, and each one is unique.
Image: Cryptokitties.co
The novelty has reached companies in various industries. Taco Bell, a fast-food restaurant chain inspired by Mexican cuisine, sold GIFs and images with illustrations of tacos. Each one had a $500 gift certificate, which could be used by the original buyer. Now, these cards are being resold on the secondary market for up to 3500 dollars; and no, the gift certificate is no longer available.
Image: Taco Bell
How does it work?
Most NFTs are part of the Ethereum blockchain, which, as well as being a blockchain, is a cryptocurrency, just like the famous Bitcoin. Its blockchain supports the storage of NFTs by recording extra information that differentiates them from other virtual currencies, allowing them to be JPG, MP3, GIF, video, etc. formats. But other blockchains can also make their own versions of NFTs.
In order to store NFTs, you will need a digital wallet that is compatible with them.
Every purchase and sale of an NFT is recorded on the blockchain, just like any cryptocurrency transaction. And if you don’t know what blockchain is, we’ll try to explain it briefly: the name means chain of blocks, and that’s basically what it is. The blocks are interconnected – each one has its own content (a file, which can be a financial transition, for example) and its own code (called a hash), but the subsequent block always carries with it, in addition to its own, the hash of the previous one. This means that when data is altered in one of the blocks, all the others are compromised, in a chain reaction.
Imagine that A sells B an NFT. All the information on this NFT is stored in a block. Each computer will have a copy of the transaction in real time. There will be a check over the network to ensure that the NFT is valid. If it is approved, the block will be linked to the others, providing a permanent record of the transfer of ownership from A to B.
It’s like a digital ledger that people all over the world have access to in order to make their records public and verifiable. It is therefore very difficult to falsify this data. In fact, each NFT is encrypted to a different standard, which makes them unique and also complicates forgeries.
Where to buy and sell?
There are several platforms for buying and selling NFTs. It’s important to know that you need a specific wallet for the platform you decide to buy from, and you’ll need to put cryptocurrencies in it.
The type of cryptocurrency accepted for payment will be determined by the seller, depending on what each marketplace accepts.
Take a look at this list of sites that sell NFTs:
But why pay if you can access it for free?
Perhaps, having understood what it is and how it works, you’re still wondering: what makes someone give money for something that’s on the internet for anyone to see, save and share? In fact, there is controversy about how affordable it is to have an NFT and why they exist. In reality, it seems that the main idea is to attract collectors who dream of owning an item that is interesting to them.
When a person buys an NFT, it is exactly the ownership of the purchased piece that they are acquiring. This way, only they will have the original file, and they can do whatever they want with it, having basic rights of use and sharing. It’s worth noting that contracts can stipulate that artists are entitled to a percentage of the money each time the NFT is sold. They can also choose to keep the copyright, to continue producing and selling copies.
What we’ve already mentioned is the possibility of appreciation, which is definitely an advantage for the buyer. You can buy an NFT for a thousand ETHs, and it could be worth millions in the future. Believe me, this has already happened: one of the most popular digital artworks on the Ethereum blockchain, CryptoPunk #6965, was sold in 2017 for 1100 dollars, and in February 2021 it was resold for more than 1.5 million dollars. Crazy, right?
Environmental impact
Cryptocurrencies raise a very important concern: the impact on the environment caused by maintaining blockchains. The technology used to guarantee security for users consumes a huge amount of energy and generates a lot of greenhouse gas emissions. The creation of NFTs is no different.
To give you an idea, according to the Digiconomist website, the electricity consumed annually by Ethereum is 34.35 TWh, the equivalent of what Oman consumes in a year; the carbon footprint is 16.38, the same as Lithuania. They even included Ethereum in the chart of electricity consumption by country, and it came 62nd. Added to Bitcoin, which also consumes a lot more, it’s 27th!
This problem has led to artists, such as Youtuber Jackfilms, and platforms, such as ArtStation, deciding not to sell NFTs. There are already people working to try to control the situation, and if you want to find out more about it, just click here.
Despite the criticism that only millionaires would have access to this market, being the new way to collect masterpieces, and about the climate impact, it is still too early to say whether this technology is here to stay and how it will behave from now on. As a multitude of artworks can be sold, it may indeed be a way of supporting artists and innovating the way people collect and invest, but only time will tell whether the NFTs will hold firm or whether this bubble will burst.
