Christie's sold a digital collage of pictures called "Everydays: The First 5000 Days" for US$69.3 million in May. Elon Musk said a few weeks ago that he is selling a tweet of his as an NFT, which includes a song about NFTs.
Musk's post has now surpassed $1 million in bids, with millions more flooding in – he has now tweeted, "Actually, doesn't feel quite right selling this." This too shall pass.” Individual cards can sell for more than US$200,000 on sites like NBA Top Shot (where you can buy, sell, and exchange digital NBA cards).
It may appear absurd, but the exploding market for crypto-collectibles and crypto-art is no laughing matter. Here is an explainer to help you understand what an NFT is and why they are becoming so popular.
What exactly is an NFT?
A non-fungible token (NFT) is a digital file that has been confirmed in terms of identity and ownership. Blockchain technology is used for this verification. Simply explained, blockchain technology is an unhackable system built on cryptographic mathematics. As a result, you'll hear a lot of the term "crypto" when referring to NFTs – crypto-art, crypto-collectibles, and so on.
What exactly is fungibility?
Fungibility is the ability of an asset to be interchanged with other individual assets of the same type; it indicates that the assets are of equivalent worth. If you own a fungible asset, you can easily exchange it for another of the same type. Money is the best example of fungible assets because it simplifies the exchange and trading procedures.
Is NFT equivalent to Bitcoin?
This is where I can explain and stress the NFT's "non-fungibility." The primary distinction between NFTs and Bitcoins is that Bitcoins are both restricted and fungible (you can trade one Bitcoin with another and both have the same value and price). NFTs are one-of-a-kind but limitless, as well as non-fungible (no two artworks are the same). While NFTs, like real estate, might rise in value, they cannot be exchanged for another NFT.
What does this indicate for money's future?
While not directly relevant to NFTs, some monetary features should be mentioned. Money must be fungible (one unit is interchangeable with another) and divisible, among other things (can be divided into smaller units of value). NFTs are neither fungible nor divisible (easily).
A single dollar, for example, is easily convertible into four quarters or ten dimes, whereas one NFT cannot currently be divided (although the blockchain technology behind may allow it in future). Fungibility and divisibility are two of the five conditions for a currency to exist in a controlled economy.
Why are NFTs valuable?
The significance of NFTs resides in their ability to securely value, purchase, and exchange digital art through the use of a digital ledger. NFTs began in online gaming, then with Nike patenting its authenticity (CryptoKicks), and finally with the prestigious Christie's auction embracing NFT valuation of a digital art piece.
NFTs are typically formed by posting files to an auction market, such as digital artwork. NFTs, like any other kind of art, are not interchangeable, making them more analogous to "collectible" things.
The technology (usually Ethereum) enables digital art to be "tokenized" and ownership to be securely held via a decentralized, open-source blockchain (that is, anybody may check the ledger), which includes smart contract capability. This indicates that the customary role of a "middle man" in selling art has been computerized.
Is it the same thing to own the NFTs as it is to possess the copyright?
No, owning the NFT does not allow you copyright to the art; the two are different. The ownership of the NFT is established via a digital ledger, which is openly stored and accessible to everybody. This ledger keeps track of who owns an NFT and ensures that it cannot be replicated or tampered with, basically acting as a "smart contract."
What is the outlook for NFTs?
It is evident that digital assets and blockchain technology are transforming the future of commerce. As a result, NFTs are driving this favorable increase. However, as with previous examples in history (e.g., the Dutch Tulip, the dotcom bubble, and so on), certain valuations may require future corrections based on socioeconomic aspirations and the possibility of a bubble.
Every generation has a particular connection to certain valuations, whether for vanity or for other reasons. NFTs are currently popular among younger generations, but whether this generation will have the financial means to acquire or utilize them in the future is a social and economic challenge.
The true potential of NFTs has yet to be realized. It remains to be seen whether major industry players in art, design, and fashion will embrace it. One thing is certain: NFTs enable numerous digital artists to be discovered and evaluated, and the smart contract functionality of blockchain technology will be employed in future asset valuations.
