NFTs or non-fungible tokens have taken the cryptocurrency sphere by storm. While some people think NFTs are nothing but a bubble, others believe the technology is bound to become the future of the digitized world. Let’s try to break down non-fungible tokens to get to the bottom of it.
So, what are NFTs?
Let’s talk about art first. What gives the Mona Lisa or the Starry Night its value? Perception. Would you expect someone who is not an art connoisseur to see the paintings’ worth? Probably not. So, it all boils down to the perception of value. Some people value the paintings and others follow suit. The cycle continues until you have a ridiculously valued piece of artwork.
Where do NFTs come in all of this? NFTs tokenize artworks, music, and basically anything that can have a digital copy. Non-fungible means something that cannot be replaced. For example, a $10 bill can be exchanged for two $5 and it would have the same value so that’s fungible. But every NFT represents something unique–an artwork, let’s say–which cannot be replaced. This makes the realm of NFTs so unique and interesting.
By tokenization, what we mean is the existence of the blockchain. The blockchain is a public ledger – much like an actual accounting ledger–which records every transaction that happens (happen) on it. However, the technology is so unique because it is completely decentralized–which means there is no entity or group of entities responsible for oversight, unlike banks and other financial institutions. The transactions are verified by miners around the globe who are contributing their computing powers.
So, to sum it up, three words: Uniqueness, tokenization, and blockchain. Still, confused? Hold up, we’re not done yet. Through NFTs, you can create a digital copy of any asset in the real world which can be traded on the blockchain. Basically, it is like a digital certificate of ownership, but mostly without copyright ownership.
What are some of the most outrageous NFTs?
The most expensive NFT sold as yet is an artwork by the name of “Every day’s: The first 5000 days” by artist Beeple. The artwork is a compilation of 5000 digital arts for the artist. It sold for a price of $69.3 million.
CryptoPunks are 24×24 pixel images of various species considered art. They were the first non-fungible tokens in the market. The total collection only has 9 aliens which make them valued. The second most expensive NFT is CryptoPunk #3100, which is a green alien that sold for $7.58 million.
The CEO and founder of Twitter, Jack Dorsey, sold his first tweet “Setting up my twttr” as an NFT for $2.9 million.
These are just a few examples of how high NFTs can go. The staggeringly high numbers are what is responsible for half of the excitement around NFTs.
The downside of NFTs
Is it really a bubble? One of the most common comparisons that are drawn to the NFT and blockchain technology is the Dot-com bubble. The advent of the internet excited and hyped people up. There was a sudden spike in e-commerce businesses. It looked like there was no end to the boom, but if one can be certain of anything in the financial world, it’s this: the bubble always bursts.
So, will the bubble burst? Well, yes, if a bubble does exist. But would that be the end of the blockchain and NFTs? Probably not. Just like how the internet stayed and became the new normal, NFTs and the blockchain can be expected to become a part of our life too, one day.
Another thing that blockchain technology is heavily criticized for is its high energy consumption. NFTs operate on existing blockchains–like Ethereum. While mining is being transitioned towards renewable sources, the carbon emission from the industry is still very high. In fact, it was the problematically high energy consumption of cryptocurrencies that led to the market crash. So, unless mining completely transitions towards renewable resources, the energy consumption may pose as a hindrance to the adoption of blockchain technologies like NFTs.
Is the NFT technology here to stay?
The skeptics of NFTs cannot wrap their heads around the idea of someone buying it, for its uniqueness and one-of-a-kind being when it can be copied multiple times.
The crypto market had a brutal crash which effectively ended the bull run of 2021. Alongside cryptocurrencies, NFTs were also thriving but what’s interesting is that the market crash did not hamper the growth of the NFT market as expected. The NFT segment was thriving even amidst the crash. According to a report by DappRadar, NFT sales have risen 300% from January to May. The average sales per day were 21,815 in January, while the number rose up to 82,373 in May. An upward trend in sales was observed as the cryptocurrencies fell downwards. However, the dollar amount of the total sales has declined from $14.9 million to $6 million.
The use cases for NFTs are currently being explored and, being a novel technology, the possibilities run wild. As asset tokenization takes off, NFTs are believed to facilitate the shift. Tokenization allows trading and financializing intangible or tangible assets that were otherwise not possible. Startups and established firms alike are exploring the possibilities of asset tokenization in real estate, stocks, and artworks. The list can only be expected to grow with time. Worst-case scenario, if NFTs blow and turn out to be a fad, experts still believe the core technology behind NFTs will stay—like the Dot-com bubble.
In the end, only time will tell whether NFTs are just another bubble or a transforming technology like the internet. At the moment, its uses are still being explored, and its popularity is increasing.