NFTs, or non-fungible tokens, have been sweeping the digital space over the past few months. It is a fusion of many things that excite a generation which has grown up with digital technology at its fingertips. It involves cryptocurrency, virtual reality, and a good dose of social media frenzy. NFTs by many big names as well as entrepreneurs have fuelled hundreds of millions of dollars in online transaction and are recorded on the blockchain technology. But why is so much money being spent on things that exist only virtually? Allow us break it down for you.
What is an NFT?
An NFT is a digital asset, or a unit of data stored in a digital ledger called a blockchain. NFTs are the digital version of real-world physical assets like a painting, game, music album, collectible sports cards, or even a meme. Anyone can their monetise skill and talent by selling their creations online as an NFT. These assets are bought and sold using cryptocurrency, as they are encoded with similar software, simplifying the transaction process.
While NFTs may seem like a buzzword that appears to have come into the forefront out of nowhere, they have been around since early 2014. However, in recent times NFT buying has surged exponentially with blockchains like Ethereum, Tezos, and more establishing specific standards to ensure that the digitally represented items are genuine and truly unique. Ethereum price in India stood at Rs. 2.45 lakhs as of 2:30pm IST as of August 13.
Why is an NFT unique?
Unlike most digital creations that are available in multiple copies, NFTs are one-of-a-kind with a unique identity code. Much like thumb impressions, no two NFTs are identical. This makes the creation and circulation of fake NFTs difficult. So, they cannot be directly exchanged with one another like cryptocurrencies. When people buy NFTs, they get certificates secured with blockchain technology.
What are some of the major NFT sales?
Recently a meme that went viral in 2015 resurfaced and was sold as an NFT for a whopping amount of Rs. 38 lakhs. The funny meme belonged to a Pakistani man who after a fight with his best friend Mudasir decided to announce on social media that their friendship had ended. The friendly fight proved to be rather advantageous and profitable for Muhammad Asif Raza Rana, a resident of Gujranwala. The meme that showcased photoshopped pictures of Rana and Mudasir along with the title “Friendship ended with Mudasir” resurfaced early this year and made global headlines.
A few days ago, yet another outrageous sale of an NFT made waves in the crypto markets. A digital painting of a rock that was a part of a pet project in 2017 was sold at a very high price. The NFT was sold for approximately Rs. 75 lakhs. Ether Rock, as it is called, is simply a digital painting of a large stone that is Grey in colour.
In June, the first-ever NFT was auctioned for $1.47 million (roughly Rs. 10 crores). The same auction house sold a pixelated digital figure known as a CryptoPunk for a whopping $11.7 million (roughly Rs. 85 crores).
In April, Seth Phillips, popularly known as ‘Dude with Sign,’ whose Instagram account has photos of the him posing with funny, relatable placards about annoying day-to-day problems, decided to turn these images into his very own collection of NFTs. Seth has over 7.6 million followers on Instagram.
Twitter CEO Jack Dorsey’s first-ever tweet was sold as an NFT and made him richer by $2.9 million (roughly Rs. 20 crore). The tweet made on March 21, 2006, was sold on March 22 this year via auction on a platform called Valuables, owned by the US-based company Cent.
Why are NFTs considered important?
According to enthusiasts, NFTs hold the key to how one controls ownership of their assets — only one person can own the original and they have a blockchain entry to back them up. Artists can monetise their digital artwork and what’s more, they will even get a royalty if it is sold or changes hands after the initial sale. In the field of music, too, it can be a revolutionary step. For example, American rock band Kings of Leon put out their new album as an NFT and it generated $2 million (roughly Rs. 15 crores) in sales.
Can you buy NFT with cryptocurrency?
Several marketplaces accept Ethereum. Technically, however, anyone selling an NFT can ask for whatever currency they wish to.
What are the downsides of NFTs?
It should be noted that NFTs end up exhausting a lot of electricity as they use the same blockchain technology as cryptocurrencies that generate greenhouse gas emissions.
Another downside is that with so many people obsessing over NFTs, good bargains may not come your way easily as a buyer and you might end up overpaying. From a seller’s point of view, when the hype fades and NFTs turn into just another digital collectible, profits will be harder to come by since everyone else in the market will be trying to make profits too.