So you heard about Beeple selling his digital artwork for US$69.3 million – a feat that earned him the most expensive NFT sold. Or Jack Dorsey selling his first ever tweet for $US2.9 million. And you wonder what’s going on.
Could this be the act of a post-Covid world gone mad from isolation?
How is it even possible to sell a tweet in the first place?
And what in the world is an NFT?
I don’t know about you but these were the questions that stumbled through my mind when I first heard about NFTs. Eager not to be left out of the loop, I set out on a strenuous journey to discover just what they were.
From the comfort of my favorite couch and after hours of research intermixed with watching SpongeBob clips, I got it. And in this article, I present all my findings in simple English. I promise.
So without any further ado, here’s your guide to understanding NFTs.
What is NFT?
NFT, short for non-fungible token, is a type of crypto token. It is just like Bitcoin because it is also stored on the blockchain. But that’s where the similarity ends. Whereas Bitcoin is fungible, NFT is, well, non-fungible.
Let’s break this down further.
When something is fungible, that means it can be replaced or exchanged with another identical object. This feature is common in all fiat and digital currencies. For instance, you can easily exchange one bitcoin for another bitcoin without any hassles. The history of the coin or the identity of the first owner of the coin is irrelevant to you. Your only concern is that it is genuine and it’s in your wallet.
NFTs, on the other hand, are not mutually interchangeable like bitcoin. They are one-of-a-kind digital assets that cannot be replaced by another.
How do NFTs work?
To understand how NFTs work, we first have to look at cryptography. Now don’t get alarmed here, it’s not that complex to understand. Cryptography simply allows two parties to securely communicate without a third party decoding the messages. This communication is made possible by the possession of two keys namely: private keys and public keys.
To demonstrate how these keys work, let’s assume you want to message your friend with top-secret info. Using cryptography, you will send the message to your friend’s public key. To a nosy person, this message could as well be in parseltongue because it will look like a random sequence of characters. Something like: a8hTu04ghVI72aEl%b*s6. Your friend will then have to use their private key to decode your message.
From this example, you can see how cryptography provides authenticity by ensuring that your message gets to its intended recipient and no one else.
Alright! How does this relate to NFTs then?
NFTs use the authenticity feature of cryptography to distinguish it from other tokens on the blockchain. Just like in the illustration above, when you purchase an NFT, you get a private key that proves that you are the owner of that token. While the public key remains with the person that sold the NFT to you. It is the creator’s public key that will be proof that you indeed got the original token from them.
So let’s say you want to buy a Banksy’s NFT. After paying for it, Banksy will keep the public key and give you a private key that links to the token. If anyone wants to confirm that you actually own a digital Banksy, they can easily go on the blockchain and verify from the transaction history.
Do all NFTs use Ethereum?
Not really! Yeah, the first NFTs were transacted only on the Ethereum blockchain. But to the question, nah!
Some NFTs are currently hosted on other blockchain networks like EOS, Tezos, Polkadot, Binance, Tron, and NEO. But still, a vast majority of NFTs are hosted on the Ethereum token standards. Moreover, Ethereum’s ERC-721 token standard is still the most preferred framework for the building and issuance of NFTs.
Can I create my own NFTs?
Of course, you can. And contrary to what you might think, making your own NFT is not as hard as it sounds. It only requires the following:
- The item you want to mint: This could be an artwork, gif, song, video, game, or any other valuable collectible in your possession.
- Tokens: To pay the blockchain minting fee.
- Crypto wallet: To store the crypto you receive from the transaction.
Once you have the above three things in place, you can then go ahead and choose the blockchain technology that will host your NFT. Whatever your choice, ensure that your preferred blockchain has an active community, quick transaction times, and low fees.
Where can I buy NFT?
There are several marketplaces where you can carry out NFT transactions. SuperRare, Foundation, Mintable, Venly, and OpenSea are just some of the available options. As of right now, OpenSea is the largest NFT marketplace.
Can I own the rights to an NFT?
When you buy an NFT, you are only buying ownership of the asset. The copyright will remain with the content creator. But don’t worry, this copyright does not grant the creator the license to replicate or transfer your NFT without your permission.
What determines the value of NFTs?
You, the seller, Obama, and the partridge in a pear tree. But seriously, the value of an NFT is determined like any other valuable item in the market. People give objects their inherent value. And if a group of people believe that an NFT is worth a lot, the price would reflect this value.
Scarcity also plays a role in the value of an NFT. A limited or rare edition NFT will obviously have more value than one that is mass-produced.
Can my NFT be stolen?
Remember we learned earlier that NFT is stored on the blockchain. We also learned that data entered into the blockchain cannot be erased or altered. Here’s why.
To alter data on the blockchain, a prospective thief will have to rewrite all the data that has ever been entered on the blocks that make up the chain. What’s more, the new data would have to be certified by all the miners scattered across the globe. It’s not an easy feat for even the most enterprising thief, I tell you.
So no, your NFT cannot be stolen once you’re confirmed as the owner.
Do NFTs hurt the environment?
For all its promises, NFTs’ impact on the environment is one sore feature that opponents of the token often rail against. And for good reasons too. Since it is built on the blockchain, NFTs face the same energy issues as other energy-guzzling cryptocurrencies.
Today’s blockchain networks depend on the proof-of-work principle which rewards the first miner who solves the complex math puzzles needed to validate a transaction. These puzzles usually require a lot of computational power to solve. An NFT transaction is no different because it also operates on the same principle.
Fortunately, this problem is not expected to last for long as blockchain technology undergoes several transformations. Ethereum, for instance, is adopting the proof-of-stake concept which eschews energy consumption in favor of the percentage of coins held by miners. In this case, miners would only be rewarded based on the amount of funds staked instead of their computing power. This upgrade is expected to reduce Ethereum’s carbon footprint by about 99.98%.
Should I buy NFT art?
To be honest, this is a question that only you and your wallet can answer. However, there is nothing wrong with dipping your feet in the NFT pool to get an idea of what the excitement is all about.
You never know, you might just own a part of the next big NFT that will have everyone buzzing. And hey, being the owner of an NFT could always be a nice conversation starter. Just don’t get too technical!
That wasn’t so hard to understand, after all. Like the blockchain technology, NFTs symbolize the unconventional. And even though it is still in its nascent phase, it has already been deployed in various use cases with more experiments still on the horizon. Indeed, the future of NFTs is exciting and you will do well to get onboard now.
To get you started, here are the top five trending NFT projects in 2021.
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