I was lucky (or unlucky, depending on how you look at it) to be born way back when a ‘mobile’ phone was literally a size of a briefcase. And I’m not even 40 yet.
Today my whole life fits in the palm of my hand and reading a map seems like a redundant life skill. Sometimes I get overwhelmed by the pace of technological advances available to us and I quietly wonder at what age it becomes socially appropriate to stop caring about the next big thing. My level of scepticism towards most things is medium to high. I still don’t have a TikTok account because I was hoping its lifespan would be the same as HouseParty’s (remember the app we all used for 5 minutes when the lockdowns started?). I was wrong.
I guess what I am trying to say is that if you are hoping that this whole NFT thing will blow over soon and you won’t need to spend time trying to get your head around it – I hear you. Except it won’t blow over. And then you will feel like your great aunt, getting an Instagram account in the year 2019. And then of course there is the dinner party chat, where some smartass casually brings it up as if they’ve spent the last five years of their life writing a PhD on the topic of NFTs, tells you how excited they are about Web 3.0, shows you their metamask wallet, their eth handle and their collection of Bored Apes, Crypto Kitties, Punks and Puppies and some other gibberish that apparently you are now required to have an opinion on.
Well, I guess if you can’t beat them, join them.
What is an NFT?
If you type in ‘what is an NFT’ into Google you will get the following Wikipedia definition: A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can be sold and traded.
Let’s unpick some of the lingo. Firstly, NFTs live on a blockchain and have come to existence via the blockchain technology. Blockchain is essentially a system of recording information in a way that (if all goes to plan) is impossible to cheat, change or hack. A digital ledger of transactions that is public.*
The validity of the transactions is agreed upon by all members of the network and not controlled by any one organisation or body (decentralised).
Tokens are digital assets and can be fungible or non-fungible. Fungible basically means interchangeable and not unique. For instance, a US dollar can be exchanged for another US dollar, and both notes will carry the same value and have the same characteristics (e.g. portrait of George Washington), similarly each bitcoin is the same as the next bitcoin and carries the same value. Examples of fungible tokens are bitcoin, eth coin, dogecoin etc (or money, if we are talking ‘real world’).
An NFT, on the other hand, is a digital asset that is one of a kind. Its unique characteristics are contained within the smart contract attached to that token. The smart contract (much like a normal contract) will contain the terms of execution. This could be information about, for instance, who created the token, what kind of rights are attached to it – like who can reproduce the work, information about royalties, expiration dates – the realm of possibilities of these characteristics is endless. This is why a non-fungible token is a great mechanism for digital art, a piece of music, a digital collectible or any other item that has unique qualities and is not easily interchangeable.
*Some blockchains can also be private (e.g. used in the banking system) but in the case of NFTs we are referring to the public blockchains.
What can be an NFT?
This is where a lot of confusion comes from because a lot of things can be an NFT. You might be inclined to think that NFTs are only relevant when it comes to digital assets and virtual worlds, but their application extends well into the physical world. Anything that has unique features and that someone wants to own can be an NFT. In the digital realm this means any piece of media (digital art, music, blog post, tweet, photo), digital fashion items, virtual assets within a game, sports and other collectibles, virtual land. In the physical realm NFTs can be applied to fashion, luxury (authentication certificates for watches, wines), event tickets, memberships and, eventually, any item where provenance tracking may be important – physical art, land and property titles, Birkin bags.
What makes NFTs special?
How much time do you have? Here are my top five reason to be excited about NFTs (add these to your dinner party chat repertoire. You’re welcome!):
Creators’ rights
This is revolutionary for the creators because the smart contract within an NFT allows for royalties to be permanently attached to the asset, therefore ensuring that the creator gets rewarded for their work, even when a secondary sale occurs or if the value of their creation increases dramatically over time. For example, currently if John buys a painting for $100 from an unknown artist and the value of that painting increases tenfold over time, only John will benefit from the increase in value and the creator will not see a cent. An NFT, can contain a term within it that if such dramatic increase in value was to occur, the creator gets 10% when John eventually sells the painting.
Provenance
NFTs allow for transparency around provenance and ownership history. This means that it will become easier for creators to maintain their copyright and IP, because the information about who created a particular digital asset is attached to the digital asset. Currently, if I am a photographer and I upload a photo and someone else uses it without crediting me, no one will know that I am the genius behind the lens. NFTs change that.
When it comes to having access to the ownership history* in some instances, having access to this information may increase the value of the asset. Like if it is common knowledge that Beyonce owned a particular piece of digital art once upon a time, then for me personally that would be worth a whole lot more.
*Blockchain will only contain your pseudonym, not your full details.
Status symbols
Or in other words bragging rights. Does it smell of vanity? Perhaps. But some people place a lot of value and importance on being the early adopters or supporters of projects and trends (and being able to show it off). If you really think about it, Crypto Punks are nothing but a funny looking pixelated JPEG, but in the NFT community owning one is the ultimate sign of being “the real deal”. And have I mentioned that each of them sells for a gazillion dollars?
Cultural shift
As a society, we are changing our perceptions of value. We are creating a new segment of art, digital art. We are changing how we think about ownership and how much we are willing to pay for a digital asset, that “doesn’t really exist”. Yes, but can I hang it on my wall? You know what, at this stage, I would be pretty proud to display my Beeple as my TV screensaver (if I could ever afford a Beeple that is). So, I guess value, as beauty is in the eye of the beholder. But you can just display it on your TV and not own it right? Absolutely! Except, I would never want to hang a $10 paper copy of an Andy Warhol print in my living room. Would you? In a world where I am unlikely to own my forever home for a few (quite a few!) years yet, I would be more than happy to project my digital art onto a wall and pack it away nicely into a flash drive next time I have to move.
Adaptability in the real world
Still early days for this one, but I am excited about all the NFT use cases when it comes to physical assets. For example, when it comes to authenticity certificates for art and luxury goods in the secondary market (watches, bags, painting, jewellery) or titles to land and property (we may no longer need countless intermediaries to handle a sale of a property if our title is an NFT). The big hurdle to overcome here is of course is that someone will still need to validate that the physical item itself exists and is authentic.
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The NFT phenomenon is still new and much of the infrastructure around it still relatively nascent (remember when we used VPN to get on the internet? It’s called 5G now). One thing I would urge you to do, is to look beyond the hype and eye-watering price tags. Consider the bigger picture and the exciting opportunities that this new technology can bring.
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