Written by: Rohin Patel
Non-Fungible Tokens (NFTs) have quickly become an inevitable subject for anyone earning a living as a creative person online, whether it be in the form of artwork or music. It has provoked a rush for digital artists to understand an idea that is overwhelmingly buried in the complexity of digital cryptocurrencies and blockchain technology. While most people believe NFTs are the future of the economy of art and promise that it will revolutionize the industry and give artists more control over their work, there are still critics that argue that if they are not utilized as intended, NFTs will only be making benefitting the rich cryptocurrency holders (3).
So what are NFTs? To understand this, it is important to know what fungible tokens are. Essentially, fungible tokens, such as bitcoin, are digital cryptocurrencies mined by millions of people around the world. One bitcoin is equivalent to another, and all have an identical worth, at any one given point. This is fungibility: you can trade a bitcoin, any other cryptocurrency or, for that matter, even fiat currency for any other of the same currency and be assured that it still holds the same value. NFTs, in contrast, are units of data on blockchains (primarily Ethereum), where each NFT can represent a unique digital item, such as music, artwork or, as of late, even tweets, and thus they do not have identical values and cannot be replaced. Most NFTs, at the moment, are part of the Ethereum blockchain. Ethereum is a cryptocurrency, just Bitcoin or Litecoin, but its blockchain also supports these NFTs, which store additional data that makes them work uniquely in contrast to, say, an Ethereum coin (1). They use cryptographically verified information to “lock” and secure a particular digital file or even set of digital files.
While people believe that NFTs have surfaced to the economy in recent times, they can be traced back to 2012 when researchers played with the idea of unique coloured bitcoins that would be different in value from the fixed price of traditional bitcoins. However, in its more recent form, NFTs have been around since 2017 with the development of CryptoKitties and CryptoPunks, which have now had most of their first NFTs sold for at least six figures (5). While NFT hype has quietly been building within cryptocurrency groups for months, it has now been significantly popularised as singer Grimes, partner of the famous Elon Musk, recently auctioned digital art for an astonishing combined total of $6 million in NFTs.
Why Should I Care?
So why are these NFTs talked about and hyped so much? Why do some believe it to be revolutionary to the art economy? NFTs are beneficial for both artists selling their artworks as well as collectors that purchase the artworks. For artists, a key advantage of certain NFTs that they choose to sell is that they can easily and securely see where and for how much their art is selling (2). As such, the artists can receive a share of each sale of their work, indefinitely. Therefore, if their art accumulates high values, as some speculators believe it will, the artists will continue to benefit from that prosperity. Moreover, not only digital art creators and musicians will benefit from this. Any virtual content creator can offer NFTs to fans for exclusive access and content that others may not receive. NFTs, hence, have the potential to greatly benefit lesser-known and “on-the-rise” creators, not just more famous content creators. As for buyers and collectors, NFTs offer a much secure and easy method of purchasing artwork than traditional physical auctions and they still financially support the artists and content creators that they love. More so, by purchasing NFTs, the buyers then have, in most cases, exclusive bragging rights of the artwork and hence give them basic usage rights.
So What’s The Problem?
Although, this is not the main reason people are suddenly buying NFTs. As with popular cryptocurrencies such as Bitcoin, many investors simply want to purchase NFTs for their speculative market value. Like any other investments, they seek to buy early when the value is low and sell later on down the line, for a profit. That’s where the great buzz around NFTs in recent times comes into question. Are buyers genuinely interested in purchasing these NFTs or are they just looking to be early-adopters and sell for high profits in the future? Some may say the NFTs’ success is a product of the cryptocurrency boom, meaning there are lots of people sitting on fortunes in digital tokens looking for something to buy (essentially a rich person’s playground) (4). If this is the case, the longevity of the NFT market comes into question. Will NFTs still be around in 500 years? This also, in turn, is holding back investors as there still is not enough information for people to understand and, more importantly, trust the NFT market. The information and data that is available for buyers and sellers alike, is scarce and not as easily accessible as it should be.
Okay, What Now?
As of now, though NFTs are gaining popularity within cryptocurrency circles around the globe, it is yet to reach the potential it has. Lack of accessible information for the general public along with the volatile nature of the cryptocurrencies that back NFTs have deterred investors. Newcomers must, quickly, solve practical and logistical problems if they want to enter the fray before the current wave of interest passes. But, with more mainstream artists and content creators such as Grimes and Logan Paul exposing the NFT market to their millions of followers, there are many eyes on the NFT market and, as such, more people are likely to invest in their favourite artists and content creators to, hopefully, use NFTs as they are intended and not for the sole purpose of investment.
Clark, M. (2021, March 11). Nfts, explained. Retrieved from https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
Delbert, C. (2021, March 05). What Are NFTs? Retrieved from https://www.popularmechanics.com/science/a35733349/what-are-nfts-non-fungible-tokens-explained/
Ohlheiser, A. (2021, March 25). Is the new boom in digital art sales a genuine opportunity or a trap? Retrieved from https://www.technologyreview.com/2021/03/25/1021215/nft-artists-scams-profit-environment-blockchain/
Tarmy, J. (2021, March 2). NFTs Are Booming, But They’re Nothing New in the Art Market. Retrieved from https://www.bloomberg.com/news/articles/2021-03-02/nft-art-boom-is-the-same-concept-as-the-photography-market?sref=M8H6LjUF
What is an Nft? Non-fungible Tokens explained. (2021, March 26). Retrieved from https://techxplore.com/news/2021-03-nft-non-fungible-tokens.html