A Brief Explainer on NFTs

What is an NFT?

• NFTs are unique digital tokens that prove ownership of something digital. 
• The acronym stands for non-fungible token: something that cannot be replaced or replicated while still retaining the same value. No two NFTs are identical, they have unique defining characteristics that distinguish them. Whereas something that is fungible can be exchanged back and forth, like the American dollar or bitcoin.
• Anything digital, unique, and that needs provable ownership can theoretically be sold as an NFT. They can be pictures, an essay, a meme, video clips, or even a signed tweet from the co-founder of Twitter. In this way, they act more like an expensive and in-demand collectible or piece of art. This is actually a big part of how NFTs are viewed right now — as the online evolution of art collection. 
• Because it’s the internet, an NFT can still be viewed or downloaded by anyone. But, similar to a piece of art, a replica will never retain the same value. The authenticity of an NFT is essential to its value and is built in with a digital signature — and you pay for the proof of ownership.

How do you prove who owns an NFT?

• Most NFTs right now are part of the Ethereum blockchain, but other blockchains can support them. Blockchains are the online public ledger that stores a record each time a transaction is made and proves ownership of an NFT. 
• Ethereum is a cryptocurrency, like bitcoin or dogecoin. NFTs are built using similar programming to cryptocurrencies. 
• NFTs live on Ethereum and can be bought and sold on any Ethereum-based NFT market like OpenSea, Rarible, Foundation, Nifty Gateway, and others.
• You can buy NFTs with money in your bank account or with cryptocurrencies or technically with whatever currency a person selling an NFT wants.

So what’s the big deal?

• NFTs are growing in popularity at a rapid pace with celebrities, companies, and everyday people jumping on the NFT bandwagon. In 2021, over $22 billion were spent on NFTs, up from $100 million in 2020. 
• One key aspect of NFTs is that they can be used to allow content creators to more effectively monetize and retain ownership over their content, with their royalties securely programmed in.
• Owning something is as valuable as the market makes it. And according to Mashable, NFTs are just getting started.

What’s next

• There is significant and growing interest with video game developers, as items in video games can keep their value outside of the game as NFTs. Companies and brands are also experimenting with connecting NFTs to real-world objects or experiences
• But critics of NFTs point to examples of scams and thefts by individuals taking other artists’ works, minting, and selling them for profits. Others have concerns about the massive environmental costs of the energy footprints of NFTs. And the unknowns surrounding this very new market has others skeptical it will all come crashing down. 
• According to Humphrey Yang, a personal finance expert:

“For the average investor, I think that it’s generally a bad idea unless you just want to buy into it for the artwork, and you’re OK with never seeing that money again…There’s so much inherent risk in NFTs.”

What do you think?

What do you think about NFTs and the future of online ownership?

-Casey Dawson