What’s the lowdown about these non-fungible tokens (NFTs) then? The Mona Lisa, for example, is one. Obviously somewhat pre-bitcoin but known worldwide as a unique and valuable work of art.
NFTs are the latest mash-up of “art” with the underlying technology of cryptocurrencies – the blockchain. Some kind of art and commerce collision which has produced an explosion of money for a few lucky creators.
This is defining “art” in its broadest sense, so a cartoon, an image of a kitten, a tweet by the founder of twitter, these sorts of things have been put up for sale as NFTs.
Recent NFT Sales Create Riches
Here are some recent NFTs: Artist Beeple sold 5000 digital artworks for $69 million through Christie’s auction house; the first tweet, announcing twitter; and a collectable baseball card. These artworks are owned on the blockchain by the people who purchased them – it is a simple transfer of ownership using the protocols set up by Ether. These sales have been very lucrative for some people – raking in millions of dollars.
The beginning of the phenomenon was the problem of digital copying – images, music and movies have long had the issue that they can be copied digitally and distributed without any way of getting the originators some money back. Now that you can put digital art onto the blockchain using the adaptations built into Ether, and some other tokens, you can create a kind of digital artists signature, ensuring it is unique. It’s bit like buying ‘Print 5 of 100 (signed) Andy Warhol’. In the art world you would need the “provenance” – an expert or gallery would certify that this print was a genuine Warhol. By using the blockchain NFTs have provenance too.
What the Heck does ‘Fungible’ Mean?
‘Fungible’ simply means tradable, identical. One dollar bill is the same as any other. This is really important for currencies – a shopkeeper will accept any dollar bill, they are all the same – even if one is older than another, or even has been used for criminal purposes: it doesn’t matter. Bitcoin is fungible too – any BTC is identical to any other one.
However every address on the blockchain is unique, and using Ether or other tokens other metadata can be added. That’s the cryptographic way of adding “provenance”. So non-fungible items are unique – they can even breed! Cryptokitties are each a unique cat on the Ether blockchain and two digital kitties can produce offspring which each have their own characteristics, like real cats. Strange, isn’t it?
NFTs and Online Gaming
Another use is in the world of computer gaming. You may know that people purchase in-game items, say a magic sword, with real dollars. Of course a cheat might sell the same sword many times and there wouldn’t be much you could do about it if the game’s moderators didn’t take action. Using NFTs would solve this problem, and mean that game items could be sold for in-game digital gold pieces, or real-world dollars. Various gaming companies like Decentraland are already using crypto tokens for large multi-player online games.
Tickets for sports or music events would seem another area where NFTs could have an impact, and also reduce the problems of lost tickets, counterfeiting, and ticket scalping. Collectable tickets could be traded just like any other piece of merchandise.
Are There Any Serious Uses of NFTs?
Yes, there are. Non-fungible tokens are another step forward in the development of the cryptocurrency ecosystem. They introduce sophisticated trading and loan systems for various asset types, ranging from physical things like real estate and land to contracts and artwork. By enabling digital representations of physical assets, NFTs are a new form of asset management, in theory streamlining the financial operation of particular assets.
For example, a tract of land owned by a corporation contains a condominium, a shopping mall with offices, and an industrial site with small factories and workshops . These three assets have different values, rents, occupants, maintenance requirements and many other elements to consider as part of their overall worth. Let’s say the company wants to sell the shopping mall, but keep the other two properties. All the necessary documentation and information could be loaded on the blockchain as an NFT (as the blockchain is just a decentralised ledger) and then marketed, sold and contracts exchanged using dAPPs (decentralised applications) and smart contracts, in a much more streamlined and quicker way than the complex, time-consuming existing methods of using realtors, lawyers and other middlemen.
NFTs have been likened to “digital passports” in the sense that they are a representation of all the important components of a physical item, digitized and stored in a tamper-free format on the blockchain – where they can be used for a transaction.
How to Trade NFTs
One particular difference between NFTs and more conventional cryptocurrencies are that you don’t trade NFTs on an exchange. A particular piece of art is desired by a buyer and sold to him or her. There are marketplaces for these sorts of NFT price deals, like OpenSea or Nifty Gateway, which has been acquired by major US crypto exchange Gemini.
Once you have acquired an artwork, you can see if its token price goes up. Then you could sell it on the marketplace, just like you would a real painting – although without the hassle of packing it up, insuring it and FedExing it to the recipient. On an NFT marketplace this happens digitally with a few clicks and the ownership is transferred.
Despite the Hype NFTs Will Find a Place in the Fintech Ecosystem
Is this a craze or not? Like many things to do with cryptocurrencies, there is a lot of hype, but also a significant step forward for the utilization of cryptocurrencies in advanced financial applications. Although the uses have been mostly frivolous up to now, that should not obscure the reality that a reliable “data passport” will have a lot of uses in a wide variety of sectors, reducing costs and cutting out expensive middlemen.