The JPEG files floating on the Internet are only one part of the story.
If you’ve spent any time on the Internet recently, you’d have heard something about the NFT craze. From funky stylized monkeys to the long-loved GIF of Nyan Cat, NFTs take on several digital forms. However, a question remains for many - what exactly is an NFT and what’s with the hype?
NFTs for Dummies
Simply put, an NFT is a digital asset representing real-world items. When you buy an NFT, you’re not buying digital artworks of monkeys to hang up on your wall. Rather, you’re buying digital ownership - a record stating that you exclusively own this item. Built on the blockchain - a network which records transactions publicly across many computers - NFTs have a built-in security system. Once you buy an NFT, no one else can claim that it is theirs. So, even if your friend takes a photo of your CoolCat NFT, you, as the buyer, still own the original digital asset.
What an NFT Isn’t
Okay, so buying an NFT means buying ownership over a blockchain-hash linked to a file. But what’s the point of ownership if my image can sit in anybody’s camera roll?
Here’s an important distinction: the value of an NFT doesn’t solely depend on the image, video, GIF, etc. itself. It’s also based on demand from the market. Think of the NFT community that has taken over Twitter as similar to a group of really dedicated baseball fans. Within the baseball fanbase, owning a 1909 American Tobacco Company T206 Honus Wagner Card is the dream. However, if you aren’t a diehard baseball fan, owning this card may as well mean owning a sheet of paper. Going back to NFTs, if you own an image no one believes is valuable, good luck trying to sell it. In general, you can think of NFT trading not as buying images themselves, but rather the status of owning them.
Not Just Bragging Rights
Bragging rights aside, there are still many upsides to this new NFT space. For one, digital artists and content creators can find better ways to earn revenue for their work. Trading NFTs on the blockchain means artists don’t need to rely on galleries or auction houses which take away huge profits, or royalties on re-sales. Instead, creators sell their NFTs directly to their consumers.
More importantly, though, is how the NFT hype has encouraged rapid changes to the blockchain system. If we continue to refine the ways we verify digital ownership, we could change the pace of ownership contentions. Linking the DMCA to an NFT, for example, would allow us to deal with issues such as copyright infringement much quicker, creating a more efficient system in the near future.
Once the Hype Dies Down
At first glance, the NFT trade may seem like a way to make quick bucks over silly drawings, but after a more thorough discussion of the core concepts we see that NFTs can significantly shape our future. There’s a lot to be learned and it’s very exciting to see how this “trend” will evolve.
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This is not financial advice.