Non- Fungible Tokens, aka NFTs have taken over the storm since 2017 with the sudden burst of popularity of CryptoKitties, known as a virtual cat collectible game. So, what exactly is NFT, and what does it represent? Generally, a token is a tangible or visible representation of a fact and feeling. Your driving license, hotel key card, car keys, etc. are proof of the actions you take and the things you own. In its ecosystem, a token is a representation of something, but not limited. It could be anything from value, voting rights, stake, or something else entirely. A token is not limited to a single function; it can perform a variety of tasks in its native ecosystem.
The market capitalization of NFTs has grown nearly ten-fold between 2018 and 2020, reaching up to a market capitalization of $338 million. This spike has shown great improvement, as it increases value for arts and collectible items. Allowing artists to sell their art at a higher price and stakes.
Non- Fungible Token VS. Fungible Token
Let us start with the opposite, that is a fungible token. A fungible token refers to the ability of an asset that can be replaced with a similar asset while maintaining its quality. A great example for fungible tokens are: dollar money, gold, Bitcoin, Ethereum, etc. In the world of cryptocurrency, a Bitcoin (BTC) is worth the same as any other currency. However, when we switch to NFTs, everything switches.
Now the basics are out, here’s what you need to know about the holy grail – NFT. The token refers to a digital certificate that’s stored on a secure distributed database called blockchain. They are digital assets publicly verifiable intellectual property authenticated on a blockchain. Non-fungible tokens are blockchain assets that are built to be different from one another. One key example of an NFT is a movie ticket. A ticket to a movie isn’t a ticket to any movie, it’s for a particular film and a very specific time. NFTs provide protection and convenience on the blockchain, but only for a specific asset with a specific value.
Benefits of Non- Fungible Token
The value of NFTs lies in their ability to provide value, obtain, and exchange digital art using a digital ledger in a safe manner. NFTs are usually created by uploading files, like digital artwork, to be placed in an auction market. NFTs, like any other form of are, are not interchangeable, which turns them into “collectible” items. Platforms like Ethereum enable the “tokenization” of digital art and safekeeping of ownership through a decentralized, open source blockchain, with smart contract features. As a result, the conventional role of a “middleman” in the sale of art has been digitized.
The scarcity of NFTs adds to their worth and creators have the ability to generate an infinite number of non-fungible tokens, and they often alter and modify the tokens to maximize interest. Non-fungible tokens are:
· Trustworthy: NFTs are used in blockchain technology and as a result, we can be certain that the NFTs owned are accurate and authentic since counterfeiting is difficult to achieve with a decentralized and permanent record.
· Easily Transferable: NFTs are bought and sold on special platforms such as openc.io. The use of NFT is dependent on their uniqueness and originality.
· Maintaining Ownership Rights: This applies to a decentralized network worth of NFTs whereby no purchaser may alter the data later.
NFT Being Utilized by Industries
1. NBA Top Shot
The National Basketball Association (NBA) has made an official contribution to the future of the trading card market, and this game is currently sold out. The NBA collaborated with Dapper Labs, the creators of the CryptoKitties game, to create its own version of collectible digital assets. NBA Top Shot is known as a crypto collectible that can be bought as an NFT by consumers. Since its head start, Top Shots has generated more than $230 million in sales so far, according to Caty Tedman, head of marketing in Dapper Labs.
The famous Chinese digital marketplace Treasureland, NFT luxury company RTFKT managed to sell a Lunar New Year edition virtual sneaker for $28, 000. The design focuses on one of a kind, pure gold virtual sneaker for Chinese New Year. Since authenticity and scarcity drive the appeal of both NFTs and luxury products, it stands to reason that combining the two would open up a whole new universe of possibilities for both brands and customers.
Celebrities Monetizing Non- Fungible Tokens
1. Linkin Park’s Mike Shinoda listed his digital artwork, titled “One Hundredth Stream,” on the crypto-driven online marketplace Zora. According to Decrypt, the highest bid came in at 18,000 DAI, which is a stablecoin cryptocurrency that closely resembles the US dollar, meaning it can also be valued around $18,000. Later on, Shinoda accepted an offer of $30,000 (200 WETH) and he plans to donate the money to charity.
2. Famous YouTuber Logan Paul has collaborated with Bondly, a peer-to-peer exchange that allows trading through any chain and through any medium, to develop and distribute the tokens around. Paul successfully sold $3.5 million worth of NFT digital art in less than 24 hours.
The Darkside of NFT
Somehow, it’s too good to be true. Nothing is perfect, and that includes NFT. While it being the bearer of great artists and industries, the downside of it may harm the planet drastically in the future as it’s already been affected now.
To create an NFT, the first step is to “mint” it, which means registering it on the blockchain. And that requires energy, but only in the abstract – it is bundled with many other transactions that require energy to solve, an aggregation scheme that has allowed the NFT market to avoid responsibility.
Aside from the mystique surrounding the NFT industry, reports about their environmental effects have been circulating, adding confusion to the mystery. Although NFTs hold a huge promise for both artists and investors, critics claim that blockchain mining is one of the examples of profiting from the planet’s pollution. Many people are unaware that the NFTs they are profiting from took a massive amount of raw computing power to develop. Ethereum mining uses approximately 26.5 terawatt-hours of electricity each year. To put that in clearer perspective, that’s about the same amount of energy consumed annually by the entire nation of Ireland.
A single NFT may contain a large number of transactions which includes minting, bidding, cancelling, sales, and transfer of ownership. Memo Akten managed to breakdown the footprint of transaction type:
This typically drives a single NFT’s energy footprint into the hundreds of kWh range, as well as hundreds of KgC02 emissions, if not more. However, there are multiple NFT websites that allow “editions.” Editions are another way to generate better profit because they are allowed to sell the same artwork more than once, and that accumulates to give effect to the environment, as 10x, 100x more tons of CO2.
The Future, Your Call
The effect of digital assets and blockchain technology on the future trade is undeniable. NFTs are currently being used as an investment scheme because they are the forefront of this growth. Their value fluctuates depending on the item’s demand. People buy, trade, and sell NFTs in the same way we buy, trade, and sell stocks in the stock market. However, depending on socio-economic preferences and the likelihood of NFT, certain valuations may need to be corrected in the future. Many digital artists have been established and valued thanks to NFTs, and the smart contract features of blockchain technology will be included in future asset valuations.