Non-Fungible Tokens (NFTs): A token that can be used to represent the ownership of unique items

22/10/2021
27Digital, Articles

Have you ever heard of Nyan Cat? Nyan Cat is a YouTube video uploaded in April 2011, which became an internet meme. This video ranked 5^th in the list of most-viewed YouTube videos in 2011. In February 2021, Nyan Cat creator Christopher Torres sold his famous meme as non-fungible tokens (NFTs) for nearly $600,000. Maybe now you have a question, why does Torres sell his meme as an NFT? What are NFTs? Let’s continue reading to know more about NFTs.

Non-fungible tokens (NFTs) is a unit of data stored on a digital ledger, known as a blockchain, that certifies a digital asset to be distinctive. It can be items such as a photo, a song, a Twitter, a text denotes on an internet site, a physical object, and numerous different digital formats. They will be bought and sold out online, often with cryptocurrency, and they are usually encoded with identical underlying packages as several cryptos.

Or maybe you can understand more clearly in this way. NFTs is a token that we can use to represent the ownership of unique items. They will have one official owner at a time, and the Ethereum blockchain secures them – nobody can modify the record of possession or copy/paste a new NFTs into existence. Although copies of those digital things are available on the market for anyone to get, NFTs will be tracked on blockchains to supply the owner with proof of possession that’s separate from copyright.

NFTs vs Cryptocurrency vs Digital Currency

Below is the summary of the differences between NFTs, cryptocurrency and central bank digital currency (CBDC).

Figure 1

Before we start, let’s have a simple understanding of fungible and non-fungible. Fungible objects refer to items that are interchangeable because they are identical to each other for practical purposes. At the same time, non-fungible goods are unique items and cannot be replaced with other items. Commodities, common shares, options, and dollar bills are examples of fungible objects. Assets like diamonds, land, or baseball cards are non-fungible because each unit has unique qualities that add or subtract value. In short, items that are sold by weight or number are probably considered non-fungible items. As mentioned above, NFTs is a token that can represent the ownership of unique items. It is not interchangeable.

A cryptocurrency or crypto is a digital or virtual currency secured by cryptography, making it nearly impossible to counterfeit or double-spend. A cryptocurrency is a form of digital asset based on a network distributed across a large number of computers. This decentralised structure allows them to exist outside the control of governments and central authorities. Many cryptocurrencies are decentralised networks based on blockchain technology – a distributed ledger enforced by a disparate network of computers. Bitcoin was the first blockchain-based cryptocurrency that was most popular and most knowable by everyone nowadays.

Digital currency, or so-called digital money, is a form of currency that is available only in digital or electronic form and stored in a digital wallet. A user can turn digital currency into cash by withdrawing cash from a bank or ATM. Digital currencies are only accessible with computers or mobile phones because they only exist in electronic form. Digital currencies enable instant transactions that can execute seamlessly across borders. For instance, you can buy and make payments in digital currency to a counter-party residing in the United States, provided you are both connected to the same network.

How do NFTs work?

NFTs are a part of the Ethereum blockchain, so they are individual tokens in which additional databases are stored. For example, many people love to collect ancient works of art such as paintings because it solely has one that is incredibly valuable. With NFTs, the artwork will be “tokenised” to make a digital ownership certificate that can purchase and sold out. Although there is not just one digital version of NFTs art accessible on the market, other people still can create a similar approach as art prints of an original. Used copies of NFTs are still a valid part of the blockchain, but they will not contain an equal worth like the original.

Then some people may ask since it is a digital file which implies that we can copy it easily. Can I right-click to download and save the image of NFTs? Well, you will be able to do that, but your downloaded file won’t acquire the information that makes it part of the Ethereum blockchain. It means that you only downloaded a typical picture, and it will not make you a millionaire.

How to make money from NFTs?

There are several ways to make money from NFTs.

As a creator, if you want to make money from NFTs, there are several NFTs marketplaces to sell your products. For instance, OpenSea, Rarible, SuperRare, Foundation, AtomicMarket, etc. Let’s take Rarible as an example. Rarible is a software that allows digital artists and creators to issue and sell custom crypto assets that represent ownership of their digital work. Before you sell an NFT, you first need some cryptocurrency to pay the platform to ‘mint’ an NFT. Thus, you need to create a digital wallet, add money to your wallet, and later connect your wallet to the platform. Then, upload your files or say your products on the platform to sell your products. After you have finished describing your NFT and paid the platform, your NFT has now been published to the world and waiting for people who like it to pay for it.

As a buyer, you can buy NFT only for collection purposes or spend money buying their NFT because they are artists you like. But I believe that most people buy NFTs for investment. You can invest in NFTs by buying NFTs and selling them profitably. Miami art collector Pablo Rodriguez-Fraile increased the price of Beeple digital artwork by nearly 1,000 times in less than six months! This situation is the same as buying a painting completed by an artist and selling it when its value doubles.

Example of NFTs Transactions

The prices of NFTs for each product depends on the situation. Some sell for only a few hundred dollars, while others are as high as million dollars. Here are some of the NFTs transactions that have occurred:

Jack Dorsey’s first-ever tweet

Twitter founder Jack Dorsey’s first-ever tweet has been sold for the equivalent of $2.9 million to a Malaysia-based businessman. The tweet, which said “just setting up my twttr,” was first published on March 21, 2006, and was auctioned off by Mr Dorsey for charity.

Sports Collectibles: NBA shots

Top Shot is an NFT marketplace where basketball fans can buy, sell, and trade NBA moments. So far, the most expensive collectable traded is LeBron James dunking against the Houston Rockets, which was sold for over $387,000.

CryptoKitties: Probably one of the first popular NFTs created

CryptoKitties are similar to Pokemon cards, with one crucial difference—they’re based on the Ethereum blockchain. This is arguably the first NFT project that has seen overwhelming adoption—and it happened in 2017. Essentially, it was the first blockchain-based game.

Grimes Digital Images

The musician Grimes has recently jumped into the NFT game, creating tokens of her own. The most expensive token sold to date fetched nearly $400,000, according to The Independent.

Beeple’s “Everydays: The First 5000 Days”

The most expensive NFT sold to date is a piece of artwork known as “EVERYDAYS: THE FIRST 5000 DAYS.” According to Decrypt, the token was sold at Christie’s Auction House for an eye-popping $69.3 million. The token was created by Mike “Beeple” Winkelmann, an artist who has become famous as a pioneer in the non-fungible token space. The NFT was the first piece of digital work that has ever been sold at the world-renowned auction house.

Malaysian Artist Red Hong Yi Sells Doge Banknote NFT For Over RM320,000

After a two-week auction on the Binance NFT Marketplace, Malaysian artist Red Hong Yi sold her first NFT “Doge to the Moon” on July 11, 2021. This digital artwork is her first “Memebank” series. The series reflects how memetic assets, cryptocurrencies, and NFTs disrupt industries, including traditional banks and art galleries.

Malaysian Artist Katun Sold NFT Collections Worth Over RM1.6 million in 24 Hours

Malaysian graffiti artist Katun released his two NFTs series, named “Apes Stand Strong” and “Mystical Fruits”, and earned more than RM1.6 million in 24 hours. The first NFT was limited to 50 and was sold out with 1 Ethereum (ETH) in only 30 minutes and sold out in 24 hours. For his second NFT, within 24 hours, he sold 776 units for 0.1 ETH each. It is currently the most expensive batch of NFTs sold by Malaysian artists.

Example of sports collectables: NBA shots available on the market

Figure 2

The Pros and Cons of NFTs

Pros of NFTs

Some of the advantages of NFTs that are often mentioned include:

Artist ownership over digital assets. NFTs allow creators to showcase their authenticity when creating digital assets and profit from their work. The most important thing is that NFTs enable creators to have legal ownership of digital assets, which means creators will have a significant source of income.
Unique and collectable. Many people like the excitement of collecting unique or rare things. NFTs allow you to manage this digital asset legally. Whether it is a painting, digital image, audio clip or other digital asset, you are the only one who owns and collects it alone.
Data record. This is the most remarkable part of NFTs. The existence of the blockchain allows clear ownership records of all NFTs, which means that your digital artwork should theoretically never be stolen or question its authenticity. This technology will not only serve as a way to manage digital collections. It may eventually develop into a better way to manage and control sensitive data and records.
Market value. The advantage of blockchain and cryptocurrency is that it is a decentralised market. Buyers are very different from the traditional art market as we know it. In addition to the circles of the traditional art market, artists have another potential market to display and sell their products. NFTs have great potential to expand the value of artists.
Smart contracts. A smart contract is a set of commands on the blockchain that can be executed without manual intervention when certain verifiable conditions are met. Therefore, NFTs with smart contracts can provide artists with a certain percentage of profits when selling NFTs in the future.

Cons of NFTs

Nothing is perfect in this world, and everything has its pros and cons. The disadvantages of NFTs are as follows:

Uncertain value. Even for experts, NFTs are confusing assets. The most common question remains whether the NFTs has any real value. Are they a long-term investment? Or just a flash in the pan? Is it a sudden rise in investment? No one can answer accurately.
Digital assets can be copied. Although you have purchased a digital asset, it is nominally your unique asset, but it can be copied and pasted because it is a digital product. For example, you bought a GIF, but that GIF can be forwarded thousands of times to various platforms. This means that you only own the NFT of this digital asset, but you cannot control it.
Physical art can’t be digitised. There is a difference between owning physical art and owning digital art. You can’t digitise physical art. Physical art is unique and cannot be digitised. Even if you digitise it, it will have a different meaning from the original. It is a pleasure to witness a unique painting with your own eyes, and these tokens cannot provide it.
Environmental cost. Any record entering the Ethereum blockchain requires a lot of calculations, which requires a lot of energy. Therefore, the extensive trading of NFTs and other blockchain-based assets is not an environmentally friendly process. A recent study by the University of Cambridge showed that almost everything related to the blockchain is very unsustainable because it uses a lot of energy from an environmental point of view.
NFTs can be stolen. With the prosperity of the NFTs, several works of art were reported to have been stolen and sold on the NFTs market. Although the technology behind NFTs is relatively secure, many exchanges and platforms are not. Platforms like DeviantArt, an American online art community featuring artworks, videos, and photography, have now become places for cyber thieves to steal works created by artists.

Below is the summary of the pros and cons of NFTs.

Figure 3

Conclusion

In a nutshell, NFTs are a new investment method or a new collection method for people who like to collect unique things. If you are interested and have enough money, you can own a legal digital asset on your own. NFTs make us no longer limited to the purchase and collection of physical products. Digital assets may also be a new force in the future. Although we are unsure whether NFTs are an excellent new direction, it is always good to know more about them.

References:

Non-Fungible Tokens (NFTs): A token that can be used to represent the ownership of unique items

Hello!