Connected with the cryptocurrency boom, Non-Fungible Tokens (NFTs) are the latest multi-million-dollar internet concept making the headlines in 2021.
What is it?
NFTs are transaction records captured on the blockchain — the web version of a physical ledger. Non-Fungible Tokens allow people to trade the ownership of digital entities such as memes, media, tweets, arts, articles in ‘token’ form. As NFTs are supported by blockchain, these transaction records are permanent, verified multiple times and cannot be erased or changed. Each non-fungible token is uniquely identifiable. So, no two digital entities can have the same token. A NFT is essentially a certificate of authenticity or a digital autograph that can be attached to digital property.
All the NFT headlines screaming millions, usually paid in cryptocurrencies, are for this certificate. When you buy an NFT, you do not necessarily own the connected piece of art, meme or music. This is because a NFT doesn’t convey copyright or usage rights unless there is an explicit licence mentioning it. The right that an NFT confers on you is a digital bragging right.
Multi-million-dollar NFT sales have lately been attracting social media eye-balls. For instance, an NFT for an animated Gif of a meme of a flying pop-tart cat sold for more than $500,000. An NFT for a single red pixel is selling for over $800,000. Christie’s sale of an NFT by a digital artist called Beeple set the record for digital art, as it was snapped up by two Indian-origin crypto enthusiasts for a whopping $69 million. NFTs don’t offer any cash flow and are not real assets. The only way one can make money is by luring others into buying the NFT off you.
Remember, before you sell an NFT, you need to create one. Unless you are a blockchain enthusiast, creating an NFT will require spending real money in the order of $100 which will go into the crypto economy.
Why is it important?
The Covid pandemic has further devastated the poorly-paid lives of innumerable artists, musicians and creators. The digital world offers a creative outlet, but in it, any creation can be easily duplicated. This is where NFTs come in. With NFTs, any creation can be tokenised to create a digital certificate of ownership, helping creators get a life-changing price for their art.
Theoretically, artists with NFTs for their creations can access a global market, retain ownership rights over their work and claim benefits like resale royalties directly. But in the real world, new-fangled innovations seldom work the way it is claimed. Some even think that NFTs will fix the shattered economics of streaming music and restore the power-balance between art creators and art mediators. But all this is mere conjecture at this point. The NFT eco-system after all, is connected to the largely unregulated world of cryptocurrencies.
Why should I care?
Internet concepts, especially those involving tech mumbo-jumbo and millions, are always touted as the next big thing. When they create enough hype, many average folks who may not entirely understand the concept, may simply get in out of greed. Recall what happened with initial coin offerings, decentralised finance loans etc. There are discussions on how NFTs are ‘just like’ equity shares or akin to ‘owning a part’ of a promising artist or musician. But unless you’re a tech geek who’s thoroughly familiar with blockchain and the digital economy, it is best not to bite the bait.
Owning an autograph is cool, but it is difficult to make a business out of it.
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