Unless you’ve been living under a rock or have been too concerned about other issues plaguing humanity nowadays, you’ve probably already heard about NFTs. Their definition and purpose may or may not be entirely clear to you, but if you came all the way here chances are you want to learn more, so let us help you out.
First things first: what exactly are NFTs?
NFT stands for Non Fungible Token. In a nutshell, this means it’s a unique digital asset that you’re able to buy and sell, just like you would with any other painting or work of art, except for the fact that it is not tangible: this digital token serves more as a “certificate” of ownership rather than an actual asset.
And how do they work?
If you aren’t at all familiar with the concept of a blockchain, let’s assume for now that it is basically a database formed of blocks that are chained together and timestamped, in a way that makes the information there visible to all users and, at the same time, prevents anybody from being able to make modifications to it.
Every NFT is a unique token within the blockchain. To be more precise, most of them are currently within the Ethereum blockchain. Ethereum is a cryptocurrency as well, just like its ultra famous cousin Bitcoin, but its blockchain can also store the information from NFTs in a way that makes them different from a cryptocurrency coin. It is worth noting that there are already other blockchains working to implement their very own NFTs too.
Even though they’ve been around for a while, NFTs are all the rage among digital artists and collectors right now, with some of them being sold for millions of dollars. Their value is partly based on the fact that they cannot be deleted, duplicated or destroyed, as each token exists uniquely on the Ethereum blockchain (or any others that allow NFTs, for that matter) and elements from this platform cannot be moved to another.
The fact that each NFT is an exclusive item does not mean copies of the art piece can’t be made just like you could with any other work of art, but it’s the possibility of owning an original piece that attracts buyers in the first place. Also, anyone can tokenize their work actually, whether it’s considered a form of art or not, and as long as there’s someone else willing to invest, transactions will continue to increase.
Are there any downsides to this?
Yes. Just like pretty much every other human activity, there are major environmental concerns related to the blockchain and its maintenance. Since it relies on a vast network of decentralized computers worldwide, maintaining the blockchain and its associated activities (such as bitcoin mining) consume almost as much power as a large country.
As NFT and cryptocurrency transactions increase, there will be an ever larger need for power sources, and this can have a undermining effect if we consider the fact that most of this power currently comes from fossil fuels.
What lies ahead for this trend?
Well, is it really a trend? Are NFTs here to stay? We could ask the same question about cryptocurrencies, and the truth is that no one really knows. Many do consider this to be a bubble and, as we already know, they all burst in the end. However, besides currently being a vehicle for financial speculation, there is a lot of untapped potential for NFTs. We will just have to wait and see what’s in store for them.