NFTS: SIMPLIFIED

By CC De Silva
May 27, 2022

Imagine your favorite t-shirt. It’s a plain white, crew neck, 100% cotton t-shirt, which you bought from the black Friday sale off the H&M website. There are probably hundreds of thousands of the very same design, ready to ship in their stores.

Still, you bought that t-shirt, and it was delivered to you. And it happened to be the one you wore when you walked into Walmart one day and saw a huge commotion. You won’t forget what happened. Once you navigated through the crowd, you saw your favorite pop icon, Billie Eilish taking selfies and autographs with random (hyperventilating) shoppers. You had left your phone in the car. All you had was the moment. You manage to navigate through the mob and ask her for an autograph. She hugs you and scribbles ‘bad guy’ on your t-shirt with a bright green marker. You’re over the moon. You are never going to wash that t-shirt again. No other t-shirt can take its place. Its irreplaceable! It cannot be exchanged. Your t-shirt is now, NON-FUNGIBLE.          

Okay! Back to reality. Even though your opinion of Billie Eilish’s music may differ (maybe you’d rather I used Beyonce or Sir Paul McCartney), what really happened here? A seemingly common, exchangeable item became unique. You’d agree there is only ONE like that in existence. This is the single most important concept behind that buzz word everyone and their annoying friend is talking about: NFT.

So, what does NFT stand for? That’s right. You guessed at least two thirds of it: NON–FUNGIBLE TOKEN. A “Token” in general, means an object that represents something else of value. You receive tokens in the real world when you get on a bus, attend a concert or even when you order a Big Mac. In the context of NFTs, the idea is very similar. It refers to a Digital Token which sits inside a Blockchain and points to something of value. But unlike your Big Mac, or Beyonce Concert, this token would most likely represent another Digital Asset. In a nutshell, according to Wikipedia; an NFT is, ‘a financial security consisting of digital data stored in a blockchain, typically containing references to a digital file’ (Wikipedia, 2022).

How Are NFTs Used?

Okay, but what does this have to do with those funky monkey pictures that Jimmy Fallon, Justin Bieber and a bevy of other celebs were showing off on the Tonight Show, you ask? And how do I seem to know less about NFTs than Snoop Dog and Paris Hilton? Well, you won’t be in the dark for much longer! Let’s dive a little deeper.

There is an inherent problem with anything digital. A photograph. A tweet. A song. An illustration. A block of code. Each one of these, after being created, can be duplicated perfectly and shared billions of times. That doesn’t sound like a problem. That sounds amazing because we get to experience exactly what the creator of that digital asset intended to be experienced. But here’s the issue. Which one of these digital assets is the original version? And the original must be the most valuable, yes? Indeed. The answer is simple. The original version is whatever the author points to as the original version. And how is this pointing done? Using a Non-Fungible Token!

So, when digital art (or asset) is created, each piece has an NFT assigned to them. Even digital assets created before the NFT era can be allocated and sold as NFTs. That is how the first ever tweet by Jack Dorsey in 2006, was sold recently as an NFT (Handagama, 2022).

But the uses of NFTs are beyond just flipping monkey pictures and viral memes. It is still relatively an infant technology and concept, and the tech world is just discovering other uses for it. Game developers are adding more collectible digital assets to be sold and NFTs inside their games. The Metaverse is also fast becoming the virtual playground and socializing place for VR users to buy and show off their latest virtual art NFT on their virtual property. Nike just released an NFT collection of digital sneakers aptly named “CryptoKicks” to own and use inside the Metaverse (Le, 2022).

Interestingly, it’s not even limited to the virtual world anymore (Wilser, 2021); Musicians are using the technology to create more value for their new releases and even concert tickets. Kings of Leon recently played their songs in space to sell the experience as an NFT (Havens, 2021). Amazon is experimenting with issuing NFTs to track your next favorite t-shirt delivery. Basically, any unique experience or item can be converted to an NFT to prove its authenticity. Your university should issue NFTs pointing to your original Degree, you say? Why not? (Alexiades, 2022)

So, what should I buy? A small island or a jpeg?

Short answer to the above question is, please buy the island. Already have an island? Ok, you may consider buying the NFT. But wait, the bigger question to ask is, how are these two options even comparable? Let’s be truthful. The biggest, if not the only reason any of us are interested in NFTs are the value placed on some of them. A seemingly pixelated picture of a ‘CryptoPunk’ sold for over US$ 20 million (Labs, 2022) while one of a real-time clock tracking Julian Assange’s jailtime sold for over US$ 50 million! Neither of these were the most expensive. Below are the top 10 most expensive NFTs sold so far. (Hood, 2022)

  1. ‘The Merge’                - US$ 91.8m
  2. The First 5000 Days    - US$ 69.3m
  3. Clock                          - US$ 52.7m
  4. HUMAN ONE              - US$ 28.985
  5. CryptoPunk #5822     - US$ 23.7m
  6. CryptoPunk #7523      - US$ 11.75m
  7. CryptoPunk #4156      - US$ 10.26m
  8. CryptoPunk #3100      - US$ 7.67m
  9. CryptoPunk #7804      - US$ 7.6m
  10. Crossroad                    - US$ 6.6m

This leads us to answer the question, why do some of these NFTs have ginormous price tags? There are 3 main reasons:

I. Artificial Scarcity

In the real world, there is only one tangible painting of Mona Lisa. There is currently absolutely no way to replicate it atom by atom. Da Vinci, himself, could not recreate the exact same painting. It is the scarcest version of itself. But if, God forbid, he created his masterpiece on photoshop and illustrator, he would now be able to replicate an exact copy at a click of a button. He may also make small changes to these illustrations and decide that there be ten variations of her smile and create a blockchain with 10 NFTs pointing to them. By doing so, he creates artificial scarcity, increasing what people are willing to pay to own the NFT.

II. Social Status

People love to own things that successful people own. The Bored Ape Yatch Club (BAYC), with 10,000 NFTs pointing to the same number of slightly different variations of illustrated “Bored Apes”, doubles as a membership card to the real-life club. And looking at the bevy of celebs, athletes, tech moguls and other influential people who own a BAYC NFT, there’s plenty of motive for people wanting to be in the same ‘club’ as Eminem and Shaquille O’Neal.

III. Investment

Okay, lets dial it down a little. Most people don’t have the kind of disposable income to buy exorbitantly priced digital assets just for the bragging rights. In fact, the main underlying motive for NFT purchases has been for investment. Many NFTs which are worth millions of dollars now, started selling at very low prices increasing their owners’ wealth a thousand fold, in some cases. Some NFTs, like CryptoPunk, were even distributed freely to everyone with an Ethereum wallet. The short term gains were unbelievable! But…please keep reading before you jump into it.

A Few Things to Keep in Mind

The above information is mindboggling and extremely impressive. Hence, many people have considered and bought NFTs. But there are a few important things you should keep in mind before you buy one.

Firstly, NFTs literally cannot be bought in US Dollars (USD). Neither can they be bought in British Pounds, Euros or any other world currency. They are auctioned and sold online on NFT marketplaces, using a type of digital currency known as Cryptocurrency. The most popular cryptocurrency used to trade NFTs is Ethereum (ETH). The real-world value is always calculated based on the conversion rate between Ethereum and US Dollars. And since this rate is not fixed, the USD value of an NFT fluctuates daily. According to current trends, this usually is beneficial for the owner, but it is important to note that if the relevant cryptocurrency crashes, so will the value of the NFT.

Secondly, going back to our definition of an NFT, one must remember that at the end of the day, it is only the token pointing to the original digital asset, you are purchasing. It is similar to buying the only seat in a room where the Mona Lisa is hanging. You don’t own the painting, but you definitely own the bragging rights!

So Where Do I Get My First NFT?

The purpose of this blog has been to give you a basic understanding and overview of what an NFT is. There is so much more to explore! We suggest that you do a lot more research and talk to those who have invested in NFTs, before dishing out the dollars to jump on the buzz train.

Once you’re confident it’s something you can handle, head to where the fun is happening. An NFT marketplace! You can find most of the NFTs mentioned in this blog at “OpenSea.io”. You can also check out and compare the 'Best NFT marketplaces' by DesignRush.

Who knows? Maybe you’ll end up getting the best of both worlds, buying a Virtual Island NFT!

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