by Vittorio Compagno for the Carl Kruse Blog
Most everyone has seen headlines about some auction for an NFT that closed in the hundreds of thousands of dollars, even millions, as was the case for Tim-Berners Lee, when he auctioned the first source code of the World Wide Web for $ 5.4 million. This was more money than Lee earned from inventing the World Wide Web itself. There is Twitter founder Jack Dorsey who in the sale of his first tweet earned $2.9 million and many other creators of NFTs who have made large sums.
Behind this phenomenon we ask: “Who would pay these amounts for a digital image?” But the first question that comes to my mind is “What is an nft?”
NFT, the Definition
An NFT, (“non-fungible token”) is a unit of information stored within a blockchain, which certifies the uniqueness of that unit of information. NFTs represent digital objects, such as photos, videos, GIFs, or audio.
It’s clearer now, right?
It wasn’t for me when I first read a similar definition, so I had to research why an image, a video, or a photo should command exorbitant prices, what even is a blockchain, and why does it certify the uniqueness of an NFT?
Having acknowledged the fact that NFTs are digital objects, the most mischievous will think that the cheapest way to obtain one — especially the ones going for millions of dollars at auctions — is to take a screenshot, or download it with one of the hundreds of programs available.
After all, every digital object can be replicated in some way, so why shouldn’t it be the case for images, GIFs, and information that is already on the internet and have indeed become popular thanks to the web?
This is the argument from those who discredit digital art, and although the reasoning may seem logical, this is not the reason for the extreme popularity of these digital objects. It also fails to take into account the human proclivity towards authenticity.
The importance of exclusivity
Often, among wealthy people, when money can buy everything, the search for exclusivity is paramount Even among those with few resources, exclusivity is highly valued. Perhaps most of us value exclusivity.
The importance of exclusivity and unique ownership of an object manifests itself in the world of NFTs and indeed constitutes its very foundation.
When an NFT auction ends, the assignee of that auction is assured ownership of a unique, albeit digital, object. This possibly brings prestige among friends and colleagues. Maybe personal satisfaction as well. And these days, it could be a good financial investment.
Modern works of art are so famous, certainly not for their beauty, thought that might be, but for the history and meaning behind a work, and for the uniqueness of that piece of art.
However, NFTs are digital, and the argument returns again: “why can’t I download it just like a video on YouTube, or take a screenshot as if it were a meme? Eventually, I too would become the owner of the same piece of art sold for hundreds of thousands of dollars.”
To better understand the concept of exclusivity in the world of NFTs we need to talk about blockchain technology, which allows the proliferation of this new form of art.
What is a blockchain
A blockchain in short is a database. It has other attributes such as being immutable, solely forward-appending, and often with some level of decentralization, but at its core, a blockchain is a database.
Most of us are familiar with databases, say for example the system at your local supermarket that stores your name, if you have a loyalty card, together with the purchases you have made since you entered the loyalty program.
A blockchain is similar in operation to a traditional database, but with some characteristics that make it distinguishable from the first.
In a blockchain, data is structured differently, organized into groups, which are called blocks, which store information. These blocks are chained to the previously filled blocks once they are filled. The concatenation of blocks is therefore called a blockchain because the data within the blocks are linked with each other as if by a chain. This system ensures through cryptography that the “chained” data are no longer editable, thus allowing an immutable chronology for data storage.
What allowed NFTs to proliferate was a type of technology known as “smart-contracts,” in which a series of actions are coded within the blockchain. There are several blockchains that have smart contracts enabled on them, the largest and most popular being Ethereum. This project is also home to the largest and most expensive collections of NFTs.
When an NFT is bought, a smart contract transfers verifiable ownership from the owner to the buyer in exchange for money (in this case Ethereum). This happens without either party having to trust the other and without the need for a third party, though often times NFTs are hosted on exchanges and third-party websites. It also happens regardless of interference from third parties.
This means that the ownership of an NFT is permanently registered on the blockchain, but with the possibility of resale through smart contracts, allowing not only the collection, but also the resale of NFTs.
So the blockchain offers verifiability, unchangeability, provenance, censorship resistance, and clear ownership – all issues that plague the normal art world.
What’s the point of all this?
It’s hard to tell if NFTs are just a trend or a true 21st-century art form. They are a new technology, and their long-term usefulness or desirability is yet to be seen, though things look incredibly promising, with the true potential to up-end the normal way of transacting in the art and collecting world.
Images of nine “Cryptopunk” NFTs sold in May 2021 by Christie’s for $7 million.
Cryptopunks were some of the first NFTs ever created.
A key aspect of this digital art is the power it gives artists to create without fear of their work being downloaded without their consent and stolen. In the world of NFTs, there are not only multimillion-dollar transactions but also those that happen for a few dollars. If all this allows those who create to have a way to express themselves with more serenity and more financial security, well, then, more power to the artists.
This system also opens up a whole new trading system, the proceeds of which can also be used for charitable purposes, as is the case with brands like Charmin and Taco Bell, which have sold NFTs for a combined total of millions of dollars.
Finally, some people see celebrities such as Snoop Dogg and Lindsay Lohan launch into the NFT market and want to buy their art, opening up a new fandom market and a new way for fans to interact with social icons.
Should I Buy NFTs?
Many sources, such as Forbes, advise against buying NFTs in large amounts.
Just because you can buy NFTs, does that mean you should?
“NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance. Since NFTs are so new, it may be worth investing small amounts to try it out for now.”
NFTs inhabit an uncertain world, and probably the money could be used for other investments, but if you choose to have a go, these are the things to do:
- Open a cryptocurrency account. There are many accounts and wallets, but the most famous exchanges are Coinbase and Binance. You will use these to on-ramp with regular money and exchange it for a cryptocurrency such as Ethereum.
- Once you have obtained your wallet, copy its unique code, you will need it during the registration phase for payments.
- Explore the most popular NFT marketplaces. They are multiplying day by day, but the most famous are OpenSea.io, Foundation, and Rarible. You will likely need an Ethereum-based wallet such as Metmask to interact with these sites.
- Buy NFTs, and hope their value will rise in the next few years. You never know, it could be the next big thing. Maybe.
This Carl Kruse blog homepage is at http://carlkruse.at
Contact: carl AT carlkruse DOT com
Other articles by Vittorio Compagno include Von Braun and Dreams of Mars and Stablecoins – An Answer To Cryptocurrency Volatility?
The blog’s last post was An Appreciation of the Humble Map.
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