What are NFTs?

What are NFTs?

By Anamika Patel, 04 June 2022
What are NFTs?

NFT’s stand for “Non-Fungible Tokens”. “Non-Fungible” basically means that these items cannot be replicated or replaced with something else; it can be anything in digital form, from art, animated GIF, a song, music videos, digital avatars or avatar skins, or video games. NFT’s can also be “one-of-a-kind” (like the Mona Lisa painting hanging in the Louvre) or a copy of many (like collectible baseball cards). 

The unique selling point of NFTs is that NFTs uses blockchain technology, mostly the Ethereum blockchain, to establish proof of ownership through a public digital ledger, so that ownership is transparent and secure. 

Essentially, NFTs are collectable digital assets that hold value, with transparent and secure ownership locked into a digital ledger. Buyers of these works get the privilege of “owning” a piece of digital art. The artwork typically comes with a license that allows buyers to display them for personal use on a social media page, another digital marketplace, in a game world, or in a virtual museum. You might have a digital “copy” or reproduction of that same digital art, but you won’t have the original copy that is listed on the public ledger. The artists generally maintain intellectual and creative (IP) rights to the works. 

Many argue, then, that what buyers are really buying, is “bragging rights”. But it seems these bragging rights are going for some major sums in 2021. 

  • Christie’s auction house in New York city sold a NFT by Beeple titled “The first 5,000 days at Christie’s” for a whopping US$69.3 million in 2021, which is a digital art piece of a collection of 5000 Beeple art works in one image. This was the 3rd highest price ever paid for a work by a living artist. 
  • Adidas sold all 29,620 of its own NFTs in December 2021, at a cost of 0.2 ETH (or roughly US $765 each), grossing the company a cool US$22 million in a few hours; it was a digital NFT paired with physical clothing to match, to be distributed to buyers in 2022 – an expensive pre-order of sorts.  
  • Jack Dorsey, the CEO and founder of Twitter, sold his first tweet as an NFT through an auction for US$2.9 million in March 2021. 

Despite NFTs leaving many scratching their heads trying to understand what makes them so valuable – marketplace activity seems to indicate that NFT’s are here to stay. In December 2021, Nike bought RTFKT, a virtual shoe company that makes NFTs and digital sneakers for the ‘metaverse’. In December 2021, Marvel announced that it will be releasing a Captain America themed NFT collection, after its successful Spider Man NFT launch earlier in the year. The NBA (National Basketball Association) came out with its own NFT collectibles platform, NBA Top Shot, housing thousands of digital collectibles, such as video clips of memorable moments on the court that you can purchase online today. NFT “digital moments” can currently be purchased in USD or Etherium (ETH).

Before you dismiss NFTs as a laugh-and-grab of the rich, note that there are also real-world applications to NFTs, beyond that of the metaverse application – and many which have not been invented yet. Nike for example, the world’s largest shoe-maker, was awarded a patent for its blockchain based sneaker, called “CryptoKicks” in late 2019. The patent outlines a system in which blockchain is used to attach cryptographically secured digital assets (ie. NFTs) to a physical product, such as a sports shoe. It seems that Nike’s platform will track the ownership and verify the authenticity of both real-world sneakers and virtual sneakers using this method. This way, sneakers can be sold and ownership transferred through the associated digital asset. It leaves some food for thought, especially as the fashion world has struggled for years with combatting counterfeit and fake products.
The cryptokicks.com marketplace has launched, with the sneakers purchased able to be worn by some gaming avatars. The kicks are purchased using Solana (SOL) tokens. 

NFTs also seem to offer significant promise in other spaces, such as proxy for membership or tickets to physical events. Applications like ‘Unlock’ allow users to purchase an NFT which unlock membership to an ad-free version of the Forbes website, for example. NFTs can also be tied to physical goods, such as in the case of Nike’s Cryptokicks, or Austria’s Postal Service’s ‘Crypto Stamp’ project tying their digital NFTs to physical stamps for use, trade or collection. 

Gaming is one of the most pro-NFT industries out there, where gamers have supported NFTs since they were a fringe concept. Gamers would buy NFTs that cosmetically changed their gaming avatar’s appearance (called skins), or buy NFTs that gave them special skill-sets that could help them get further in a specific game, or even access to unique and often hidden player experiences within a game (often called Easter Eggs). There’s an entire new industry launched off the back of the NFT-Gaming space, called “Scholarships” – a way for players to become crypto-landlords and rent-out their NFTs used in games as tools, creatures or skins. In return for getting the NFT loaned to them, the Gamer then provides a cut of their earnings while gaming to the NFT landlord. And this is clearly just the beginning. 

It’s also expected that the Metaverse will allow NFT owners and creators to showcase their collection in a digital world. NFTs can also be created for the metaverse, such as carving out land in the metaverse and selling it. Or designing a custom Lamborghini for the metaverse, or a custom skin for your metaverse avatar – and selling it as an NFT.  Technically, all of these things can be digitally designed and sold as NFTs, that should be able to be used, showcased or traded in the metaverse. 

Many also argue that NFTs are more about the “creative community” and directly supporting artists and content creators for their contributions, not necessarily the specific image or art itself. There seems to be a very alive and active online NFT community that connects artists and their patrons, and allows a discourse between the two – often only after purchasing one of the NFTs. Sometimes owning different NFTs helps to unlock these channels, whether it’s direct access to communicate with the artist, or to join an online fan club of sorts.  

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