NFTs Explained06/2021 | 10 min read Blockchain | Crypto | NFTs
Owning digital items is nothing new. In fact, spending real money on in-game assets, like a legendary sword or a fancy mount, is second nature, for anybody who, just like me, grew up playing computer games. However spending 69.346.250 $ on a digital item is unheard of. Beeple's Everydays Collage sold for exactly that price at Christie’s earlier this year. Mike Winkelmann, aka Beeple, created and posted a new work of digital art every day for 5000 consecutive days. This collage became the Everydays Collage, which is a non-fungible token (NFT). A what? Exactly!
A non-fungible token is a collectible digital asset with a twist. The twist being, that it is a type of cryptocurrency. In contrast to a coin in a blockchain, which can be exchanged by any other coin on the same blockchain, a NFT is unique and therefore cannot be exchanged with an identical asset. In essence a non-fungible token allows adding meta data to a digital asset, a certificate, if you will, which not just makes the asset one-of-a-kind but might as well add further ‘features’ to the asset. These tokens can be attached to anything digital, really. Think audio recording, image, article etc.
The fact that these tokens are stored on a blockchain (mostly Etherum) makes their trading history and embedded metadata accessible by anyone. Meaning anybody can know who owns which NFT at a given point in time and who owned it in the past. So why would you pay millions of dollars for an item, which can be viewed by anybody and taken a screenshot of, without profound technical knowledge. Well, ego, ego, history and ego. Let me explain.
The metadata being on the blockchain makes past entries unalterable. This fact mixed with the ownership being publicly available means that your name will be forever linked to a NFT you own or once owned. Taking a screenshot of a NFT will, obviously, not provide you with a mention on the blockchain. Image not just being the first person to ever own the Mona Lisa but your name on the back of the painting for eternity. This might not sound like a lot but seems to be enough for certain individuals to spend millions of dollars. Bragging in the end plays an important role in the psychology of collecting.
Well, there is one other factor, which makes NFTs a game changer. As mentioned earlier there might be further features added to a non-fungible token. A good example for this is the infamous Gary Vaynerchuk, who just released his own set of NFTs called VeeFriends. All of the VeeFriend tokens include a three-year admission token to VeeCon, an annual conference. Some of the tokens even include a dinner or a tennis match with Mr. Vaynerchuk himself. Therefore by owning a VeeFriend NFT you not just get all the fame but also a real life goodie.
So now we know what NFTs are and why we should care. What now? Well there are many use cases for NFTs and in my opinion we are just scratching the surface of this incredible technology. At the time of this writing the two big industries are art (for example crypto punks, Pak or 3lau) and gaming (for example Axie Infinity, and crypto kitties or Gods Unchained). However new players emerge every day. The NBA for example just launched a huge NFT project, called NBA Top Shot, which enables one to buy and trade NBA related fan goods. It is mostly short clips of memorable plays called ‘moments’. Another early adapter is Taco Bell, commissioning a series of GIFs and images based on dishes from their menu. These NFTs were modestly priced around 1$ and also sold out within minutes. Creating a lot of attention on social media. Another big player to be, might be Nike, who in 2019 secured a patent, to create a digital NFT sneaker, which will most likely be manufactured in the real world, once again blurring the lines between digital and non-digital products.
In my opinion NFTs are one of the most exciting technological advancements in the past few years. Although the concept might feel odd at first, the fusion between digital and real world, as well as the persisting nature of the blockchain makes for mindbending possibilities in the future. It feels to me, like the humble beginnings of something much larger.