What are NFTs and how are artists making millions selling them?
An animated Gif of “Nyan Cat” which is a 2011 meme of a flying pop-tart cat sold for more than $500,000 on February 19. Musician Grimes sold some of her digital art for more than $6m
NFTs are currently taking the digital art and collectibles world by storm. A digital artwork was sold at Christie's auction house for $69m, but the winning bidder did not receive anything tangible. Instead, they obtained a unique digital token known as an NFT.
NFTs have opened a new market for digital artists and creators as they are experiencing this life-changing opportunity thanks to the huge sales among a new crypto audience. High net-worth individuals and celebrities are joining in as they have identified the potential of a new opportunity to connect with fans and a more secure method of sharing their creativity.
The NFT market has provided not only an opportunity for artists to share their creative works and be rewarded for them, but investors have also recognised the scarcity and unique value of a tokenised item.
What is an NFT?
NFT stands for non-fungible token. A fungible asset in economic terms is something with units that can be interchanged with one another. For instance, money is a fungible asset, therefore it is interchangeable. Swapping a $10 note for two $5 notes will have the same value.
However, this is not possible for a non-fungible asset. It has unique properties so it cannot be interchanged with something else. For instance, a house or property, or the painting of Mona Lisa, is one of its kind. One may take pictures of the painting or buy and sell prints of it but will never be able to recreate the original painting which therefore remains unchanged.
NFTs are such unique assets in the digital world that can be bought and sold like any other piece of property, but they hold no tangible form of their own. The digital tokens are units of data on a digital ledger called a blockchain, where each NFT can represent a unique digital item, and thus they are not interchangeable. Therefore, the NFTs can be used to certify the ownership of such virtual assets.
How do NFTs work?
Digital files can be easily duplicated; therefore, one may argue the validity of a "tokenised" digital item. However, with NFTs, tokenised items or artworks create a digital certificate of ownership that can be bought and sold. Therefore, it is not the artwork solely but the digital certification that comes along owning such assets that makes them stand out.
As with crypto currency, a record of ownership is stored on a shared ledger or blockchain. Hence, records cannot be copied fraudulently as the ledger is maintained globally by thousands of computers. Making it next to impossible for hackers to manifest fraud into the blockchain, therefore making it undeniably secure. NFTs can also include smart contracts that may give an artist, for instance, a cut from any future sale of his/ her tokenised artwork.
Can anyone create an NFT?
Yes, in theory, anyone can tokenise their work digitally and sell it as an NFT. NFTs are a part of the Ethereum blockchain, therefore one must transact with the cryptocurrency of Ethereum to digitally tokenise their item - to buy, sell or trade NFTs in any of the marketplaces. Some top-grossing marketplaces for NFTs are OpenSea, SuperRare, NiftyGateway, Rarible and so on.
However, some countries are lagging behind in terms of a digitally diverse world. Opening the doors to a new world of technological advancement can be daunting with a lack of necessary funding and resources available.
The Bangladesh government for instance has stated in 2019 that they are going to formulate a national strategy to integrate the use of blockchain technology in different domains that will include governance, banking and finance, agriculture, health, and cybersecurity for reducing both cost and corruption and ensuring transparency.
According to officials, the emergence of blockchain technology will open a window of opportunity that will build and utilise a system where every possible state and interaction are verifiable by any authorised entities.
How much are NFTs worth?
An animated Gif of "Nyan Cat" which is a 2011 meme of a flying pop-tart cat sold for more than $500,000 on February 19. Followed by that, musician Grimes sold some of her digital art for more than $6m.
Jack Dorsey, founder of Twitter sold an NFT of the first-ever tweet for $2.5m. In March, Dorsey said that all proceeds from his NFT sale would be converted to bitcoin and consequently be donated to GiveDirectly, a charity giving cash to people living in poverty.
Is this just a bubble?
Just a day before his record-breaking auction, artist Beeple, originally known as Mike Winkelmann said, "I actually do think there will be a bubble, to be quite honest." He added, "And I think we could be in that bubble right now."
David Gerard, the author of Attack of the 50-foot Blockchain, said he saw the NFTs as buying "official collectibles" which is similar to trading cards. "There are some artists absolutely making bank on this stuff... it's just that you probably won't," he cautioned.
However, according to Raoul Pal, the entire cryptocurrency market is about to explode to double its current size. The former Goldman Sachs executive said in a new tweet that the digital asset space breaking the $1.8 trillion market cap level signifies the beginning of a new surge that will catapult the crypto markets to even greater heights.
Shimanto Rahman is a student of BPP University Law School in London, affiliated with London College of Legal Studies (South) in Dhaka. He can be reached at [email protected].
