Combining Art and Crypto: What Is This NFT Hype All About?
Do you remember Nyan Cat? In 2011, a video featuring an animated cartoon with a Pop-Tart for a body, flying through space, leaving a rainbow trail behind it took the internet by storm. Merging a Japanese pop song with the video, Nyan cat became an instant meme and one of the top view videos in 2011.
For a long time, this adorable cat was the most internet-thing on the internet. The Chris Torres-created animation merged the internet's two favorite things, cats and absurdity. For many, this pop-tart cat was one of the OG memes to our now rampant meme culture. How much would you pay for the original Nyan Cat? $10? $1100? $11,000?
In February of this year, a one-of-a-kind digital rendition of the Nyan Cat meme was sold for 300 Etherum or about $590,000. You might be asking how someone could own the video/GIF that has been copied and shared across the internet for nearly a decade. This was possible because Nyan cat was sold as a Non-Fungible Token or everyone's new favorite acronym, NFT.
This class of cryptocurrency assets has lept from being the nichest of niche pursuits into a global phenomenon in a relatively short period of time. But, don't take our word for it. According to the Wall Street Journal, the NFT market ballooned $338 million in 2021 from a market cap of about a meager $41 million back in 2018.
At their core, NFTs act as a non-duplicate, one-of-one, digital certificate of ownership for any assigned digital asset. This means you can use NFTs to tokenize just about anything digital. It can be a drawing, audio, an article, a video, and so on. By selling an NFT, you are selling the original rights.
In the case of Nyan Cat GIF, the purchaser of its NFT now officially owns the original pop-tart animation. The founder of Twitter, Jack Dorsey, has promoted an NFT of the first-ever tweet with bids reaching as high as $2.5 million. Popular musicians like Grimes have also cashed in on the craze, making millions off of music and digital art.
However, let's all take a deep breath. It is easy to get caught up in the hype surrounding NFTs. FOMO (Fear Of Missing Out) is one hell of a drug. There is much more to Non-Fungible Tokens than the selling of digital assets and art. Here is what you need to know.
Still do not understand NFTs?
So, what is an NFT? As we have already seen, NFT stands for Non-Fungible Token. Understanding the difference between non-fungible and fungible assets will be the key to wrapping your head around the appeal of NFTs.
In economics, a fungible asset is something with units that can be readily interchanged. This can include money. Imagine you have 20 $1 bills. You can exchange those 20 $1 bills for one $20 bill. or for 20 different $1 bills - the value remains the same. The value of your money is still the same even though it is in a "different form." Common cryptocurrencies like Bitcoin and Ethererum are considered fungible tokens. If you send somebody a Bitcoin and they send you one back, it doesn’t have to be the same Bitcoin.
If something is non-fungible, this is impossible. One NFT does not equal another NFT. Each NFT is unique and cannot be exchanged with something else. Think of it as a digital signature or official certificate of ownership. Let's look at an example.
Say you created a magnificent digital memeable painting. Once completed, you could create a "digital certificate of ownership" or smart contract using bits of open source code to secure your creation. Once the code is written, it is then "minted" or permanently published on a blockchain ledger. Existing as just a series of numbers and letters, your new NFT is encrypted here on the blockchain, ensuring its scarcity and authenticity. Non-fungible tokens are indivisible, have unique properties, and aren’t interchangeable.
Sure, people can copy and download your digital painting, but you have the original deed to the artwork. You could sell the original NFT piece, and thanks to the power of blockchain, the aftermarket buyers can confirm who originally owns the digital asset, who sold it, and when it was sold. Taking the art example further, you may own a Picasso poster. However, it does not mean that you have the original painting with Piccaso's signature on the bottom right corner. The signed painting is far more valuable.
But, again, it does not just have to be art. Any digital asset that the creators want to make unique can become an NFT. Tweets from celebrities, digital books, photos from games, logos, memes, and gifs can all be tokenized. In fact, they first achieved prominence through the blockchain-based CryptoKitties game, where players collect and breed unique digital cats.
How does an NFT work? Decentralized verification
It is actually not too hard to understand if you are already familiar with cryptocurrencies. As mentioned, once a digital asset is "minted" with a few lines of code, it is published on a blockchain ledger maintained by thousands of computers around the world. Who verifies that the NFT is legit? The short answer, no one, and everyone.
Once on the ledger, you can see who owns the digital asset and when it is sold. An NFT code has a signature from its originator that authenticates the token on any server, browser, or platform. This information is unhackable (until they are not), cannot be forged, and is safe.
Ethereum, Dapper Lab's Flow, and Polkadot are three of the leading blockchains where NFTs are built. But if you are looking to get into the buying and selling of NFTs, marketplaces are the place to go.
Commonly run on Etherum, these NFT marketplaces acts as an "eBay" for Non-Fungible Tokens. People can place bids on these assets or outright buy them. Some of the most popular marketplaces include Rarible, Nifty Gateway, and OpenSea.
What? Are people paying millions of dollars right now for NFTs?
Yes. Because of the non-fungible nature of these assets, digital creators on the internet can make the creations more scarce, and in turn, more valuable. "Crypto art" has become a key driver in the booming popularity of NFTs. People are eager to own a one-of-a-kind digital art piece. Sure, someone can copy and download a piece of art, but nothing is better than the original.
NFTs can be a sentimental purchase, a collectible item, or a financial investment. It is very similar to the way some of your friends may collect Pokemon cards, sneakers, or comics. The excitement of new technology has fueled the headlines and mind-boggling purchases. People have made millions on NFTs, with one artist selling a jpeg for $69 million at the prestigious auction house Christie's.
Though people are making bank off a wide range of digital assets right now, most people are bearish on NFTs. The potential for fraud, foul play, and a range of other uncertainties have people extremely wary of NFTs. People championing the assets are excited about the technology behind the tokens, dubbing it revolutionary and here to stay. Who's right?
It is not just a gold rush, NFTs are bigger than art
Much of the hype around NFTs centers around the creation of a digital certificate of ownership for unique pieces of art and other assets. However, there are other more sober reasons why you should be excited about NFTs. Once you purchase a token, you have the digital rights to resell, distribute or license the digital asset as you please. But, there is a caveat. The owner of the token programs the limitations into the NFTs code.
These limitations could dictate how the digital asset is used, and how often. Or the owner can program in royalties, meaning every time the NFT is sold, the original owner gets paid. Again, these transactions would not require a third-party, making the process completely decentralized and completely transparent. These smart contracts could revolutionize the way we complete transactions, share data, and trade assets.
However, NFTs have some apparent issues
Cryptocurrency and NFT transactions are highly unsustainable. One cryptocurrency transaction consumes as much energy as 700,000 Visa transactions. This can be attributed to the fact that blockchain and cryptocurrency utilize an algorithm called Proof of Work. Also known as PoW, this algorithm was intentionally created to be computationally inefficient to increase security.
NFTs are allegedly worse. A single NFT requires multiple transactions, the creation, buying, selling, and reselling. These all require energy. "The average NFT has a footprint of around 340 kWh, 211 KgCO2. This single NFT's footprint is equivalent to an EU resident's total electric power consumption for more than a month, with emissions equivalent to driving for 1000Km, or flying for 2 hours, says crypto researcher Memo Atken.
Aside from the environmental issues, NFTs have two major security risks at the moment. First, there are copyright issues. Nothing at the moment is stopping people from creating an NFT for an asset that they did not create. If the original owner never created an NFT, there is no real way of verifying that they own it. Imagine you created a digital art piece years ago and decided to turn it into an NFT today. If someone already created an NFT for your art. There is very little you can do about it. This is obviously problematic and can lead to fraud. And another issue is that there is no real permanent storage solution available yet. Accidentally deleting your beloved NFT is easy. NFT's content is not stored on the blockchain but stored on a server.
Are NFTs here to stay?
If you are looking to cash in on the craze, cooler heads will probably tell you that the NFTs are a digital bubble in the making. People bullish on these digital assets will tell you that it is the next "big thing". Somewhere in between, you'll find that Non-Fungible Tokens could one day change the way we create and set up agreements that involve property, art, money, etc., through smarter and more secure contracts. These contracts could do away with the need for third-party arbitrators thanks to blockchain.
The uses of this standard potentially go far beyond buying and selling art and tweets. Because non-fungible tokens are unique and store information rather than value, they allow users to build unique digital certificates on blockchain, with the option to store sensitive data both on and off-chain. This creates a way to secure and store tamper-proof records of births, property deeds, academic qualifications, and more with no central authority needed to control or mediate access.
Non-fungible tokens could be used to eliminate the prospect of fraud in voting. They could improve customer loyalty programs and warranties, by directly managing the exchange of personal data for products and services. Long after the market for NFT tweets dies down, it is likely that businesses will be harnessing this technology.
The idea of having a tradable digital collectible may be here to stay. Nonetheless, it is important to sift through the hype of this alleged digital gold rush and understand the value of the technology powering the hype. Once you figure that out, you will be able to answer that question, "Are NFTs here to stay?"
Regardless, the most exciting thing about Non-Fungible Tokens is that it's another example from a long and recent list of how technology is changing culture.
Akhlesh Lakhtakia, Evan Pugh University Professor, has received a $300,000 grant from the Criminal Investigations and Network Analysis Center to explore a technique for creating 3D holograms of fingerprints.