What are NFTs?
- What is an NFT?
- Why are they controversial?
- What’s next?
What NFTs are
Non-fungible tokens, colloquially referred to as ‘NFTs’ have exploded in value in 2021. Like cryptocurrency, they have become another example of blockchain-based assets skyrocketing in popularity and price. Recently, digital artist Beeple sold an NFT for $69.3 million. This is the 3rd most expensive artwork sold by any living artist. A non-fungible token represents a real-world object like art, music, and videos. They are typically bought and sold with cryptocurrency and are always traded online. NFTs also use the same blockchain technology as cryptocurrency to provide the legitimacy of the token — though many people may be able to view the image the NFT represents, only the NFT’s holder is able to verify themselves as the owner. Therefore, one can think of an NFT as a “proof of legitimate ownership” for online media such as GIFs or images. This is where the word “non-fungible” comes from. Unlike a bitcoin, which is interchangeable with another bitcoin, two NFTs are not interchangeable simply because they are both NFTs.
Positives and Negatives about NFTs
NFTs are being praised as a way for artists to gain profit from their art work in the digital world. Beeple’s record breaking sale shows that digital art has a real market among certain collectors. Artists can also keep a greater share of profits while selling NFTs; while an auction house can often mean a cut of the sale is taken by a third party, NFTs are direct to consumer sales. Furthermore, NFTs give artists a continuous stream of profit for their works. When a piece is resold, artists can claim royalties on the NFT, granting them profits for their hard work in ways that have never been done before. However, NFTs are not without downsides. Skeptics point to the massive energy consumption that blockchain technology requires. Bitcoin’s energy consumption alone is comparable to nations with millions of electricity users like Switzerland and the Czech Republic. Until the world manages to switch to renewable energy for electricity generation, a process that will take decades, any blockchain technology including NFTs will be a major contributor to greenhouse gas emissions.
What’s Next for the Technology
While NFTs are currently being used for digital art, the technology behind them has a wide variety of applications. Anything that requires proof of ownership is within the theoretical application for the technology. This could apply to purely digital assets such as items in video games, even things with real world value such as the deed to a car purchased with cryptocurrency or a ticket to a concert. It will be fascinating to watch NFTs grow and see if they ever become more than a technological curiosity.
Here at Physis we are always on the lookout for new technologies that could potentially improve finance and the world. Learn more at our website.
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Applications for NFT Technology