What does NFT mean, and why would someone pay $69 million for a free JPG?
Do you see the picture above? Yes, it’s a collage, but I have no idea what it represents. Despite that, I need you to do something. Move your mouse pointer over it and right-click it. Then, save it. Done! But here’s the funny thing–someone paid $69 million to own that picture you just downloaded for free. Not a printed version, but an NFT. So what does NFT mean?
Before you can understand, I’d first like to make you more confused and especially angry. Are you ready?
People are buying memes. For example, someone just paid $600,000 for the neon cat meme NFT. Yes, the neon cat meme below that you can also click on and download for free.
That meme is pretty awesome. But would you pay $600,000 for its NFT?
What does NFT mean?!?
What does NFT mean? An NFT stands for a non-fungible token. But what is an NFT?
- Verified ownership to an original piece of art
- Nobody can forge or duplicate the art
- If the owner sells the art, the artist gets a portion of that sale and all future sales.
First, let’s make NFTs as simple as possible to understand. A few days ago, I wrote the dummies guide to blockchain. To summarize that, a blockchain is a database. Or, in other words, it is a ledger. That’s it.
A blockchain is a way of recording information in the order it happened. Also, it is impossible to change the information. In the most basic terms, you put your information in a box, seal the box, then stack the box on top of another box that’s full of information.
The information is secure, private, unchangeable, and accessible to anyone with internet and permission. That’s where Bitcoin lives, on the blockchain. In other words, someone made up Bitcoin and said there is a limited number in these “boxes.” In this case, 21 million Bitcoin exist on the blockchain.
No one can change the amount of Bitcoin there are. Also, only people with permission can access each Bitcoin. This makes it:
- A fixed, limited quantity
- Extremely secure
- Instant and exact
- No fees and no third parties
Therefore, Bitcoin has value. Because it is made up, the value is purely driven by speculation. Theoretically, everyone with internet access has the ability to get Bitcoin. Even in third-world countries, where government currency is unstable, people can obtain Bitcoin and know it holds value. Simply, it is digital gold. It’s a rare commodity that holds a perceived value.
So then, what is an NFT?
Remember, a blockchain is a way to put information into boxes. Therefore, an NFT, or non-fungible token, is an original piece of digital information, such as art, music, videos, or gifs.
But there is a slight difference between NFTs and Bitcoins. Mainly, people can trade Bitcoins. Either they can trade Bitcoins themselves, or–most common–they can trade Bitcoins for goods and services.
But the biggest difference with NFTs is that they aren’t tradeable. Because NFTs are set up differently. Instead of putting information into a box, the information goes onto a form, which then goes into a box. The form is called Ether, and the box is called Ethereum.
Ether is a type of currency. In other words, like Bitcoin, it is a made-up number. But unlike Bitcoin, it is put onto a form (Ether) before going into the box (Ethereum). Also, Bitcoin is a fixed limited supply; Ether continues to grow in number.
In conclusion, NFTs are digital forms of art loaded onto the from (Ether). The NFT is a form that records:
- What the item is
- Who made the item
- Who owns the item
It’s all about ownership rights
What does NFT mean? Verified authorship and ownership of a digital product. For instance, we know there is only one Mona Lisa. You could Google the Mona Lisa and download the image for free, but you don’t own the original.
An NFT is a verified original piece of art. Therefore, it sells like original art. You can buy copies or get copies for free, but that doesn’t mean you got it from the original artist, nor does it make you the owner.
The Kings of Leon released their newest album as an NFT. Included in the NFT version of the album are front-row concert tickets and limited-edition vinyl. But isn’t NFT only for digital products? Remember, NFT is information kept on a form. For the Kings of Leon album, it is information that verifies ownership rights to physical goods. Think of it like a car’s registration.
An NFT is like a digital car’s registration certificate
Because an NFT is a secure and verifiable way to store original information, we can use it for almost anything. For instance, car registrations. Instead of keeping the registration in your car, you could have it digitally as an NFT. This would allow only one owner.
Furthermore, NFTs will eliminate the need for witnesses and notary publics because of their digital security and authenticity. Essentially, NFTs will:
- Record transfer of ownership
- Verify ownership
- Identify information that no one can change or falsify
NFTs give artist more rights to their original works
The reason why so many artists are using NFTs is that they retain rights to their works. Also, they continue to get paid every time ownership changes hands. For instance,
- An artist made a ghost meme that sold for $3,600
- The person that paid $3,600 is now trying to sell their ownership for $16,000
- The artist, who received a portion of the original $3,600, will also get a portion of the $16,000.
People buy art as investments. In other words, they hope it appreciates in value. Likewise, people are buying NFTs as digital versions of art. The digital aspect verifies the art is original, and it verifies ownership. Furthermore, it continues to support the artist for the lifetime of the art.
The art can be anything: music, videos, gifs, etc. For example, entire video game worlds run on NFT technology, using Ether as the “forms” to record information on the blockchain, which is Ethereum. One such video game world recently sold $1.5 million of virtual reality land.
The huge environmental downside
NFTs are crypto collectibles. They require computers to run code and verify the information. Because the code is so complex, which makes it so secure, it requires a LOT of computer power to make it run.
Everest Pipkin recently wrote an article about the huge environmental impact of NFTs and other crypto collectibles and cryptocurrencies. Sure, there are many benefits to NFTs and crypto collectibles, such as accessibility and security, but at what cost?
If you are looking to make returns on your investments, there are much better ways than cryptocurrencies. Also, there are ways to invest that include socially responsible investing. But most people are looking at NFTs and cryptocurrencies as ways to have something secure, private, and accessible. Is it worth the environmental cost and the opportunity cost of making more money elsewhere?
Determining the value of NRTs
Anyone can make a piece of digital art and sell it in the form of an NRT. Twitter CEO Jack Dorsey is selling an autographed Tweet as an NRT. Don’t buy it. Please.
Recently, someone paid $69 million for a JPEG. Is it worth it? For starters, I can think of a lot of ways to invest that money that I believe would grow faster than what that art is worth. Second, can’t that money be used for something more productive than a digital collage?
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