Are non-fungible tokens here to stay or just visiting?
The term non-fungible token is very loaded. Let me briefly break it into simpler parts. Non-fungible is something that cannot be traded for anything of equal value. A token represents the individuals’ ownership of that encrypted data block.
A simplified example of a non-fungible item is your toothbrush: although it looks just like the millions of other toothbrushes produced so far, there is only one like it in this world, and you own it. An example of a fungible item is your future toothbrush. It will become unique to you once you purchase it. Before that, it is just like any other toothbrush on the shelf or in a warehouse.
Another example of fungible items is all cryptocurrencies: every Bitcoin is like any other. The value of Bitcoin may vary, but unlike NFT, it can be negotiated.
Like cryptocurrency, NFT uses the incredible encrypting capabilities of blockchain to store digital data: videos, music, paintings. Any digital art is a legible candidate to become part of an NFT.
Somehow, this new craze led to basic meme videos being sold for nearly $600 000. The owner of the first tweet pocketed its NFT version for about five times as much! With NFT, “ownership” might undergo a heavy definition change.
Who decided how much are NTFs worth?
NFTs are not just the ones and zeroes encoded onto the blockchain, but how their value change over time and the transactions that certify how and when this piece of data changed ownership.
If you own a digital copy of The Starry Night, that does not make you a co-owner of the physical copy. The original is still Van Gogh’s, sitting peacefully on display at the Museum of Modern Art, New York. However, digital replicas of the painting can be turned into NFTs, and only the future can tell how its value will change or whether it will be co-owned by others.
Why are NFTs important?
We are now in a strange phase of our love-hate relationship with blockchain technology. China, for example, has recently restricted the use of cryptocurrencies and outlawed crypto mining. At the same time, its government does not shy to experiment and promote a digital version of their national ‘yuan.’
Modern technology inadvertently adds more value to data, and this new trend is no different. By creating NFTs, the value of the item encoded within is increased and not just because of rising tech. NTF allows a single piece of art or document to have multiple owners. As a net effect, the item value increases. New owners of the same NFT may pay a different price than the average all shared owners paid, but each owner can also be responsible for a different-size chunk of the document.
As crypto, NFTs rely on one of the most valuable advantages of blockchain technology: a lower chance of fraud. NFTs are guaranteed the safety provided by blockchain: their integrity is solid, but the transparency of the exchange system also ensures any transaction. Any artist or author can present their art or products without the fear of theft: the blockchain holds information about creators, and stealing somebody else’s digital art becomes nearly impossible.
The Starry Night is Van Gogh’s, and nobody can change that, but his piece has turned into a historical artifact and is under the organized protection of museums. In contrast, without the protection of NFT, any emerging artist can be driven back to obscurity by a swarm of copy-cats and digital thieves. Thanks to these blockchain-based tokens, any author can release their creation to the public without worrying about someone compromising their product or jeopardizing their ownership rights.
NFT is great for digital art trades, but its influence goes far beyond the obvious. In general, any exchange can benefit from using blockchain technology. For example, the prices for houses and cars always include a bundle of taxes that cover all the influence of the involved third parties.
Products we purchase with regular money are linked to a network of institutions working co-dependently with other companies. The necessary but cumbersome regulations that come as a result ramp up products’ purchase price. In contrast, NFT-driven sales are lighter for the buyer since the system is self-regulated and does not need the call of an independent judge or data protector. Such advantages of decentralized systems may force banks to use to blockchain solutions and adapt to the future of business as it unfolds.
NFTs can be a great depository for digital contracts or documents. Unlike physical agreements, which can be falsified or lost, digital contracts embedded in a blockchain are immutable. An example of such an agreement is the so-called smart contract – such document does not need a guarantor, and transactions and exchanges described in it go through only after certain conditions are met. NFT has the potential to give life to all the incredibly talented artists that otherwise are doomed to disappear without the world seeing their work.
The Side Effects
NFT contributes to a rising problem: creating and managing these tokens takes a lot of energy. Most NFTs are embedded using Ethereum, and the energy consumption of this ‘coin’ has been soaring during the past few months and showing no sign of stopping. Ethereum is just one type of blockchain used to store tokens, but most NFTs are created using this currency. Facing what can easily turn into an ecological disaster, its creators bravely stated they plan to cut energy costs entirely.
Although some dub NFT a momentous change, we must be acutely aware of its psychological side. Is NFT an alternative art platform bound to die out in a few years? Or, is everything from now on a node of the chain, with fluctuating and unpredictable values? With surging new marketplaces that sell NFTs on a large scale, we may be witnessing the rising of what some dubbed as “the next ‘Amazon’ of non-fungible tokens.” But before we do, let us take a step back from the technological part and face the human factor.
Blockchain gave birth to something beyond cryptocurrency, but the environmental strain as a net effect is considerable. This tech alone makes crypto-supporting hardware fill warehouses while people turn even more sedentary, passively contemplating the growth of their digital assets. Some experts suggest that anything related to blockchain technology will shift our attention from things that matter in our lives to an imaginary virtual reality full of stuff with prescribed value.
One example of how we can easily create hype out of thin air is the sideline blockchain project Cryptokitties. It is a blockchain game, a serious upgrade from the early 1996 craze Tamagotchi. Cryptokitties are digital cats you can raise like real pets, except they eat Ethereum. As you grow your crypto cats, their value increases, and their marketplace still ramps up a big bang instead of dying out, as some experts predicted.
Non-fungible tokens, just like Bitcoin, highlight our ability to prescribe value where value did not previously exist. It is human to go there, but we tend to cross that line only after all our other basic needs are set. We must be satisfied beyond our food and shelter to create an imaginary market and actively participate in it. But we have reached this stage long ago, ramping up all types of non-tangible assets at an alarming rate.
Imaginary or not, NFTs and Bitcoin are very real and indicate core changes in our standard behavior as humans and business people. Non-fungible tokens may soon disappear or become a fundamental factor in every industry. The choice depends less on technology progress but on our personal development.