What is NFT?
The term NFT has become a trending concept in 2021, and, during this year, many expect it to continue to grow. Do you know what NFT is, how it works, and what NFTs are for?
As one of the most searched on Google during the past year, it is a buzzword. NFT has generated revenues of 26 billion dollars for crypto, according to the NFT Market 2021 report by Chainalysis. But what is an NFT?
What is NFT?
NFT is an abbreviation for "Non-Fungible Token" which we would translate as non-fungible assets.
They are digital certificates of authenticity. Therefore, it is a unique asset that allows you to buy and sell ownership of digital items. These items can be anything digital, such as an image, a video, a drawing, a song, or a tweet.
Additionally, who owns them can be tracked using a public blockchain and Ethereum network standards. For this reason, NFTs are related to cryptocurrencies since the technology used by both is the same, the Blockchain.
On the other hand, it is important to emphasize that they are non-fungible because NFTs cannot be modified or exchanged for another asset of equal value due to their unique and unrepeatable nature.
How does NFT work?
This concept may still be not clear, as it is somewhat complex. Therefore, to better understand its operation, it can be explained by means of a very simple example.
An artist, such as an illustrator, creates an NFT image, that is, a digital image for the price he considers. And if people are interested, they buy it.
Here the following question may arise: why pay for an image from the Internet that can be downloaded for free? It is the core of the matter. If that illustration is downloaded, it is true that the person also has in his possession the same image, but it is not the original. He will have a copy.
NFTs are designed to offer something that cannot be copied, that is, ownership of the work. Although it's a sale, it is also a way of trying to earn money. It is possible because the artist can schedule royalties to receive a percentage of sales each time a new owner acquires their art.
Characteristics of NFTs
Unique: There is only one original and one real and certified owner. The rest are copies.
Non-interoperable: They cannot be modified or exchanged for other value-equivalent assets.
Indestructible and verifiable: The NFT data is registered, through a contract, in the blockchain, which verifies the history of the asset (from its author to the last owner).
Full ownership: Your purchase implies ownership of said NFT, not any partial or limiting license with usufructuary uses.
The idea of NFTs arose in 2014, but it was not until March 11, 2021, that its popularization began. The artist Beeple, whose original name was Mike Winkelman, made a JPG of a digital collage "Every day's – The First 5,000 Days," and it was sold for 69.3 million dollars (57.8 million euros) at Christie's auction house in New York.
Another of the most notorious examples to date was that of Jack Dorsey. The former CEO of Twitter sold the first tweet in history in NFT format. For 2.9 million dollars (around 2.4 million euros).
Currently, the possibility of selling unique, indivisible, transferable digital objects with the ability to prove their scarcity represents an inexhaustible source of creativity. People are willing to pay large amounts of money for it. Thus, one way to certify these asset characteristics is through various standards, such as the ERC-721 and ERC-1155 of the Ethereum platform.
Finally, if you want to create an NFT, you can use platforms like OpenSea or Mintable. In them, the artists upload their digital files and associate them with a smart contract. It is necessary to have an account with cryptocurrencies, specifically Ethereum. The transfer is made to the creator, and, in return, ownership is transferred. In a simple, direct way, without intermediaries.
What is an NFT for?
As has already been mentioned, it is possible to track and verify if a digital work is original or not with Blockchain technology. But, in addition, some companies are giving other uses to NFTs, for example, in video games. Whether paid or free, if you play a video game, there are micropayments to purchase certain things such as suits, weapons, or vehicles. When you buy a suit, it's not really about that person. Many more people can buy it and have the same. Instead of using NFTs, it is only from that person when you buy any item. If the buyer doesn't like it or wants to get rid of it, he can sell it, even for more than it costs.
In addition to digital art, tweets, or video games, NFTs are applied to other sectors and industries such as collections, music, cinema, sports, or fashion.
With this, it is shown that NFTs come to the aid of private property on the Internet. In other words, many things that, today, are not our property, with Blockchain and NFT technology, now can be. Consequently, you can have more assets, more properties, and, therefore, more wealth.
NFTs are the future of collecting for some, but others see them as a fad concentrated in the hands of a few people. According Chainalysis, 9% of NFT owners hold 80% of the market value. Without forgetting that, at the moment, there is no return on investment and that many cases of fraud and scams have been related. Finally, some doubts also arise regarding its regulation, which is very little advanced, the payment of taxes, and the high energy consumption required by transactions through cryptocurrencies.