Everything you need to know about NFTs
From the barter system to paper money to digital payments, then cryptocurrency, humans have come up with different approaches to obtain what they desire. The latest way to acquire valuables such as art and strangely enough, sometimes even tweets and gifs, is NFT’s. Some believe they are a disaster waiting to happen while others believe that they will change the investment game forever. What are NFT’s? Why is there so much hype behind it? Why are people willing to pay millions and thousands of dollars on NFT’s? Here to explain further is Perspectoverse’s Sanskriti Kundra.
NFT stands for non-fungible tokens, which more or less means that it’s unique or one of a kind, making it irreplaceable or ‘non-fungible’. For example, let’s say you buy a book, out of thousands of copies produced you’ll get any random one as there’s no difference between them, whereas, if it is a one-of-a-kind signed the first edition it cannot be replaced. Non-fungible tokens can be bought or sold by a system called the blockchain, which is a distributed public ledger that records transactions.
NFT’s can be anything digital such as music, art, videos, or in-game items. Despite their existence since 2014, NFTs are coming into their own now as a popular method of buying and selling digital artwork. A shocking $174 million has been spent on NFTs since November 2017. They also generally have unique identifying codes and are one of a kind or at least one of a very limited run.
This stands in contrast to most digital creations, which are almost always infinite in supply. Theoretically, cutting off a given asset's supply would increase its value, but most NFTs, at least up until now, have been digital creations that already exist in some form elsewhere, like famous video clips from sports games or digital art that is already being circulated on social media apps like Meta.
Most of us are wondering “why to spend millions on something that can very easily be downloaded or screenshotted?”. NFT allows the buyer to own the original item, which provides them with the right to use the token without having to face copy-right complications. It also contains built-in authentication that serves as proof of ownership. Collectors, therefore, value the “digital bragging rights” almost more than the item itself. Not to mention buying NFT’s is a great way to support your favorite artists.
While viewing NFT’s from an artists point of view, it is very clear that it provides them with a unique platform to monetize their work, as artists no longer have to rely on art galleries or auctions to sell their wares. As a result, the artist can sell it directly to the consumer as an NFT and therefore keep more of the profits. Artists can also program royalties into their products so that they receive a portion of sales when their work is sold to a new owner. This is an attractive feature as artists generally do not receive future proceeds after their art is first sold.
There has to be a downside to all of this, right?
As previously mentioned, buying and selling NFT’s happens through a system called the blockchain called Ethereum. The technology behind that system relies solely on computers doing a bunch of minor calculations all day and night, forever. The Ehereum blockchain is using 33 terawatt-hours of electricity which is the same amount of power that the country of Serbia uses.
Electricity generally comes from burning fossil fuels in power plants which in turn releases carbon into the atmosphere. We all are aware of the crisis of our time climate change, the power consumption of the Ethereum blockchain in 2021 quadrupled in less than 10 months and has shown no signs of slowing down, which is a very significant problem as it will keep on contributing to climate change, further posing a threat to humanity.
Furthermore, NFTs are risky since their future is uncertain, and we don't yet have enough history to evaluate their performance. The decision to invest in NFTs is largely a personal one. Consider it if you have the money, especially if the piece holds meaning to you. However, keep in mind that an NFT's value is based entirely on what the buyer is willing to pay, which means that it may sell for less than what you paid for it, or fail to sell for any price if no one wants it.
Introducing NFTs paves the way for Web 3.0, which will focus on decentralization. It is to be noted that NFT’s are a speculative investment at best and there’s really no way to predict what the future holds. Considering this, it is crucial to treat NFT's just like any other investment, do your research, and know the risks involved, including losing your entire investment, and if you decide to proceed, proceed with caution and do not invest what you cannot afford to lose. Regardless of the possible risks, it is undeniable that NFT’s have opened up new doors and opportunities which can change people’s lives.
Written by Sanskriti Kundra
Illustrated by Rishita Banerjee