You have probably heard about digital illustrations selling for enormous prices. They are called NFT’s, which stands for non-fungible token and differs from traditional digital creation by undeniable proof of authenticity. You may wonder why anyone would buy an “authentic” digital creation? Or even how can we know it is authentic? I will try to answer those questions below, briefly explain what NFT is and discuss its potential.
What exactly is NFT
NFT is a piece of data stored virtually on a blockchain like a cryptocurrency. However, unlike Bitcoin, for example, it can not be exchanged for other pice of the same currency, as all NFT’s may represent different assets with a different value. The data stored as NFT can be pretty much anything digital, for example, video, photo, illustration or audio file.
The authenticity of each piece is preserved through blockchain technology. In brief, it means that once it is established, it becomes irreversible and can be verified on behalf of many proofs worldwide. Therefore verification of ownership is safe and effective.
Why would anyone pay for such a thing?
It might be to show one’s social status in a digital world. This concerns NFT art used as profile pictures on different social media platforms and will probably become more popular with the evolvement of virtual reality, which is becoming more rapid, especially after the latest investment announcement by Meta. In this case, the possibilities for creating different NFT’s will be endless, as people will presumably want to have a substitute for showing their belonging to a social group through a certain piece of clothing, for example. This need will probably have to be fulfiled through one’s appearance or belongings in the virtual world.
Another possibility is an investment both long and short-term. As trading volumes of NFT hit billions of dollars, you can see a lot of day traders on social media bragging about their profits on this kind of investment. There are also other kinds of investments where we can see a striking resemblance to old school value storage like buying land. Decentraland is a perfect example of a world where you can buy a parcel of land as an NFT. Later on, you can use it to build three-dimensional spaces and applications or hold until its value goes up.
Potential of NFT’s
One of the examples of this technology being very useful is representing intellectual property. Something that is considered invaluable, like an idea, could be represented as an NFT. This would provide digital proof of ownership, which would come with its own set of benefits.
Another would be previously mentioned digital goods available in the future virtual reality world “Metaverse”. From land and commodities to art, it would be possible to buy something not existing in the real world and be sure that it is authentic. There are already some luxury brands like Burberry or Gucci creating their NFT’s and only time will tell how significant impact on the future of virtual market this technology will have.
Sources:
https://en.wikipedia.org/wiki/Non-fungible_token
https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
https://docs.decentraland.org/decentraland/faq/
https://www.burberryplc.com/en/news/brand/2021/Blankos.html
https://www.sothebys.com/en/buy/auction/2021/natively-digital-cryptopunk-7523/cryptopunk-7523
Sources of images:
https://www.sothebys.com/en/buy/auction/2021/natively-digital-cryptopunk-7523/cryptopunk-7523
https://docs.decentraland.org/search/?q=how+it+looks
NFT and the NFT exchange market seems to be a very interesting topic. In my opinion, this is a very future-oriented project that could very soon enter our daily lives as a new form of investment. However, I still see a few significant problems associated with NFT, which would be useful to solve before popularizing it.
The first and most important problem is the fact that blockchain technology, which is also the basis for cryptocurrencies, is associated with a huge emission of greenhouse gases. By which it is very harmful to our environment. (https://www.nytimes.com/2021/04/13/climate/nft-climate-change.html)
The second problem is that there is no certainty that the artistic work is owned by the person who is selling it. This opens the door for fraudsters to cheat people and sell them things they do not own the rights to. (https://www.businessinsider.in/cryptocurrency/news/insider-trading-ip-theft-fake-art-and-fake-profiles-scammers-are-taking-advantage-of-nft-platforms-lack-of-regulation/articleshow/86259204.cms)