As more businesses embrace NFTs and the opportunities they provide, you’ve probably come across this term. NFTs are “non-fungible tokens”, meaning non-exchangeable tokens that act as certificates of authenticity or ownership of assets. But what exactly does this mean for you as a user and what sets you apart from other certificates?
NFTs relate to digital content
In the world of the Internet, companies have long been faced with a problem. People like to collect physical items, like action figures or special sneakers that they add to their collection as individual pieces. Such an equivalent was previously missing for the digital market. This is where NFTs come in. They allow people to claim ownership of digital content. This is a key point when it comes to digital content that differentiates it from physical collections. Second, because NFTs involve an individual’s ownership claims, the digital file itself can always be reproduced at will. Thus, the owner of a digital artwork could share copies of it with others without affecting their ownership of the artwork itself. Conversely, in the event of a dispute, it would be possible to clarify more precisely who holds the relevant rights to exploit the digital content.
How do NFTs work?
NFTs are part of a blockchain similar to cryptocurrencies. So far, they are part of the so-called Ethereum blockchain, which is not only designed for one currency. This sets them apart from other blockchains such as bitcoin, which is limited to cryptocurrency trading. In the broadest sense, these blockchains are databases of individual blocks of data, which gave them their name. In addition to the stored data, these also contain so-called unique hash values. These ensure that each block is inserted unaltered at exactly the line of the blockchain for which it is intended. Because in addition to its own value, each block in the chain also knows the hash value of its predecessor block. The system can thus authenticate independently, since the chain would break if a hash were to change at any time.
Because they are decentralized databases that are not just on a single server, they are difficult to compromise. This is why content allocated via blockchain, such as cryptocurrencies and NFTs, is considered more tamper-proof than databases on central servers. A purchase of an NFT is therefore also linked to the use of the blockchain. What differentiates NFTs from other content like our money or cryptocurrency is that they cannot be traded at will.
It doesn’t matter to the user whether someone has two five-euro notes or one ten-euro note. The monetary value would remain the same and the owner would lose nothing if exchanged for another ticket of equal value. NFTs, on the other hand, are unique and therefore cannot be traded at will. Just as there is only one cadastre for a property, there can only be one NFT for a digital counterpart.
What type of content will be available via NFTs?
The best-known example is the so-called crypto art. Many artists are cashing in on the NFT boom by selling the ownership rights to their digital works through NFT auctions. Buyers can then boast that they own the original file. Although it can still be reproduced as a file on the Internet. So far, crypto art has attracted the greatest interest among young people and tech-savvy people. Many interested parties are not only concerned with the crypto art itself, but also with a possible rise in money. For, as is the case with many collectibles, collectibles are given some equivalent value by their limitation. One could therefore view crypto art and digital collectibles as an artificial scarcity of content aimed at increasing the value of the individual item.
Here are some examples of NFT content:
- Crypto Art
- digital collectibles
- Land in digital video games
- digital albums
Theoretically, an NFT can be created from almost any content in the digital world. This is illustrated by the example of a tweet sold as an NFT, initially decried as absurd. Contrary to the expectations of the online portal theverge.com in March 2021, a tweet was in fact sold as an NFT. In the form of the first tweet that Twitter founder Jack Dorsey sent when he founded his company. The tweet sold for around $2.9 million. This tweet illustrates the differences between a claim of ownership and digital content. The tweet itself can still be found unchanged on Twitter and can be viewed by all kinds of people.
Where is collectible digital content sold?
According to the company, OpenSea is the largest NFT marketplace in the world. Besides OpenSea, Binance, FTX, SuperRare, Rarible, and Nifty are also well-known NFT marketplaces. However, when it comes to most of these trading platforms, an Ethereum wallet is required to participate in the corresponding auctions. But official auction houses such as Christie’s have long entered the NFT trade. The first NFT traded there reached an auction value of over US$69 million. In this case, too, it was crypto art, namely the work “Everydays” by Mike “Beeple” Winkelmann.
The idea of getting something unique seems to drive buyers to spend large sums of money. The background thoughts here should be of the same nature as for other prestige items or collectibles. Anyone who can afford it likes to show it off.
Sound investment or short-term hype?
It’s hard to say at this point whether NFTs will turn out to be a wise money-making investment or just short-term hype. The ability to sell digital content as unique items around the world is relatively new. Interest in her has been correspondingly high. However, as NFTs fill the digital ownership void that has always remained open, they are unlikely to disappear completely. As more TV models are announced with access to NFT purchase options, tokens are likely to make a lasting impression in the digital world. However, like all equivalent values, whether cryptocurrencies, standard currencies or precious metals, NFTs will also be subject to certain fluctuations in the future.
So anyone toying with the idea of immersing themselves in the world of digital content and profiting from the hype should act with the same caution that applies to any form of investing. Invest with care, long term planning and different sources of investment. If you throw yourself too hard into the NFT boom with the hope of just getting rich, you can quickly experience a rude awakening.