NFTs: The Latest Budding Tulips?

Of late NFTs are blowing hot. Everyone is talking about them while some of them are grossing lumpsum amounts of money. So, we shall look at what are NFTs?, the past, the present, and the future( left for you to forecast) of it in this shoooort article. This one article is all that you need to know everything about NFTs like never before.

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The coronavirus pandemic has brought a vocabulary book to school us with few new words like quarantine, bio-bubble, WTF….um, I suppose to say WFH( although both are analogous).

NFT is the newest addition to that book. These 3 letters have constantly been in the headlines almost everywhere lately. Twitter feed to newspapers, YouTube videos to memes, it’s all over everywhere…..including this blog post.

NFTs search trends as per Google

But what is this exactly?

NFTs stands for non-fungible tokens. For all those who don't know what fungible means. Here it is …

Still didn’t understand? I have got you covered.

Fungible means having the same value for identical products. You shouldn’t be bothered if I take a bitcoin from you and give you some other bitcoin instead of what I have taken, since any bitcoin would have the same value at a given point in time. The same is the case with fiat currency.

But non-fungible, as you might have identified by now is exactly the opposite. It is unique and is not interchangeable.

NFTs are digital files and that could be images, videos, GIFs, collectibles, etc. They are anything built on a digital ledger called the blockchain. They contain a hash or unique digital signature which cannot be matched with any other one, thus creating one and only one of its kind.

As the Economics professors call, “Value is determined by its scarcity”.

People are going out of bounds at purchasing NFTs. But why?

They are speculating that somebody in the future would pay them more for that product.

It has become even more contagious with the entry of celebrities into the market.

Blockchain and NFT enthusiasts are now shelling out millions of dollars at buying the art forms, something that can be downloaded for absolutely free of cost.

Oh, wait! Have I said that they can be downloaded for free? Then what are they buying actually?

Essentially they are buying the certificate of authenticity that they alone own the original work.

Here are a few of the mind-boggling buys.

Popular musician Grimes in collaboration with digital artist Mac Boucher created this Crypto Art called "WarNymph" which sold for $5.8 million per piece.

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Mike Winkelmann — the digital artist known as Beeple sold this art titled “Everydays: The First 5000 Days” for $69.3 million (yes! You read it correctly. That's how much this jpeg file costs!). It was actioned by Christie’s, becoming the first purely digital work of art ever offered by a major auction house setting the internet on fire. In the process, he became one "among the top three most valuable living artists".

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Jack Dorsey's first tweet made nearly $3 million after being on for sale on Valuables By Cent for over 2 weeks. Dorsey converted it into bitcoin and donated it to GiveDirectly, a charitable organization that gives money directly to people in poverty for its Africa Response. ( I have pinged the tweet here but I don't own it!)

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Don’t search for art on this red background because it itself is one. This single red pixel by artist Unhomed is selling for $900,000 on OpenSea.(Waiting for that day when somebody sells 2 pixels for $1,800,000....)

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Not just digital art, NFTs are taking over the music industry by storm as well. Electronic-music artist Justin Blau, better known as 3LAU just made $11.6 million by releasing his 3-year-old album “Ultraviolet”. He now holds the record for the most expensive music album sold an NFT as one of his pieces sold for $3.6 million.

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You might have read somewhere that AI is going to take away our jobs in the near future. Well, it's already happening!. The humanoid robot, Sophia, which all of us love watching her for countless hours on YouTube created an artwork titled “Sophia Instantiation” in collaboration with an Italian artist named Andrea Bonacato which sold for nearly $700,000.

Sophia is not done yet. Now she is aiming for a career in the music industry as she wants to release an album called “Sophia Pop”.( so musicians, Beware!)

And there are plenty and plenty more.

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Since the NFTs are built on the blockchain it contains all the transaction details right from the first seller to the last buyer and keeps adding to the record while it changes hands. In this course of action, it benefits the original seller as he/she gains some portion of the amount for every subsequent transaction. This way artists are getting benefited from their work something that they have been deprived of for ages.

If you had probably guessed that NFTs are a thing of new to the world, you have mistaken.

The origins of NFTs date back to the early 2010s, in the form of Colored Coins. These were tokens representing real-life assets on the blockchain like property, shares, coupons, digital collectibles, own cryptocurrency, etc. Although it had many flaws, it laid the foundation for NFTs to take it forward.

What has been a bigger leap for the NFT market was the creation of Counterparty in 2014. It was essentially started as a peer-to-peer financial platform built on the bitcoin network which later went on to play an important role In the advancement of this space.

In 2015, the creators of the game, Spells of Genesis, realizing the potential of blockchain technology released their game via counterparty. They were issuing in-game assets as NFTs.

The very next year, trading cards game, Force of Will launched their cards on Counterparty as digital tokens.

Later that year, Rare Pepes, a meme featuring frog started circulating on Counterparty. It marked the entry of memes as digital tokens. It was so popular that the Rare Pepe meme directory had “experts”, who certified the rareness of the memes (Ultimately MEMES DO MATTER).

In the process, people identified that the bitcoin scripting language had few glitches and it wasn’t satisfactory for the new NFT market that was emerging and also with Etherium gaining prominence the sands started shifting from bitcoin to Etherium.

With Rare Pepes gaining immense popularity, app developers, Matt Hall and John Watkinson created 10,000 unique character pictures on Etherium blockchain. They named this project Cryptopunks and allowed anyone with an Etherium wallet to claim the characters for free. All the 10,000 characters were rapidly claimed and traded for a huge amount of money.

But what has raised the game of NFT to newer heights is the introduction of Cryptokitties in 2017. Cryptokitties is a game that allows its players to trade, adopt and raise virtual cats on the blockchain (Internet loves Cats! Isn’t it?). It has become so viral that at some point in time it used to slow down the Etherium network, which was apparent as few cats were being traded for over $750,000.

And since then, more and more people have got into the NFT eco-system and so are the marketplaces like OpenSea, Rare Bits, SuperRare, and so on.

One of the most recent and rather important developments in the NFT space is when the NBA Top Shot went public in late 2020. NBA top shot is a blockchain-based platform by which fans can buy or sell official video highlights of a specific moment in a basketball game.

And fast forward today, you can buy or sell anything as NFT, you name it. Some of the craziest examples are buying virtual clothing (which you cannot wear), virtual real estate (in which you cannot live), and even an audio clip of your fart (Yes, I am not kidding)!!!

Besides these, there are some better use cases of NFTs such as in eSports, in the music industry, as shares and membership, for registration of a house or a car, and also while buying a domain name. Speaking about the domain name, the owner of the domain of NFTS.com wants to sell it now for $31M.

I would still call it a fair price considering what has happened in the recent past as the market value of the NFTs tripled to $250 million in 2020 and more than $200million being spent on NFTs in the first three months of 2021 alone. This graph from a Forbes article rightly suggests it.

But here lies one of the most important shortcomings of the NFTs. The digital tokens include a very small amount of data like the name of the artist and the name of the artwork but the actual artwork and the certificate of authenticity are on a website from where you bought that art. So in case, the owner of the domain forgets to pay the hosting bill and the servers went down… BOOM, you have lost your digital token (actually the certificate which you bought) that might have worth millions of dollars.

So if at all, Facebook enters into the NFT space, you better don’t buy one from them, or else you will have to log in to Twitter every now and then to check if the page was still running or not (pun intended).

Despite NFTs gaining acceptance and looking to flourish each passing day, critics are calling attention to the adverse effect it has on the environment due to mining of the digital tokens.

Architect, Chris Precht, who initially decided to sell digital artwork has abandoned his plans saying that the carbon emission associated with creating the tokens was “horrible”.

"Just to (mint) one token through the blockchainequals out the same amount of electricity I usually use in one month. this leaves such an ecological guilt for me that this time, i have to say no to that." he said

An article posted on Quarts did the math:

"Over its lifecycle, the average NFT will accrue a stunning footprint of 211 kilograms of CO2, equivalent to driving 513 miles in a typical US gasoline-powered car."

Also, there is skepticism around the digital tokens which experts opine that the NFT mania is all but a hype paving way for the bubble to burst.

In spite NFTs being around for over a decade now. It is right to say that it is still in its very early stage and only time will tell us whether it would fade out like the tulips or thrive on disruption like the internet.

So, what do you think is going to happen? Do let me know