NFTs Definition


What Is a NFT or Non-Fungible Token?

NFT, or non-fungible token, is a way to tag a virtual product with a unique ID in (usually Ethereum’s) blockchain. It became viral in the beginning of 2021 when it turned out that it is possible to make big money on virtual art that has the NFT.

“Non-fungible” means that an object is unique and is not directly interchangeable. For example, you can exchange one Bitcoin for another Bitcoin and you have exactly the same thing. By “non-fungible” is meant that the object is unique and is not interchangeable.

What Is a NFT: Understanding the basics

But for those of you who still do not really know what an NFT is, or why people around you are talking about the existence of this text.

The term NFT or non-fungible token has emerged as a real snack in recent weeks.

There has been a rush to various platforms to invest in the crypto phenomenon, which has caused prices to skyrocket.

The artist Grimes has sold digital paintings for roughly $5,5 million, a digital collector card for Lebron James that cans has been sold for $180 thousand and the traditional auction house Christies auctioned off a work of art from the artist Mike “Beeple” Winkelmann for an incredible $59 million.

It is thus about huge sums of money that are currently being invested in art, music and other products in digital form.

All this thanks to the fact that they are registered on the block chain and are therefore traceable. It is simply possible to see which image is the real one, who owns it and what it was sold for – everything that is required to create desirable digital collectibles and see which ones are genuine.

This is the simple guide that explains what it’s all about.

Let’s start by sorting out the concepts.

What is a blockchain?

You can compare a blockchain with a database or logbook. The big difference is that it is decentralized and consists of all users who are connected to the blockchain.

This means that the information is always checked and updated with everyone at the same time. In addition, it is traceable and the information stored can therefore not be manipulated.

What is NFT and cryptocurrency?

As I have mentioned before the abbreviation NFT stands for non-fungible token and it is just like cryptocurrencies a device that lives on the blockchain.

But there are differences.

What you need to know is that one bitcoin can be exchanged for another bitcoin without it having any significance for you as a user, just as a 20-note can be exchanged for another 20-note in the real world.

But an NFT represents something unique, even though it may be number 1373 out of 10,000 otherwise similar trading cards depicting Los Angeles Clippers player Kawhi Leonard.

You can think of an NFT as a certificate of ownership for some form of unique digital product.

Okay, but how do you buy NFT then?

I have so far made a fairly modest profit on my digital investments. There was this card that was sold for $100 was one of three cards in a package that someone can buy for $12.

That purchase was made on the site NBA Top Shots, which allows users to collect digital basketball cards that are officially licensed by the NBA.

In that case, there were really no oddities. You can register on the site, line up when they release one of their packages of cards (they are constantly sold out) and if you are lucky you can end up with packages which can result in you now having three collector cards in your account.

you could make the payment with your regular bank card.

These cards can then be bought and sold between users and the high interest has raised the prices considerably. The founders themselves have stated that cards have changed owners for more than 229 million dollars since the start last year.

But the site is also in the beta stage and there are several question marks to sort out. Like it’s great to buy cards, but if you resell the cards then your account must be approved before you can choose to withdraw any money.

Which is currently said to take up to 30 days. And what can happen is that your money can get locked in. Users in the US can also get their money directly to the bank while the rest of us can go through payments in a special cryptocurrency that is linked to the dollar value.

Other concerns here are what happens to the cards if and when the hype dies out. Right now, NFTs are hot, but as usual in the fast-paced digital world, there are no guarantees that what is popular one day will be popular the next.

Why should you own an NFT if the content itself can be copied anyway?

For the same reason it would be fun to have the Mona Lisa or Scream at home on the wall and not just copies of them. The copies may look, feel and be otherwise exactly like the originals.

But it’s not the originals. The same goes for stamps, Pokémon cards or whatever.

The object does not have to have a value in itself either, but is instead assigned one when someone actually wants to own the original.

The same is true for NFTs. A digital image has no value in itself. If, on the other hand, there is sufficient interest in owning something the creator has designated for the original, the image will have a value.

The more people who want to own the image, the higher the value.

Are there more stores to buy NFTs?

It really is. In most cases, however, it is necessary to create some form of crypto wallet to trade. Getting a wallet is not in itself a difficult thing.

There are several pieces to choose from. For example, I chose Metamask, which works through an add-on in the Google Chrome browser.

But there were problems when neither Nordea nor Revolut thought I should be allowed to buy money directly through their service.

Instead, they seem to prefer that you start your purchases via a crypto bank. Then Swedish Trijo or the American giant Coinbase can be good places to turn to.

However, transferring your cryptocurrency (Ethereum for most NFTs) is easy. Your wallet has a unique code that is used when sending and sending the cryptocurrencies.

Be prepared that it can cost a lot to send money when the pressure is high, it can be anything from a few pennies to a hundred or more when it is at its worst.

Then a world of marketplaces opens up that goes by names like Rarible and Opensea.

These are places where artists, musicians or companies can sell their own NFTs. The band Kings of Leon, for example, has chosen to sell a digital record such as NFT via the site Yellowheart, but where those who buy a token can also redeem it for a physical LP that will be printed later.

Twitter founder Jack Dorsey has also chosen to sell the first tweet as NFT, in a charity auction where the highest bid at the time of writing is $ 2.4 million.

Is there anything stopping someone from creating an NFT based on someone else’s creations?

Not really. Anyone can create an NFT that represents anything, with links that lead to copies of, for example, an image. Once included in the blockchain, it cannot be deleted.

This has already started to be used by unscrupulous people who have started selling NFTs based on other people’s art, without their knowledge.

The Verge writes about artists who have started searching for themselves in the big NFT trading venues to check if anyone is trying to make money on pirated copies.

For someone like Beeple, this is probably no major risk. Anyone who intends to pay millions for an NFT work of art learns to check that it has really been created by the artist.

And not even Beeple itself can undermine the value in, for example, “Everydays”.

If he manages to create new NFTs that represent the same images, it is trivially easy for buyers to see that it is not exactly the NFT that was sold at the Christie’s auction.

You mentioned that the hype can die out?

As usual, it goes fast online. Many have rushed to NFTs in recent months and anyone should question whether there really is a future for many of the works sold for large sums right now.

Especially when it’s really an artificial shortage – there is really no limit to how many digital copies can be created by something.

Personally, I think there is definitely a market for digital collectibles. In the gaming world, it has already been proven, in popular Counter-strikes, unusual looks are already sold for large sums.

And as usual, the value of collectibles is almost never based on what they actually consist of.

Whether it’s sneakers, Pokémon cards or toys. Instead, it is some form of greed that sets the price tag.

A warning bell that rings here is that many of the assets that are now bought and sold have been around for a very short period.

There is a risk that people rush for what is new in order to quickly capitalize on it before others get there.

There may be a future for several of these works, others may be completely forgotten in a month or so.

But the NFT-based collectible game Cryptokitties, which buys, breeds and sells cats, has at least been running since 2017, suggesting that there is at least some form of long-term interest in this type of product.

Any more risks or dangers with NFT?

As with all other art and similar works, there are always risks. Not so much technically. As long as you are careful with your passwords and logins.

However, there are some concerns when it comes to how others treat the possibilities of creating NFTs. For example, there is nothing to stop me from taking the first best picture from the Internet, creating an NFT and trying to sell it as an original.

However, this is a problem even in the real world where pirated copies of everything possible circulate well. As with everything else, it is important to be source-critical and vigilant about what you buy and by whom.

Another risk with NFTs is that they can contain just about any digital material. Due to the extremely unforgivable security of the blockchain system, this means that an uploaded NFT, without the correct login information, can in principle never be deleted.

Neither by the police, government nor private individuals.

Something that can potentially give rise to images, movies and other things that should not be on the Internet being uploaded and in the worst case can never be deleted.

NFTs and it’s influence on the climate

Then we must not forget another extremely important factor. The technology behind the blockchain consumes enormous amounts of energy.

In various surveys, only bitcoin has been estimated to dispose of as much energy as entire countries.

The reason why the blockchain draws a lot of energy depends on how each transaction is verified, which is called proof of work and takes place through advanced calculations made by computers.

But some new blockchains have begun to use a different way of verifying transactions that use much less energy, something called proof of stake.

Among other things, this is what is used in the blockchain Flow that Dapper, the company behind Cryptokitties and the NBA Top Shot, has built its card collection around.

But is it still worth keeping an eye on NFTs?

Absolutely. I do not yet know what will happen to NFTs in the long run, but just like ordinary cryptocurrencies, it is clearly worth keeping an eye on developments.

As an investment object, NFTs clearly feel risky, especially given the crazy amounts that have often been paid for them today.

But what is clear is that they go that it is possible to earn a hefty pick – if you manage to score correctly.

Conclusion

In summary, NFT technology provides the opportunity to safely label objects and it is likely that the use of NFT will increase significantly in the coming years.

However, the use of NFTs is associated with a number of legal problem situations that have been discussed above. NFTs can be used, among other things, to infringe on copyright and for criminal purposes.

NFT technology itself also makes it difficult for individuals to protect their privacy.

Sources

https://www.mdpi.com/2076-3417/11/21/9931

https://dl.acm.org/doi/abs/10.1145/3366611.3368142

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3914085

https://www.sciencedirect.com/science/article/pii/S1544612321001781

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3904683

https://arxiv.org/abs/2105.07447

https://arxiv.org/abs/2112.10577

https://arxiv.org/abs/1905.04795

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3861106

Kevin

This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policies.

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