Just in case you’ve been living under a rock for the past month, NFT‘s have become the new craze that everyone and no one seems to understand. But what are they?
As explained by Coindesk.com contributor Ollie Leech, NFT‘s or Non-Fungible Tokens are “digital assets that represent a wide range of unique tangible and intangible items, from collectible sports cards to virtual real estate and even digital sneakers.” By definition, a non-fungible token is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable. NFT‘s can be used to represent items such as photos, videos, audio and other types of digital files.
The first step in understanding Leech’s definition is the idea of ‘fungibility’. The Wall Street Journal defined fungibility in a video about NFT’s stating that it’s “the ability of an asset to be exchanged or substituted with similar assets of the same value”.
You can exchange five one-dollar bills for a five-dollar bill because it’s the same value. However, you can’t trade the original Mona Lisa painting for a poster of the Mona Lisa because they’re not valued the same. You can’t exchange NFTs evenly because no two NFT’s are the same fundamentally. Each NFT is a one of one item.
The second idea that’s important to understand and that has stirred up the most controversy is NFT‘s value. At first thought, one might think, ‘why in the fuck would I need digital sneakers?’. The answer: you might not, and that’s okay! Value is driven by the users and in what space the NFT operates.
In the gaming community, people have sold avatars, costumes, and other attributes of their respective games for inordinate amounts of money. According to Leech’s article, one investor “parted with $222,000 to purchase a segment of a digital Monaco racing track in the F1 Delta Time game.”
Since this is a music blog, an example of a cool music NFT would be an exclusive alternate cover of a Gunna album, for example. To me, as a Gunna fan, this would be super valuable because I’d love to own an alternate Gunna album cover. Or, you could buy into a beat to gain publishing rights, or purchase a NFT Drum Kit and make a percentage off future artists/producers as well. The ideas are limitless.
— WINCHOZ (@winchoz) April 9, 2021
The third idea that sets NFT creation and collection apart from other collectible items is that the creator makes a self-determined percentage of royalties off of the NFT every time its sold.
The sales of the NFT are logged on what is called Blockchain, an electronic ledger that tracks cryptocurrency transactions. Because of Blockchain, every time someone buys the NFT that you sold to someone, you get a percentage of the profit. Blockchain also verifies the authenticity of a given NFT so that bootleg copies of NFT‘s can be spotted from a mile away.
Now that I’ve explained what NFT‘s are and how they accrue value, one question that remains is; should YOU invest in NFT‘s? There’s a lot that we don’t know about NFT’s, but there is undoubtedly money to be made in this industry so go for it!