NFTs have become a trend that is catching up like a wildfire and exploding in popularity. However, are NFTs even reliable? Here we have listed the details about NFT that can help you in your investing decisions.
What do we mean by fungible and non-fungible?
First, let us know the basic difference between the two.
The basic difference is that fungible tokens are replaceable while non-fungibles are non-replaceable.
Anything that is non-fungible carries a unique and novel attribute.
What makes a commodity non-fungible?
It is its novel attribute that makes it non-fungible.
Let’s consider an example of a company-manufactured jacket. The company might have manufactured thousands of copies of such undifferentiable jackets. There is nothing unique about the jacket based on which you can differentiate one jacket from the other. There are millions of the same jackets produced and sold every day all over the world.
Can the jacket become non-fungible? The answer is ‘Yes.’
What could make the jacket non-fungible?
The emotions of the owner attached to the jacket can make the jacket non-fungible. The emotion of the owner associated with the jacket is unique and one of a kind. There would be no second jacket in the world carrying the same emotion.
Let us consider a more tangible example that can make the jacket non-fungible.
What if you had ascended the world’s highest mountain peak, for example, Mt. Everest, wearing the jacket? Many will associate your jacket with your feat of conquering the highest peak on earth.
This experience makes the jacket truly irreplaceable. Apart from the magnificent feat achieved with that jacket, the climber has an emotional attachment with the jacket, making the jacket even more non-fungible.
What is the hype around NFT?
NFT is a momentous change. The patrons of art and individual art lovers can buy digitally collectible artwork leveraging NFT. This has become the new fad. Digital artwork is becoming the new status symbol. NFT has paved a unique way to own things digitally.
The owners of these NFTs consider them as unique and interchangeable, and that is why they are ready to pay the exorbitant sum of money for the same.
NFTs are something that you do not buy for the money. You buy the intrinsic value that makes it novel. You want to buy and preserve the artwork because you and the entire world may think that it is the only piece available under the sun.
NFTs can be anything on the internet in digital format. They can be any video clip, picture, or art, but it needs to be non-fungible to demand the price it demands.
Always remember, buying NFT involves big money. Recently, Jack Dorsey of Twitter tweeted that someone wants to buy his tweet as NFT because he wants to own the tweet.
What is a Non-fungible token (NFT)?
Now that you know what is non-fungible, it is time to know what the “Token” meant that stands for the ‘T’ in NFT? To understand Token or the ‘T’, you need to understand what is Blockchain. Well, it is the technology behind all NFT transactions.
Let us give you a fair idea about Blockchain technology before we delve further into NFT.
What is Blockchain Technology?
Blockchain technology stores transactional records in digital format. It is a public database. The technology allows the storage of the data in digital blocks across several public databases.
Blockchain links these databases with every record called a block. We call these linked databases the chain because it is a series of connected records or blocks. This digital storage of blocks forms a universal digital ledger that everyone can view and access.
Blockchain is a highly secured way of storing digital transactions because the technology stores it over a network of computers and not in an individual location. So, we do not store it in a centralized repository, and no one owns it.
Blockchain technology copies and distributes the blocks across a network of computers. Every time we create a new block (a record), every computer on the network updates its records on the blockchain.
What is Non-Fungible ‘Token’?
Now that you know what Blockchain and Blockchain Technology are all about, let us get back to where we left, which is the meaning of Token in NFT.
A token is a digital certificate, an acknowledgment given in recognition of something stored in a digital format. A non-fungible token is a data unit that is stored on a universal ledger of the blockchain.
The token certifies a digital asset to be unique and owned by the one whose name we update on the Blockchain ledger. This record is unalterable.
What does a buyer get?
NFTs can be a digital photo or a video, it could be an audio file or any type of digitally stored data. The seller of the NFT would transfer this data to the owner as tokens for ownership. This token is hard-coded and no one can change it ever.
This is a digital identification of the ownership represented by an alphanumeric string. It is a code that exists on the blockchain ledger maintained publicly and everybody can see it. This token is also non-fungible, like the artwork it identifies with.
What is the technology NFT runs on?
NFT runs on the technology of blockchain and a digital form of record-keeping practices. You can track every digital transaction or item exchanged online.
The NFT is a digital identification of your transaction that has happened. The point of NFT is to create hype by creating artificial scarcity. It helps artists to sell their artworks in a digital form.
It could be your favorite musicians getting a fraction of the total earnings every time they stream their songs. But if they auction that song to the highest bidder, the musician will earn his/her dues. If someone buys the song, that becomes the NFT for the buyer.
Although it is the next massive thing in digital collectible, you better pray that the server it is hosting never goes down if you own one. Or else guess what? You can lose everything, including the money you paid for the NFT, until they restore it.
Psychological hype and excitement about NFT
- A group of people validates NFT. It is no more a prerogative of one group to confer the token.
- You may convert tens and thousands of music, pictures, videos, art, and even tweets as tokens and sell as NFTs.
- When people met their basic needs and have things in abundance, the next frontier for them is to create value for things that have no inherent value.
- Technology is enabling it in a non-physical way.
The Flipside of NFTs stored on Blockchain
A network of computers manages the blockchain public ledger by doing a bunch of calculations day or night, consuming enormous energy. We store most NFTs in a special place on a blockchain called Ethereum.
Ethereum consumes a lot of energy (electricity). Producing electricity comes from power plants that are burning fossil fuels and affecting the environment negatively.
The Bottom Line
Blockchain is exploding and showing no sign of slowing down. We cannot blame NFTs for energy consumption. Blockchain anyway is consuming a vast amount of energy with or without NFT.
NFT can aggravate it if someone buys and sells fake tokens. This adds more pressure to the computers. This will make Blockchain consume more power, energy, or electricity.
Although NFT could be all digital and not physical but the consumption of energy and emission of carbon in the environment has real-life effects. This can pose a challenge for humanity and may cause an environmental disaster in the long run.