The term NFT or Non-Fungible Token has garnered a lot of attraction and investment since the start of 2021, but many people are still perplexed as to what this means. The topic is undoubtedly confusing, so here is a simple explanation about the concept, the implications it has on the future, and how it has completely revamped and revolutionized digital art.
NFT stands for Non-Fungible Token. Now, to understand the concept behind an NFT in a comprehensive manner, we have to look at the concept of fungibility. It (fungibility) is the ability of an asset to be exchanged or substituted with similar assets of the same value. An example of this is normal FIAT currencies like dollars or rupees and how five $1 bills can be exchanged for one $5 bill. However, when it comes to NFTs, they are non-fungible. This essentially means that each asset is unique and cannot be exchanged for another token with ease. Since each NFT is unique, that makes it scarce, and economics dictates that something which is extremely scarce often has a very high value. Now that we have understood what fungibility is, let's look at the token aspect.
The above image can potentially be an NFT. This immediately seems to contradict the meaning of NFT explained above; how can this common image be an NFT when anybody on the Internet can download and save it to their own computer? This issue is dealt with by putting this image file on the blockchain.
Now, what is a blockchain? To put it in the simplest manner possible a blockchain is a digital record or ledger of transactions. If someone gives you money a record is made of that on the blockchain, and if you consequently spend that money on buying an asset, a record of that is also made on the blockchain. An easy way to understand this is to visualize these records as “blocks”. These “blocks” are chained together to make a list and hence the word, blockchain. To keep the records secure, each transaction has to be verified by a bunch of computers so that the system remains validated. This is in fact how cryptocurrencies like bitcoin and cryptocurrency mining also work: miners are paid for using the computing power of their devices to complete "blocks" of verified transactions that are subsequently added to the blockchain. This is how the blockchain works. An important point to note is that an NFT, like the image above, will not be an image on the blockchain; rather, it will simply be a set of numbers and alphabets whose record is kept safely by the aforementioned method.
Putting one’s art or any other digital item on the blockchain makes it unique and gives it a digital certificate of authenticity. This makes it virtually impossible to create a fake copy of an NFT, and this is why the concept of NFTs has completely changed the art world. On top of that, one can track the ownership of their pieces and even put conditions on that asset, such as setting up royalties and creating specific parameters under which this asset can be displayed in places like museums or art exhibitions.
Once an artist has created his digital art into an NFT, he will look to try and make people buy it. There are dedicated marketplaces, like Rarible or Open Sea, which offer such services. Since the bar of entry is pretty low, there are already many people flooding such sites with not-so-good pieces of digital art. However, there are more sites out there that are more thoughtfully organized like SuperRare, which acts like a sophisticated and high-quality art gallery. This is where established digital artists are making a lot of money. An example is when Christie’s, the auction house is popularly known for selling high-value art, teamed up with Beeple, a digital artist, and they sold his art to a more traditional art audience. On 11th March 2021, an NFT of his art sold for $69 million and that sale put him among the top three most valuable living artists.
Hearing all of this makes one want to start his own digital art career. However, such a career is not so simple, and there are many obstacles and drawbacks. A YouTuber and experienced digital artist by the name of Brady Colbow narrated his experience and he described a plethora of difficulties when he tried this out. One of the important takeaways from his experience was that the process of converting a digital asset into an NFT is not free. The artist has to pay something called gas, which Colbow described as a ‘processing fee’. After paying this processing fee, an individual gets a token which he can put on his art, thus making it an NFT. On top of that, the cost of the token varies on supply and demand, since these tokens are essentially cryptocurrencies like Ethereum, WAX, and Flow, which are at an all-time high. Therefore, the process is not very cheap. It is essential to note that mining also has an adverse effect on the environment and it takes up a lot of energy. As a result, it increases the carbon footprint of the industry. Colbow also pointed out how this new digital art career path is reducing artists’ demand for client work. Many artists previously relied on client work, but with this exponential increase in the NFT industry, they do not need to rely on that anymore.
To sum this all up, NFT’s have completely changed the art industry. More importantly, these tokens are increasing the odds of us eventually transitioning into a digital world with a digital economy. This thought is dangerous and scary; however, the manner in which the wheels are turning is proof of the same. In yet another example of the increase in the interest in digital assets, a virtual race track of blockchain-based game F1 Delta Time was recently sold for $223,000. Only time will tell if and when this transition into a completely different economic system will take place.