What Is an NFT? Inside The Next Billion-Dollar Crypto Sensation.
March 8, 2021 6 min read
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If you haven’t heard of them now, it’s only a matter of time. Whether its digital sports cards or digital artworks, NFTs have been taking the internet by storm and have simply doubled their total volume in USD in the month of February alone. So what are these digital assets selling for fortunes, from niche marketplaces to world-famous auction house Christie’s?
What does NFT mean?
An NFT is a non-fungible token existing on a blockchain. A token is the sign of ownership of an asset. For example, a concert ticket is a sign of ownership of one space for a concert. A Bitcoin is the title of ownership to the underlying value of the Bitcoin. A token is a digital asset, stored on the blockchain. As the blockchain is transparent, it is easy for all to see who is the owner of what token.
Fungible refers to an asset that is easily exchangeable. A dollar is very fungible, you can give me a dollar in exchange for some good and I can then re-exchange it for another service. A neighbor could borrow a pound of sugar to bake a cake and buy me another one in a few days when he goes to the supermarket. It doesn’t matter that the sugar is different, it is easily replaceable and exchangeable.
A non-fungible token is a unique token that isn’t easily exchangeable with another. The foremost use case is artworks. Artworks have been selling on the blockchain for millions of dollars (or in this case a blockchain native currency, Ethereum). Examples abound but the most famous NFT artist so far is Beeple who first sold 21 pieces of artwork on digital marketplace Nifty Gateway for a total of $3.5 million. He then went on to sell his masterpiece “EVERYDAYS: THE FIRST 5000 DAYS” at Christie’s for $6.5 million. Beeple is Mike Winkelmann, previously a graphic designer from Charleston South Carolina.
Artworks are not the only things exchanged in these marketplaces. More and more volume in the NFT space is coming from digital sports trading cards. In fact, fans of basketball have already spent $230 million trading NBA Top Shot cards. These cards represent certain classic moments for the sport and there is only a limited amount of each. The ownership and the scarcity of these cards are insured by the Ethereum blockchain. Recently, a rare Lebron James highlight sold to the highest bidder for a crisp $200,000.
Related: How Esports and Gaming Are Bringing Crypto to the Masses
Why would anyone pay for this?
The crazy thing about these purchases is that anyone can download Beeple’s artwork or Lebron’s highlight. It is as simple as clicking ‘save image’ on your laptop. What buyers are after is not the artwork in itself but the proof of ownership for that artwork. The buyers are akin to art collectors putting their most prized possessions on display in museums. NFTs represent a way for art collectors to encourage financially their favorite artists online.
As humans evolve more and more, especially in lockdown, it seems only natural that we decide to buy art in the digital world as well. One step further, certain platforms such as Decentraland allow users to buy land or real estate in a digital world.
While this has been no more than a niche sector of the internet, in the last six months it has truly exploded onto mainstream media and seems to be here to stay. While the first experiments with NFTs date back to 2013-2014, the market seems to arrive to a certain maturity and mainstream appeal in 2021.
Several issues remain with the NFT market, however. As the main currency of exchange and the network on which marketplaces are built is Ethereum, transaction fees are very high and it is commonplace to have to pay $50 to transfer the property title of an NFT from its creator to the buyer. On platforms such as Rarible or OpenSea, the current market leaders, not only does each transaction (creation of the NFT, bids, transfer of ownership) costs users large sums, they also amount to the terrible carbon footprint of the Ethereum network.
There is hope, however, as Ethereum is planning to change its architecture by the beginning of 2022 to be much more eco-friendly. In the meantime, certain marketplaces have found technical solutions to these limitations. Drops.is, an upcoming NFT project that lets you do a lot more with NFTs than just buy and sell. It allows users to create NFTs, bid, stake, take loans by using your NFT as collateral. It’s also using a Layer 2 solution by building on Polygon network, reducing both the costs of these transactions to a few cents (which are paid for by the platform itself) and the important environmental costs.
Related: This Rainbow Kitten Image Was Auctioned for More Than $500,000
The new creator economy
The most exciting part of the NFT revolution is that artists specialized in digital arts will finally be compensated for their work. Until now, it was very hard for artists to monetize their creations because of the very nature of digital art and its infinite reproducibility. Now, true fans of the artists will be able to directly support them with any middle-men or platform.
Mainstream artists seem to have caught on to this trend with artists such as Grammy-winning Kings of Leon releasing their latest album as an NFT. It’s also the case of Grimes, Lindsay Lohan or even Soulja Boy who all released NFTs representing music, digital artworks or even the ownership of a limited-edition vinyl.
But it is not only artists who can make money from NFTs, the market for digital sports card for example has already exploded. Soccer trading card platform Sorare has seen the unique 2020-2021 Kylian Mbappé card sell for $65,000. Cashing in on sports fans stuck at home has turned out to be extremely profitable for these platforms, so much so that it has brought the attention of gaming giant Ubisoft who has now partnered up with Sorare for future projects.
NFTs are the hottest item in the recent crypto craze and as mainstream artists start to discover them they will only become more popular and coming soon to a digital market near you.
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The Telegraph
Ruth*, 44, broke up with her husband Jamie*, 47, last October. She lives in Devon with her daughters, aged 12 and 9. My relationship with Jamie was already tricky. We had grown apart since the girls were born; he’s straight-laced and conventional while I’m much more free-spirited. But what I’d thought was steady and reliable turned out to be dull and pedantic and he found me flighty and irritating. We started to row a lot, over money, parenting and even tone of voice. Before Covid hit, we spent a lot of time apart with hobbies, friends and work. Lockdown changed all that. I completely understand why almost a quarter (24 per cent) of working mothers in the Telegraph’s International Women’s Day survey said their relationship with their partner had become worse since Covid hit – and why one in eight are considering a break-up. For us, homeschooling was when things really went downhill – he was constantly bad-tempered and regularly snapped at the children for getting answers wrong. He has a high-pressure job and was furloughed. I felt he was behaving with our daughters the way he treated juniors at the office and I hated it. If I protected them, he’d snarl that I was “undermining him” as a parent. I also found myself doing all the extra housework and food shopping – he’d lurk in his office upstairs until dinner magically appeared, yet if anyone left any clutter anywhere he’d make a huge fuss. Once, our eldest left her shoes in the living room and, the way he was ranting, you’d think she’d set fire to it. I thought things might improve once the school holidays began but, though lockdown eased, we were both still off work and couldn’t go away. Without structure or plans, things got even worse – by August he was sleeping in the spare room and we were barely speaking. Jamie isn’t a deliberately cruel person and was never violent, but he was so tense and we were constantly walking on eggshells. Just before school started again, he made our youngest cry by snapping at her when she spilt a glass of Ribena on the kitchen table. It was no big deal and easily mopped up. For me, that was the final straw. That night I told him we couldn’t carry on as we were. Part of me still hoped he’d apologise and we could find a way back, but he’s far too defensive to even consider his own role in any of our problems. After another explosive row, that ended with the girls crying and me frantically googling “divorce lawyers” at 3am, we agreed to call it quits. Of course, it was awful: he went to stay with his parents and the girls were very upset. I felt sick with guilt, but him not being in the house was such a relief. I felt a huge burden had been lifted ultimately it was the right thing. Having the girls back at school throughout the autumn term was a godsend. Jamie found a flat nearby and we sorted out the finances quite quickly with the help of a good solicitor. He eventually admitted that he felt relieved too and thought he’d be a better father as a result of our split. He now sees the girls every weekend and they have told me: “Dad is much calmer.” I worry about my future alone or a new stepmother they don’t like and wish things had been different. But I’m grateful for the lockdowns. They highlighted all the problems we’d been brushing under the carpet and set us on a better path. *Names have been changed