Updated: Jan 14
If you aren't living under a rock, chances are, you know about NFTs. Non Fungible Tokens. What do they even mean? I dont know very well either. Thank you for coming to my Ted Ta-
From Jack Dorsey's first tweet to what looks like negative megapixel comic art from the 1980s, called Cyberpunk, everything is now being commoditized. Now it's natural to ask "how is a tweet I can view on the internet right now, or an image I can download from google for free, be a unique commodity you would rather pay money for, like an idiot?". And that's a very valid question to logical minds, albeit the answer is more nuanced than what you'd foreshadow. But its potential payoff is well worth the nuance.
WHAT ON EARTH IS AN NFT & HOW CAN I MAKE MONEY FROM IT?
A Non-Fungible Token (NFT) is a type of a digital token or asset. These may include digital paintings or trading cards. Whenever you purchase an NFT, you are essentially purchasing the rights to that particular asset.
The word "Non-Fungible" refers to something that cannot be changed whenever it is created. It cannot be split up and it must be distinguishable from other assets. eg: 1 Eth is the same as 1 Eth. However, two NFTs can never be the same. They are always going to be unique! A token is a small piece of data that you own.
An NFT, is therefore, a digital token that can be owned and doesn't change through time. It is a piece of data that can be owned by an address; the person who has a password to this address owns that piece of data. This data can be bought and sold to different addresses. This is verified on the blockchain and the owner history/related transactions can be seen by everyone on the blockchain! Therefore, it is DECENTRALIZED!
When you buy an NFT, you're buying a piece of data that redirects to a server which hosts a picture or a gif. This server or the image/gif could change. It is the data you own on the server; not the image or the access to the server.
"So, if I buy this picture of a man trying to figure out some math, I'm buying a piece of data that represents something greater? It's almost like buying a stock? I'm not buying an entire company, but a piece of it?" EXACTLY!
WHY WOULD I WANT TO BUY AN NFT?
Well, there's a couple of reasons why! Investors see NFTs as collectables in the group of investment options (or what're popularly called as asset classes)!
WHAT MAKES AN NFT VALUABLE?
First things first. FIRST!
Do you remember your first time you kissed someone or the first time you fell in love? Yes? Was it valuable? I'm hoping it was! Now, how about you could have the first shoe you wore when you walked your first steps; or what if I told you that I could sell you your first ever picture as an infant? Would that be valuable to you? Well, probably.
Just like pokemon cards that're now gaining traction; the first edition cards are the most valuable! Similarly, when it comes to NFTs- the first NFTs minted (created) by a particular creator are more valuable than others!
So, if you had the first Unwired India NFT, it would be very likely that it has some value!
Real World Benefits & Applications
Alright, so what if Drake came out with 75 different unique NFTs & sold all of them. He could create a sustainable model wherein the people who buy these would have lifetime VIP access to all his shows, events, concerts & meet+greets! Wouldn't that be cool? What if I told you that if you bought Unwired India's first NFT, you could become a stakeholder in the company? Wouldn't that be pretty cool!? Well, that's exactly why an NFT has value! This is one of the reasons as to why I would buy NFTs. In the future, all NFTs might potentially evolve to have real-life oriented applications! Creators could mint their artworks as NFTs & then create exclusive membership communities/meet&greets and premium events for only a certain group of people who possess their NFT! There's value in a membership based community. That value could now be stored in an NFT. Imagine an NFT to be a concert ticket or a VIP pass! That's exactly what it could be.
A Rarity? Uniqueness?
The original constitution of any country, the actual bible, the first original pictures of the universe, the original Starry Night painting, the first bat used by Sachin Tendulkar or The Mona Lisa; all of these examples have value! Why? Because these are all rare! Rare things are valuable. The supply of an NFT can be moderated and creators can therefore choose to mint only a specific number of original copies of their artworks! So, for instance, Da Vinci could choose to make only one Mona Lisa! That's major dough for someone like Da Vinci!
A History & Legacy of Ownership
People would pay a million dollars to own a watch that Daniel Craig wore for his first James Bond movie! People might also pay a million dollars to own a picture hung up in the White House during Abraham Lincoln's term! Similarly, an NFT that was once owned by Cristiano Ronaldo also has value!
If an NFT is the first of its kind, has a real world application, is rare & has a rich legacy of ownership- it's valuable! These are popular metrics one could use during the valuation of an NFT.
If you buy an NFT, you might also be betting that someone in the future might buy it at a higher price, so that you can make some profits. Buy low, sell high? Remember? You buy NFTs as an investment or as novelty. Holding an NFT essentially has no value. Unless one day Elon Musk comes out to say that whoever owns a particular NFT shall get a chance to have dinner with him. Well, now the prices skyrocket!
Can someone copy my NFT?
Yes! People can copy NFTs. But, the original NFT can be traced back to an address on the Blockchain, since all transactions on the blockchain are logged and stored on a distributed ledger.
But, what if someone creates an NFT that points to the original address of the original NFT or to a different address of the same image?
The value of the image lies not in the image, but in the eyes of the beholder!
If 7000 people come along and say that a piece of shiny rock is valuable, it is valuable!
Similarly, if me & Stephen Curry shoot a step-back three (one of Curry's signature moves), only Curry's move has value!
Though I essentially did the same thing, I am not Stephen Curry. My move, therefore, does not possess value because other people don't value my move as much as they value Steph's move!
COOL, but how do I buy an NFT?
Purchasing an NFT is just as easy and just as difficult as purchasing the stock of a company. You buy NFTs on online marketplaces like OpenSea, Rarible, Foundation, NiftyGateway, Superrare, Decentraland or Binance.
NFTs are usually purchased with Ethereum (a cryptocurrency). Buying NFTs might require for you to first purchase some Ethereum! Buying cryptocurrency and linking it to a wallet requires some decent amount of technical expertise. If you do it wrong, you could lose all your money in the transaction!
Create an account on the NFT marketplace (OpenSea, Rarible, Nifty Gateway or Superrare)
Buy crypto on an exchange or transfer that to a wallet on another exchange.
NFT wallets are similar to crypto wallets. They both have public and private keys and most of them are based on the ERC-721 protocols.
You can now bid for NFTs in an auction; and if you land that NFT in the auction, you get it in your account.
Where do you store your NFT?
You store NFTs in wallets! Preferably, a hardware wallet. This is similar to a ledger nano (a pendrive that stores your NFTs so that they are with you in person offline and are protected). There's also online applications that provide wallets to people! These may include Metamask.io, TrustWallet.com and Engine.io!
NFTs, at their most basic, is a way to transform something digital, which can be intensively copied, into something unique. Every nonfungible token, from a clip of Michael Jordan dunking to a picture of a NYT article sold for over half a million dollars, is essentially reinforced by a unit of unique digitized code that marks authenticity and ownership over that prospective digital commodity. Now what do NFTs share with Bitcoin? Blockchain. Where does that come into the equation exactly? The code is stored on a digital ledger, also called blockchain. So a clip of Michael Jordan dunking can now be uniquely owned by a bit of code that is distinctive and cannot be copied, creating scarcity. And as we know, Economists love scarcity because it makes the most boring things interesting.
When someone buys an NFT, they aren't really buying a commodity that other cannot access, like a gold bar for example. They are buying into the knowledge of owning the official authenticated version of that commodity. Now there are those who hail it as being the new revolutionary invention which will revamp the digital landscape as we know it, while others claim it to be a failed model that is supported by nothing but hype. Not even blockchain can fix that, only flextape. That's a lot of damage.
But the truth lies somewhere in between. NFTs provide a unique opportunity to individual producers, say artists, to effectively create scarcity and unique ownership of digital art. Until now, you could own a Mona Lisa and nobody else could do anything about it but everyone could screenshot that pixelated comic on your iphone. Well now with NFTs, if they do, then they own nothing but an inauthentic, pirated version of the original. This dramatically changes the economic rationale and processes behind the phenomena, while creating massive new manipulative opportunities for firms.
NFTs can provide a loophole (virtually magic) by making their work valuable by creating scarcity. This scarcity created, drives up sales and money spent by bidders for laying claim to the authentic version, leading to greater profits and a potential secondary trading market for NFTs. This could even lead to a future where payments could be made via NFTs like digital bartering of stocks or shares for buying something else. This opens entire hosts of new avenues for trading these NFTs while also using them as investments that could rise in value, especially with NFTs from such an early time in the industry's inception, like right now. That means these Veblen goods also double up as investments, just like Gold or Silver. This is being verified with every day that passes since 2017 because NFTs created then, when the concept was just coming into existence, are inflating in value now, because they signify something beyond their intrinsic digital value just like Dorsey' first tweet on Twitter or the first website on the Arpanet does. They are the earliest evidence of a phenomenon which grows beyond proportions later on. They are a fossil of the earliest origins of NFTs, Twitter and The Internet respectively, making them infinitely more valuable as those phenomena continue to prosper. And guess which NFTs from 2017 I've been subliminally hinting towards. The cyberpunk men and women in negative 40 megapixels. I guess it all comes full circle.
The naysayers deny this industry's potential and label it as a balloon in the market but as I mentioned, it is likely only half true. The economics of this tech will take time to arise and establish. Years later people will look back at this article with the same retrospection that we encounter, realizing YouTube was originally created as a video based Dating Website but came to be established as a business model for something completely unfathomable. So yes, this technology is new and prospective, and yes, its potential will be offset by the time it fully arises into an adult version of the infant it is, as of now. But for once in my life, I think I personally feel safe labelling it as a safe bet to take, a safe market to invest in, at such an early stage. Apparently I don't seem to be alone. And apparently that Jack Dorsey tweet of that Jordan dunking clip may make you a lot of money one day in 2099. But ultimately, with all my heart I can only reach the conclusion.......could y'all seriously not have designed that Cyberpunk with some more megapixels? Are you sure about that? Come on lads?
NOTE TO THE READER: Unfortunately and heavily ironically, the visual choice for the article's cover image was heavily constrained due to copyright. Thus, no image of any NFT mentioned could be displayed, to ensure legal and ethical integrity of the article and blog and the authenticity and copyright extent of the NFTs in question.
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