So the other day, I got a call from my father. He wanted to buy an ‘NFT’. When asked, he clearly said that one of his ‘investooor’ friends had suggested NFTs for a quick buck. And I believe he’s no different than most people around us. Unfortunately, that’s how the world works. Media would pick up stories of exceptional flukes and the masses would follow.
But today is different. We’re going to drive you away from the mass mentality. We’ll ensure that by the end of this article, you can catch hold of this hottest use case of Blockchain technology. If you are confused about why someone would pay for a JPEG, well, you are at the right place. Read on!
Let us get the conventional floated-around definition out of the way. NFTs stand for non-fungible tokens. Does not help much, right? So let us break it down. Fungibility is the ability to be exchanged. Say I have a ₹100 note and I exchange it with two notes of ₹50. There is no change in the overall value. Just like ₹1000 in your account. If you pay ₹100 to someone it doesn’t matter if it came from the first 0–100 bucks or the last 900–1000 bucks. Each buck in your account is exactly the same as others.
Let’s extrapolate this example to a painting now. Say I own the infamous Mona Lisa and you own Starry Nights. Could we simply exchange it with each other just like that? Of course, we could get in on a barter deal, but each individual painting would have its own subjective value. This means both these assets are unique and different OR Non-Fungible.
In the crypto realm, all cryptocurrencies are fungible (1BTC=1BTC), and then we have digital art or specific tokens that are meant to be non-fungible. No two tokens are the same.
For example, the monkeys that you often see on the internet belong to a collection called Bored Ape Yacht Club. The Bored Ape Yacht Club is a collection of 10,000 unique Bored Ape NFTs — unique digital collectibles living on the Ethereum blockchain. Get the drift?
The image that you see above was sold for $3.4M. It is the most expensive Bored Ape to be ever sold (source). But you see what I did there? I literally have a million-dollar image in the blog post. So why would someone go about paying for it?
Turns out this is just the front end of the NFTs. This JPEG could have been a GIF, Video, Text, or anything. It doesn’t matter. What matters is what’s going on behind the scenes.
You see, think of NFTs as an excel sheet.
In the first cell, you have the address. This address points to an image, video, text, etc. (the front end of NFT). And the adjacent second cell has the name of the owner. Essentially, when you buy an NFT, you are simply writing your name in the owner’s column.
Now that’s extremely valuable because this is on Blockchain. Since Blockchains are immutable sources of data, it makes this ‘address-owner combination’ a single source of truth to prove the ownership and authenticity of data.
Imagine adding a layer of scarcity, and uniqueness to a digital asset. In the current world, the internet has an abundance of everything with no means to find the original owner. NFTs could potentially change that.
There are certain properties of NFTs that make them stand out of the crowd and hence a powerful piece of technology. I have touched on them in this post, let us now dive deeper.
NFTs represent a unique asset on the Blockchain. Ofcourse you could simply ‘right click and save as’ that object. But that doesn’t make it yours. Moreover, what you just ‘stole’ is barely the surface (front end) of that NFT. The real masala lies beyond that. All the benefits attached to that NFT can be redeemed by the real owner only. This is because this ownership is represented on Blockchain.
2. Non- Interchangeable:
We have talked about this already. Since these assets possess unique traits and have a subjective value attached to them, you just can’t go about replacing them with anything else. Once again, even if you do try to replace it with a similar image/GIF, you can’t alter the properties encoded on the Blockchain.
Just think about it. When was the last time you could trace back a piece of digital creation to its original owner? Never right? NFTs enable that seamlessly. Since they are based on Blockchain technology, rightful owners can prove their ownership at any given point in time.
4. Smart Contractible:
Simply put, NFTs are programmable in nature. You could easily put in certain conditions while the creation of the NFT and the code will take care of the rest.
For example, if you sell a painting in the physical world, you earn once. You cannot prove or claim royalties from the secondary and tertiary sales.
However, in the case of NFTs, you could program this royalty within the selling contract and fetch money whenever your creation exchanges hands.
Now that you understand the properties of NFTs, let us try to find the reason behind their enormous success. Please bear in mind that I am only going to discuss the digital art use case here.
We are emotionally bonded to the firsts in our lives. Right? First date, first crush, first born child, first beer, whatever. Similarly, the NFTs that are first of its kind accrue a lot of value. For example, crypto punks are so expensive because they were one of the first implementations of NFTs. Likewise, someone took a shot at community building for the first time using NFTs through Bored Apes.
2. Unique and Rare:
Remember the iconic Dhoni shot when he hit six to take home the world cup? Well, don’t talk to me if you don’t. Nonetheless, that image is available all over the internet. But what if Mr. Dhoni himself decides to mint 3 copies of it? It will make it rare and unique almost instantly.
3. Ownership History:
Recently, Justin Beiber purchased a Bored Ape NFT. Imagine the number of teenage kids who would give up anything to own that NFT. It would go down in history (ofcourse in the form of immutable records) that you own an NFT once held by Justin Beiber.
If I were to purchase NFT ever, this would be the single biggest factor influencing my decision. Since NFTs can prove ownership while preserving your anonymity, one could attach all host of real world benefits with it.
For example, Mr. Bachchan managed to sell his NFT collection off late for an exorbitant price. I am a big fan but those NFTs were worthless for me. What if Mr. Bachchan could throw in a perk saying that holders of those NFTs get a dinner with him once a year. That would make it really juicy right?
Just like every other technology, initial use cases are amorphous at best. It would take time for someone to exploit the full potential of this amazing implementation of Blockchain technology. Until then, it is indeed a great space to follow.
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